The following is a rough transcript which has not been revised by The Jim Rutt Show or by James Ehrlich. Please check with us before using any quotations from this transcript. Thank you.
Jim: Today’s guest is James Ehrlich, he’s the entrepreneur and residence at Stanford University School of Medicine on the Stanford Flourishing Project. He’s the founder and CEO of ReGen Villages. Welcome, James.
James: Jim, so great to be here. Thanks.
Jim: Yeah, this is going to be a good conversation. This is the second time James has been on the show. He was on Ep 103 in January 2021, and we had so many cool things to talk about, we didn’t get to them all, we had to reschedule, the time was shorter than usual, and all that stuff. So, we’re going to hit some additional hotspots today, we’re going to mostly talk about his ReGen Villages concept, which you can find a link to on our episode page. Before we do that, we’ll do a little bit of bridging so that people who are coming to this fresh, have an idea what we’re talking about.
Jim: So, one of the interesting quotes as I reviewed the episode last time, you said, when you got to Stanford, you started to think about smart houses initially, and then you had an insight and I quote, “A smart house inside a dumb neighborhood doesn’t make a lot of sense.” What did you mean by that [inaudible 00:01:09]
James: Well, the truth is that, I spent quite a lot of time doing case study research prior to coming to Stanford, on organic, biodynamic, small plot family farms, and many of them are surrounded by intentional communities, ecovillages, cohousing, collaboratives. When I came to Stanford, I got involved in what’s called the Solar Decathlon, was a Department of Energy competition. Universities would come together that have about 18 months in the design cycle and about two weeks on site in a designated location to build a smart house “energy positive passive house” that’s flat pack and got shipped to location and built very quickly.
James: I was brought in early on as organic food permaculture, regenerative infrastructure coach and lecturer to the Team Stanford. That’s when I realized that the context of the individual smart house, not making a lot of sense if the neighborhood that it’s in is using status quo, district scale infrastructure that can and does go on the fritz. So I really started to explore this idea with some of the professors at Stanford, Professor Larry Leifer, Chris Ford, Henry Jackson, and others, on this topic about how can we look at a neighborhood infrastructure that’s regenerative and resilient.
James: Unfortunately, this were the right professors at the right time, who basically said, “We love this idea, why don’t you go with it?” That was really the birth of ReGen Villages. ReGen stands for regenerative, which is how we can build and retrofit housing and communities around critical life support systems of clean water, clean renewable energy, waste resource management, and high yield organic food production, right outside your door. That’s the genesis of the ReGen Villages initiative.
Jim: So you basically moved the scope from how do I build a smart house to how do I embed it in a full fledged community that’s intelligently designed to live in balance with nature and presumably provide a good quality of living for the folks that live there?
James: Absolutely right. All that flourishing, everything is about improving the human condition, and restoring planetary balance in nature.
Jim: That would be a good thing. So what is smartness? We don’t want a dumb neighborhood. What makes a smart neighborhood?
James: That’s a great question. Every time I get invited to speak on these pretty lofty panels or do lectures around the world on this topic of smart cities and smart communities. The word smart is meaningless to me if it’s not about safety, if it’s not about resiliency, which means that when district scale services have a problem, the power goes out, there’s problem with your water supply, you have some situation where the food distribution matrices are disrupted, whatever it may be, that these are communities that somehow or another, keep humming along, they keep doing what they’re doing.
James: I call it Amish tech, or indigenous tech, First Nations tech, that these folks are happy, healthy, they have what they need, and that they’re not dependent on these district scale services. So to me, the word smart has to be about safety and resiliency.
Jim: How do you put that in the context of potential disruption or even collapse of society?
James: Well, look, for many years, I guess people, even esteemed colleagues at Stanford and elsewhere around the world, considered me to be a little bit, let’s say, chicken little ish, in the sense that I kept saying, “Hey, these coastal mega cities are brittle, and when they break from some anomaly or another, that you’re going to see a wave of humanity start to look towards the countryside, and we’re not prepared for that wave, because for so many decades, we have been neglecting the peri-urban and rural areas, because the city has been the preeminent shiny object.” So, we weren’t specifically predicting COVID, but COVID came along a year plus ago, as I think most everybody who’s listening is aware of at this point around the world.
James: What it did was overnight, almost immediately make cities feel less safe. Not only that, but cities for many years now have not been delivering on their promise, they’ve been expensive, they’ve been not as safe in terms of security, there are a lot of issues facing cities and urban areas. So, there wasn’t even much of a beat, but all of a sudden, you start to see people leaving the city, the urban areas, for these peri-urban places and rural areas. Here we are now, ReGen Villages is positioned, I would say, perfectly to create a new industrialized approach. I use that term in the best light possible, but to use prefab, assembly line, supply chains, building materials and components to rapidly deploy these very beautiful, self sustaining neighborhoods.
James: Living in a passive house, it’s generating more power than your family needs. You have clean water systems, energy, delicious food, that’s permaculture that’s around your house and your community, and you feel safer, you feel happier. Our goal really is to make these turnkey solution neighborhoods that are socially affordably accessible.
