The protracted under-investment in so many of America’s secondary and tertiary cities has left many contemplating what alternative pathways exist to spark renewal at scale. In recent years, such efforts have increasingly centered around grassroots crowdfunding and syndication, whereby local operators reduce their dependence on traditional financial gatekeepers like banks and private equity firms by pooling smaller sums from individual investors and renovating or building real estate properties within their local communities. Such efforts, while impactful in isolated cases across the country, have not spurred a large-scale renaissance of American cities, forcing policymakers, politicians, and developers alike to revisit approaches that can be adopted in parallel to attract even more capital to these markets. 

Enter Reed Benet. Mr. Benet, a former USMC Infantry Officer and Harvard Business School graduate, believes US veterans can play a unique and vital role. While many veterans understand that they can utilize 100% LTV VA Loan financing to buy an existing home, most of the country’s 16.2 million veterans and 2.2 million active duty, reservists, and National Guard do not appreciate that they can also utilize these loans to acquire, build or rehab, 2-4 family homes to become owner-occupied landlords. These tweener properties are often called “the missing middle,” a hybrid between single-family and multi-family properties. If veterans could concentrate their buying power into specific residential developments, Benet argues, especially where large tracts of brownfield vacant land and more aptly where many contiguous vacant parcels and dilapidated properties exist, they could help transform such areas while also building wealth for themselves via rental income and long-term property and neighborhood appreciation. “Think of it as horizontal development,” Benet explained. “Rather than building a 200-unit garden style apartment complex envision a cohort of 50 vets with 50 quad-plexes. It can be contiguous or semi-scattered, urban or rural but the point is the 100% LTV financing follows the vets, so suddenly areas that have struggled to attract bank financing due to distress, bias, etc. suddenly become a lot more financeable because the vets y’will live there and anchor their own communities.” Benet’s company, HeroHomes, connects vets to communities, helps them acquire their homes, and oversees the lease-up and property management of their rental units. Benet elaborates. “The goal is to harness the power of veterans as a collective capital source. Every cohort of 5,000 vets wield as much community, economic, workforce, tourism, and housing development power as Amazon HQ2, but without the need for the $3 billion of subsidies they received for their such Amazon HQ2. If a developer can pre-sell some or all of their project to end users with mortgage qualifications in hand, suddenly their ability to obtain construction financing becomes dramatically easier because the VA loans allow for “one close” construction to permanent loans for the end-user. What’s more, we can build in areas like Ft. Smith, Arkansas, or Newport News, Virginia, with strong veteran communities, areas Amazon would never go to, yet with the equivalent of one to more Amazon HQ2 Impact Units to accomplish VETrification versus GENTrification,’ which is our mission statement. I estimate there are 333 American cities with one or more Amazon HQ2 Impact Units just sitting there.” 

Part of the elegance in Benet’s design is that the rental tenancy in each community can be catered to the unique endowments of the area where it was built. A residential community built nearby a hospital, for instance, may market its units to nurses and other hospital staff, while a community located nearby a military base may target vets and civilian contractors. “And even better,” says Benet, “if for-or non-profit, government and/or foundation entities focused on community, economic, workforce, tourism, and housing-development use their balance sheets and credit to pre-master-lease the residential and commercial rental units at rates that ensure the developer a reasonable profit, it minimizes the risk of default on the underlying residential mortgages. It’s essentially piling loan guarantees on top of loan guarantees.”

But despite being lauded by many as a visionary, Benet’s business model does not come without challenges. To execute his strategy at scale, HeroHomes could face pressure to pre-sell to veterans in bulk, making it essential to implement checks and balances to properly educate first time buyers and dis-incentivize vet abuse, although, as Benet blunted commented, “If the rental units are pre-master-leased at sufficient rental rates, it’s pretty hard to impossible to screw this up.”  Also, vets (many of whom are first time landlords) would have to shoulder the burden of mortgage payments on their 2-4 family homes if their rental units remained vacant or tenants stopped paying rent, although Benet says he’s not as interested in the challenge of teaching individuals how to be full-service landlords and prefers working with professional property managers that will oversee lease-up for owner groups. For all of these reasons, Benet characterizes HeroHomes as a wealth creation resource first and foremost. “Our job goes deeper than just recommending a community for a vet to buy into. Our responsibility is to equip them with the full suite of tools that will allow them to navigate the various facets of acquiring a home, obtaining a mortgage, choosing a community and property that meets their personal and financial goals, and with the assistance of professionals managing that asset to build wealth.” To that end, structural guardrails, like the master lease structure, are critical. “By partnering with foundations and nonprofits to master lease the rental units in our communities initially, we can ensure there is sufficient incentive for vets to buy into the communities and reduce the downside risk associated with volatility to leasing rates and vacancies for both them and mortgage originators. Also, with construction costs and interest rates stubbornly high, we need to offer a product that excites buyers at prices that make the project viable for developers. What we’re trying to do here is leverage capitalism for good. I went to Harvard Business School, the so-called ‘bootcamp of capitalism’ for my MBA, but there must be an acknowledgement that the traditional capitalist approach has not worked when it comes to revitalizing our cities and uplifting underserved groups. We need new solutions. So, what we’re really pursuing is “philanthrocapitalism,” which we define as Mother Theresa and Genghis Khan having a business model baby, mixing social compassion with a serious operating edge, one that even traditional capitalists can’t deny or resist.”

The company is currently building a pipeline of communities across the country that vets will be able to buy into, including a 60-acre site along the North Carolina coastline, a 800-acre site just outside of downtown St. Louis, and a 35k acre master planned community west of Phoenix. When asked how he’d distill his vision and end-goal, Benet concluded “I consider HeroHomes Zillow.com meets Groupon.com on steroids. Our goal is to “‘VETrify versus GENTrify the Great American Renewal.'”