My Next Google
On February 14, 2000, Google hired me as their 75th employee and the company’s first ad executive. The search engine start-up had just completed beta testing an innovative advertising solution that took an unconventional approach. The new system was bravely designed to put the needs of Google’s search users first — ahead of its advertisers. Larry and Sergey believed that if the ads on our site were relevant and non-intrusive, users would engage with Google more frequently and even find the ads useful. Initially most advertisers didn’t understand this new idea. Many even resisted it. But as we all know by now, Larry and Sergey proved to be right — in a big way. Google users were happy, the number of searches and users continued to increase, and they interacted with the new ad format far more than the conventional banner counterpart. Advertisers were big winners too. Their ad investments with Google delivered outstanding, market-beating returns.
Of all the amazing ideas I was exposed to at Google the thing that made the biggest impression was this: Google had developed the best search engine which would ensure the company some level of success. However, the company’s approach to monetization, which honored the user experience, is what brought Google the outsized returns and unprecedented financial success. The consumer product (search) and the monetization product (ads) each enhanced and benefited from the other. I committed to always keep an eye out for opportunities that demonstrated this same powerful dynamic.
In 2008, I found it again. Shortly after I left Google, a friend in Google’s finance group introduced me to a then fledgling social impact real estate company. Soon after, I would become a partner at the firm. (More on that later). I didn’t realize it at the time, but this firm — OpenPath Investments — would completely open my eyes to the way I looked at investing. It would expose me to the previously unknown fields of commercial real estate and social impact. I once again would fully appreciate — and benefit from — that special dynamic I had so greatly admired in Google’s business.
The magic of the model.
What does any of this real estate stuff have to do with Google? Let me explain. OpenPath Investments, along with our network of individual investors, acquires large apartment complexes. We improve the properties, manage them for a time, and eventually sell them. Of course, other firms do similar things. What makes OpenPath special is our focus on the people living at our properties. Our residents are working-class families. They are lifelong renters who often find themselves living in places where they are undervalued — where property management is unresponsive to the renters’ needs and concerns. Further, residents at these types of properties can feel isolated, lacking a sense of community even though they may have literally hundreds of neighbors.
OpenPath, like Google, was founded with the belief that by putting the end user’s interests first, we can create better outcomes for everyone. OpenPath looks for opportunities in growing cities where the existing housing supply for working families is constrained and the needs of these renters are underserved. When OpenPath acquires a property, we immediately invest in improving the lives of the residents. There are two key aspects to this. First, physical improvements are made with special focus on common spaces (i.e., clubhouse, fitness room, picnic areas, etc.). Secondly — and perhaps more importantly — improvements are made to the property’s social fabric through a program we call Urban Village. Our community-building initiatives take shape in a number of ways including the formation of resident-led leadership councils, monthly town hall meetings, the creation of community gardens, babysitter exchanges, and many others. At the same time, OpenPath, in partnership with our residents, works to make our properties eco-friendly and reduce its carbon footprint. Incidentally, Google has long maintained similar practices in their workplaces.
What kind of impact do these initiatives have?
Following OpenPath’s acquisition of an apartment complex residents quickly feel increased satisfaction with their place-of-living and a greater sense of overall happiness. As a result, the residents take better care of their home and community. These renters are much less likely to move out when their leases end, which is usually the case with this kind of housing. More often OpenPath residents choose to stay. They see the value we have added and feel valued and respected. So even as rents may rise, so do the property’s occupancy rates. By no small coincidence, both of these factors significantly improve the property’s operating economics. Like Google’s early advertisers, OpenPath’s investors soon realize that engaged happy end users lead to strong returns on their investments. Over the last 10+ years OpenPath has delivered an average IRR of 30+%. (Note: OpenPath’s targeted returns are ~15%)
A path forward.
A few years ago, I decided to make a big change. I switched from passively investing with OpenPath as a limited partner to taking an active role in the company. Now, as OpenPath continues to acquire new properties and expand our impact, we are also expanding our network of investors. Just as I relished sharing Google’s novel advertising program with marketers in 2000 I now enjoy sharing OpenPath with friends, colleagues, new acquaintances, and other accredited investors. I meet many people who are looking for a viable alternative to the near-zero returns from bonds and higher risk of stocks. Most are not familiar with commercial real estate and initially even suspect of this asset class. New investors are almost always surprised to learn that housing can outperformed stocks and bonds — yet with less risk. These investors come to appreciate real estate’s stable, dependable returns and annual income as a counterbalance to their over-exposure on equities and speculation on tech start-ups . Further, they enjoy knowing these positive returns are achieved while making a positive difference for people and the planet.
Of course, social impact real estate investing is different than internet search and advertising; they’re completely different businesses operating at different scales. But in an important way OpenPath feels a lot like Google in those early years.
I am not a CPA or professional financial advisor. All opinions are my own. OpenPath investment opportunities are for accredited investors. Feel free to reach out firstname.lastname@example.org.
In the meantime, this short video is excellent.