John Stewart is the Founder and Chair of the John Stewart Company, a San Francisco-based owner, developer, and manager of affordable and mixed-income housing, founded in 1978 with three employees.
Today, the Company has 1,400 employees in five offices in the state of California, managing 31,000 units with over 2000 units in its development pipeline.
From Aerospace to Affordable Housing
John grew up in California, graduating from Stanford in 1956 with a liberal arts degree and a focus on history and finance. When he was recruited by U.S. Steel, he moved from San Francisco to Los Angeles but found that the large corporate culture wasn’t a good fit for his entrepreneurial mindset. He switched to TRW as a young management trainee and moved in 1964 to Houston to join TRW’s new offices at the Johnson Space Center.
“In careers, once in a while there’s sort of a choice point… we saw the astronauts and NASA up close and personal, but I was also interested in finding out about life in a Southern city.”
John showed up as an out-of-towner at the Houston Council on Human Relations to see how he could help and get involved. He joined its low-income housing committee and soon became Chair. His activism quickly caught the Mayor’s attention, who requested that TRW fund a paid leave and lend John to the city for a year to chair the City’s Citizen’s Committee on Affordable Housing. TRW agreed.
Founding John Stewart Company
John became so interested in housing that when his year was up, that he headed back to Los Angeles with TRW and encouraged them to apply for HUD’s (the U.S. Department of Housing and Urban Development) Operation Breakthrough for manufactured housing.
TRW was selected, and built nearly a thousand modular affordable housing units in Sacramento and New Mexico; however, manufactured housing was not profitable and John decided to make an offer to acquire 500 units of section 236 multi-family housing from TRW, and the John Stewart Company was born.
“One of the few things I did right was plan for capital losses. Every start-up book I read said the dominant reason for failure in small businesses is undercapitalization, so I assumed two years of losses and that’s what it was.”
John shares how he capitalized on other’s mistakes by buying and investing in properties that were about to go into assignment or foreclosure. In the process he built trust with HUD. When President Ronald Reagan implemented the low-income tax-credit program in 1984, he began using these credits as an alternative method of financing.
“I’ve found that if you are just doing management, particularly low income, with a lot of challenging residents, you don’t last long… it helps to have another line of work, and that would be the development side, the acquisition, the rehab.”
In the last 15 years, the company has gone beyond acquisition to also develop new construction projects. John shares that he especially likes working with non-profit corporations in joint ventures because they complement one another.
And while he admits that he has had deals that go sideways – there is always a risk – everyone he works with wants to build products that are architecturally attractive and “pencil out.” This is what makes working in this industry fulfilling.
After 25 years John sold his company to Southern California Edison. In another choice point, after 5 years he bought it back mainly due to differing views on the company mission. Now, John is proud to have partners that he works with who have been with him for years and who he trusts completely.
While others may argue it’s a waste of money, John emphasizes the importance of creating good-looking, market quality housing for low-income people.
“My argument is that form and function are connected. You build a schlock product, people will treat it like a schlock product. You build something elegant, they treat it well, with respect, and your turnover is less.”
John has found this approach has also helped change the perspective of neighborhoods who are initially opposed to development. When they encounter this dynamic, they bring doubtful prospective tenants and neighbors inside other John Stewart Company Developments to give them a palpable sense of what the new residence will be. Once the tenants and surrounding residents talk to the management, see the quality of the space, the screenings of residents, and the security, it has a very positive effect.
If you’re in the affordable housing business with a purely financial bent, then this isn’t your cup of tea. But if you’re comfortable with moderate, reasonable returns, and can accept the risk, this is for you. At the end of the day, you’ve created an attractive physical product that’s a difference-maker in society.
This episode is made possible by our sponsor JLL. Learn more at jll.com/voices.