Making Housing Affordable - Sycamore Equity - Glenn Bean and Ian Noyes

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Nobody wants to hear Paul McCartney deliver a PowerPoint on creativity. They want to hear the story of how he wrote. Hey Jude. That's why here on Impact Investing Roadshow, we believe the best way to understand an investor's craftsmanship is to hear them dig deep into the story of a single investment. I am your host and tour guide Mark King. On this episode, you and I are going to hear from Glenn Bean and Ian Noy of Sycamore Equity. Glenn and Ian have created an innovative way to use equity sharing agreements to help bridge the gap between the housing that nonprofit and church staff can actually afford with the cost of housing where they need to live. Glen brings a couple of decades of experience across real estate, finance, strategy and technology, including roles at places like, Boston Consulting Digital Global in several years at a little software company called Oracle. He was also Chief Business Development Officer at Rook Capital with an economics degree from Stanford and an MBA from Harvard. Glen brings the finance and deal experience to the team at Sycamore. He is joined by his partner Ian Noyce. Ian has more than two decades in pastoral and ministry leadership. Ian currently serves as area director for the National Christian Foundation of California, covering Santa Barbara and the central coast. He spends a lot of time working with families, aligning their giving and their resources with their values and their convictions. Prior to that, he was pastor at Montecito Covenant Church, first Presbyterian Church of Berkeley, and was the founding pastor of church in the Tetons in Idaho. He holds a Master's of Divinity from Gordon-Conwell Seminary, as well as a undergrad degree in philosophy from University of Missouri. So, as you can tell, he brings the pastoral experience and expertise and really a deep understanding of the issues facing church and nonprofit leaders into sycamore's model of redemptive real estate. As you can tell, they've got very different backgrounds, but they're highly complimentary, which made for just a fascinating conversation. So, without further ado, let's jump into my conversation with Glenn Bean and Ian Noy from Sycamore Equity.

Mark King:00:02:41

So Ian and Glen, welcome to Impact Investing Roadshow. I

Glenn Bean:00:02:46

Thanks.

Ian:00:02:46

Glad to be here.

Glenn Bean:00:02:47

It's great to be here.

Mark King:00:02:49

The place I'd like to jump in is, when we talk about impact investing, we're talking about making the world a better place. How would you describe the problem that you

Glenn Bean:00:02:59

and looking to do it with crypto capital. You know, we built a solution out on the blockchain back when crypto was really hot, kind of before the crypto winter. And, I was talking to some folks in the faith community they pointed out, you know, Glenn, you grew up in a parsonage, you're working in real estate finance. And one of them just, you know, kind of looked through Zoom and seemed to understand me and said You were put here for this reason to do this. And it was a bit of a pivot of what we were doing previously. But it was sort of a, a conviction from across the country that I could not shake. And so as that company, you know, wound down and ultimately was sold I kinda had this pebble in my shoe of, you know, there's a here, here to both serve communities and also have a business.

Mark King:00:03:50

How'd you guys actually meet? That sounds like a story as well.

Glenn Bean:00:03:56

The original introduction came, you know, partly from that network. The president of National Christian Foundation here in Colorado is named Eric Most. And he said, well, hey, there's this guy named Ian out in California and you really ought to talk to him. He's doing some cool stuff in real estate. He would totally get it. And so, we played phone tag for a little while and finally caught up. And that was also one of those very crystallizing moments where we got on the phone, you know, for about five minutes and you have an introduction and you're sort of polite. And it turned out we had so many overlapping circles between me having actually attended the church that Ian led, but not at the same time. So we knew a bunch of people, we had a lot of other friends in common. You know, we had some schooling in common and we just kind of went down the list and, and realized we, we should have known each other for 15 or 20 years. But we're only meeting now with this particular real estate finance topic at top of mind. And so it was a, a really fast friendship and Ian has not been able to shake me since.

Mark King:00:05:02

Coming back to the core problem this disconnect between affordability and, what ministries can afford to fa folks, how big is this problem? What's the scope?

Glenn Bean:00:05:14

There are a, a couple of trends that we point to when we characterize this. 'Cause real estate is inherently local. But nationwide back around 2000, about 25 years ago, there was a rule of thumb that if you could buy a home for about three or four x your income, your household income, was probably a, a reasonable budget. Of course, there's a lot that goes into that. But that's about where the median home price was to the median wage in the United States. Fast forward about 25 years to where we are today, wages have grown slowly but steadily across the country, but house prices have increased much more quickly. And so now that median ratio of home price to income is about six x. And so you add onto that Gen Z and millennials often haven't saved enough for a down payment. You add onto that interest rates are higher than they have been in recent memory. I know the rates were just cut a week or two ago. And it is just really hard to get into home ownership. And so that's on a nationwide scale. When you look at individual communities, it, it can be really exacerbated. A lot of places along the coasts, the urban centers can be as high as 8, 10, 12 x. And so, you know, even in San Mateo or San Francisco where are relatively high in the country, you know, real estate is just astronomical. So the problem presents itself. But then on the other end of the spectrum, you know, we've had a chance to talk to communities in Brownsville, Texas Kansas, grand Rapids, Michigan, where the median home price is closer to 2 230 $300,000. But that ratio persists of it being six or seven x what the median income is in those homes. And those homes have even doubled in the past, you know, five-ish years. So people used to be able to buy a home for 125,000, 150,000, and that sticker shock persists. So while on absolute numbers we have a, a large and diverse country, the attainability problem is just chronic and largely driven by undersupply across the entire country.

