Boroughs & Burbs 182 || Sustainable Living in Phoenix

In this episode of Boroughs & Burbs, we explore sustainable living in Phoenix with Thomas McPherson, founder of Lukrom, a company dedicated to green building solutions. As Phoenix continues to grow, sustainability is becoming an increasingly important aspect of residential and commercial development. Thomas shares insights into how Lukrom is leading the way in creating energy-efficient, eco-friendly homes that cater to modern living. From solar integration to smart designs that minimize energy usage, we discuss the cutting-edge technologies shaping the city’s future. Tune in to learn about the challenges and opportunities in building sustainable communities in one of America’s fastest-growing cities.

Transcript

SPEAKER_00: 0:00

The Burroughs are New York City. The Burbs are everywhere else. Real estate is the ultimate game of risk and reward. It's the biggest investment most people ever make. Fortunes are made over a lifetime and lost in a day. And we're not playing with monopoly money. How do you stay ahead? Who's buying? Who's selling? And why? What do they know? We want the truth. You need an edge. Burroughs& Burbs is your secret weapon, giving you the insider knowledge and strategies you need to succeed in the high Welcome everybody, Burrows and

SPEAKER_01: 0:54

Burbs, number 182. Today, sustainable living in Phoenix, Phoenix, Arizona. And our special guest, Tomek McPherson of Lucrom. Welcome, Thomas. How are you doing? Thank you so much. I'm great. Beautiful day here. All right. First, before I, well, actually, hello, Roberto. I should introduce you as well. How are you? My co-host. Where are you?

SPEAKER_03: 1:21

I'm in Manhattan on the Upper West Side in one of the most efficiently run cities ever.

SPEAKER_01: 1:27

But is it sustainable, Roberto? Do you feel that you're doing all you can? Very debatable. I'll bet Thomas is going to give us some good ideas for the Big Apple. Yes, I want to hear. All right. And I'm John Engel. Let me start with some housekeeping. I want to thank our sponsor over at gracefarms.org. If you click on the nature tab, you're going to find one of their missions is sustainability. Very relevant to today's show. This is a picture of the river building built sustainably and maintained sustainably. And you can see that they've got Biodiverse Habitats. They've got weeks of nature-based programming. And this month, you can see that they've got spring birdwatching and classes in the landscape. So check out Grace Farms and click on the Nature tab to find out more about it. As I said, that's Roberto Cabrera. You'll find him at brownharrisstevensbhusa.com or robertocabrera.com. We'll show you his latest market report. I'm John Engel, and these are my last three real estate columns. This week, we talk about monopoly and how much it teaches us about the mortgage market and leveraging for real estate. And that's our special guest, the guy with the big beard. On the right side of the About Us page of Lucrum, and that's his company. So without further ado, welcome, Thomas. Thanks

SPEAKER_02: 3:06

so much for having me. What is Lucrum? Well, it's a Latin word and it means profit, gain, advantage, wealth, abundance. You know, think that was a lucrative investment. So when it ends in M, it's just the plural version of that word. So profits, plural.

SPEAKER_01: 3:24

Yeah. So we're not just doing good. We're wanting to be profitable.

SPEAKER_02: 3:28

Well, you know, I have a fundamental core belief that you can do well by doing good. You know, it's not a zero sum game. I really do believe that you can achieve a lot of financial success and do a lot of good for your communities, your family, your friends, the planet, you know, that kind of triple bottom line mentality. So this is about profit. Yeah, indeed. You know, I think that people for some- Our audience is going to love you. Yeah, I just wouldn't-

SPEAKER_01: 4:00

They're all about profit.

SPEAKER_02: 4:01

Good. Well, I do. I think that there needs to be a fundamental mind shift around the notion of sustainability and the notion of capitalism and business as an enterprise can do good and achieve... Fantastic profits for its stakeholders. As a matter of fact, one of our projects that won sustainability project of the year here in Arizona from NAOP, a fantastic trade organization, is getting the highest rents in the market. We've got the highest occupancy in the market, and we're really outshining all of our competitors. So it's just a demonstration that you can achieve profits and do so sustainably.

SPEAKER_03: 4:39

So sustainability, does that in some ways elude patience? Because when I think of sustainability, I think sustainability equals expensive.

SPEAKER_02: 4:52

Oftentimes, sustainability comes as an afterthought, right? So if you engage the design team and you give them a development criteria up front, they can incorporate a lot of really great designs, material selections, and mechanical, electrical, plumbing systems that are high performance, right? in their nature and the cost difference might be minimal or what happens frequently is that there's a nominal increase in capital outlay upfront, but your ongoing operational expenses are much, much lower, right? Like one of our projects were over 80% powered by the solar array. So we've offset a major expense load in that ongoing operational expense for the electricity that that building consumes. And then if you intelligently go about it, there's quite a few different tax credits available, 179D, 45L, 48, 48E, and cost segregation studies. You can actually recoup a lot of that additional outlay right up front through accelerated depreciation or tax credits. So it could even be cost neutral or potentially even cost beneficial to pursue really I don't so much like to say sustainable because oftentimes you lose a lot of your audience. Really, the way to think about this is high performance, right? What was really important to people, at least in our marketplace years ago, was, you know, hey, we're in Phoenix, let's put solar panels on the roof, right? Because they wanted to offset a lot of their electrical usage. But now what's even more important to people and what they're willing to pay for is their health, So having excellent air filters in the building so that the interior of the building is actually cleaner air than outside. Great water filters, again, so the water that you're drinking has much fewer particulates and is cleaner. So people are willing to pay now for health. And so we really think high performance is the other side of that, quote, sustainability coin.

