The current financial model for real estate investment is pretty depressing for the creative-minded, where an overwhelming majority of real estate investment capital is reserved for object-oriented buildings at least a block in scale (ie office parks, strip malls, towers, subdivisions...)

However, just as YouTube is slowly redefining television and wikipedia has rendered encyclopedias obsolete via crowdsourcing, just wait until $ are applied to this customer-driven phenomenon then used in real estate.

For a hint of what's to come, check out what happens when $ are applied to crowdsourcing, resulting in crowdfunding:

tribewanted
- What the funded target gets: $1 to 2 million to develop a non-intrusive timeshare community as an alternative to massive landscape-changing resorts.
- What crowdfunders contribute: $210
- What crowdfunders get: 7 nights each year in a 100-unit eco-community on Fiji they co-design with 4999 others.

Slicethepie
- What the funded target gets: An island in Fiji
- What crowdfunders contribute: $30 per band plus votes and reviews supporting them.
- What crowdfunders get: The opportunity to see their favorite unknown bands record their first album and a return based on sales over two years.

Sellaband
- What the funded target gets: $50,000 to record an album.
- What crowdfunders contribute: $10 per band.
- What crowdfunders get: A limited edition CD of the band's recording.

Liverpool Cultural Cafe (profiled here)
- What the funded target gets: $1 million to bistro/bar/live music venue to develop local entertainment talent.
- What crowdfunders contribute: $40 per donation.
- What crowdfunders get: Ability to influence the venue's development as well as Liverpool's up and coming talent.

My Football Club
- What the funded target gets: $3.5 million to buy a professional soccer team.
- What crowdfunders contribute: $70 per share.
- What crowdfunders get: Voting on strategy and personnel decisions with 49,999 others. An armchair coach's dream.

A Swarm of Angels
- What the funded target gets: $2 million to produce a movie.
- What crowdfunders contribute: $50 per share.
- What crowdfunders get: Voting on creative decisions with 49,999 others.

What's next? Crowdsourced Beta Communities?
- What the funded target gets: $10-20 million to build the kind of place in the image above.
- What crowdfunders contribute: Commitment to buy a home and/or lease commercial space in the development ($100,000 to $500,000).
- What crowdfunders get: The kind of community they've always wanted but nobody cared to build, plus a great return on their investment because of that.

Read more in BusinessWeek.

Neighbors form their own development firm to do it right

As they say, if you want something done right, do it yourself, and that's just what the neighbors of historic Curtis Park (just outside of downtown Denver) did.

It started with one progressive-minded resident (and architect), Cathy Bellem, who realized an empty lot in their ethnically and economically diverse neighborhood was being bid on to build a project to maximize profit at the expense of the local character. She took it upon herself to rally her neighbors to raise the money to buy the lot themselves. The next day she had $40,000 in checks and soon raised the $150,000 to buy the site. A bit of crowdsourcing and beta community if you will.

They formed an LLC, named it the Curtis Park Investors Group, and sold $5000 shares, with each share garnering a vote. There was enough collective talent within the neighborhood to provide all the expertise needed, resulting in the contemporary four-townhouse Champa Terrace (lower image), which sold out within a month. Not only that, the resident investors enjoyed both a 65% return on their investment along with enhanced property values.

The logical next step for Bellem was to establish a development company, Grassroots Neighborhood Development, and completed a second project - a $2.5 million, award-winning six-townhouse development called Merchant's Row (upper image), achieving that rare balance of human-scaled modern design. Attainability for both owner and renter is key - the homes feature a rentable basement, and a fully integrated Building Information Modeling (BIM) process cut subcontractor bids by almost a third in some areas.

The group is now seeking a third project. Read more about this phenomenal process and its resulting buildings here.

Time for indie tenants to meet real estate investors halfway

While it's time for real estate investment to catch up to the market", it's also time for local independent tenants to make it easier for developers to lease to them. The simple reason why an overwhelming majority of new developments prefer leasing out to national chains rather than local independent businesses is because chains can pay more rent, and that's because they have an established patronage once they open. This is why chains dominate our communities (and if not now, down the road they will), pretty much defining what is known today as 'Anywhere USA'.

How can local independent restaurants and stores compete with such a crippling disadvantage? They can use that same power of the brand, except instead of a national brand that brings in a loyal following on opening day, they need to focus on a community brand that brings in that loyal following on opening day, on what better way to do that than to establish a loyal following of several hundred loyal community customers before the business opens.

This is what a VIBE - beta community does, and here's a little press for a restaurant (Elements) in Washington DC by the Washington Business Journal. That party by the way, was last night, and the sense of community among the Element's future patrons was amazing, especially considering the restaurant doesn't even have a location yet. Let me know if you're a community resident and want to join up, or want to start your own.

Where are the majority of our country's real estate development investment dollars? Take a look at any of the highlighted projects GlobeSt.com, the de factor real estate investors website, and you'll see the problem. In the now outdated industrial economy, it didn't make any sense to build one customized widget when you could mass produce thousands for a lot less.