Mark King:00:07:20

How do you guys think about geography? I for such a large kind of pervasive problem? How do you think about your own focus geographically?

Ian:00:07:31

I would say that, part of what I appreciate about the model that we've put together is that it's uniquely tailored to those contexts. And so we can take into account a variety of variables. Both what a person who's stepping into that role can afford. what is their salary or income, what have they saved, what is the cost of an appropriate home? And even that is a variable. If they have no children, four children, six children, children with special needs, like, there's just all kinds of different things that can go into that decision. How important is it for the home to be an extension of the church's ministry? Or is it a place where they. Are gonna be you know, extending hospitality. There's so many factors in that, and that has to do with a lot of value judgements in terms of where they might live, what kind of house is appropriate. So I think what I appreciate about the model that we've put together is that it's, it's able to account for those variables in a way that then right sizes, the assistance and that assistance for the pastor that you currently have or are about to call might be different from pastor next, from pastor next. So you can adjust up and down. And it's a flexible and yet the model I, I think you know, is meaningful, is a meaningful assistance to be able to adjust to those needs. So. I think that's a part of what maybe I, I, I guess I would say in terms of our I think what's been surprising is that we thought it would be, you know, you know, the like California and the, you know, resort communities in Colorado and what's been surprising is it's like St. Louis and, know, just Michigan. So if there was anything that's been a bit of a surprise, it's been how kind of almost like, universally applicable is. And, and also quite adaptable. So I don't know. Go, do you have anything to add?

Glenn Bean:00:09:23

We're relatively early in our journey, about a year and a half in, and we're working with organizations in 30 different states. A lot of different contours, just sort of you know, somewhere in their journey for housing affordability. And at this point, nothing surprises me anymore.

Mark King:00:09:40

Give us a sense of what are the parameters in terms of what, what you're offering folks by way of an investment as opposed to just a straight contribution to the capital campaign at church.

Glenn Bean:00:09:50

Well, and that's one of the key distinctions and a number of times we do have incredibly generous folks who say, Hey, I just wanna make a gift. And there are, ways to do that. And that is who we would never someone from doing that considering tax implications, how high you can go, et cetera. But one of the reasons to go with a shared equity approach. There, there are a couple of items. One, it's a new and emerging asset class. Home equity agreements in the past decade or so have increased in popularity. Now there's still a relatively small part of the housing finance ecosystem compared to mortgages that get rolled into mortgage backed securities. But there are a number of providers that are securitizing them. There's a ratings methodology, there's a whole formal framework that's saying, you know, a little bit of innovation, housing, finance. We go a long way to addressing some of the friction in the American housing market. And so I, that was a first insight was, man, we have this chronic problem. We have charitable capital that we can put to work and we have this, you know, emerging asset class that can be a real Swiss army knife to benefit people. So part of what we do is just putting that all together and in simple terms, the capital comes in at purchase, it extends the down payment for the home buyer. So the home buyer usually brings five to 10% the capital gets them at least over the mortgage insurance hump, which is a huge savings. But ultimately digs into that mortgage so that the monthly payment is appropriate for the income for the household of the person that we're trying to service. Typically a 10 to 30% investment. And then what's really nice for the organization or the investors or both, is when that money is paid back upon refinance or sale, it can go back and sort of build a, a mini housing endowment fund. And it's a security that appreciates at exactly the pace of real estate inflation in your community. And so that's an asset that is, hard to necessarily pegged to in a, a more traditional sense. And it's the exact pain point that all these organizations have. And so if you have an organization that's thinking 5, 10, 50 years, a hundred years out, and thinking about sustainability and perpetuity, building up this capital reserve for this purpose can be incredibly valuable.

Mark King:00:12:12

You mentioned the percentage of the home value, to loan to value aspect of it. But how do you think in terms of size and absolute terms, and what are the return expectations that you might have for a,

Ian:00:12:22

Right

Mark King:00:12:22

a shared equity product like this?

Glenn Bean:00:12:24

Yep. The smallest investment we've made is $53,000. The biggest we've made in a single home, the biggest will be just south of 800,000. but those are kind of the extremes of the bell curve. It's typically 150 to 250,000 per home, which fits usually in that range of 10 to 30%. we typically target between three and 9% IRRs, is this balance of. Returning principle and appreciating the base you know, competing with some of the other relatively low risk assets that are out there. You know, we have a little bit of research on risk return, stability of real estate, et cetera. But also not being so onerous to the home buyer that it's a, a source of financing that would be, you know, just a little bit better than credit card debt. As an example, part of this is putting the pieces together so that everybody involved the organization, the investor and the home buyer can, share in that value creation.

Ian:00:13:26

I might add that as we've been doing, doing this particularly, I, I mean, I live in California, so we've sort of been joking internally that we've coming to call it like the California deal. We've done this one several times where, you know, in a lot of the coastal communities, an average home is 1.2 million, has five or 10%, and the church and people qualify for a little over half of that mortgage. So it ends up being a $500,000 investment. We've probably done that one. you know, we've done that deal multiple times to the point at which we might just start branding it, the, the, the California program.

Mark King:00:14:04

Describe the three party aspect of this transaction. I, is it a three party transaction? Help me kind of figure out who's sitting in what seats.