Jim: You mentioned earlier intentional communities, ecovillages, et cetera. In our GameB world, we have a concept called Protobee, which is analogous in some ways to what you’re doing, though at a somewhat smaller scale, and we don’t have as much bigness in our thinking yet, but one of the things we’ve discovered is, in this space, there’s a continuum from basically a real estate project not much different than residential subdivision that one extreme. The other extreme is our full on intentional community like an Israeli kibbutz that might have jobs built in, socialism built in, total egalitarianism, endless governance meetings every Saturday night, et cetera. But we’ve also discovered there’s lots of places in between those two extremes. Using that kind of dimension, where would you place ReGen Villages?
James: Well, we shout out to the Global Ecovillage Network, and it’s a story I tell, I continue to tell that, I had gone to Denmark in early 2014 to get the blessing from this gentleman named Ross Jackson, who could be considered the father or grandfather, whatever you want to call it, of the modern ecovillage movement. Because I really wanted to make sure that he understood, and the community understood, the grassroots organic ground up, community would understand that what we’re trying to do is to leapfrog and to create the circumstance where these behemoth industrial players, whether they’re real estate developers, landowners, construction firms, material companies, that when you provide the fertile ecosystem, for them to make a reasonable impact profit, we can talk about the profitability angle in a minute.
James: But if you can provide that rate of return that’s interesting enough for them, then the syllogism goes, that we ought to be able to start changing the rules, that the zoning, planning and permit polling, which many people who understand developing these kinds of places, knows full well, can take decades. So what we’re really trying to do is use software, our VillageOS software to leverage through virtual digital twin planning, first to change the rules and the planning conditions, but then also that our software can then actually run the physical infrastructure of these neighborhoods.
James: But the answer to your question is, we absolutely are, from the very beginning ReGen Villages was focusing on and continues to focus on, how can we transact with sovereign wealth pension fund and green transition funds that are in the trillions of euros and dollars? How can we transact with them in such a way that they will provide the facilitation of mezzanine, junior and senior level debt, to get these places built at speed around the world?
James: Because I think we can all agree, there’s a desperate housing crisis, there is an urgent climate change issue that’s critical we have to deal with, and we have to make these communities that can be decoupled for self reliance, they can actually become the self reliant places. I’m not talking about libertarian political mindset, but really about just safety and resiliency.
Jim: You did actually address the question and said lots of interesting things, but in terms of how the commitments that a person makes when they join one of these ReGen Villages, is it more like a hippie commune or is it more like a suburban subdivision? Or is it something in between, and if so, where on that continuum?
James: Traditional real estate development in the sense that it is not necessarily subdivision, and not necessarily cooperative, but a place where you can come to, and you can buy a house, you can rent a house, you can be offered a house for social affordability, and that you can live and be in this community in such a way where you have monthly association fees, that if you pay the full amount for those things, great, then you have no responsibility or obligations whatsoever to do anything in the community except live your normal life, with your friends and family and et cetera.
James: However, if you decide that you would like to contribute, and work in the garden or farm or do child care, elder care, or other kind of activities, that are part of a ledger, and an actuary that we have, related to labor costs, that your monthly association fee can then be reduced or removed, or maybe it pays off your mortgage or your rent. So, it’s essentially addressing the ecovillage movement, providing it at people’s own terms. That’s our goal really.
Jim: Making it optional essentially, so people can dial in what they want. You talk about food being grown on the property. So something like a CSA would be part of the deal as well that people could optionally take?
James: Well, yeah. I mean, our goal is to have a budget somewhere between 200 to 500 per month, depending upon the size of your home, how many inhabitants are in your home. But essentially, that your energy bill, your water bill, your organic waste bill, and maybe something like 55 or 60% of your daily nutritional needs, your shopping basket, your food basket, would also be sorted with that few $100 or 400 euro a month, association fee. So in other words, it’s really competitive on what you would normally pay for those other bills to happen.
James: So yeah, we’re really compelled about this idea of permaculture, designing neighborhoods around permaculture. Okay? Before we put up the single home or community center, it’s really all about food. If you want to think about what ReGen Village is about, it’s imagine just a delicious year round menu of bioavailable nutrition for you and your family. Where when you open your front door or your back door, you see where it’s coming from.
Jim: So will the food part be mandatory if you’re paying the association fee? Is subscription to the Community Supported Agriculture going to be mandatory part or is that optional?
James: Well, it’s mandatory if you are paying association fee, you receive the baskets if you don’t want your twice a week food basket with all different kinds of delicious veggies and eggs and chicken and other kinds of small animal protein and light dairy, et cetera. I guess you can turn it away or donate it back to the community. But I don’t see anybody on our list so far whose … that’s not something that they’re interested in. They’re interested in bioavailable nutrition. They want to go further than organic, they want the biodynamic farming principles. They really want to understand that they’re eating food that is completely pesticide, herbicide and fungicide free. The best way to understand that is to know that you’re living right next to it, you see what’s happening.