With investment it's the same - all your pension and insurance payments are sourcing a tremendous pool of capital that has to be invested somewhere. To those investment managers, if you have billions, the least you want to invest in at a time is $5 million, which translates to $20 million projects. That precludes most every single human-scaled building you'd find in the coolest neighborhoods, leaving only large-scale strip malls, subdivisions, office towers... what you see on www.globest.com.

The thing is, the emerging you-centric market is demanding customized, not mass-produced. So how in the world is the supply of investment capital going to accommodate this? First of all, it will. Second, it will focus on the long tail of real estate development - all the $500K-$1 million investments that none of today's major investors want (just like the 42 million video titles Blockbuster won't carry) and devise a system to rehab and develop several of them at a time, just like Netflix devised a system to rent any one of 42 million of those 'unwanted' videos.

In other words, next generation investors will work with certified developers to buy several smaller buildings at once, provide them with progressive tenants upfront via beta communities, and enjoy a much greater return (financially as well as socially and environmentally) than if they invested the same amount in one globest.com project.

CoolTown Investments has the portfolio of development opportunities, city leaders, tenant communities and developers to make it happen - which investors are going to step up first? Contact us if that's you.

'The Long Tail' real estate developer/investor (3 of 4)

Understanding The Long Tail, the way it's evolving our economy, and its applications to real estate, what would be the real estate developer/investor equivalent of an Amazon, Google/YouTube, eBay, Netflix? What's the big deal? Millions of people don't just use these companies' services, they're passionate about them. When's the last time anyone said that about Kodak, GM or Kmart?

As you know, all of these companies invest in 'a full line of products' that appeal to what individuals really want for themselves. Behind the scenes, there's a sophisticated Content Management System** (CMS) for online content or Supply Chain Management System (SCM) for physical product. In front of the scenes, the customer gets exactly what they want.

The next gen real estate developer/investor will utilize such a system. If they refuse, they will be the last ones, and they can be rest assured no customer will associate the word 'passionate' with their products. This 'Long Tail'-based system does not discriminate whether the profit margin is small or large, just the fact that it's delivering what the customer wants at a profit. If there's anything to take away from the 'why' behind this, it's this: Small-profit items leverage large-profit items, and vice versa. Yesterday on Amazon you were buying books - today you're buying books and half the things on your shopping list.

**One ongoing CoolTown Studios 'production' is a Content Management System (CMS) and Supply Chain Management System (SCM) for both developers and cities. We assure you won't regret being among the first to implement them, if passionate customers are a priority.

The future of real estate is in 'the long tail' (1 of 4)

"For too long we've been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching - a market response to inefficient distribution." Wired Magazine, The Long Tail, Oct. 2004.

Sound familiar when it comes to strip malls, subdivisions and office parks, which make up a vast majority of new real estate investment?

Enter The Long Tail - "the realization that the sum of many small markets is worth as much, if not more, than a few large markets." For instance, iTunes now has more brand recognition than Tower, Netflix forced Blockbuster to follow their business model, and Amazon is preferred over Wal-Mart by the next generation of shoppers. The graphic shows why - there is a much larger market if the 'long tail' (in yellow) is added - in other words, anything overlooked by the mainstream. In fact, the long tail is often larger than the 'big head' (orange):

"What percentage of the top 10,000 titles in any online media store (Netflix, iTunes, Amazon, or any other) will rent or sell at least once a month?" People typically guess 20%. The answer is 99%. Full story here. The 'why' or 'how' is the internet, and the reason the future of real estate is in the long tail. Part 2 tomorrow.

Speaking of daily resources, you can find one at The Long Tail blog.

Is the U.S. too rich to invest in human- scaled places?

The Conflict. Take one look at GlobeSt, the portal for real estate news and see for yourself. A vast majority of real estate investment dollars are held in institutional funds (trillions, via banks, insurance funds, retirement funds) and not surprisingly, they don't invest in projects less than $10 million, preferraby much higher. What's worse is that in the past they've advocated against human-scale development in order to ensure there's enough large-scale developments (ie office parks, shopping malls, subdivisions) to satisfy their investors, in case you're wondering why we have so much of that. Meanwhile, people still want to live and work in human-scaled communities.

The Transition. The demand for large-scale, typically suburban developments is waning dramatically, and naturally, investment groups are trying to shoehorn large-scale developments into urban centers. Neighborhoods like the historic Columbia Heights in Washington DC is such a victim, with much of its historic retail core replaced by DC USA, 500,000 s.f. of big-box chains. Not good news either, but...

The Turning Point. As our economy, culture and intellectual capacity evolves, so will this real estate investment model. Rather than the equivalent of throwing all their money in one company's stock via a large-scale project like DC USA, investors will look to portfolio/mutual fund investments, acquiring/developing several human-scaled buildings/sites within a neighborhood as an integrated group. It requires a bit more sophistication, but it's about time the supply caught up with the demand in this regard.