Glenn Bean:00:14:12

Having spent a few years in a parsonage myself. The church has arguably been in housing for decades, centuries, you know, maybe even millennia. Some of the original tax benefits for ministers go back hundreds of years. So in some regards this is not brand new. When we really wanted to confirm we were chasing something that was a pain point and needed to be addressed, we went on a listening tour across a number of churches and organizations.

Ian:00:14:40

why I.

Glenn Bean:00:14:41

And we asked 'em about exactly that. And what do you think about this parsonage model? Because the church owns it, they often just own it outright. It's often low or zero rent, and it's just sitting right next to the church property. What could be better? Well, on the church side, we heard, man, we have this underutilized property. It's a hassle to be a property manager. We don't like changing the light bulbs or, you know, helping out with whatever. And now it needs a new roof and we have to you know, address that issue. and so on average the church wasn't, wasn't excited about having a parsonage. but then for folks who lived in a parsonage, there were a lot of shortcomings. Yes, the rent may be cheap, but you're not building equity. don't necessarily live where you want. You know, whether it's the school district. or even the type of product that you have, we heard stories where it's the same home, but you know, are they empty nesters, a single person or a young family? Oftentimes those need, they have very different needs. And even living on or near church property and having people sort of look in your windows and that sense of expectation. How much vacation are you taking? When do you get home at night? You know, it, it didn't feel like length to have a place for rest and respite from your day-to-day work that a lot of other professionals or just anybody I was a job, you know, would expect. And so I think that was part of the nudge of if we could make effectively this virtual parsonage, something that would exist in the community at the right time for the right person, and still have a lot of those financial benefits, but not be constrained to this piece of brick and mortar that has been part of the church's legacy for the past 90 years. There'd be a lot of upside.

Ian:00:16:23

I think one of the things about this both from the pastor side of it and from the organizational side, there are a lot of just, challenging conversations that you're having as a pastor and to have your house be a challenging conversation if you like, would like to renovate the bathroom and you know, you're devoting leadership time to like helping to figure this stuff out. It may challenging. But then I think also this may be getting ahead of it, but like when things unwind you know, you you structure these things in ways that you hope everyone, it all goes well. But the other thing we found in the kind of listening tour is that there's a lot of concern about how it unwinds when it doesn't go well. And and so I think of the things that's interesting about equity share, it is not new as an arrangement. I mean, I've been into equity share arrangements myself over the years that I've been pastoring in the last two decades. But I think there's a lot of organizations that do it well or do it poorly. And sometimes I just talked to somebody the other day, it's like, yeah, we did that. And it was painful. And sometimes it's painful just because it's not structured the right kind of balance of, of interest. And so the organization feels taken advantage of or the pastor feels taken advantage of, the leader feels taken advantage of. And we've worked really hard to build a model where that doesn't happen. And that does speak to this next question of like, well, what is the ownership? How, how is this structured? decided to keep it really clean in the sense that this is just is just cash at closing, secured by Adida Trust. The house is owned by the pastor or the ministry leader and the church has a an interest, an option on a certain percentage of the equity in the home. And we just feel like that's a lot cleaner. It eliminates an entire document that you don't need, call it a tenants in common agreement, where it just is one other way for you to, miscommunicate or have expectations that are at odds. You know, like if you need a renovation, who handles it or who pays the taxes, or just keep it really clean. In this model, the owner of the home is the pastor or ministry leader. they're, they pay the taxes, they pay the insurance, they make choices about maintenance and improvements and all of that. And the church really exists as a, a capital partner. And this is often the way that churches would like to be participating, not as property managers, but just as those who help to facilitate and make these kinds of make this kind of option available for the health and security of the, of their leaders. So I think may maybe that sort of answers or re at least an initial response to the question, but happy to drill in, more closely into some of the details.

Mark King:00:19:03

I'd love to hear more about how you structure the option. Is it a dollar option a market value option? Gimme a little bit of the economics.

Glenn Bean:00:19:09

Yeah, so the, the option agreement are most common is that it's sort of a, a one for one. And so it's in second position. Just to clarify, so the homeowner is on title. They own the property. They typically, but not always need a mortgage, a traditional mortgage, and that comes in first. with our setup, typically that mortgage is fanny conforming which means any brokerage or bank could do it. However, it's much easier. We have a couple of preferred lenders who are both mission aligned. They pro, you know, they'll decrease closing costs provide preferential rates based on programs they have, et cetera. And then they're just familiar with the setup. So it's really streamlined. So that's part of the value we bring is saying, you know, here's probably a better mortgage than you would get out on your own. But then finally you have this second piece of financing. the shared equity. And so, you know, the easy example would be if it's 10% in 50,000 on a 500,000 house, it'd be 10% out at refire sale. So say the home is sold in seven years for 600,000, that would be 60,000 coming back to the investors, whether that's the church and the church's endowment or the impact investors, we can juice the returns a little bit. So for instance, it, the option can be written. Per the total value of the home, 10% in at purchase is worth, say, 12% out. So in that example would be 72,000 in returns. Instead of 60,000, it could be 1.5. So that's the investment factor that we apply to it. You know, there are bounds and guidelines depending on appreciation profile and credit and all those types of things. However, we found in a lot of these cases the investors aren't necessarily looking for, you know, just another 50 basis points of IRR. about the deal or no deal. Can we get these people into homes, what value is gonna be there? So it's, it's a. wonderful conversation when we set up a fund with a perfect particular target geography organization. And we have some flexibility in there particularly to attract more capital in that capital formation process. But I've really been surprised that a lot of the generosity of the impact investors who say, let's just keep it simple it still is a prudent investment and, you know, let's benefit the home buyer keep it a one-to-one ratio.

