A Conscious Capitalist Solves Worthy Problems
The John Stewart Company is a master of stakeholder management. An affordable housing development takes over 25 different stakeholders to get the program funded and built. But then, John Stewart is a master in developing win-win solutions for worthy problems.
John Stewart came to our interview with descriptions of two of his current real estate projects. These are beautiful buildings with interior courtyards filled with playgrounds and picnic tables. Individual units with access to amenities, such as community rooms, roof decks, family gardens, and a BBQ area. Views to the city and the bay are integrated into the design along with spaces reserved for public art. Whether in a 400 square foot studio, or a 3-bedroom apartment with 1,000 square feet, the interior of the residence and the textured building exterior has been thoughtfully designed to build community across age, income-level, and needs. This is not the typical affordable housing.
The John Stewart Company develops affordable housing that respects the tenants. North Beach Place is a quiet oasis in San Francisco’s busy Fisherman’s Wharf.
Before we talked to John, we had explored one of his developments – North Beach Place at the cable car turnaround at the foot of Powell Street in San Francisco. Right next to Fisherman’s Wharf. The John Stewart Company (JSCo) had torn down the previous buildings to create affordable housing that is respectful of the tenants. This is no high rise with a long hallway, low ceilings, dim lighting, and bad smells. These are 348 units in 13 buildings spread over two blocks. The interiors are a quiet lovely oasis in the middle of a very busy part of San Francisco. Each residence has its own door accessible from the courtyard. The courtyard is open to the air and sunny sky, full of plants, trees, and neatly mowed lawns. Perhaps it was cleanup day; we did not see one piece of trash.
John recounted an anecdote that shows how his affordable housing can be mistaken for market rate real estate. When someone looked at his drawings of his Hunter’s View project, they asked John “How much for those condos?” John clarified, “These are not for sale. These are affordable housing rental units and they will stay that way for 75 years.”
Affordable housing in San Francisco certainly solves a worthy problem. High tech money and ten per cent population growth in nine years have forced many people out onto the street or out of town. Sixty percent of San Francisco’s homeless were formerly in housing that they can no longer afford.
Affordable housing development is a complex solution requiring many stakeholders. John has forty years of experience. He has joint ventured with local non-profits on 25 different deals. He has a lot to share about bringing together stakeholders for just one deal.
John’s guiding principle is diversity – a mix of ages, of incomes, and of uses. The result is a diverse community. Eighty-six percent of JSCo tenants are families, seniors, and special needs residents. That’s 86,000 people that have a decent home. More than merely shelter, they need a respectful, quiet, and safe place to live. And for each of these tenants, on site services are thoughtfully designed. Families need day care. Seniors need food service. And special needs tenants, such as those with developmental disabilities, need on site care. But affordable housing funders pay only for housing. To develop day care and a cafe on site, JSCo needs to put together separate financing for building and operating these services. They reach out to foundations, other investors and donations (some from John’s own pocket) to get the money. Already the project design and financing illustrate its stakeholder complexity and interdependence.
The John Stewart Company’s affordable housing development at 88 Broadway, San Francisco, requires a deft balance and interdependence of many stakeholders, including the little girl who will play at the daycare center.
The 88 Broadway project is an example of the many stakeholders involved in developing a project of this scale. Following the principle of a mix of ages, incomes, and uses, the 178 units will be split 70-30 between families and seniors. A very wide range of incomes will be integrated into the project. And because affordable housing needs cash flow to maintain the property, the mix of uses includes retail selected because it will serve the tenants and neighborhood. There are over 15 financing partners who include banks, foundations, nonprofit service organizations, and public benefit corporations.
Stakeholders in this project also include the two landowners – the City of San Francisco and the Port of San Francisco. When these two political entities could not create their own partnership for the project, John designed separate parts of the building to sit on their land. Another stakeholder is the community. To obtain community support and buy-in on having affordable housing as a neighbor, JSCo conducted many town hall meetings to listen, learn, and address their concerns.
The 88 Broadway buildings will house seniors and families, two groups that sorely need affordable places to live.