SPEAKER_03: 6:54

Can I ask you just about... I mean, your business in general, like the ethos of, yes, you're going to find this couple and this family, and it's sporadic that they want these things for themselves. I want to improve my house. I want these efficient systems. But then we're talking about communities coming together and collectively, because if I do it and Jim does it down the street and Fred does it down the street, but everybody else doesn't care, not getting anywhere right so it's almost like the changing into the ev you know ev uh cars like it this is a very slow moving ball right

SPEAKER_02: 7:32

it is it is it's like turning an aircraft carrier you know you have to be you have to be patient it's not going to turn on a dime like a little ferrari or something so part of our thought press part of our our ethos is here, there's really three stakeholders that we need to be thinking about. Number one, that is the municipalities that are in charge of these different developments and the codes that they carry on their books, what they require. Number two are the developers like myself, the people putting together the teams, the capital stack, the design team, and then going out to market and getting this done. And then the third stakeholder in all of that are the people that are renting or buying these properties. And What we can do is by doing several projects that demonstrate this proof of concept, hey, we can actually do this with modern technology, modern building practices. We can do this. We can achieve these fantastic performance results, and we can do so in a way that is economically not only viable, but actually arguably more profitable than conventional building. What we've done is we've opened book that so municipalities can upgrade their code to requiring more of these high performance features. We can open source everything that we do to give developers that playbook. And then importantly, and I really think this is key, number three, give the people with money a choice to vote for where they want to live and spend at least one third of their life. And by doing so, again, we've demonstrated better economics than conventional buildings. And so just like Tesla is doing, they've got great economics, their stock went to the moon.

SPEAKER_01: 9:12

So I'm on the Planning and Zoning Committee, and we're about to rewrite our zoning regulations. for New Canaan, Connecticut. It's a town of 7,000 households, about 20,000 people. It's about one hour outside of New York City. So most people live here, commute into, or at least half commute into New York City, and to do so, most of them on public transportation. We have a train line into the city. So what advice would you give me in terms of thinking about our regulations? We write regulations typically as one acre land, two acre, four acre zone and how much coverage and how much height. But what you're talking about is a paradigm shift as a municipality. I also have a POCD, a document we look at, we point at, and we say, oh, that's the plan of conservation and development. And we should use that as the principles by which we rewrite our zoning regulations. In the POCD, it says that we wanna be sustainable. But I don't know what that means as a planning and zoning commissioner. So talk to me about how a municipality, because I don't want to get too far off into the weeds, but how should I as a municipality address this opportunity?

SPEAKER_02: 10:35

The best thing that I can say is think as long-term as possible. I think that's one of the fundamental kind of downfalls of merchant builders and other large builders that are looking to get in, build a project as quick as they can, maximize their profit and get out as fast as they can. And if we can think, hey, what will the longevity of these buildings be? Will this building be standing for 10, 20, 30 years or maybe 100 or more? And when you really put on that long-term lens, you start to think, hey, maybe let's start with the insulation and the wall system itself. If we build a better wall system with better insulative properties, that will allow the occupants inside the home to live more comfortably. That will allow for long-term, far, far less energy use over that century or more. And it will again allow us to approach this with a really long-term thought process. So for me, sustainability is about putting your kids or your grandkids eyes on and thinking about what they would appreciate and not so much optimizing for the short-term outcomes. So if you want more practical matters, you know, start with insulation, start with vapor barrier, because that, you know, if you get

SPEAKER_01: 11:54

the- They're going to tell me, stay in your lane. That's a building department, but we regulate pervious surface and impervious surface of the asphalt in your driveways, for example. And I know that you had an example, I'm going to pull it up on the screen now, of pavement. You don't just care about insulation and solar panels. You care about pavement. Talk to us about that.

SPEAKER_02: 12:19

Absolutely. So Phoenix, as everyone may have heard, gets a little warm here in the summer. Last year, we set a record, by the way, a record I'm not terribly proud of, but a record for the most number of days above 110 degrees. Last year, that was 70, 70 days above 110, so almost two and a half months. Now, that road, as you can see, is traditionally a black asphalt road in one of our suburbs here in Phoenix, but you can see it's coated with with this grayish white coating. And that is designed to reflect a lot of the sun's infrared radiation where most of the heat bandwidth and the heat energy is carried back out into space because we're trying to reduce the effects of these impervious surfaces, creating a heat island effect, which makes it hotter here and it reduces overall rainfall. And Phoenix is going to be a test bed for a lot of these solutions related to climate change and other, you know, again, heat-related issues as we go forward into the future. So talking about impervious surfaces, that's one of them that we're trying to improve upon. The other

SPEAKER_01: 13:28

one- I look at your roads and I think, oh, when I have all this tar in Connecticut, it's because they freeze. You don't have that problem, but you have a lot of tar on your roads, on your old roads anyway. Is it because the sun is doing damage to traditional asphalt?