Mark King:00:21:26

With that, let's dive into a specific example of how this works. What would you like to talk about in terms of a typical or illustrative deal that you guys have done?

Ian:00:21:35

As we were thinking about a particular scenario, I think in some ways we'd maybe love to talk, talk through the, the California deal. And it was also one of our earliest ones. But it is become somewhat characteristic in, in, in a lot of ways. And it also, I think, puts on display a variety of the like a number of the, the kind of variables that can go into this. So were approached by a pastor in the Central coast region who was fairly new. The church had been, had moved to the church a couple years ago. They were renting a home. They actually really liked the home, and really renting it at a below market with a family kind of in the church. And, and so we're, had to sign favorable rates, but then the situation for this family changed and they wanted to sell the home. Then the prospect of going out on the open market was a bit daunting in terms of what else they could find to rent. And it also seemed like maybe this was an opportunity for them to purchase. Really a desire to put down roots in this community. The church also had a desire to help them stabilize and didn't want them kind of bouncing from rental to rental. and so in that situation, it became an opportunity to actually purchase the home that they had been renting. When we started to put that together, you know, this particular couple had a hundred thousand dollars that they had saved for the potential purchase of a home. But the value of the home was 1.2 million, which I know maybe sounds significantly bigger than a lot of places in the us but the central coast, it's a very modest home. And, in this particular case, they could have put a hundred thousand down and tried to apply for a $1.1 million mortgage and they would've been denied. They didn't qualify for that larger mortgage. The salary that was appropriate for the church to pay them and that they had agreed to would not have sustained that kind of a mortgage. And so what we do is kind of step into that situation, say, well, what do you qualify for? Here's how much, how much you have to put down. this case, they qualified for 600,000, which left a $500,000 gap. And and I think, you know, initially this was somewhat daunting, for them and the congregation, but as we stepped in and started to do some education around how to engage donors, and also one of the innovations we bring is the ability to aggregate a variety of sources of capital. in this case to make up that gap. There was an appeal to the congregation and an education about the various ways that they could support this. And so a number of individuals, I think it was around 20, to contribute funds to the church for a designated pastor housing assistance fund. So they may gifts to the church. In total, those 20 individuals, that was about 200,000 came from that source. And and this is, you know, they, they get a tax deduction from their gift of the church. It's owned by the church, it's mobilized by the church. And the church is now the investor. There were another four or five individuals I think who put put money aside from their donor advised fund balances they had, that they had in their DAFs. And they contributed that portion. So, and that came to another about 200,000. And then there was one individual who was, happened to be a personal friend of the pastor, didn't even go to the church, lived in a different city. But put a hundred thousand of a self-directed IRA toward this deal. Of these sources of capital then go into an LLC the, you know, church, central Coast Church housing LLC and had a different name, but but yeah, it's just an LLC and then the LLC is the investor in the property. And so that's kind of how the deal is structured. And then when it unwinds upon refire sale, all those initial pathways get retraced, the church gets their interest back, plus appreciation. The donor advised fund holders get theirs plus appreciation to either re-grant or deploy for pastor next, and then the investor gets their funds back. I think, what was I, just one other detail and then I'll let Glen kind of talk about some particulars where you can ask some more detailed questions, but. I recently spoke with one of the leaders who put this all together, and I think one of the byproducts that we didn't anticipate was it, just to put it in context, this is a church with an annual budget about 300, $350,000, and they raised half a million dollars in two months which is remarkable. It also shows how sometimes we don't even understand, churches don't always understand the, the, the passion of their congregants and their ability to step into a compelling vision. And here's a remarkable thing. I think this experience actually increased the confidence of the church be able to step into their future. So it was not just about helping their pastor get into a home, was about the church recognizing that they could do far more. Then they even had initially envisioned and it just became an occasion to kind of, you know, just have a, a real life example of a prayer that they had prayed. You know, would you do a measurably more than all we can ask or even imagine? I think they experienced it firsthand and it became really a wonderful, unifying experience for the church to not only stabilize a family that they wanted to get behind, but also position them for a future of ministry that they now started to have bigger boulder visions even for their community. So anyway, I'll leave it at that and feel free to ask some

Mark King:00:27:00

It is interesting to think about almost a cultural byproduct in a congregation to take on a big project like that. And, stretch beyond themselves. Rewinding slightly, how did they connect with you or did you find them?

Ian:00:27:13

To be completely candid, this was a, personal connection, a colleague who attended and so they just knew what we were doing and they caught wind of it and we're like Hey, can you do that for, for my church? And yeah. But you know, what's been interesting too is we haven't really done a lot of, I don't think we've really done any big marketing ploy or plan. It's been mostly word of mouth and that has you know, it's kept us busy. Well, we'd like to grow more and faster. Absolutely. But but at the same time I think it's been more that kind of steady stream of just like, wow, this really changed the trajectory of our family's life and of our church. And like, it just hit so many different things that that individual has probably introduced us to, I don't know, a dozen more. just because it's been such a profoundly impactful shift in, in their life and the church's life. So yeah,

Mark King:00:28:06

I can only imagine the positive word of mouth. Coming back to the pervasiveness of the problem and kind of the connectedness of the people you're serving this is exactly the kinda stuff they talk about probably when they're by themselves I can imagine it spreading like wildfire. So after you were aware of the situation, tell me about the different pieces of evaluating it. What are the different components of kind of an underwriting that would go into making the decision to go ahead?