Jim: Yep, it’s interesting, but it’s also hard as you guys would find out. Especially I’ve seen some of your designs, they call for pretty intensive in structure vertical type farms and stuff like that. You can get some infestations in there like nobody’s business. So, committing to entirely organic, we’ll see if it’s practical or not, I have my doubts. I mean, I actually have a farm and I’m engaged with the local agricultural movements, and particularly as you go to these high intensity quasi-industrialized models, the failure modes actually start to go up as opposed to open field agriculture. We talked last time about the fact that you want it to be able to support something like 1000 people on … Was it 1000 people? Like that on 60 acres. To do that, takes a tremendous concentrated effort, which increases your fragility.
James: No, there’s no doubt about the fact that the biggest variable that we’re going to face is in food production, especially in either Nordic cold weather climate context, or northern Canada, whatever it may be, or in arid locations like Dubai, or Saudi Arabia, et cetera. Or some other issues in the tropics and subtropics, though, variabilities are going to be there. But there’s a couple of things on our side, one, there’s increased understanding with precision Ag and algorithms to get ahead of some of those curves.
James: Number two, there’s the natural remedies, and there’s so many natural remedies now to cure for when those circumstances start to happen. Of course, there’s no doubt that you could have a crop failure here, or a crop failure there, or some other issue that you might have infestation, whatever it may be. But that’s also the reason for this patchwork of permaculture and the quilts of a moveable farm plots. Because in that mindset and framework, you really diminish the ability for those bugs to come back in the same place, at least, every year. You confuse the hell out of them, you also bring in natural predators.
James: The truth is, you’re going to have a certain amount of attrition and loss to organic farming because those creatures, whether they’re worms or caterpillars, or other kinds of aphids, whatever are going to come to your site, but it also then attracts certain kinds of predators. That’s why it’s also really important to make sure that you’re inoculating the right kind of mycelial network that is providing the right kind of signaling. So, nature can also be on our side, is what I’m trying to say, to help us with these things.
Jim: Yeah, there’s certainly some opportunities there. It’s tricky though. Agriculture is the hardest goddamn thing I’ve ever tried to do. I’ve done lots of other things that people said were impossible. But doing Ag on a budget is a big challenge. I’d love to see how you guys go. The next big question, when people start thinking particularly about rural villages, is work and making a living. You go to the rural countryside, there aren’t too many good paying jobs in general, it seems like there’s two possible answers. One is to initially, at least focus on people who can work remotely and make big city incomes while living in the country.
Jim: The second is to develop industries in the settlement or very close by. What’s you guys thought on how you deal with the fact that good paying jobs in rural places generally, aren’t you plentiful if you suddenly had a few 100 people suddenly showing up, you would most likely saturate whatever good jobs there were?
James: Well, it’s a great point and well taken, but when I started this research on ReGen Villages, almost, I guess, eight plus years ago at Stanford, almost nine years now, there was an Oxford study that had come out recently thereafter, which predicted that by 20 years later, which I think we’re close now to 15 years or 18 years, whatever in, is that, you’re going to see 47% of all employment not exist anymore. This is pre COVID having to do with machine learning, artificial intelligence and robotic assistance. So, now even if you dispute that by 50%, a huge swath of humanity will no longer have employment.
James: Some people might argue, “No, there’s going to be these new jobs created.” But it’s very different than the turn of the Industrial Revolution, where those jobs meant, the change meant more assembly line and manufacturing work. Instead, now you’re going to see more and more people who are unemployed and underemployed. Now because of COVID especially, a few things have happened, obviously, around the world. Number one, people realize they can work at distance, they can work from home, they can work remotely.
James: The other is that, because of COVID, there’s been an incredible downturn in global employment, because of the fact that people have woken up a bit to this idea of the extraction consumption economy, the quarterly returns, if you will, that are akin, if you will, to a cancer cell. People are beginning to wake up to that point. So, our goal really is that people can work at those higher paying jobs from remote locations in rural areas, they can also create new kinds of businesses and startups in those areas that draw more people to those places, also employing people who are local to those rural areas.
James: But most importantly, that we start to move to a period of self worth, instead of a job. Right? If you wake up in the morning, and you’re happy with what you’re doing, and you feel hopeful, and you’re doing something that’s contributing, and you just feel like you’re part of something, and you’re doing things that are creative, that’s 90% of what people need in their lives. Of course, the other part is making sure that they have a roof over their heads, they’re getting three square plus meals a day, they’re feeding their families, they’ve got their energy bill, they’ve got all of those other things contained in their lifestyle.
James: So, if we can solve for the base Maslow’s hierarchical needs, just by living in a neighborhood, then the delta of, let’s say, universal basic income, potentially is reduced. Then we can start to see these new economic models start to emerge, and that’s happening right now. I mean, as I’m speaking, we’re seeing a whole new era of people who have left the city for good, they’re living in the countryside, they’re starting businesses or working to create new businesses and new ideas. So, this is an optimistic future, post COVID future.
Jim: All right. Interesting and difficult though, because there’s a bit of a …seems like a reliance on things that aren’t going to happen anytime soon, like a movement towards truly significant levels of universal basic income. Yes, there is some small scale experiments here and there, but I don’t see any in the next 10 years, any significant likelihood that any of the major industrial countries are going to enact a UBI at, say, the equivalent of 10,000 U.S. per adult per year, which is the minimum that you might even think about, starting to be able to free people from the tyranny of work. So, we’re going to have to solve this problem with, I think, work in place. I think that’s one of the hardest problem, one of the two hardest problems about thinking about these kinds of things.
