Weekend Interview: Steinbridge Group CEO Tawan Davis On Impact Investing In The Residential Space

This series goes deep with some of the most compelling figures in commercial real estate: the deal-makers, the game-changers, the city-shapers and the larger-than-life personalities that keep CRE interesting.

When Steinbridge founder and CEO Tawan Davis was 15 years old and talking with his grandmother, he recalls quoting from the psalm that says the cattle on 1,000 hills belong to God.

“I told her that I didn't necessarily want 1,000 hills, or even a whole hill. Just half a hill, and I could make something from that,” Davis said. “I wanted to make a positive impact.”

He considered a number of paths to do so, he said. The ministry was one. His father and grandfather were both ministers. Striving for elective office was another. But eventually, be settled on business.

“I thought the way to make the most positive impact would be to create business opportunities, because almost all the inequalities, at least in the United States, have roots in economic inequalities,” Davis said.

After studying economics as an undergraduate and further studies at Oxford and Harvard Business School, Davis did stints with the New York City Economic Development Corp. and with a number of Wall Street firms.

In 2016, he founded the Steinbridge Group in New York, an impact investor in the residential sector, including built-to-rent, single-family rehab and urban infill development. Steinbridge recently inked a $50M joint venture with FrontRange Co-GP Property Fund, an affiliate of Denver-based FrontRange Capital Partners, to build and improve housing nationwide.

This interview has been edited for length and clarity. 

Bisnow: Why did you get into real estate?

Davis: My reason was to provide opportunities for people who might not otherwise have them. I saw real estate as an opportunity to provide a positive impact, to help people like me walk the path of economic empowerment. Some people are in love with architecture and design and the built environment. For me, it was really the opportunity to bring finance and job creation and wealth creation together and create economic opportunity.

Bisnow: What in your background helped prepare you for your current role?

Davis: That would probably be the most important and the least paying job I had, until I became an entrepreneur, which forces you to take a negative salary for quite some time. That job I had early on was with the city of New York, when I helped the city to redevelop billions of dollars worth of underused assets. The city was trying to downsize its footprint and also activate some buildings that were out of use. You could drive all around Manhattan, in particular, and see all these derelict buildings that were actually publicly owned. So my job was to find those underutilized buildings and economic development uses for them.

My favorite from that time was helping to structure the deal on 125th Street that is now going to be the National Urban League headquarters, which is going to have the Urban Civil Rights Museum as part of the headquarters. It's also going to have some high-end residences to help fund the museum. The city owned the building and the state owned the air rights, and I helped restructure that, working closely with the city and with the governor's office.

Bisnow: What is the Steinbridge business model?

Davis: Our goal is to be the leading impact investor in our space. One strategy is to partner with nonprofits and organizations that own land and to help them through joint ventures to contribute those assets to productive use, much as I did with city of New York.

A second strategy is rehabbing existing assets. We have a focus on going into transitioning areas, finding homes and rehabbing those homes to productive uses. A third is an urban infill strategy, which is when the opportunity arises for new development within major urban areas in the United States, and we contribute our know-how to that.

The first two strategies are focused on single-family residences, both for rent and for ownership, which is imperiled in much of the country. 

Bisnow: How can housing that is affordable to working families also provide the returns that private investors demand?

Davis: We don't acquire, hold or carry land. The landowner becomes a partner with us and so they basically swap their land for equity, and that lowers our basis by eliminating the carrying costs of land. The increase in value over time in both the land and the development accrues to both the landowner and us, as partners in development. That's a major way that we're able to provide a strong and sometimes outsized return.

When we do rehabs in the major urban areas, we are following the path of neighborhood change. I'm a data nerd. We do an analytical approach to studying three decennial censuses, so we have data going back 30 years, and we can follow the track of changes and see where there are tipping points in neighborhoods. For example, we look for increases in property values, homeownership or rental rates, or changes in average income rates, all of which can mean that that neighborhood or a nearby neighborhood is changing.

This isn't rocket science. Other folks have executed strategies that are similar. Early on, this was very much what Magic Johnson did to make two or three urban funds some of the best-performing funds of their vintage.

Bisnow: How are you coping with the high cost of capital and construction materials?

Davis: We're in an interesting target zone for investors and for lenders, and that has continued to give us momentum in the marketplace for capital and for other necessary inputs. We have a lot of single-family homes in our pipeline, both for rent and for sale. That part of the market is booming. There are 133 million housing units in the United States, 84 million of which are single-family homes. Among those 84 million, somewhere between 21 and 22 million are for rent. So one-quarter of the American housing stock is an actual rental.

That is by itself the largest investable asset class in real estate, with a total value of about $4.5T. But only about 2% of those houses are institutionally owned, with 98% owned by individuals or small mom-and-pop shops, so that is a humongous growth space to improve the housing experience.

The other important thing to note is that of the renters in the United States, roughly 63% are renting single-family homes. We think of renters as in apartments, but in fact, only about 27% of renters in the United States are renting apartments. Most of the United States isn't Manhattan. It's Mississippi and Arkansas and Oklahoma.

Bisnow: Where are the opportunities for build-to-rent? Cities, suburbs, primary markets, secondary, other?

Davis: We're targeting the top 10 to 15 metros in the United States. They are the drivers of job growth, with a few exceptions, and we're targeting those areas as drivers of job growth. Then we're finding those specific changing neighborhoods.

Bisnow: Are you optimistic that, as a nation, we can deal with the housing crisis?

Davis: Great question. Yes and no. Yes, in that America has the most active and inventive capital markets and economic system in the history of human capital. I've traveled a lot the last few years to some wonderful places, but the United States is unique in its ability to allocate capital to resolve economic challenges and to respond to market dislocations like the housing crisis. So there is hope.

No, in that it will require a certain amount of political will. There needs to be some partnership with the public sector — some tax support to provide infrastructure investment, and not to mention schools and public safety and sanitation, to create the spaces where people want to live and grow. I hope that somehow, over time, there will be the public policy to participate in creating greater affordability, both on the multifamily and on the single-family side.

Bisnow: Give us a bold prediction for the next 12 months.

Davis: Rishi Sunak will be replaced as prime minister of the United Kingdom.

Bisnow: What is your weekend routine or favorite weekend activity? This is a weekend interview, after all.

Davis: I try to run 8 miles on Sundays. That's my favorite weekend activity. I've also tried to be in the habit of either going to church or spending some time in meditation on Sunday, because I think it's helpful for me to reset. I used to work around the clock, even on Sundays, as you do on Wall Street or as an entrepreneur, but now I discipline myself to give myself Sunday back as family time and meditation time.