Glenn Bean:00:28:34

Yeah. Yeah. So we've got a couple pieces in the underwriting process, some of which are traditional and some of which are, bespoke to us. And so first and foremost part of it is partnering with some of our lending partners who do the full underwriting process. However, particularly focused on the monthly payments, the in credit worthiness of the individual. What's your income, debt to income ratio, credit score, all the metrics that anyone would think about in consumer loans, you know, particularly housing finance. On our side because we're, we have an option on the equity of the asset itself. We're more interested in the value of the asset, the ability to appreciate where it's located, are we getting a good market price? And so we do have an appraisal process and just, you know, make sure that the, the trans transaction is going wisely. This one in particular, you know, we're about a year in and it's actually up over 10% just on the year. Which on the one hand is great for the investors. And on the other hand just speaks to some of the timing and man trying to get into this home a year later would've been that much harder. In addition, we do underwrite the individual sometimes for the charitable to mobilize the impact dollars. If it's in a donor-advised fund or a foundation the individual has to qualify to certain set of criteria. and then the final thing we do is a, a fund design exercise that I mentioned a little bit before where we walk the investors through and say, this is this is the investment profile. There's a whole education, but there's also a, a bit of a philosophical conversation. What are we trying to accomplish here? And there are a couple of things that the margins of, you know, how do you want these terms to play out? Who's going to be eligible for this? How long is this money outstanding? That, that can be a little bit of a journey. This one was kind of fun in that one of the people who's on the leadership team in the finance committee also had a PhD in chemistry. And so he came back with a bunch of Monte Carlo simulations of, you know, how this asset may or may not progress in a random walk over time. And you know, it's just this beautiful MATLAB output that nobody in finance uses. But it's, you know, statistically accurate. Fortunately I'm also a little bit of a finance geek myself, and so I walked him through it pointed out where a few of his assumptions were off. But even that engendered a lot of trust to meet him where he was. And then the other people on the committee did not have PhDs in chemistry and so when he kinda had all of his questions answered, everybody else was comfortable too.

Mark King:00:31:16

That's a great, that's a classic kinda church committee story. You mentioned particularly for the donor-advised funds, there's kind of a, I forget the phrase you used, like a values or kind of missional screening. I'm assuming that's not like a spirituality litmus test, but maybe double click on that a little bit and talk about what's involved in that aspect of using charitable dollars as part of the, the capital stack.

Glenn Bean:00:31:40

Yeah, it's, it, it is not a litmus test in the sense that one that can be really hard to nail down. And two we follow a lot of the fair lending guidelines in general, and that's not a, a process that's allowed. However, what is allowed is looking at someone's employment. So if they're working for a 5 0 1 C3 we say good enough that organization made a hiring decision. And so by virtue of employment this person is eligible. And then we do have other criteria that we can rely on, whether it's income or addressing formal socioeconomic or racial injustices. That takes significantly more sort of writeup and justification, but can also just be incredibly powerful when it is, you know, putting your thumb on the scale to provide financing to individuals who may not have it elsewise. There's a whole of, you know, regulatory effort to address those finance deserts. By and large, the clearest and the one that we use most often is eligibility by employment.

Ian:00:32:46

It might be good at this point too, to say that squa Sycamore Equity Management is the company, but there is also Sycamore Foundation that runs in parallel to to Sycamore equity, which is what is the vehicle through which charitable funds from donor-advised funds can be mobilized for this purpose. So in this case, just to be very clear about the pathway, it would be a grant from a particular donor-advised fund to Sycamore Foundation for the purpose of this investment. Sycamore Foundation then is the actual entity that makes the investment. In the property, similar to, if you're familiar with Impact Foundation, it's a very similar structure.

Mark King:00:33:26

Mm-hmm.

Ian:00:33:27

We consulted with them and proceeded with this model really with really wonderful support and encouragement from the folks at Impact Foundation and a number of referrals from the Impact Foundation. So we're really grateful for that relationship and partnership. But I just wanna be clear about that structure 'cause that can sometimes be confusing.

Mark King:00:33:44

Tell me a little bit more about kind of how you guys divvy up and do the work. Is one of you more the finance guy and dives into the numbers? Is somebody the pastor ministry leader, interview expert?

Glenn Bean:00:33:57

Ian is the visionary. He is the person out front who is capturing attention and hearts and minds. And in this particular place, you know, he was driving up and down the coast, meeting with people you know, sharing that, being incredibly relational in just a way that he's so uniquely gifted. And then when it comes to operations, finance, contracts and sifting through the couple hundred pages of paperwork I get really excited about that. Of course we are both very familiar with each other's work, but that's kind of our areas of specialty.

Mark King:00:34:30

And Ian, do you sit down with the ministry leader and interview for lack of a better description?