James: Well, I mean, look, there’s been very successful experiments, even here most recently in California. I think it was out in Stockton or Modesto, they had an incredibly successful UBI, universal basic income experiment over the last couple of years. People were learning new skills and getting different kinds of employment, and becoming able to untether themselves from the UBI after the experiment. In other words, it really improved their lives, it made them less prone to stay in this cycle of poverty. That’s really what we’re on about with this idea of UBI.
James: Again, if you have a housing infrastructure that is where most people spend the money that they earn, if you think about it, people get in a car, and they go to work in a box to pay for the empty box that they leave behind for eight hours a day. And 1/3 or more typically, of their paycheck is going to that. Then another big percentage is going to food and power and utilities, other utilities, but also phone. So, if you can combine all those and make them more cost effective, then that delta for UBI can be less from a government perspective, and also we can find new economic incentives for these rural areas. I’m so bullish about the rural and the peri-urban areas because they represent this incredible opportunity to get the new build or the retrofit build right, for the benefit of people and planet.
Jim: One of the things you did point out last time around is, particularly in rural areas land is dirt cheap. Right? Where I live, you can buy perfectly reasonable land for three or $4,000 an acre, compare that in the city where it’s in the 10s of millions an acre. But now we go on to our next problem, which we talked a little bit about last time, that we should dig into a little bit more this time, which is the cluster fuck known as regulation. Even in very rural, I live in the most rural county, east of the Mississippi River, population, 2,200.
Jim: Nonetheless, to try to build an urban village at moderate scale is a multi year machete journey through vines and brushing thorns. Men, as you pointed out previously, many of them, 80 or 100 years ago for completely different purposes, but nonetheless, it’s an amazing thicken that one has to cut through to do what seems like good for the world. What is ReGen Villages? If you can solve this problem, this will be the catalysts, the activation energy above all others that will help this movement move forward.
James: Absolutely. One of the number one things that we’re focusing on with our VillageOS software is to change the bloody rules. In other words, if you’re looking at a piece of agricultural land, or ranch land or even greenbelt areas, the handcuffs around those landowners and those developers and those communities has been unlockable. But if you can come with an ability, with a virtual simulator, a simulation, you’d look at that piece of land, you imagine what it would be to put 3, 4, 500 plus homes on 1/3 or less of the actual land grant, with two thirds or more of that land grant being devoted to permaculture and productive food, water, energy, waste systems, then, all of a sudden, you create a new rule book overlay, a digital overlay that, as Buck Fuller was off to say, makes the old rules obsolete.
James: So, that’s really what we’re on about with our VillageOS software, that we can show the governments, regional especially and the national governments that there’s a new way forward to meet these ESG and Sustainable Development Goal and green transition funding commitments if you check off all of these boxes. That’s really exciting, and that’s what has to happen. I’ll give you a perfect example. We’re a Dutch holding company, but we have a subsidiary in Sweden, here in the U.S. and Canada, most recently in Chile. But in Sweden, for instance, which is very common all around Europe and the rest of the world, they need to build over a million new homes in the next eight years.
James: But the rule books are the same, which means it can take five or 10 or more years, just to realize a community of a few 100 humps. So there’s just no way that they’re ever going to be able to get to where they need to get to in terms of their housing crisis by the current rule book, but they need also to have an impact. They can’t continue to create car culture, energy sucking, waste producing neighborhoods, which is what they did in to some degree in the 1970s. The social housing boom that they did.
Jim: The rule book calls for it. Right? At least, in the most the United States calls for recreating car culture or if you’re in rural areas, they often have three or 10 acre, minimum lot sizes, which ends up with people scattered all over hell and back where the infrastructure is … there’s no way to really build efficient infrastructure.
James: But let’s look at that for a second. Those rules, I like to say, were put on the books 150, 200 years ago by old white guys with long white beards and top hats. Okay? They were the robber barons of their era of district scale utilities, and of mobility, and of all the industries that surround and support the same rinse and repeat model. Now we have this opportunity to use software, to use machine learning to show a new way forward, a new rule book, but also that we can actually piggyback and marry ourselves to these large industrial players that are building these beautiful new housing capacity components, and also the other pieces that go with it, and show that there is a pipeline and an ecosystem here that supports big business and industry.
James: Then of course, the banks get interested, they’re more inclined to lend, because they know what the current state of the land is for passive homes, for instance. We get to a place where we have, essentially, a toolkit and a rule book for changing what has to be changed right now. And that’s really, I think, again, an optimistic future for us to be able to change the rules, it’s probably one of the top things we have to deal with, for us to survive on this planet.
Jim: [inaudible 00:30:45] with Protobee movement, it’s the number one, getting this regulatory environment change. Once we have a decent regulatory environment, then experimentation will figure out the right way to do it. If you were going to take your ReGen Village project to a county in the United States, most land use planning is at the county or even the town level, what story do you tell them, and what do you use to backup your story to get them to allow the land use that would be necessary to do the things that you need to do?
