By Conor O’Neill ’17 Rachel Diller ’99 is Partner and Head of Bridges UrbanView. There, she allocates capital to commercial real estate projects that deliver both financial returns and social impact. Over the course of her career, Professor Diller has worked in both the public and private sector, including roles with the City of New York and the Related Companies. Most recently, she was a Managing Director in the Urban Investment Group at Goldman Sachs, where her group deployed capital to underserved domestic urban markets. She has taught the Social Impact Real Estate Investing and Development course at Columbia Business School since 2014. In a recent interview with Conor O’Neill ’17, she discussed her professional experience, her approach to creating impact through the built environment, and her advice for aspiring real estate professionals. How did you decide to pursue a career supporting communities through real estate? I really fell into it. As an undergrad at Penn, I majored in Urban Studies. I was interested in how affordable housing forms the foundation of communities. Ultimately, that’s how I made the connection to real estate. When I graduated, I went to work for the City of New York. I sought to be in one of the housing agencies and was assigned to the Department of Homeless Services. I was placed in the Facilities Management and Development Department, which was in charge of developing all of the new shelters. There, I found myself at the intersection of social services and real estate. Homelessness was then, and unfortunately still is, a major problem in New York. I liked that through the development of shelters, we were able to take concrete steps to address homelessness, something that is often viewed as an intractable problem. I got hooked into the affordable housing piece because it is an important foundation upon which to build communities. At the time, I didn’t fully realize my interest was in real estate. I just happened to get into the bricks and sticks. Then, I realized that social impact real estate was a vehicle with which I could address my desire to solve these important problems in a tangible way. I was able to apply my skillset to an important issue and feel like I was accomplishing something every day. Systems, or the lack thereof, can create social problems. We need to tackle those problems at the systemic level but that can feel incredibly overwhelming. For me, I can make a difference by working on one project, in one corner, in one neighborhood. While it’s not going to solve all the world’s problems, you’re going to be able to make a difference. I was taught growing up that one person can make a difference. You are a CBS graduate; what prompted you to return to Columbia to teach? Professor Lynne Sagalyn. She was my professor when I was here and had a huge impact on me. When I came to Columbia, I knew that I wanted to learn more about real estate, but I had never had any formal training in it. At that time the school didn’t teach a class on social impact real estate. I was taking all of the conventional classes and wasn’t sure I could do what I wanted to do with real estate. Through her career and her mentoring, Professor Sagalyn helped me realize that I could achieve my goals. She has helped me get every job I’ve had since CBS. When somebody has that kind of impact on your life and calls you up and asks if you’ll teach the class, you say “Absolutely!” At Columbia, you teach the Social Impact Real Estate class. How did you go about creating the course and what do you hope students get out of it? The course was created by Lynne Sagalyn and Alicia Glen, who is now the Deputy Mayor in NYC. Lynne introduced me to Alicia, who ended up hiring me to work at Goldman Sachs. While I was there, Lynne asked Alicia to teach this class, so they both had a first crack at the syllabus and it was amazing. I did some guest lecturing for them, which gave me some exposure to the class, and they eventually asked me to take over. I inherited a great syllabus and have been able to put my own spin on it. Since I have an MBA and I went through the program, I’ve been able to grow the class and emphasize the finance side of social impact real estate. I hope that when students take the class they gain a deeper understanding of how these projects are financed. I want students to think about why we do these projects, to consider whether social impact projects are important, and to understand what’s happening in underserved communities. Most importantly, I hope the class makes the business case for socially responsible real estate. It doesn’t mean that all real estate can be socially responsible, but that you can help to solve societal and social problems through real estate. If we don’t make the business case in the business school then we’ve failed. I believe the market can solve a lot of problems, but not all of them. We look at the impact that rationally motivated investors, developers, and other stakeholders can have. Hopefully students gain an understanding of the private-public partnership framework that underlies many impact real estate projects. My hope is that this class sheds light on this opportunity, how these projects are financed, who the players are, and that we bring the fundamentals of real estate to the social impact arena. That way, in the future, they can see the value, both economically and socially, for this type of real estate. How do you stay involved with the Columbia Network? What impact has it had on your career? The real estate events that the Milstein Center puts on for alumni are tremendous. I’ve really stayed involved with the network through real estate and through those programs. And now, by virtue of teaching, I’m much more involved. Students will go on and tell me what they’re doing, which has been a really nice plus. You recently left Goldman Sachs and are currently raising a fund. What drove you to become an entrepreneur? It’s funny, I don’t even think of myself as an entrepreneur, but I guess I am. I was primarily motivated to set out on my own by the desire to invest in the deals and in the markets that interest me the most.  It wasn’t some need or desire to “build it myself” or do it myself. I’ve loved every job I’ve ever had. But I thought there was a very timely opportunity to raise equity capital that can provide both conventional returns and impact because private investors are becoming interested in this space. Frankly, if there had been a fund structure or company doing what I wanted to do I would have been happy to join them, but I looked around and it wasn’t there, so I decided to start it myself. At Goldman I was able to invest in amazing projects with amazing people. But, by necessity, banks tend to focus on specific geographic areas and they have certain regulatory constraints. As a result, the bank’s focus did not always overlap with where I thought the best real estate and impact opportunities were. I wanted to be freed from that structure and to be able to go out and truly bring capital to places where I thought it would have the best returns both socially and financially. I was driven by a desire to be in a less regulated environment where I could match up capital and opportunity in more of a market driven way. What has been the most challenging part of the fundraising process? The most exciting? I think the exciting part about social impact fundraising is that it is an evolving asset class with growing investor demand, but many investors are not quite sure how real estate fits into the landscape.  