Ian:00:34:35

Part of what I do is just help help explain what it is that we're offering. I mean, this is an area, this is it, it's complex, right? There are a lot of different things to kind of think through, and some of them are technical and tactical, and that's where partnering with somebody whose love language is spreadsheets is really great. You know, but a good part of that initial conversation is really just helping people understand what what, what their pain points are, what the opportunities are, what is they're trying to accomplish, and helping them understand the mechanism. So this fund design, I think it's really key to what we're doing and there are sort of like five distinct questions that we're trying to land the plane on. Versus the what, what can sometimes feel like this just hugely confusing, complex landscape of tax law, and particularly like clergy taxes and church relationships and staffing and hr, like it can get really wonky. My role is just to sit down and try to help speak about it in plain language in ways that they begin to see that this can be a really attractive solution to a pain point I might just share a couple other stories, like we've shared this model with some churches and I, I, I love this because we share this model with churches. They've said, thank you very much, we'll take it from here with, and then they go on their journey for a year and lo and behold, they call us back and say can you help us do this? To me that's like the best marketing in the world. Like yeah. It's not rocket science, but it's challenging to kind of navigate this and to have a partner. I think it's one of the values that we add is some, we've done this before, confidence kind of a guide on the journey and some models that we've really thought through. And as Glen mentioned, I mean, did a, year listening to her in research to try to really understand what some of these pain points are in addition to our own personal experience. Secondarily, once there is a project to on, then it's around sort of education and that's kind of my sweet spot just with the experience with NCF and, and gives me an opportunity to talk about a whole host of other it just conversations around just how do we cultivate it. of generosity and like, it's a lot, it's like totally what I should be doing anyway. And in some ways gives us just a wonderful opportunity to share about the bigger vision of what NCF is about too, around just encouraging generosity.

Mark King:00:36:56

You mentioned five questions that you are trying to get at. Dig a little deeper on those five questions.

Glenn Bean:00:37:04

It's both,

Mark King:00:37:05

I.

Glenn Bean:00:37:06

the philosophy of the fund design, but then also some tactics on how it's the LLC is legally set up the terms and the contract, et cetera. And so it's things like, who's gonna be eligible within your organization. Sometimes it's an individual, but we set up

Ian:00:37:21

I need help, but

Glenn Bean:00:37:22

for staff of 50, a hundred, a couple hundred. and so if you're gonna offer a benefit like that to your employees. There's different messaging, different capital levels of investments. And again, you know, thinking about is it by seniority? Is it by tenure? You know, is it part of actually attracting talent to come to your organization? We hear so often, man, we really want someone to move from X geography to wide geography, but they just have sticker shock on the housing. So Eligibility's really important, you know, the type of capital sources that'll be used, how long the money will be outstanding. Some investors want their money back in 10 years or less. Some are happy to have it be patient and go upwards of 30 years. We find it's usually in the sort of 15 year range with the reality that a lot of people don't stay in a home, you know, more than seven to 10 years. But it is a contractual term. And how much capital is being raised. Sometimes it's a million-ish to a million. And then we have some funds that are more in the 10 to 20 million. And then finally, what type of returns? I mentioned that before. Is this something where to have accelerated capital formation? Do we want to have juicier returns for the investors? And is there a philosophy that will actually attract more capital and get more people into homes faster? Or can this be a little more skewed toward the home buyer? And you know, again, depending on the capital intensity and the market sometimes that's preferred. So each of those are very tactical things that need to be dialed in to set it up and execute. But there's a reason behind each of them. So it's walking people through that conversation.

Ian:00:39:03

One too is, is the exit. And that's, I think that's one that is important to clarify from the beginning, we've often said that we feel like clarity is kindness, and so we wanna be really clear at the outset. I mean, so much of this is about setting expectations I think even in the listening tour, some of the reasons why people had, bad feelings about previous experience was that, know, the, the pastor or ministry leader might have thought that something was a gift and the organization thought it was an investment. And it's like, that's a pretty important distinction. So we try to be really clear upfront and how this unwinds is important to be clear about. So we, our typical starting point is six months upon departure, but certainly. churches that wanna provide a longer term and they can always even adjust that and be more generous. If there's a school year or something else with transition, I mean, I don't know a lot of churches that call the next pastor within a year anyway. to let that money kind of you know, unwind slowly so that the ministry leader can move on and transition in a way that's healthy and appropriate. So those are some of the terms and we just like to, again, clear it all up at, at the front end. So that there's just engender a lot of goodwill and clarity. So.

Glenn Bean:00:40:11

Double down on Ian's comment. I've been blown away on the number of handshakes or sort of misunderstandings in this space that we continue to hear about, but definitely heard about ramping it up anywhere from 50 a hundred. The biggest was a $500,000 mistake of. Oh, I, I thought that was a gift. And then, you know, the trustees or whoever the finance committee is, says, no, it was never intended to be a gift. It was, you know, this type of loan or this type of whatever. now you have somewhere between, bad feelings and, this can be five or 10 years into tenure, bad feelings to, financial devastation, to like, it is just a mess. And especially as you have a next generation of leaders often coming in it, it is ambiguous. it, it causes just a lot of pain and swirl. And it's almost not even about the dollars, it's just about didn't we document this properly in the first place? And so anyhow, some of those mistakes are in flight and we can't do anything about it. But for every organization we work with, it's crystal clear to all parties involved.

Mark King:00:41:19

Yeah. I can imagine. I didn't understand. Can very quickly become you misled me. Which is not a, not a healthy conversation to have. Wanted to come back to one thing just in terms of the, the different questions in terms of return expectations. And you mentioned having potentially the equation tilted towards the ministry leader building equity faster. Have you had folks that have given like a 0.8 or 0.9 multiple whether anticipating losing or not sharing pro rata and, and then having the ministry leader at a a, a multiplier greater than one?