James: I think, again, going back to our roots, literally focusing on big finance, that one of the biggest questions politicians and bureaucrats, but mostly politicians, want to know or need to know is that they’re not going to be wrong. The easiest answer you’re always going to get is No. Because they understand no, and they can always refer to their rule books as to why that no is happening. But if you can say, and you can show them here is a huge funding source that’s willing to come in and bankroll 80 or 100 plus million to build this full four or 500 home community in a turnkey manner, and we have also these 10s of 1000s of people registered to buy or rent those homes, and we have these giant bulletproof pension funds willing to purchase any surplus housing for long term secure rental, you’ve essentially created a golden key for that county and for that district, to say, “Gosh, why wouldn’t we say yes to this?”
James: Otherwise, we’re going to go down the road to the next municipality, and do it there, and show them how it’s done. PS, this is how Walmart works, in case you’re wondering. Walmart comes to town, and I’m not saying Walmart are great actors by any shake of the stick, but they come to town with a lot of money, and they really woo and convince the planners that they need to build this box store on the outskirts of their town, on the promise, not delivery, but the promise of all these things that actually don’t ever get delivered.
James: But in any case, that allows these things to happen. That’s why you see those box stores popping up. That’s why you see those big industrial players popping up and doing the things that they do, because the money is what drives the industry, and it’s what drives the lending, and it’s what drives the political decision making. That’s our thought process.
Jim: Yeah, and it’s not bad. In fact, you can take it one level further and be really quite aggressive about it. Walmart is also famous for playing jurisdictions off against each other saying, particularly, not so much for the stores, but for the distribution warehouses, and we have several at our region over the Shenandoah Valley, and they have notoriously played the jurisdictions off against each other to get things like county investment for road infrastructure, humongous 20 year tax abatements on property tax and other things. As you said, I’m not sure Walmart’s a good moral model for how to proceed, but I suppose one could get pretty aggressive in playing one jurisdiction off against the other once you have your story straight.
James: It’s really more about enticing instead of playing them off each other for competition. It’s really more about this idea that, when you have giant finance behind you, half a billion, a billion, whatever it is, and you’ve got the industrial players with blue chip names, Siemens, Bosch, Schneider Electric, Philips, people take notice and then also this blended finance but also the fact that we have the triple P, the Public Private Partnership, which includes universities, my affiliation to Stanford, Singularity University, we have now just entered a collaboration with MIT Solve, we have these relationships with wonderful universities like Wageningen in the Netherlands and TU Delft and Cologne and et cetera. In Sweden, KTH and Lund.
James: The list is all over the world with these university collaborations we have. Because if you bring all of those forces to the table, again, you’re reducing the risk profile for the government to allow the word yes to flow more freely. That’s really what we’re talking about here.
Jim: You’ve mentioned several times getting these gigantic financial enterprises behind what you’re doing. To do that, they have to have at least a tolerable rate of return, and also, from my experience, I’ve been on the board of a $17 billion trust that I had to provide some guidance to, they need to have understandable model. Right? They’re not innovators, the big boys aren’t. So, let’s dig as deep here as we can go. What do you have in mind for the structures, the deals, essentially, typically, these things are structured with multiple kinds of financial products as you know. Give me a sketch of what it might look like to put the funding together for one of these projects, or even better, a pool of money that can fund multiple projects at scale?
James: Yeah, it’s actually pretty straightforward. So the first is that we engage the landowner or municipality that owns the land, and they have entitlement, and they’re willing to put that land up in the form of equity into a deal. Right? So that’s immediately a huge risk profile reducer for these institutional investors.
James: Number two, that this land happens to be in a viable or fairly viable location within a reasonable commute distance to either university or university town or a city. So, 30, 45 hour, it could be a little bit more like an hour, 90 minutes to start with, that the demographics and the area can deliver at least a 12 to 15% IRR, iterated rate of return, that the specially that the government is willing and able to roll up their sleeves to allow the planning conditions to happen within 15 to 18 months, so that the deposits can start to be taken, investors start to see the revenue coming in, and that the project can be completed within a 24 to 36 month timeframe.
James: Meaning you fully built four or 500 homes within three years. Right? And you sold out or rented out, and the investors get their reasonable impact rate of return, and you’ve got this now beautiful, vibrant community that’s been born. Those are essentially the guidelines.
Jim: Now, a few questions here. One, I understand and this makes a lot of sense. To degree, you have big partners and a proven model, you lower the execution risk. Every town is afraid of putting some infrastructure in and then finding, “All right, it’s a blank field, the builder went bust.” Right? Happens all the time. Real estate development is mostly full of small scale characters, often under capitalized, et cetera. So this idea of bringing in the big players reduces their legitimate and frankly, experiential fear of being stuck with a white elephant that never gets beyond putting in some crappy gravel roads or something.
Jim: But then you mentioned the 11 to 15% IRR. Presumably, that’s only for the very core of the equity investor. Right? That’s a ridiculously high IRR for the mezzanine and debt finance that would go into one of these projects. So, can you talk a little bit about the layer cake of finance, as you see it? One of my views is that, we want to keep that equity layer as small as possible, and to degree that you have a reproducible and demonstrable business plan for doing it, you can do so. In the early days, you have to have bigger equity layers and mezzanine, then the debt will be a smaller piece. But over time, one could try to make that layer cake as inverted as possible, essentially. So, maybe you could talk about how the various kinds of finance play together.