SPEAKER_02: 13:45

Undoubtedly. Also, these roads are- probably traveled on by 50 60 70 000 cars a day and those are probably some of the older roads in the city you know so unlike a lot of other places in the world we don't have ice heaves we don't have things like that that are creating cracking in the pavement you can see that's a little bit newer road there and pretty good shape

SPEAKER_03: 14:04

so is what you're talking about is it like a spray and it's like a sealant or something that just gets applied

SPEAKER_02: 14:10

exactly exactly it's an application kind of on the top coat layer of that otherwise black asphalt

SPEAKER_03: 14:17

not toxic obviously exactly

SPEAKER_02: 14:19

non-toxic and so you know that that's a traditional kind of impervious area with this application to reduce the heat of the roads another really interesting thing that they're coming out with now is pervious concrete concrete that you can drive on that you can take a water hose and just pour that water right onto it and it goes right through the concrete and it looks kind of like you know a bone or swiss cheese it's a very porous concrete but it has fantastic structural properties that allow you to be able to drive your car on it. It's great for a driveway, right? You wouldn't make it an interstate road, but great for your driveway because you're not driving a tractor trailer on your driveway. So these are some other fantastic pervious solutions too. And you can see right there that middle of the right side, there's this dump truck that is dumping water onto this pervious concrete solution. And the water is going right in and through that concrete. So that's a great way to replenish the water aquifers below grade here.

SPEAKER_03: 15:22

And how much more expensive is it to create, like to have this as a solution as opposed to a traditional solution?

SPEAKER_02: 15:31

I wouldn't be able to give you great insight into that particular solution, unfortunately. But

SPEAKER_03: 15:38

can I just say, generally speaking, to endeavor into really doing something that's meaningfully sustainable, You're looking at increasing your costs by 30%? I

SPEAKER_02: 15:54

would say not quite that high, you know, 15, 10 to 15%. And The reason for that is, is kind of twofold. Number one, let's just start with wall systems. Let's say you put a really great wall system on your building. So you've got fantastic insulation, a fantastic vapor barrier and roof, right? What that allows you to do is then downsize your HVAC system. So you pick up some savings there in the HVAC system that also allows you to reduce your operational costs going forward. So you get a couple of different benefits there that there might be some additional capital outlays, you know, 10 to 15%, depending on how meaningfully, you know, you're moving towards high performance building practices. And then you do pick up some operational benefits. So, you know, a lot of what I've done lately is about a hundred million dollars of opportunity zone ground up developments. Those are projects that are, you're intended to hold for a period of 10 plus years. And there's some substantial tax benefits to those. And when you look at the math, even though our capital outlay upfront is substantially higher, again, about 15% higher, because our operational expenses are much lower, we actually have a higher net value of the property because in my world, everything is based on the net operating income and the associated cap rates with that NOI. So for example, we installed a solar panel system, about$900,000 solar panel system. But when you look at how much money we're saving, how much our NOI is going up, and then you apply the cap rate of the building to that savings, we're actually getting about a$2 million lift in value from the solar system that cost us$900,000.

SPEAKER_01: 17:43

Can I make a leap? Can I make a leap? So if I'm an investor and I have, I don't know, a few million dollars and this resonates with me, can I work with you to identify properties for which I could purchase or properties I own in my portfolio that you could help me get a higher NOI out of my properties or buy properties?

SPEAKER_02: 18:11

We typically, so we traditionally are acting as the sponsor in our investments. We don't do a lot of consulting, but I'd be more than happy to put people in touch with great consultants that I think can help drive value if they want to endeavor for that themselves.

SPEAKER_01: 18:25

I mean, I'm in a building now, right, 20,000 square foot building. We've talked about putting a 90 kilowatt solar array on the roof. And I say, oh, well, how much would that solve of my$5,000 a month electric bill? because we have electric heat and we're in Connecticut and we have electric air conditioning because we're in Connecticut. And so, and I've probably have 12 air conditioner, HVAC units, compressors on the roof. And they said, oh, you'd really only solve 25% of your, a modest amount if you filled your entire roof with solar panels. And I say, why? because you're in Connecticut, you're not in Phoenix. So guys like Roberto and I who are not in Phoenix,

SPEAKER_02: 19:17

does solar make sense? Well, there's a great resource that kind of gives you a heat map of solar irridence on the planet that you can look at where there's a lot of fantastic solar opportunities. But the primary driver isn't necessarily to just slap solar on everything. It's kind of like trying to fill a sandbag with a hole in the bottom of it. What you wanna do is fix the hole first. The building, the 20,000 square foot building that you're in might have really crummy old windows bad insulation, you know, you think of that thermal envelope as one particular kind of system that is always almost universally going to be the best place to start is in the thermal envelope of the building. So, you know, there's two ways to kind of get ahead, right? Make more money or spend less. The first place that you should start from an energy and sustainability standpoint is to consume less, spend less, improve upon your building envelope. And then you'll find that that same 90 kilowatt system might get you halfway or two thirds or three quarters of the way there instead of 25% or less. That's always where we start is with insulation. You want to orient. So I think a really funny thing happened in the late 1800s, right? With the discovery of electricity, coal, abundant other energy, resources, I think humans became, frankly, really dumb. We started to just brute force our own quote unquote creativity onto the natural environment, right? And we stopped designing with the natural elements in mind, right? What are the prevailing winds? Where does the sun rise and set in the summer and in the winter? Where's the rainfall? These other kind of natural factors that frankly aren't going to change materially. And we just started building buildings in the fashion that we thought was the most appropriate without taking that into account. And we're getting back to that, right? This is known as biophilia, right? And using nature and the genius of nature in our building design. So we always say, hey, listen, first off, begin with the orientation, right? Orient your building appropriately, right? Have more windows on the north side of your building. Have the fewest windows on the west side of your building. That's the hottest building, right?