Glenn Bean:00:41:59

That gets messy for two reasons. And so while it is possible we haven't done one and we advise against it reason number one is when there's a transfer of capital like that, it needs to be accounted for as income. And I'm not a tax professional, and this is not tax advice, but if money transfers to an individual from an organization, they're meant to pay taxes on it. So they could potentially be in violation of IRS terms and potentially have fees accrue or just be filing their taxes wrong, which is, part of what we do is do it with excellence and, you know, conform to the laws and guidelines. just is messy. It's a hassle. And it, it's something people have to be mindful of. So, why would you put yourself in that position? The second issue is if money is coming from donor-advised funds, it needs to be a prudent investment with a reasonable expectation of return. And is harder to argue that it's a reasonable investment if by definition you're setting yourself up to get less back. It's not impossible, but it is much harder argument to make. So if the charitable capital's involved that's something we really steer clear of. I love the creativity. There are no rules against generosity via other channels. There are plenty of ways to achieve that outcome, just not by this. And so we're also happy to talk people through, you know, if that's what you want in the end and even defer some of those taxes, et cetera. That can be a huge benefit. We're happy to as not tax advisors give, general guidelines and encourage people to talk to their tax professionals.

Mark King:00:43:36

When somebody comes to you and generally meets your guidelines, I mean, you have a kind of general understanding of who they are and what they do, and they have the need. Do you give them specific tasks or milestones to go work on to indicate seriousness to you? Is that a screening technique you use?

Glenn Bean:00:43:56

We've got a, a playbook at this point of, you know, here's what you need to do and when and I think a lot of people see that roadmap or those recommendations even in the fund design process of, well, you know, what do most other people do? And we can coach people and say, Hey, you know, this is the best way to do it. This is the timeline by which you need to do it. So that's there. And I'd say, if you are calling someone to a new role and they need to have a home in 30 to 60 days there's often a lot of motivation to, to get something done. So it, it hasn't been a too big of a challenge when, when organizations are leaned in.

Mark King:00:44:36

talk a little bit about the partnership that you have with mortgage lenders and banks

Ian:00:44:42

One of the values that I think we are able to bring to the table is some partnerships with the primary mortgages. but these are the kind of loans that those primary lenders, primary mortgage lenders, they're wanting to make. Like we're actually doing a lot of the due diligence identify qualified home buyers in that kind of 80% a MI type category. We have had a wonderful experience of banks who are really excited to work with us, and that's been kind of fun to see as well, that like we're and not just solving a real problem in the world, but doing it in a way that the primary lenders we're actually helping them identify those kinds of home buyers that they would love to lend to. And as you can imagine, these are also pretty good, loan to value type situations for them as well. So this is anyway, that's another place where I think we knew it at the beginning, but just kind of stumbled into a, wow, this solves actually a problem the primary mortgage lenders are trying to solve as well. So,

Mark King:00:45:38

coming back to the Central Coast story, what role, if any, do you guys have during the run of the investment? Do you have interaction with the church or reporting or what else is kind of going on after the close

Ian:00:45:50

I mean, we do do all the functions of you know, quarterly statements and filing the taxes and there's a lot of sort of both behind the scenes work, but then also engaging with investors. But it sounds like you're also asking what about engagement with maybe the homeowner or stewarding and shepherding the asset itself. And, we do engage with the homeowners and we also have you know, again, we're still fairly early on, so I wanna be honest about where we are in the process. So we haven't had that much time to be able to interact with them. But, you know, particularly those places where there might be an opportunity for them to refinance or things like that, we we have every intention of reaching out and providing clarity about where opportunities might exist for them to be. Stewards of that asset. Certainly if there are, if there's a desire to do some kind of renovation or things like that, which would improve the property, which we have a whole process clearly spelled out in the operating agreements about how that works. We would consult and make sure that investment is a prudent investment and that they also again, setting right expectations that if they wanna import Italian tile, that that doesn't mean they get a benefit for the cost, the full cost of that, but like what would a, an appropriate bathroom remodel cost and look like? And so, I mean, there's some ongoing consultation that we wanna support that su support the investment kind of along the way, on all fronts. And, and you know, we're always available for phone calls in addition. But I dunno. Glen, do you have some other things you wanna maybe speak to about that process?

Glenn Bean:00:47:18

You know, there, there's one feature we're looking to roll out soon. I'm kind of excited about this one. You know, as rates come down in general and people build equity in general and pay down their principal you know, on average you can imagine, hey, it might be a good time to refi, but we've got one mortgage partner who did something so Cool. They built out an AI tool. It'll take the specific parameters of a specific deal, the market they're in, the size of their mortgage, their credit score, all these things that we already have. it uses AI to ping, multiple lenders every month and say, are you in the money or not? And buy how much? And so it's a much more tailored experience. I said, man, I've got a portfolio of home buyers that I really care about. And we don't wanna give 'em a bunch of false positives, right? Because we go through the hassle of applying for a refi and you know, juice just isn't quite worth the squeeze or you don't get approved, it's a bunch of wasted effort. and he's like, yeah, you know, let's put 'em in the hopper and, and just do it. And so if we can provide those types of services you know, just for free on top and sort of everybody involved wins that's really exciting. So that's in, in innovation we've been working on this week. And I, you know, I'm hoping there'll be a lot more to come.