James: Right. Again, it’s a combination, this is idea of blended finance. Traditional real estate development, as you’re probably aware is, is very greedy, it’s very predatory. It’s 25% plus rate of return with a two year fixed exit opportunity cost. So you’ve got to get in, get out. Typically, they build as much square footage, square meter as they possibly can. Really bad materials, really junky. They sell as high as they possibly can, and then they get out.
James: We are an impact investment vehicle that is focusing on Sustainable Development Goal, ESG and green transition funding commitments. So therefore, we’re already telling our investors, the maximum you’re going to see for the real estate side and sale and rental is going to be 12 to 15% IRR over a three to five year period terminal value, number one. Number two, we try to find, of course, and we know it’s out there, very patient debt finance. So the mezzanine, junior and senior level debt can be hopefully in a 2 to 3%, or 1 to 2% or even less range.
James: Then when you start to loo at, for instance, the pension funds, they’re very happy, ecstatic even with a 2% annualized return from rent roll, and buying housing inventory for affordable rent. So, there’s a lot of different ways to skin this blended finance cat as it were. Our goal really is to do that dance, and to position ourselves to create the right kind of green bonds and finance infrastructure that puts big amount of money next to us, behind us. So that the players in the field say, “Gosh, we’d really like to engage with this ReGen Villages platform, because we understand that then at least it’s a stepping stone to this facilitation toward that funding.” That’s how we really feel, like this is all going to get done rapidly around the world.
Jim: It’ll work rapidly once you prove it, that would be my perspective, and that these people are extremely … especially the mezzanine and debt finance people. You ought to find people for equity for 11, 15%, that’s a nice return in the current world. Very few real estate investments do the 25% you’re talking about. Most real estate investment trusts 5 or 6%, a good return. Right? Only the most audacious rape, pillage and plunder developers make those kinds of returns. Those are not typically the kind that institutional investors engage in. So there’s kind of a chicken in the egg, you got to prove it, and then this thing will evolve towards these kinds of structures.
Jim: To give people a sense, I just did some back the envelope calculation, 300 home project are probably talking total financings on the order of $100 million. That sound about right?
James: Yep, pretty much. Depends on where you are, of course, in terms of per square foot or per square meter, build costs and labor. Also, depends a lot on the land cost. So if you can get the land at … like you talked about this dirt cheap cost or free, because the rural, peri-urban areas, they’re desperate to have more new blood to live there, wherever we can find effective opportunities to reduce our costs, we can pass that savings on to homeowners, and we can also create a better business case for our investors.
Jim: Yeah. I was just running the numbers, and over here, at 3000 an acre, 200 acres is almost nothing compared to 100 million over in the Shenandoah Valley where there’s plenty of jobs, the land is better and climate’s a little bit more amenable. The best land’s about 10,000 an acre. That’s still only 2% of the whole project. So, on the scale of things in rural and quasi-rural areas, the other parts, the biggest part, the infrastructure, something like at least $200 a square foot to make energy efficient construction these days.
Jim: Unfortunately, a goodly part of that also has to do with unnecessary regulation, but you may not be able to beat that anytime soon. Then of course, the electric and the roads and the sewer and the water and all stuff also will add to the cost. So yeah, I think the general direction you’re taking here sort of makes sense, but it’s going to be an interesting chicken in the egg question on how many of these you have to do before the big boys are willing to come in at reasonable rates or return. I’ll be very interested in looking at that as this project moves forward.
Jim: The next topic, we mentioned it just in passing last time, I’d like to dig into this a little bit, something I’ve done some work on, which is, you’ve talked about making these sites self sufficient with respect to electricity. Is that really practical today? I mean, the amount of batteries you need in most parts of the country to have a sufficient depth to be literally off the grid increases the cost of building the electrical infrastructure by a factor of four or five or at least three. And in some parts of the country like the Northeast it could be even more than that. So talk a little bit about this ambition to be off grid self contained solar.
James: Well, it’s more than just solar. Okay? Depends upon where you are, again, geographically and climate zone wise on planet Earth. But it’s a mixed bag, you have voltaic, solar, solar thermal, you have wind turbines, the wind turbines are getting more efficient without burn, death and without noise. You also have biomass and bio gas, and geothermal, and geothermal doesn’t have to be this expensive kind of Big Dig, low bore kind of thing, you can do the short bore, maybe something like 25 maximum meters down kind of thing. You get to temperature constant in the earth soil that is roughly around 55 degrees.
James: So, that’s a very pleasant delta temperature that you bring that through low energy water pump, or low energy air pump up into your homes, up into your buildings, your greenhouses, et cetera. Then the ability to either heat or cool from that point becomes much less. Now, of course, you’re building with passive house platform topologies. This is a state of the art right now, where those homes are extremely toasty naturally in the winter, and nice and cool in the summer. So again, your energy demands are much, much lower.
