At a brick bakery on Sunset Boulevard, Stephen McCarty sells technicolor rainbow cakes dyed with dragonfruit, blueberries, and turmeric. McCarty, who relocated from New York City in 2007, has developed a following for his vegan cakes. But he had to close the doors to his shop, Solar Return, in mid-March, and was only able to open for no-contact pickups around Mother’s Day—with help from his landlord.
The executives who run Nico, the property management and real estate investment corporation that owns McCarty’s building, realized early in the pandemic that, with the economy all but shutting down, tenants would be pinched trying to make rent. At the end of March, they released security deposits to tenants in their three buildings, all in Echo Park, and the second week of April, they set up $150,000 in grants for rent payments, none of which had to be paid back.
“If we didn’t have a sympathetic ear in the landlord’s office, we would basically be giving away our ingredients and our time,” says McCarty, who tapped into the fund to keep his business afloat.
Nico is giving Angelenos an opportunity to own a piece of their neighborhood. If Nico’s community-investment strategy works, long-time Echo Park residents who haven’t already been pushed out by gentrification, including renters, will have a chance to make money from property ownership—just like people with lots of money have always had the opportunity to do.
Nico is offering $10 shares to the public in its small real estate portfolio, an amount that’s unusually low for the real estate investment game. Anyone can buy in, but investors who live in and around Echo Park have different redemption rights, and every investor must purchase at least 10 shares, for a minimum investment of $100. That secures a financial stake in the company and a say in how it operates. Nico’s officers are also giving $1,000 worth of shares to the tenants in their 80 apartments.
Like Warby Parker and Patagonia, Nico is a certified B corporation, meaning it is deemed to be as committed to its social mission—to preserve rent-controlled apartments and give longtime residents more say in how their neighborhoods grow and change—as it is to turning a profit.
“We believe real estate has an outweighted influence on neighborhoods, and is too driven by capital,” says Max Levine, who cofounded Nico. “We want to help stabilize communities and manage properties in a more responsible and humane way.”
No matter how much good Nico might try to do in Echo Park, it will still be making money off renters and small-business owners in a neighborhood that has been treated by developers as a real estate gold mine, with little regard for the impact that has on the people who have been displaced.
“I thought about that a lot. This could be a way for white people to alleviate guilt about gentrifying,” says Kevin Graves, a graduate student and renter in Silver Lake who’s investing in Nico (he also moved here from New York City). He decided to buy shares after seeing an ad for Nico on social media. “If people are going to make money on the gentrification of Echo Park, let’s have it be the people who have lived here for a long time instead of being squeezed out,” he says.
Real estate companies do shape the look, feel, and dynamics of communities. They decide, to a large extent, how much to charge for rent, which businesses get to occupy their buildings, and what the buildings look like. The typical resident doesn’t get have much power over how a residential block or commercial strip is designed. Most renters don’t even know the people they cut their rent checks to. Nico, for its part, is not hidden behind a vaguely named LLC.
“The vision for these buildings? We want to be longterm stewards of great assets, and we want to build community and support our residents and contribute to the stability of their lives,” says Levine. “We want to be great property owners.”
Nico is “democratizing” real estate ownership, says Helen Leung, an urban planner who serves on Nico’s advisory board. “Real estate is the primary way to build equity,” she says. “But typical real estate investments aren’t accessible to the average person.”
She was also impressed with Nico’s commitment not to evict anyone under the California Ellis Act, which is essentially a commitment not to tear down the buildings that Nico owns, all of which are rent-controlled, or convert rental apartments into for-sale units. Levine says Nico will ensure tenants get to live in their apartments for as long as possible. Leung, who runs a community nonprofit based in Frogtown, where she grew up, says she looks forward to holding Levine and his partners to their word.
Before he relocated to Los Angeles to launch Nico with his business partner, John Chaffetz, Levine lived in New York and worked for Storage Deluxe, a self-storage developer. He is also a part owner of Mile End Delicatessen, a Jewish deli in Brooklyn.
A few years ago, he says, he began trying to figure out how to use his real estate knowledge for good. When he met Chaffetz, the pair got to talking about how when most people think about investing in their communities, they envision homeownership. “But you have to have enough money for a down payment, and that’s a high bar,” he says.
Chaffetz is a former Morgan Stanley employee who cofounded Timberlane Partners, a real estate company that purchased and flipped several old apartment buildings in Echo Park and Silver Lake over the past several years. In 2015, Bloomberg described Timberlane’s strategy: “Buy neglected apartment buildings in promising neighborhoods, renovate, raise rents, and fill them with young professionals.” Chaffetz told Bloomberg that Timberlane was “putting together a portfolio it plans to hold for decades.” But its website shows that it sold five of its six Los Angeles properties in 2018 and 2019, including one that it sold to Nico for $9 million.
Paul Ong, an economics professor and director of UCLA’s Center for Neighborhood Knowledge, says there are more democratic forms of landownership, like community land trusts, which don’t exist to make a profit. Benefit corporations like Nico might set out to do good, he says, but “in our market economy there are incentives and pressures to mold behavior around maximizing profit to the degree that your noble ideas become secondary.”
On the other hand, if you’re profit-driven alone, Nico’s holdings may ultimately be too small to make any significant returns for investors, says Eric Sussman, an adjunct accounting professor at UCLA and partner at Clear Capital LLC.
“I’ve never seen a real estate investment trust own so few properties,” he says. “If this whole approach is to allow renters to get a piece of the action or somehow invest in their own units, I think there are less expensive, more liquid, better ways to go about doing it.”
The goal, Levine says, is for Nico to start buying more rent-controlled buildings in Echo Park and surrounding neighborhoods, including Westlake, as it recruits more investors and raises more money.
“The great untold story of neighborhood change is the pressure that capital puts on communities and how those investments define success, which is in purely financial returns,” he says. But on the other hand, he says, “we don’t view capital as bad.”
Update: This story has been updated to show that Timberlane sold one of its Echo Park properties to Nico in 2019.