There are even more stakeholders in a development – his “suppliers” plan and construct a project. These are the experts in design, environment, construction, and legal. John takes great pleasure that his suppliers enjoy working on his projects. John says that he has “happy lawyers” who aren’t merely drawing up paperwork while working at a desk. They also get to see the social value of these projects when they come to the ribbon cutting and to Move in Day. Others involved in operating a deal are also happy stakeholders. JSCo rental managers are delighted to hand over the keys to a unit to someone who was formerly forced out of their home.
The John Stewart Company’s strategy was built by providing solutions to three compelling problems. At the company’s start in 1978, they managed affordable units. The problem was that the housing stock was grim. Developers had built only to HUD’s minimum specifications. Low ceilings. Cheap fixtures. No air conditioning. Tenants had chronic problems with leaks, peeling paint, interior violence. So, John saw that one way to solve this problem was to either rehab the project or to build from scratch. You can tell that he succeeded. JSCo has an eviction rate of less than 1%. Tenants want to stay because there are few affordable housing units and even fewer that are this nice.
Move In Day is another example of building in personal dignity. When tenants were moving into John’s Treasure Island rehab, lower income tenants didn’t have much furniture to move into their units. A mattress might sit directly on the floor. Neighbors could see who had what when the moving van pulled up. So John arranged to let the incoming tenants buy used furniture for a dollar a piece. The moving van no longer broadcast who was poor. This simple act maintained tenant dignity.
The second strategic direction came from a significant problem that his employees had -- burnout. Working with tenants in housing projects is stressful. While employees are part of the solution by providing affordable housing, they are not the solution to all the other problems that low-income tenants might have. The JSCo blend of work, to both manage and to build affordable housing, helps employees. They can rotate among jobs. By addressing the stress of the profession and providing mutual support within the company, many of 1400 employees have been with the company for 25 years. They don’t stay because of the pay. JSCo employees make less than comparable jobs in a non-profit or a government entity. They stay because the jobs provide variety, fun, and satisfaction. The State of California gave JSCo the Workplace of Excellence award for promoting ethnic and cultural diversity.
The third compelling problem that JSCo addresses is funding. It is quite a challenge to raise the money needed at every step of the development process. It takes money to secure the land. To plan and design. To hold community outreach meetings. To get permitting. To get construction loans. And there is the risk that you may lose out to a competitor along the way. Millions go out for a long time before any money comes in. Some of the solution about having the money to fund development comes from the company’s mix of doing both management and development. Property management provides steady cash flow. Development ultimately provides profit once the project is refinanced or sold. JSCo carefully titles the property so that it will remain affordable for 75 years. Selling does not convert the property to market rate where affordability would be lost. JSCo developments do not make the same profit percentages as market rate and luxury developers. Profit margins are not the point.
Today John Stewart no longer owns the John Stewart Company. He sold his shares to his employees. They are not selling their shares. They are holding on for the long-term. Just like John has. They too have learned to have a long-term vision.
John Stewart
John became the Chair of Houston’s Affordable Housing Commission. He worked for TRW. The City asked TRW for a donation -- not money; they wanted John for a year. When the year was up and John went back to work for TRW in Los Angeles, he advocated that the company get into the business of building affordable housing. They experimented with various construction materials that they had learned from the aerospace industry. But ultimately TRW got out of this business of building affordable housing. John bought their units. The rest is the history of the John Stewart Company.
Forty years ago, the descriptor “conscious capitalism” didn’t exist. The idea of having business be a force for good in the world was yet to be developed into a movement. The good that this company has done is to house over 100,000 low income people and build 4,643 affordable units. The company is still completing its mission and has over 1200 units in the pipeline. As John sees it, “When you do good, you will do well.” While this has been his mantra all along, John says he no longer has to think about it. It just is in our DNA.
John mentioned a book that recaps his approach – Always Leave Change on the Plate. “Business is not a zero sum game. I don’t win because someone else loses. Their success doesn’t make me any less successful.” John gets multiple stakeholders to align their interests and focus on one goal – building affordable housing units for those who need a decent home.
Lessons learned for a conscious capitalist
See the worthy problem for yourself.
Worthy solutions may be iterative.
There may be false starts.
Need to have multiple stakeholders in your solutions (and know how to identify them).
Your stakeholders may lead you to other worthy solutions.
Worthy solutions take time to solve. Have a long-term view.
Additional worthy problems will arise. Your momentum, expertise, and connections to other stakeholders can take on these tough ones.