SPEAKER_01: 21:37

Opposite in Connecticut. Yeah, exactly.

SPEAKER_02: 21:41

Exactly. Right. So, you know, have that north side be fewer windows and west, south and east be more windows. Right. So designing with what nature is giving you, the resources that nature is giving you, design there first and then build a really great envelope. And then from there, a lot of other things become much more attainable.

UNKNOWN: 22:02

Right.

SPEAKER_03: 22:03

So Thomas, tell me, so your organization, how does it, like, you are consultants? Explain to me what you, like, how your business works. Do I, am I building a building and I'm coming to you to construct it? Am I coming to you for guidance? Like, can you just talk to us about what your role is here?

SPEAKER_02: 22:27

Absolutely. So there's one of our projects. Our role is we are an investment company. First and foremost, we are an investment company that is based around and focused around real estate, right? So we offer private lending solutions. We offer financing to borrowers, and then we do ground up development as well as real estate acquisitions. So to just give you a little one minute story here, I was a 23 year old, you know, young guy getting out of the military. I had my life savings invested in the stock market. This is late 2008. I think you You guys know what happened, right? The market totally tanks a nosedive. And I got out of the military. I had just bought my first house, moved back home. The stock market plummeted. I ended a long-term relationship and I had a negative net worth. And I said, okay. No more. I'm not going to continue to send my money to Wall Street and hope and pray on what other people are doing. I'm going to take control of my financial future and I'm going to do something that I can impact the outcome, right? That's one of the things I love about real estate is I can paint the building. I can get new tenants. I can improve the value. And so that is kind of the genesis of this company. It's meant to be aligned between our stakeholders and the people that are actually running the fund. Real quick example, I've invested over$3 million of my own money in our flagship lending fund, and I've subordinated my entire interest to all of our investors. So if we ever take any losses, I lose my money first, right? And that's something I learned in the military. It's all about alignment, right? Alignment of the mission, you know, from top down. And once you get- Or

SPEAKER_03: 24:08

is that called accountability?

SPEAKER_02: 24:12

I

SPEAKER_03: 24:13

think

SPEAKER_02: 24:13

both

SPEAKER_03: 24:14

are unfortunately- That's for real.

SPEAKER_02: 24:15

Yeah, I think both are unfortunately rather novel concepts today. But, you know, so alignment from that risk standpoint, I don't want my investors to lose a penny because that means I've lost millions of dollars. On the reward side of the equation, you know, I can tell you from being in the military that a private could punk out an officer in the chow line when we would get back from a mission. Why? The officers and senior enlisted are supposed to take care of the junior enlisted, right? And so we would get food and you always make sure that your troops are taken care of. Then and only then, as a senior leader, do you go and eat. So on the reward side, we don't make any money until our investors are fully made whole, right? And I just think that this is how investments should be curated by folks like me, right? total alignment on the risk and reward side, right? A lot of sponsors will say, hey, we split the profit 70-30. I'm like, yeah, but what you're not saying is you made an acquisitions fee, a disposition fee, an asset management fee, a walk my dog in the park fee. You know, they basically take the cream right off the top. So that was the genesis of Lucrum as a real estate investment company. And the reason that I've chosen to focus on sustainable and high performance development is because Buildings globally consume 40% of our energy, the single largest consumer of power and producer of greenhouse gas emissions. So this is the biggest problem to solve when it comes to energy. And if you're going to point your focus at something, it should be the biggest problem that you're trying to solve. I think the built environment is the number two most underutilized resource in the world right now. And you're focused in

SPEAKER_03: 26:00

Phoenix only?

SPEAKER_02: 26:01

Well, that's where a majority of our holdings currently are, but we actually are active in quite a few different markets. We're in the New England area. We're financing folks in Maine. We're financing folks in Atlanta and Texas and Colorado. So we do have a national presence. However, our focus is here in our backyard in Arizona.

SPEAKER_03: 26:18

But going to New England, you're curating a completely different model for what we need, right?

SPEAKER_02: 26:25

And in addition to doing the development ourselves, we provide financing to to real estate investors, flippers, builders, and we give them a little bit of a toolkit to go out there and build better buildings. So even if we're not doing the development or the project ourselves, we like to provide financing for people that are out there making a difference.

SPEAKER_01: 26:49

So I'm going to show another one of your projects. Talk us through... Eco Mesa.

