When neighborhoods rapidly gentrify and housing values soar, renters are left out of the financial windfall (and in the worst cases, are forced out of their apartments because they can no longer afford the area). A new startup called Nico—the name stands for “neighborhood investment company”—is designed to help many long-term residents earn a financial stake for the first time.
“Our mission is to allow radically more people to participate as financial stakeholders,” says Max Levine, cofounder and CEO of the startup.
The company is launching first in Los Angeles’s Echo Park neighborhood, where it now owns three rent-stabilized apartment buildings, one of which includes retail space for four local stores. By registering the properties as a financial trust, Nico can offer shares in the portfolio to people living nearby. This type of real estate investment trust, or REIT, is common, but the fact that it’s targeted at local residents rather than other investors is unique. Investments start at $100.
When the platform opens to investors in early 2020, the website will include a calculator that residents can use to estimate potential returns. As buying a house gets farther out of reach for many people living in Echo Park, it’s a way for people in the neighborhood to have a chance to build equity; investors earn both a share of the income from the properties and a share of the long-term profit as properties increase in value and are eventually sold. Beginning now, the company will run an extensive outreach campaign designed to reach as many people in the neighborhood as possible, with materials in both English and Spanish.
Levine and cofounder John Chaffetz both previously worked in real estate investment. “We really got to understand how real estate investment deals are structured and how that process really plays out, and simultaneously observed how fundamentally broken housing is in this country,” Levine says. “We started to use our experience to think about alternative models where you can really start to reframe the core question of who has an ownership stake and who benefits.”
The company is organized as a public benefit corporation, meaning that it has a purpose beyond maximizing profit. “It came from a place of feeling like it’s really insufficient to measure the success of investments that are happening around housing and neighborhoods in purely financial terms,” he says. “Our belief is that neighborhoods are fundamentally social, and serve a social purpose.”
Along with financial metrics, Nico will track how well it’s increasing inclusion and wealth creation, improving quality of life, fostering neighborhood diversity and stability, and helping build a strong local economy. While the company can’t guarantee that offering an investment will help neighbors afford to stay in an apartment as the cost of living continues to grow, it may help. Unlike other real estate investors that may be looking for properties to quickly flip and have little interest on the impact on a community, the company is focused on long-term investments, deliberately choosing apartment buildings that are rent-stabilized.
While the company is focused on Echo Park for now, it could eventually replicate the idea in other other cities. “What brought us to create this model and to believe so much in this model is a set of dynamics around financial inclusion and exclusion that are playing out in great neighborhoods all over the country,” says Levine. “And we would like to have a presence and in more neighborhoods over time.”
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