The Implementation...and yes, we're working with an investment funds that are indeed this sophisticated, and seeking local beta community partners to tell them how to spend their money. Contact us via the email link on the right for more info.

Why is it that one look at the image above tells you this is not in the U.S.? The bigger question is, why not? How about a place like this in your own town, with your own local, independent cafes and shops below, entrepreneurial offices above, and lofts above that? Or perhaps a section where the whole street is full of outdoor dining? Wi-fi everywhere. Nightly happy hours and live music, weekly poetry readings and plays, monthly international socials and cultural events, a genuine sense of community...

It's time we used the power of the net, crowdsourcing, and the beta community - in other words, you all - to help spend what amounts to $150 million in equity capital that would invest in places like this, at a minimum of $5 million per investment (not enough impact otherwise). The related question to the one above is who are the next generation of real estate developers and cities that want to see that happen and only lack capital to do so?

So, CoolTown Studios is offering a $10,000 reward, payable immediately upon the actual investment transaction, if you can refer such a progressive, high-integrity real estate developer (yes, they're not all bad) to utilize this kind of capital (I will keep you updated on what happens with your leads no matter what happens). To the developer's relief, the investment entity takes a passive role. Now, because of the amount of $ involved, it has to be a development team (rather than an individual) who has demonstrated success among its members, and remember, this is about building communities for the audience associated with this site's readership. That's what this is all about. If you'd like to be part of a national beta community to help develop such a place, wherever it is in this country, contact us (email link to the right) and start meeting other people who share your vision.

Image: This is the Temple Bar district in Dublin, Ireland It was almost demolished in the 1980s, and is one of the most economically, culturally prosperous destinations in the country today.

The last two entries covered crowdsourcing 101. Are you ready for crowdsourcing 201? This is for when you're ready to invest $ collectively as a future community of tenants to develop a common product, such as that affordable, green-built, downtown loft building with roof deck and indie ground-floor coffeehouse and restaurant - or even better, a whole block of them (pictured).

The term used to describe this team development methodology is angelic crowdsourcing* (combining angel investing with crowdsourcing), with precedents in producing an album, specialty foods, a movie and even an eco-village on a remote island.

Based on their experience, the crowdsourced movie's producers took the time to lay out some angelic crowdsourcing guidelines**, which are here applied to cooltowns:

Increase the barriers to entry
Involve only those who are actually considering buying/renting/leasing in the building/community - the beta community.

Elevate the level of debate
Keep discussion at a high level by focusing on the beta community. Provide inspiring examples/photos of places that raise their expectations.

Gather diverse people for a balanced [community]
Monitor and balance the growth of the community to ensure there is a diversity of people, if for no other reason than diversity is one of the most appealing characteristics sought by the creative class.

Target existing online communities and interests
Tap into creative, entrepreneurial, downtown-oriented groups who already have this kind of development on their objectives list.

Don’t overpromote or overbuild
Once the beta community is established, there is little need to promote the development - "you are overpromoting a project that isn’t tangible enough for larger audiences. Targeted promotion to those who already share common values with the project is more effective and appropriate."

*Definition courtesy of Springwise, one of the coolest trend websites around.
**The term 'gated community' in the UK is used in the virtual sense, unlike the negativity (and ubiquity) associated with those in the U.S.'s physical world

City taking charge to attract investors...

Most cities wait like hopeful dancers at a school ball. Others get up and ask or just start dancing, like West Palm Beach, St. Louis, and Everett, Washington, profiled in its local newspaper, The city plots the next stage of its downtown renaissance.

The map shows strategic investment areas that the City of Everett (within the Seattle metropolitan area) is proposing for its downtown plan. Incentives include promoting greater residential densities downtown, sponsoring a model project (a CoolTown strategy), investing their own $ in public places to inspire complimentary buildings, eliminating minimum parking requirements, and providing a vision from its community. The vision statement includes language like, "Downtown is a pedestrian friendly, active neighborhood where people are prioritized over accommodating the automobile. The city center has a lively atmosphere on weekends and in the evenings, as people come from surrounding communities to enjoy the arts, entertainment, cultural offerings, dining and shopping opportunities year round.

However, like in any city success story, the private sector is taking an equal lead. Craig Skotsdal, the largest property owner in the city, has a rather cooltown vision, "The goal of creating market-rate housing in downtown is not about creating a safe haven for yuppies. It's about attracting and retaining talented people who will create opportunities for others - active urbanites who start businesses, energize service groups and generally make things better."

Finally, it also helps to have a model third place to set the tone for the statements above, and that's definitely Zippy's Java Lounge. "Named after her Dalmation dog, Zippy's is the kind of place where eclectic decor, cozy reading corners and frequent entertainment keep customers coming back. Prosecutors and lawyers hold meetings there; artists and young people hang out and talk. Evening events, such as speed dating, poetry readings and nonprofit fundraisers, have brought in crowds."

Let's check back in five years (when there'll be more photo opportunities as well)...