SPEAKER_02: 26:56

Mesa? Yeah, Eco Mesa. So that's a suburb of Phoenix. This was a fantastic project that we did. So this was a parking lot that we bought from the city of Mesa. And we approached them and said, hey, we've got an idea for this really fantastic project. We've got a great capital partner here, a local family office. We want to build a highly sustainable, high performance building in your downtown environment. So they said, great. So we bought this one acre of land and we built 102 units in downtown Mesa. We wound up winning the sustainability project of the year from NAOP. Again, a great trade organization out here. We increased the biodiversity on that parking lot tremendously, exponentially, right? There was probably only a handful of crickets and cockroaches feeding on the trash that was left in the parking lot. Now there's, I believe, 42 different species of plants that are pollinated by birds and bees and other kind of various insects. We've got 102 residents that are living there along with some great commercial businesses on the ground floor. And so what that allowed us to do was bring vibrance to this otherwise kind of desolate community, or at least pocket of the community. It's right across the street from the Natural History Museum, which is visited by tons of school kids and families on the weekends. So this is one of the ways that we're improving neighborhoods, not only from the building standpoint, but also creating community and connection.

SPEAKER_03: 28:25

So just curious, because I know that water is an issue in Phoenix and things like that, like to create something with such density, or you're going to need a lot of water. Is that a, is that a, do you have to get certain permits and for that specifically?

SPEAKER_02: 28:40

So for this project, no, the short answer is this was in an infill urban environment in the water. It already has what's known as a certificate of water assurance, but I just want to kind of rewind. There's been some interesting articles that have come out thanks to the New York Times and a few others that kind of blast Arizona. We use the same amount of water that we did 70 years ago, exact same amount of water, right? And this kind of blows people's minds. If I were to put 10 glasses of water on the table, and we're talking about water use in Arizona, seven of those are agriculture. Two of them are commercial uses and only one is residential. Now, I think it's a little silly that we still use flood irrigation and we grow crops like cotton and alfalfa and other highly water-intensive crops. And again, open flood irrigation, I think it's a horrendously inefficient use of water. And as water becomes more and more precious of a natural resource, I think that those agriculture practices will improve. But residential use is a far less water-intense use than agriculture. So as our population continues to grow, we're now approaching approaching 7 million people across the state, more of that agriculture use gets replaced with residential use, and our water use actually stays the same at the state level. So fundamentally, I don't think water is a big long-term issue. And if you look at the planet Earth, you get far enough away, it only looks like it's one color, which is blue, because I think 72% of the Earth is covered in water. The problem is it's saltwater, and it's not in the right location. This is a mechanical engineering problem. This is not a physics problem. We don't need to get the water from space. We've got the water. We just need to desalinate it and get it pumped to the right location for its use, whether that's agriculture, reforesting, residential or commercial use.

SPEAKER_03: 30:33

Do you not see that as an obstacle at all?

SPEAKER_02: 30:37

If you look at the pipeline map across the US and it is filled with oil, we've got all the pipes we'll ever need. We just need to convert some of those to something a little bit more

SPEAKER_03: 30:47

useful that brings life. Did you see how he explained that, John? He didn't say 10%. He said, if I had 10 glasses, seven, two, one glass, I mean, it was a very different, it's very, he's selling. This

SPEAKER_01: 30:59

is not his first rodeo.

SPEAKER_03: 31:01

No, no, no, no. It was very visual.

SPEAKER_01: 31:03

What is TSMC and how are you involved in that?

SPEAKER_02: 31:09

Well, Other than maybe owning a few shares of stock, which I don't, but TSMC is the world's largest semiconductor manufacturing company. It stands for Taiwan Semiconductor Manufacturing Company. And they are building, to my knowledge, one of the largest fabrication facilities in the world right here in Arizona. They have announced$165 billion going into that location right there here in Phoenix. And the reason for that is, And we had a great presentation by Chris Camacho, the president and CEO of GPEC, Greater Phoenix Economic Council. And he kind of went on to explain why they're moving here. And these are fundamental beliefs why I think Phoenix is experiencing robust growth. Number one, we don't have meaningful natural disasters, right? It gets hot here, but you can manage for that. Number two, we've got stable energy infrastructure as well as stable road and other infrastructure railways. We've got a lot of intellectual capital We've got a great economic diversity. I think our unemployment is only 3.4%, where nationally it's 4.2. We've got population growth, and we are actually already a bit of a concentration of semiconductor manufacturers here in the US. Intel has a very large fabrication facility on semiconductor, and there's a few others. So TSMC, knowing that they're headquartered in Taiwan, they're not far from a very aggressive kind of counterpart if you will, about being China, they know that they need to get a lot of their manufacturing out of Taiwan. And they wanted to locate it in a geography that they thought had a politically stable environment, was very business friendly, a low tax regime, and affordable for their employees. And they selected that location there in North Phoenix.

SPEAKER_03: 33:02

Wow. Now, in North Phoenix, isn't there a place called a karma community or something to that effect? that is all about integrating solar panels and all of the systems that you're talking about?

SPEAKER_02: 33:17

I'm not familiar with Karma Community. I'm going to have to look that one up. That's interesting. I'd love to learn. I am familiar with a few other ones. Arcosanti is one that's quite a bit north of Phoenix that's very interesting, and they've done some cool integration work with nature and biophilic design.

SPEAKER_03: 33:34

Is this becoming popular? You're creating... these neighborhoods that are going to be literally like just purely sustainable.