As a result, there’s a lot of discussion about what impact is and how to create it through the built environment. If I were raising a fund to buy core multifamily, people would ask the standard questions about my track record, my strategy, where I plan to invest, etc. Investors still want to know that information, but they’re also curious about social impact real estate and its value proposition. I was recently asked by some students, how do investors define social impact? There is no one market standard, and so to raise capital you have to present a strong thesis about the problems you’re aiming to solve, and tie that to concrete, measurable outcomes. Since the market is still evolving, it requires people with vision and conviction to create the standard.  That’s the fun part. Raising capital is always challenging, especially when you’re an emerging manager.  For anyone who steps out on their own to raise a fund, the question people ask is “what makes you think you can do this on your own?” I’ve had twenty years of experience, but I’ve always been in someone else’s wrapper. I’ve been in a Goldman Sachs wrapper, I’ve been in a Related wrapper. The age-old challenge with breaking out to raise capital is that you have to have a track record in your new iteration in order to get capital, but you need capital in order to develop an independent track record. I’m fortunate that when I left Goldman I had an investor who said they would back me to help get those first few deals done, so I can develop that track record before going out to raise a broader fund. That backing and the faith of that investor has made it much easier. Of the projects you’ve worked on, which are you most proud? One of my all-time favorites is the Sears Crosstown project I financed when I was at Goldman.  It’s the redevelopment of 1.5 million square feet of an abandoned Sears warehouse and distribution center in Memphis. It used to be the lifeblood of the neighborhood, but it went through periods of downsizing as Sears’ business eroded. Ultimately it became a blight on the neighborhood and caused atrophy all around it. I’m most proud of it because of the scale and scope of the developer’s vision and of how transformative it will be for the neighborhood and for the city. The collective of partners and stakeholders that it took to pull that deal together and the ambition, tenacity, and the skill of the developers is just incredible.  I’m also proud of the value we helped create through the project financing.  It’s a + $200mm project with 30 sources of financing. While it was a very complicated structure, we brought a lot of structured finance skill and acumen to bear on the project in a way that simplified it for everyone else and made it feasible. For our small piece of it, it was really critical not just to show up, but to bring technical expertise around the structuring to create value. How have investors’ attitudes towards impact-oriented projects changed over the course of your career? The easiest answer is that investors now actually have an attitude. Before, they did not care about impact-oriented projects, nor did they understand them. Back then, it wasn’t about private investors, but rather it was about foundations and public money. “Impact investor” and “social impact” were not terms that were used. The fact that it’s even part of the discourse is pretty amazing. A lot of it has been driven by the millennials. I think it’s here to stay and I think that people really want to figure out how to solve these problems. I was lucky that I went into this totally obscure space that has since become popular. In class, we talk about urbanization frequently. It’s estimated that by 2050 over two-thirds of the world’s population will be living in cities.  How can we prepare for this migration in ways that create inclusive and strong communities? We need to be thinking comprehensively about neighborhoods and place.  In order to build healthy communities – where they have schools, day care, retail, housing and jobs –  we’re going to have to think outside of traditional silos. That includes everyone, from real estate and financing folks to the policy makers. In real estate, people often focus on one property – they decide to work in multifamily, office, or retail, and that’s what they’re comfortable doing. Today, people don’t want these great divisions between work and home. Real estate professionals need to be thinking really carefully about land use in a way that’s comprehensive and interdisciplinary. And we need to build more economically integrated urban neighborhoods so that we don’t end up with all the poor people in one place and all the rich people somewhere else.  You can’t change everything by co-locating a rich person and a poor person, but studies show that it works and we haven’t tried it that often, so let’s do some more of it. What innovations in real estate and social impact have you most excited for the future? I’m excited to see the impact that technology, social media, and the desire for connectivity have on the built environment. For example, people want to work alongside people in the same industries in order to allow for synergies and the opportunity to exchange ideas. This is already driving a shift in the office market. The knowledge economy and the sharing economy are going to drive innovation in real estate.  Those who are leading the charge understand that we can’t continue to do things the same way that we did before. It used to be that people wanted corner offices, but now everybody’s working together. Now that people aren’t just going behind closed doors, we’re thinking about buildings as communities. We have to ask ourselves how this change affects where we develop and for whom we develop. These trends present a great opportunity to create more inclusive places and access for less advantaged folks who typically are left behind when the economy changes.  If we look at buildings as an opportunity to create interactions for people to share ideas, we can unlock growth for populations of people who haven’t had the same opportunities. This can be really powerful, especially for those in low and moderate income communities. What advice would you offer students pursuing a career in real estate? It’s not necessarily specific to real estate, but I think you should always be motivated by a cause and a challenge. Be driven by a mission. Your mission doesn’t have to be saving the world. It could be something as simple as making the best widget. Whatever your mission, passion rules. When we’re passionate about what we’re doing we attract other people who share the same passion and can then have an exchange of ideas. If you love what you do, you’ll be successful. Do the hard stuff. Leave the easy stuff to someone else. Not because its’s valiant to do it but because that’s how you bring your value. If everyone else can do it what the hell do we need you for? If you can mix those things, in real estate or any other industry, that’s how you’ll be successful. Some advice specifically for social impact real estate is to be commercial. Real estate people tend to be very commercial, but as you get into the social impact space people often lose sight of building technical skills. Obviously you have to be passionate. In this field, it’s a gating criteria that you’re passionate about making a difference, but passion alone isn’t enough. You need to bring a concrete toolset to the table in order to solve social problems.  Whether you develop expertise in finance, development, construction or planning, you need to focus on what you can do for an employer from day one.  Conor O’Neill ’17 is the REA’s VP of Communications and Technology.