Ian:00:48:34

I was gonna say, to me, this just sort of speaks to our motivation behind this. I mean, we certainly hope that this is a profitable business and grows, but the reason why we wanna do that is actually so we can serve clients and investors and organizations well. But our primary motivation is to solve a problem that feels solvable. And so we are looking not just for where, I mean, I'd say primarily we're actually motivated by where we can add value to this chain of. Interactions, right? Like we wanna add value at every stage. Both helping churches on the very front end develop a program that's meaningful for the long term and balances equitably the various interests. We wanna operate with excellence and add value, and just the excellent execution of that plan. We wanna add value in supporting the donors both to the organization itself, or donors who have donor-advised funds that may want, they may want to deploy, or investment accounts that they may want to deploy. we wanna add value to the homeowners as they own those assets and seek to grow them and steward them and to the investors as they seek to manage their, ongoing portfolio and interests and add value at the unwind stage so that everyone still feels good at the end. I mean, this is really a desire to see a value chain across the board. and that just speaks to our motivation.

Mark King:00:49:59

Where do these deals typically fall apart?

Glenn Bean:00:50:02

You know, I'd say one in 10 staff members say, I just can't wrap my head around my home financing being tied to my employment or having my employer as part of that. And they'll look at it on paper and say, financially, yeah, maybe this is too good to be true. but in their minds and their hearts, they, they just don't, can't take it. And so they'll stick with renting or they'll find some other way to do it. And that's where I'm always at a loss because look at the spreadsheets and I'm like, but this is such a wonderful opportunity. You know, buying a home is such a huge decision. Yeah, we've had people be at the closing table within a couple of weeks, or, you know, they say yes, and then either life changes, then the market changes or they're not sure how long they wanna work for an organization. And so, you know, they'll get really close and then, and back off. And I, I think those are not unique to our business model and our services. But it's just, part of where the industry that we're participating in.

Mark King:00:51:03

We've talked about a individual specific example, and you've talked pretty much in terms of working with specific ministries and churches. How do you see that scaling as you look out over the next few months, years, decades?

Glenn Bean:00:51:17

That's a great question. And it's the thing that keeps me up most at night. So to the previous example, we talked a little bit about you know, we'll be in conversation with all kinds of different, partners, stakeholders in the ecosystem. we have literally hundreds of conversations of, but church, my nonprofit, my community, would you talk to us in a one-off basis? And, you know, we've had a lot of success there. We want to continue to be cost effective so that the model makes sense to serve those people. 'cause this can be labor intensive and time intensive. And so that'll core to meeting those people and organizations where they are. But we've had some traction with a number of investors who've had a broader portfolio approach that I think will both bring scale to the process but also just scale to the overall impact. And so in particular, we've set up a couple of city funds one so far in Austin, one in Fort Collins both of which north of $10 million, helping one to 200 people of a certain you know, eligibility requirement. it is probably, you know, gonna be deployed over the course of five years. But now we have a capital source lending partner, lean in realtors, and even some of the ancillary services, title appraisals, et cetera. people are at the table saying, have a vision for what we want our city to look like in 5, 10, 20 years. And so we are gonna put this money to work. And you know, participate in that way so that young families can get in the first time home ownership. It's certainly not exclusively that, but that is a common pattern. And so as those funds get off the ground, I am so excited to see the, acceleration of sharing this opportunity with people who are really making an impact to their community, the fabric of their community. And it may be easy to say man, the other NFL cities, you know, we got. 30 others that we could go address. And, and maybe, you know, and we've talked to, had some early conversations around Wichita, Kansas, Fresno, California places that you may not actually expect, but as those investors have a heart for those geographies we're considering setting up city funds type of model comply to an organization. So whether it's young life, FCA you know, a particular denomination across the church across the entire country. And so then you have hundreds, if not thousands of employees oftentimes who are facing this issue and a large organization that, would love to set up an endowment. Effectively an endowment you know, for this purpose, for, for talent attraction and retention, to let people stay in their jobs for longer than they would otherwise. We hear that attrition is just one of the biggest pain points for some of these big organizations. So on each of those fronts, we're really excited about bigger pools of capital, but also being able to deploy it much faster.

Mark King:00:54:15

Well guys, thanks a million for coming on and talking with me today about Sycamore Equity. It's just an amazing model and doing some really important work for folks that are listening, how can they learn more about you guys? And maybe connect about a transaction or potentially investing as well.

Glenn Bean:00:54:31

Our website has a lot of information, a few calculators. We keep up, keep it updated with some data and contact form. Of course, they can email us directly glenn@smoreequity.com. ian@smoreequity.com. we're also pretty active on LinkedIn. It seems like that's a really good place to be in touch to have this conversation about the overall need. So following some of our posts there and our success stories, those are probably the three best ways.

undefined:00:55:00

Ian and Glen, thanks so much for taking the time to introduce us to Sycamore Equity and dig a little bit deeper into the California transaction that you guys talked us through today. Thank you so much. Really, really learned a lot. If you would like to learn more about Sycamore Equity or perhaps contact Glenn or Ian, I will have all of the links and email addresses in the show notes. At Impact Investing roadshow.com/sycamore. Those notes also should be available in your podcast player, but if they're not, again, that's impact investing roadshow.com/sycamore. And if you've enjoyed the show, could you do me a personal favor? Forward this episode to some friends and colleagues that you think will be interested. They will think you're a great friend and so will I.

Mark:00:55:55

So, until next time, I'm your host, Mark King, reminding you that if you wanna move the impact needle, you've gotta step on the gas.