SPEAKER_02: 33:42

Absolutely. Absolutely. I see it. That's great. Wow. You know, if you go back just a couple hundred years, everything was 100% sustainable. right? Everything. It was all organic and it was all totally sustainable. We've somehow shifted away from some of these best practices and just kind of recent history as we've gotten smarter and better at manufacturing. When I think the reality is that when you design with the natural environment and the resources that are readily available to you, you will design with a much better outcome, optimizing for many things, not just profit, right? Let's optimize for the health of the occupant, okay? You guys know this. If you're in a room with a lot more windows and there's more natural light, your cortisol levels go down, your attentiveness and alertness go up, your retention and your ability to stay focused increases, your productivity increases. As an employer, I want my entire team working in well-lit with natural light offices, because I know I will get more out of them. I know that they will be healthier. I know that their circadian rhythm will be more in tune with the natural light cycles. They'll get better sleep and they'll show up tomorrow more well-rested, ready to go. If these are just some of the ideas that we carry forward, I think that we're going to see many small changes that incrementally and individually are meaningless, but when compounded on themselves, create some really amazing changes over time. Let's optimize for the health of the occupant. Let's optimize for being good stewards of our natural resources, both material and energy. Let's optimize for social connections. Let's optimize for economic outcomes for all of the stakeholders involved instead of just one economic outcome for the developer or the investor. I think we can do it better.

SPEAKER_01: 35:38

So you had me put up the TSMC plant for some reason other than your investment in. Did you help them with their sustainability plan?

SPEAKER_02: 35:49

No, and by the way, I don't have any shares of TSMC, just full disclosure. This is just, I think, case in point of why Phoenix is becoming quite the destination for manufacturing and other kind of logistics here. We're seeing incredible population growth. And when places like TSMC, they've announced 165 billion at that fabrication facility. How much due diligence do you think that they did? Maybe 1%, maybe 1.65 billion, maybe, maybe half that. They spent hundreds of millions of dollars, more than likely on doing due diligence, determining where in the world would be the best location for them to build their largest fabrication facility. And they selected Phoenix. And so the reason that I mentioned that is to just say, Phoenix really is becoming quite the epicenter of global manufacturing and national manufacturing and development for those things that we need to have done here in the

SPEAKER_01: 36:52

US. Which is really at the center of the national debate. whether we as a nation can, through tariffs and policy or whatever, change our direction to become more manufacturing friendly, and bring our tech innovations home instead of making our Apple phones overseas. Can we bring it home? And a lot of people are saying, no, it's not possible. You can't bring your car manufacturing home. Nope, not possible. And so it's really part of the larger existential question we have as Americans is who are we and what are we going to be over the next 20 years?

SPEAKER_02: 37:31

And unfortunately, we've outsourced a lot of our manufacturing. And I think not only is an economic conversation, but it also needs to be a national security conversation. Listen, I don't feel great about having a Chinese manufactured internet router here or even something as silly as a little, you know, electronic vacuum that's Wi-Fi connected, right? China is not our friend. You know, they are an adversary of ours. And we have other bad actors around the globe that are not our friends. And we need to be mindful of there may be some minor or seemingly insignificant economic pain that we have to endure in the short term to get to a more secure future. And that future is in Phoenix? I think that future is absolutely in Phoenix. And I think that future is in being mindful of kind of this, you know, 100 year vision. You know, Confucius, there was a quote that was attributed to Confucius. And I think you can kind of extrapolate it just a little bit more. But he said, if you're planning for a year, plant rice. If you're planning for a decade, plant trees. And if you're planning for a century, educate children. And I just think the fantastic part of that is like, you really need to be thinking much further out than today or tomorrow. And I'm a pilot, I fly planes. And so what you have to do is you have to have this endpoint that is thousands of miles away in your mind where you're going. And just very small deviations at the beginning of that course can have dramatic outcomes at the end of that course. And if

SPEAKER_01: 39:07

you could- All right, I'm going to put you on the spot. I know it's not fair, but look out Roberto's window. All right, look at that. That's a hundred year old building outside his window. And you're talking about sustainability in Phoenix. But Roberto and I are sitting here in the Northeast, the overdeveloped concrete, heavy Northeast. And are you suggesting, I mean- Some of my viewers who are all interested in real estate are going to say, easy for him to say when he's got a patch of desert and he's building a chip factory in the desert. But what is, Roberto is struggling with the repurposing of office space in New York City. Too much office space, not enough residential. And we'd say, oh, that's easy. It's not so easy. No.

SPEAKER_03: 39:56

How

SPEAKER_01: 39:57

are we going to solve that? How is Roberto going to get more sustainable? His client's more sustainable. How is he going to repurpose underutilized space and make it more sustainable and useful? Well, we have the

SPEAKER_02: 40:13

same problem here. We've got an oversupply of office and an undersupply of residential. I think that's a national problem. Number two, the greenest building is the building that is already built. So that hundred year old building is far more sustainable than us going and cutting down trees that are actively providing benefit to the environment and biodiversity and so on to build new buildings. So I think retrofitting old buildings is absolutely great. Unfortunately, there's some design obsolescence that makes it very challenging converting office to residential. We've looked at several conversions and because of the depth of the bays or again, various design challenges, it really is difficult unless we can somehow find a way to incentivize this, be it through either tax credits or breaks, or there's some, you know, kind of new design or material changes that occur to allow us to do this, it is a big problem. And I'm not, certainly not touting Phoenix as, you know, the sustainable, you know, panatopia of what is like, is possible. Because I think that where we are right now is not the most sustainable place. But what we're doing is we're test bedding a lot of different ideas on how to live in a better way. I don't think that we've got all the solutions. I don't pretend to have all the solutions. I'm just challenging myself, my team, our investors, and our partners to do it better. Let's just keep making incremental changes. And arguably, the most sustainable cities are the ones with the most density. You look at energy consumption per capita. it's in your most dense urban environments. They've got the best public transit, right? They've got all of the best kind of things related to true sustainability occur in those highly dense urban environments.