James: But what we’re looking to do really is, is a basket of energy generation, and to balance that using what’s called a micro grid. The micro grid load balances different kinds of power sources, generating different times of the day or night, whatever it may be, storing it in clean, efficient ways. There’s battery storage, but there’s also other ways to store energy, either with water or with compressed air, and then you’re able to generate that power back from those sources. But then we also look at having a grid tie. We’re not shying away from a grid tie, so that we can, where there are good tariff agreements, especially sell that power back, the micro grid is smart enough to know when in the day is the best time to sell that power back to the grid, for the highest possible price.
James: So there’s a benefit that comes back to the community for that. But even if there isn’t a tariff agreement, we can use that surplus power in our village for … essentially a petrol equivalent for vehicles, for farm equipment, for other kinds of things around the community, that electricity can can be used for. I’m really enamored by the Amish, I find the Amish to be this population of folks who are really strong and really capable. They’re not fully decentralized in the sense that they’re living within communities, and they’re part of the larger towns and things like this, but when the power goes out in Pennsylvania, for the Amish, it’s Tuesday, I mean, in other words, they don’t know the difference. I really love that.
James: That’s really what we’re on about with ReGen Villages, that we can be Island in deed, for a number of days, and not have any issues, that your food basket will not have issues, that your clean water, and your plumbing and everything else, everything is just going to function the way it’s supposed to. That’s a really high value.
Jim: I’m glad you’re thinking a little bit about it with some flexibility, because grid tie does change the cost basis tremendously though it does reduce your robustness to disruption. That it requires some subtle electrical engineering, electrical storage is something I know a lot about. While you mentioned wind and water, I mean, air pressure and water, it turns out, they’re not actually cost effective, except in the rarest of cases. We have the world’s largest water storage plant here in Virginia, and there have been no new ones built, 30 years since that one was built because it’s a goddamn hard to find a decent location where they actually make sense.
Jim: So, unfortunately, for most, especially, 300 person neighborhood, batteries is going to be your choice, and it makes sense to have some batteries, but how much is essentially an interesting kind of engineering/economics question that we’ll have to work through. Now here’s something that I think it’d be really interesting to talk about. We didn’t talk about this at all last time, but while I was doing some research on some of the things that you’ve talked about around ReGen Villages, I ran across you talking about your view that it was TV that essentially made suburbs and cities sexy.
Jim: And that when TV started to penetrate America, that was the end of people being happy living in small town America. Is that something you’ve said? I think it is, and if so, how do we make moving back to the country and living in a ReGen Village sexy and trendy?
James: Well, in 2016, we announced ourselves to the world, initially at the Venice Biennale, for architecture in Italy. And overnight, we just all of a sudden, we hit a nerve and there was all this press coverage, Fast Company, Forbes, and Wall Street Journal, and BBC, et cetera. So obviously, there’s a demand, there’s an interest in this concept of living within nature, not separate from it. Right? That’s a trend that’s been growing for some number of years now. And now, because of COVID, literally, our email is like our servers on fire.
James: There’s so many people emailing us every day from all around the world. The finance especially, the bankers especially, have now really begun to lean in, because they understand that they have to start complying and creating investment vehicles that answer these questions. So, the sexy appeal is there, we know that wherever we announce ReGen Villages, community that’s going to come, whether it’s UK, or Sweden, or Denmark, or Netherlands, or here in the U.S. or Canada, Chile, whatever, wherever we announce, we know for a fact that we’re going to sell out, because the urgent need for people to want to feel safe for themselves, for their children, for their elders, for their community, is paramount.
James: That is absolutely what we’re focusing on, is this idea of turnkey communities where you can live in the countryside, but you don’t have to be a farmer, you don’t have to be an engineer, you don’t have to worry about all of those details, you come into a beautifully architected prebuilt neighborhood, buy a house, rent a house, pay your monthly association fee. Of course, if you want to be involved, you can, and if you do so, there’s an electronic digital ledger that will reduce your monthly fees. But otherwise, you can live in that community like any other neighborhood. Moreover, this idea is about building new economies, that there’s these DIY Maker Movement, curriculum, health care, all these different pieces are like an app store that fit into this regenerative neighborhood infrastructure.
Jim: You mentioned safety several times, and so I’m going to push back with a controversial no doubt idea. Should these ReGen Villages have their own militias? Because if we actually are going to have civil collapse at some point, or there’s a risk there of, those people who can’t defend themselves are going to be basically taken over and subjugated by those who can. So, does it make sense for the ReGen Village to have a militia?
James: I have a better idea. Let’s build enough ReGen Villages around the world, that there’s an overproduction of these artisanal ingredients, and of clean water, and of clean energy, and of waste resource management, and enough of these lily pads around the countryside and the peri-urban and suburban retrofits and even in the urban areas that we can do these breakaway retrofits that we don’t have zombie apocalypse. I don’t want to live in a bad Charlton Heston movie from the 1970s. I grew up watching those movies, they weren’t bad by the way, they were fun to watch. But I never want to live in that scenario. I want it to be able to affect a positive lens that we can imagine a better life through.
James: Now, is there a need for security in that way, local neighborhood watch? Absolutely. Do we have a need? I think personally we have initially probably need to deal with just the sheer number of tourists from around the world who wants to come to see ReGen Villages communities up and running. You have no idea the number of municipalities who we’re dealing with because they’ve heard an inkling that we might be coming to their area. Municipalities are overrun. “Where is it? How do I find it? I want to look at the land.” So, we have to be able to control for the looky-loos and create WWOOFer visitor kind of agreements. WWOOFers are those people who come in and volunteer on your farm and they get to stay free for a week or a month, or whatever it is, in exchange for some labor, they get fed, and they have a good time.
