Local entrepreneur James Johnson knows all too well the value of a good home — and not just because of his background in the real estate industry.
Growing up in Washington State, Johnson and his family constantly bounced from one place to another — mostly due to financial constraints — so he and his siblings seldom experienced the benefits of having a steady place to call home.
“We always moved every three or four months because of money or credit or whatever else,” Johnson said. “So it’s deeply personal to me for a child to be able to have a home that they know is going to be there, and they don’t have to worry about being displaced or anything like that. Because that consistency matters so much in a kid’s life. To be able to grow up in the same household and not have that worry … that pays dividends for years to come for that person and that family.”
Throughout a 12-year career in the real estate industry, Johnson worked with investment companies, negotiated property deals, led marketing campaigns and worked as an acquisition manager for a real estate investment franchise, developing myriad skills to help people find the properties that best fit their needs.
But earlier this year, after going through business trainings with the nonprofit THRIVE Network in Southeast Colorado Springs, Johnson decided he wanted to use his real estate skills not only to make money, but to offer a valuable service to his community.
So he founded his own business, Groundworks Holdings LLC, that is seeking to create sustainable housing options — both for Colorado Springs residents and nonprofit organizations that support them.
THRIVE teaches aspiring entrepreneurs to identify a problem in their community and create monetizable solutions. Johnson spoke with many Southeast residents and organizations experiencing similar problems: in particular, that the area has sparse access to affordable housing, and that local nonprofit organizations dealing with disadvantaged populations often have trouble finding low-cost living for their clients.
“I was doing focus groups and I was doing surveys, going door-to-door and talking to neighbors, seeing what they wanted, and meeting with the different [nonprofit] organizations and discovering their needs,” Johnson said. “So it was a lot of researching, and I found out I can still use the skill set that I have. And now that I’ve found the problem, I can make an even greater impact.”
Johnson doesn’t currently live in the Southeast, but he decided the area was the perfect place to get started.
“I’ve lived in the Southeast throughout the years and I have friends and family down there still,” he said. “There’s so much opportunity down there and you’re starting to see the energy and the possibilities. And the people need that. They need resources to come down there.”
Prior to founding his business, Johnson launched a nonprofit land trust. But in starting the trust and conducting additional research, he found that sustaining the nonprofit would likely require substantial and consistent funding.
As a member of the board of directors for the affordable housing nonprofit Greccio Housing, Johnson said he’s seen firsthand some of the challenges organizations face in cutting through red tape and securing the funding necessary to carry out their missions.
“[At Greccio] we’re one of the top receivers of funding from the city,” Johnson said. “But that’s a really tight ship in order to do that, and even then, all these different organizations are competing for these funds. … It is very hard. “So if I was actually going to have an impact and make this grow, then I had to start looking at the alternative of doing this as a for-profit and trying to figure out that maybe a social impact [business model] can get the same thing done without those regulatory burdens of government funds from the city.”
The mission of Groundworks Holdings is relatively simple: To create sustainable housing options that benefit the Colorado Springs community, local nonprofits and ths business’ project partners.
The way that process plays out is considerably more complex, as Johnson works with individual property owners to determine the best course of action going forward.
First, he partners with the homeowner to clean and fix up the property, securing funding through investors.
Groundworks Holdings is added to the property deed and performs the renovations, obtaining a long-term lease and then subleasing the property to a local nonprofit organization in need of housing for client programming.
The nonprofit gets a home for their clients, while the homeowner retains ownership of the property and can therefore generate rental income.
That rental income is primarily how Groundworks Holdings and its partners — including the investor who funds the repairs — get paid, though additional income can be captured through equity in the home.
“Since we are improving the property for the homeowner, there comes a time that the owner may wish to sell, and of course, we want to be in line first to purchase,” Johnson said. “Our contracts are set up for a predetermined purchase price prior to renovations, and at a later date, if we decide not to purchase, we still receive a portion of the higher sales price the owner gets from selling, plus our initial capital improvements cost.
“Our investors receive their returns from rent revenue and the principal investment paid back in full when we purchase and repay with equity.”
Because each property owner has different wants and needs, the parameters of the partnership tend to vary from one client to another.
Sometimes, a property owner may wish to simply unload the property, at which point Groundworks Holdings can help facilitate its sale while ensuring the property remains affordable as a starter home. It also works with potential buyers to lease the home while they bolster their credit profile, with the goal of ultimately securing a loan and purchasing the property.
“So in those situations we kind of look at what the options are,” he said. “But mostly [our goal] is to partner with the owner to improve the asset.”
Johnson currently has a handful of projects in various stages of completion, seeking to provide housing for those struggling with substance abuse, homeless people, veterans and other populations that struggle to keep up with rapidly rising rent and property costs.
According to the Colorado Springs Metro Area Apartment Vacancy and Rent Study for the second quarter of 2019 (third quarter results have yet to be published) the average cost of rent for an apartment in Olympic City USA is more than $1,200. For those on fixed incomes, Johnson said, that steep rent can represent 30, 40 or even 50 percent of their total monthly income.
“Wages are down but rent keeps going up,” Johnson said. “That makes it very hard to get ahead, or even meet essential daily living expenses.”
In working with nonprofits, Johnson not only provides a much-needed service, he also makes a sound business decision, as the partnering nonprofits provide financial backing for their clients, essentially guaranteeing the rent gets paid.
The principal investment
Johnson’s ultimate goal with Groundworks Holdings is to create a vast portfolio of affordable properties in Colorado Springs and to expand residents’ access to low-cost housing through creative solutions.
Doing so, he said, will help him provide a second chance to community members in need.
“Really, this is just real estate with a cause,” Johnson said. “If I’m able to do this and have an effect on people’s lives within the community and uplift the community at the same time by providing these options, that’s what I want.
“I just want to do my part in the city … that I’m raising my kids in. I want to be a part of this community.
“I love Southeast, I love the Springs, I love El Paso County. So why not do everything I can to try to give back?”