SPEAKER_01: 41:58

Roberto, does anybody in New York have solar panels? Just curious, on top of their building? I never see them when I look down.

SPEAKER_03: 42:04

There are some, but it's not a lot. It's not a lot. Can I ask you, so... Phoenix won. TSMC put their place in Phoenix. Who do you think you were competing with geographically within the country? West Texas? Parts of California? Do you know what other spots were being thought of as possibilities?

SPEAKER_02: 42:30

Yeah, we heard Texas was in the mix. There's a couple different reasons there. California has a fairly oppressive tax regime. 13%, New York has a fairly oppressive tax regime. It's not the most business-friendly climate. There's various laws, labor laws, other things that don't make it a very business-friendly environment, both legislatively and judicially. So Arizona is a friendly tax environment. Affordability index relative to income, we rank pretty high. So does Texas, right? And so I do know that Texas was also in the running. I don't know what other sites were in the running, but I am aware that those two geographies were high on the list.

SPEAKER_03: 43:08

And West Texas is being looked at for data centers, et cetera. I'm assuming you're being looked at for that as well.

SPEAKER_02: 43:14

We are building out an incredible amount of data centers here. Absolutely. And one of the reasons is that I think we're beating out places like Texas is because we don't get ice storms. We don't get these power outages that Texas frequently gets. Let's just think about these. You get, again, these ice storms, these violent thunderstorms and tornadoes and hurricanes, right? The only real meaningful natural disasters that we have in Phoenix are San and storms and all you have to do is close your window so

SPEAKER_01: 43:45

why not the nevada desert it seems to me nevada would be a hop skip and a jump from california and knowledge workers and it's plenty of open space to spread out people don't want to live yeah and it's

SPEAKER_02: 44:02

open for business i hear You can absolutely, Nevada is also kind of ranking high on the list, but as far as your population and intellectual capital already on site, They don't have nearly as many as we do here in Phoenix. Obviously, Las Vegas is a very, very large city with the casino and entertainment industry being the forefront there. But we've got a lot more, I think, compelling reasons that people will say, hey, listen, if you had to choose, do you want to live in Las Vegas or Phoenix? A lot more families, right? These engineers and these plant managers, they say, hey, I'd prefer to live in Phoenix, not Las Vegas.

SPEAKER_01: 44:37

So. Take us through, I think, solar. When I think of sustainable, I think most people are thinking about solar. People like myself who own a single-family home are all looking at what are the tax breaks and what's the break-even. I think I looked at it, and in the last 10 years, it's been as good as a four-year payback. But then when I talk to people, I say, what's the payback been? And they're like, well, it's been sort of an eight-year. That, of course, ties in with interest rates and can I borrow the money for the infrastructure on the roof at 4% or can I borrow it at 8% or higher? So there's a lot of that going on. So I think some of the luster has come off of solar. So can you either speak to the economics of solar or some of the others? I've heard geothermal. I had geothermal heating and cooling in my house for the last 10 years, my previous house, and I loved it. And I'm surprised that that I don't hear more geothermal projects getting off the ground. I think the economics are actually, I thought they were better than solar. Can you talk about the economics of some of these sustainable initiatives?