James: Our goal is to make these communities not gated, but university campus like. So there’s ebb and flow of ideas of wisdom, and joy, and celebration. And again, when you’re over producing healthy artisanal ingredients, you know what happens? Generosity, compassion, altruism. And by the way, it’s clinically proven at Stanford University, the Center for Compassion, Altruism, Research and Education under Dr. James Doty. It’s proven to reduce amygdala response, which is your reactive brain, which is cortisol levels, reduce cortisol levels, which means you live longer, you’re happier and healthier. Guess what? You can actually design neighborhoods that make people live happier, longer, healthier lives.
Jim: Yeah [inaudible 00:56:44] I kind of 100% agree. We talked about a little briefly in the previous episode. When I go back to the big city now, and I do from time to time, and when I’m in New York, I’m a New Yorker, I take the subway, it always strikes me, it’s so fucking weird that these people are in the subway looking at their shoes, or these days they look at their phones, they don’t look you in the eye, they don’t engage. Friends of mine that live in New York and been living in the high rises, they literally don’t know who their next door neighbor is, even though they’ve been living there for 15 years. That strikes me as a very strange way to live, and it’s amazing people will put up with it for as long as they have.
James: Well, I grew up in New York City. I get it, okay? It’s 24 by seven, if you want a particular kind of regional Indian food delivered at 3:30 in the morning, you can get it, if you’ve got the money to order it and get it. At the same time, I was always amazed as a kid, how does any of this actually work? I mean, the subways, the infrastructure was rotten and brittle, and the cables, and the wires are everywhere. It’s not just New York, I mean, it’s Mumbai, it’s London. I mean, all the big cities in the world pretty much have this substrate of just cobbled together things that miraculously work. But when there’s an anomaly, it comes and it can be really catastrophic for a lot of people simultaneously.
James: That’s what I saw when my family experienced Hurricane Sandy, they were without power, and the facilities, even the shelves on the market were bare for five, six weeks, and it started to get really real and terrifying. Yeah, I mean, I really see that there’s a way forward for humanity. I’m not anti city by the way, I just want to get that out there. I’m definitely interested in solving for my friends and family who live in Manhattan and other places with these breakaway overlay components for regenerative resiliency. But we have to follow the outside city concept.
Jim: But where are you actually with the ReGen project? You have software to be developed, databases of regulation, investors to be lined up. Where is ReGen Villages as entity today?
James: Well, we are very strange multinational startup. We’re holding company in the Netherlands, Swedish subsidiary, U.S. subsidiary, office in UK, in London, a subsidiary in Canada and British Columbia, and most recently in Chile. Currently we’re in a series A, funding round for 16.5 million euro, which is all we need pretty much to facilitate the building of our first 400 home community. We have land opportunities on deck right now, about 25 different locations in our pipeline. Four or five of them are pretty high likelihood areas. We’ll give out a shout out yet to what those are, but some, Europe, UK, U.S. Canada and Chile.
James: We’ve recently become part of the UN Climate Change Secretariat Resilience Lab, that was late 2020. We’re part of the European Network for Rural Development, ENRD, which is really great. Also, most recently became part of the EU Bauhaus movement, and we are engaged right now in due diligence with one of the smallest funds that our banking advisors have brought to us, which is a 14 billion U.S. dollar fund that’s also connected to Europe and Canada. So, we’re in a position right now to, we think effectively close our series A round, move forward pretty rapidly in the next 12 to 15 months to break ground, and then start moving people in, in the next couple of years, hopefully, to our first pilot communities. So, we plan to do concurrent developments.
Jim: Cool. That’s very, very exciting. You’ve come a long way, just in a fairly short period of time. I mean, Money Talks Bullshit Walks as we say around here. When do you expect to close on your series A?
James: Well, all the indicators seem to say sometime next month, which would be really exciting. Could be the month after May, but we’re good right now with finance. We’re excited about what’s coming. The other thing is that we’re making fantastic progress with our Village Operating System software. And working with our partners, Sir Robert McAlpine in the UK, the oldest largest engineering general contracting firm in the UK, and also Buro Happold, and Squint Opera. These are two fantastic bulletproof partners. We’re really engaged right now in bringing our VillageOS software to life, both the operational version of the software to run the first neighborhoods, and then the design side of the software, as I said before, to change the rule. So, we know we’re going to do it, we know we’re going to bring it forward, and we know that it will be successful, because it has to happen. It has to happen around the world at scale.
Jim: Very cool. This is so exciting that you’re getting this close, I will be so interested, I’d love to have you back once things are up and running. We can talk about the first project, and also would love to know what class of folks are willing to be A round investors and something like this, don’t need to name names, but this could be world changing. James, thanks for coming on the show and telling us more about this very exciting ReGen Villages project.
James: Thanks again, Jim. I really appreciate it. Great to see you again.
Production services and audio editing by Jared Janes Consulting, Music by Tom Muller at modernspacemusic.com.