SPEAKER_02: 45:51

Absolutely. So I'd like to talk about three things, solar, geothermal, and then the infinitely renewable resources that are available to us just a few hundred feet, excuse me, a few hundred miles up. So first, solar. The economics really depend on a couple of different things. Number one, local pricing. Also your utility provider, right? So they might have a regime that's very favorable. They could have a net metering policy where you basically get to use their grid kind of as your battery bank. Other utility providers might say, you know, no, we're going to buy wholesale and we're going to sell back to you at retail, right? In a lot of those cases, it makes sense to have a small battery backup because then what you do is what's known as peak demand shaving. So you charge your batteries throughout the day and then roughly around 3 p.m. in the afternoon, your home switches from the grid to your battery system and you shave that peak demand usage. You kind of plateau and you shave it because most utility companies charge you based on the highest kind of bracket of power usage you go into. So if you can shave that, you've now lowered your entire usage for the month into a lower bracket. So unfortunately, the economics are really dependent on, again, your local installers and that cost along with your utility provider. Now, the other way to look at This is, let's just say simple math. It's a 10-year payback. That's roughly a 10% return per year. Where else can you get a guaranteed 10% return? No volatility. The market's not going up and down, right? There's some other factors there to be considered of. Also, where else are you going to get the independence knowing, hey, if there's a blackouts or there's some other kind of catastrophe that's rendered a lot of other utility providers unable to give me electricity, how am I going to know that my heat is on or my fridge is running? So I think there's some ancillary benefits beyond just the economics of it. So there's a couple of different things there to consider. Number two. geothermal. There are some amazing companies right now pioneering geothermal. And I think geothermal traditionally was only available in spots that you had very, very warm kind of resources under the ground. However, because you had to use relatively large drill bits and drill down, they're now pioneering using lasers to help dig through and vaporize this material so you can use much smaller piping and do so much more economically. I think in the coming years, we are going to see an absolute revolution in geothermal. I have no economic interest in any geothermal companies. But I do think that that's going to be some really amazing opportunities in the near future. Now, the last thing that I want to think about is the infinitely renewable resources that are up in the sky. And we all know the one big bright one at the center of our solar system, that big ball of fusion reaction going on, the sun. But there's another infinite resource that is out in space that people don't usually think about. And that's the infinite coldness of space. And you go, what are you talking about? So our atmosphere is mostly nitrogen, roughly 80% nitrogen and roughly 20% oxygen. So four to one ratio there. That means that a very particular wavelength of light, that energy does not interact with those gases. It just goes right out into space. And there's some really cool folks pioneering some technology. One of the companies that I'm aware of is a company called SkyCool. I think these guys are out of Berkeley. There was a Ted talk that they did. Basically, they apply this material, this kind of like nanomaterial surface to rooftops and to other horizontal surfaces, and it reflects light at this very particular wavelength that allows it to carry lots and lots of energy right out into space. Yeah, I mean, you can read about it here. The guy did an amazing TED Talk. And again, I've got no economic interest in them, although I wish I did. I think it's fantastic technology. They're using the infinite coldness of space as a renewable resource. So in places like New York, you really want a lot of the infrared heat and energy that the sun is bringing. In places like here in Arizona, we wanna push a lot of our heat out to space. We don't want all of this excess heat. And so I think companies like this that are figuring out how to manufacture things at the nanoscale and apply these topical solutions or these applications to rooftops, to roadways, to sidewalks, You can literally touch some of these surfaces and they are cooler than ambient temperature. Like, think about that. It's during the day, the sun is shining on it and it is cooler than ambient temperature because it's so efficiently pushing energy out into space, passing right through our atmosphere at the exact right wavelength. Truly amazing. This is the most incredible time to be alive.

SPEAKER_01: 50:46

I'm excited. Wow.

SPEAKER_02: 50:47

Yeah, stick around. The future's bright. The future is bright. Wow. Go ahead. Did you study science or physics? My wife would say I'm an amateur. I'm a total amateur. I didn't study it. I'm just incredibly curious. I think physics and engineering and science fiction often turns into science fact. So one of the unique things about humans and a fundamental core belief I have is the only limits I have are the laws of physics. So if I can dream it and it's within the laws of physics, we can do it.

SPEAKER_01: 51:24

All right, call to action, right? So what kind of a, I mean, so if I've got money to invest, should I be calling you? If I have a building that needs to be, that has opportunities like this building that, you know, should I call you? You say, well, we're not a consultant, we're a fund and we're, so... Who should call you and what kind of problem can you solve for me?

SPEAKER_02: 51:49

Yep. So one, if you've got money, you'd like to invest, you'd like to have your money doing some good, or you're just tired of the volatility in Wall Street, you want better alignment, absolutely give us a call. We'd love to have a conversation. Number two, if you're a property owner or you're looking to do something really creative or really beneficial for your community, absolutely call us as well, because even if we're not the right person for you to talk to, we've got a great network and team of people that we can put you in touch with the right resources across a myriad of geographies here in the US. Again, I view the built environment as one of our most underutilized resources. I think there's incredible opportunity in the space for people that can think and act creatively.

SPEAKER_01: 52:29

So as a building owner or a realtor with clients who own real estate, non-performing real estate, I could send you, for instance, the proposal I have, the$200,000 proposal to make my building solar. And you could say, yeah, we can help you or... We can do better, and we have resources that could do better, more efficient, more sustainable. You'd put me in the right direction.

SPEAKER_02: 52:54

Absolutely. And oftentimes, you know, the solution isn't to just slap solar on everything. You know, the solution is to sew the bottom of that sandbag that's leaking all the sand out of the bottom, right? Start with a thermal envelope, start with weather stripping and air sealing and insulation and putting on exterior insulation. There's oftentimes a lot of other better ROIs, better returns on your investment than just immediately going to solar. So that would be some of the guidance that we would give those people as well. So, hey, if you have two hundred thousand dollars and you're thinking about what is your best ROI, we can give them kind of a good list for where places to start would be.

SPEAKER_01: 53:32

Awesome. Well, thank you. This has been a

SPEAKER_03: 53:34

great hour. Very inspiring disposition. Very great, Thomas.

SPEAKER_01: 53:41

Yeah, I'm all pumped up now. I want to go do something. I want to save the planet and make some money. Yeah, you can

SPEAKER_02: 53:49

do both. Yeah, you can do both.

SPEAKER_01: 53:51

So thank you, Tom McPherson. This has been great. And thanks to the folks at Lucrum. And we'll be in touch because I already feel like I could be doing more. And I want to thank our sponsor over there at Grace Farms. Let me see if I can find them again. Thank you, Grace Farms. We love you. Thank you, Roberto. I love you. That's me, John Engel. Love you.

SPEAKER_03: 54:20

We love you.

SPEAKER_01: 54:21

Somebody loves me, Roberto. And thank you to the folks at Lucron. This has been a great episode. I agree. And you'll find it on YouTube and you'll find us on Instagram and you'll find us now on Facebook, Facebook Live. It's been going for the last hour. So thank you, Thomas. And have a great summer

SPEAKER_00: 54:46

in Phoenix. Cheers. Cheers.