Anima Mundi Investment Proposal

From: Atul Ajoy

To: Professor Clark Hansen, CEO, AMDP

Subject: Investment Recommendation Memo - Culdesac

February 28th, 2023

In a detailed search for businesses that fit the criteria and standards of AMDP's investments, I found Culdesac, a startup with an innovative approach to urban planning and real estate development, to be an interesting opportunity.

AMDP Standards:

Triple Bottom Line - The triple bottom line is a framework for businesses to be measured on their "social, environment, and economic impact". The concept was coined by author John Elkington around 30 years ago to ensure that a business' success was measured not only through profit and loss but also "in terms of the wellbeing of billions of people and the health of our planet" (Elkington).

Corporate Social Responsibility - Corporate social responsibility is the aspect of a company's governance that it puts in place to make sure that it is beneficial to society (Peterdy). There are 4 main categories of corporate social responsibility:

1. Environmental Responsibility - This is the focus on reducing carbon emissions and using sustainable natural resources. Ex: Net zero carbon initiatives.

2. Human Rights Responsibility - This is about ensuring the use of fair labor and trade practices. Ex: Setting minimum wages that lead to good lives for workers.

3. Philanthropic Responsibility - This calls for companies to support charitable initiatives. Ex: Donating 1% of profits to food drives.

4. Economic Responsibility - This is to make sure that business still optimize for business operations through sustainable methods. Ex: Using new technology to reduce energy usage and costs.

Social Enterprise - Social enterprises are businesses where "performance meets purpose" (Gretczko). It is centered around the idea that business are now "being valued as much by their interactions and impacts on society as they are by their financial results". One big area where this can be seen is the rise of B Corps (Benefit Corporations).

Carbon Footprint - A company's carbon footprint is "s the total amount of greenhouse gases (including carbon dioxide and methane) that are generated" from its business activities. Many businesses now measure their carbon footprint with the effort to lower it through better carbon usage strategies as well as carbon offsets. This is super important in the global effort to fight climate change (“What Is Your Carbon Footprint?”).

Background:

Culdesac is the first car-free neighborhood in America. Built in Tempe, Arizona, Culdesac has 40,000 square feet of retail and amenities, 700+ apartments, and 2 miles of bike and foot paths on 17 acres of land (Brown). It's an extremely innovative project to build a city from the ground up designed for pedestrians with 0 asphalt. Culdesac's success could mark a clear path for the future of real estate development in urban, modern neighborhoods (Kusisto).

Culdesac was founded in 2018 to build a walkable neighborhood in Tempe, just 20 minutes from downtown Phoenix. Co-founder Ryan Johnson has previously stated that the "majority of the US wants to live in a walkable neighborhood" while pointing out that "only 8% does". The project was estimated to cost $170M to complete and has units ranging from the 1-bedroom, 642 sq. ft. Barbary Fig C floor plan to the 3-bedroom, 1354 sq. ft. Golden Barrel floor plan. The project has been called "A pedestrian oasis" by The New York Times and "The first of its kind in the US" by The Wall Street Journal.

Analysis:

Culdesac needs to be evaluated on two fronts: financials and sustainability. On the financials part, Culdesac has raised $40M including a $30M Series A at the start of 2022 led by Khosla Ventures with participation from other highly-respected VC firms such as Initialized Capital and Founders Fund (“CULDESAC - Announcing Our $30M Series A.”). They also raised $200M of real estate capital at that point with $2B planned to be raised. They have rent starting at $1,000 for studios and $2,200 for 3 bedrooms with a total of 761 apartments. They also have 16,000 sq. ft. of retails space that will be a source of additional revenue.

For sustainability, the company claims that Culdesac Tempe will "emit 50% less transportation-related CO2 emissions than their neighbors" and has also prioritized the right materials for construction. For example, asphalt does not allow water to run through to the ground so Culdesac decided to use a selection of pavers that do. Furthermore, "asphalt has a solar reflectance index (SRI) value of less than 10% whereas pavers have an SRI of 30-40%" which is important because higher SRIs mean cooler and more sustainable environments (“CULDESAC Tempe: Designed for Everyone.”).

Expert Opinions:

1. Congress for the New Urbanism (CNU) - The CNU, an organization focused on championing walkable urbanism, praised Culdesac for its design and development. They pointed to Culdesac's "unique, desert-responsive, courtyard housing" and their innovation that "extends to climate-responsive, sustainable, desert-appropriate design" (“CULDESAC: Car-Free Community.”). This echoes Culdesac's own claims that their paver-based approach is more sustainable and suitable to the desert environment given Arizona's 300 days of sunshine.

2. The New York Times - Conor Dougherty, an economics reporter at The New York Times and the author of "Golden Gates: Fighting for Housing in America", pointed to the unique and innovative nature of Culdesac's plans. Dougherty juxtaposed Phoenix as a "featureless and ever-spreading tundra of concrete" to a master-planned community that "residents may never need to leave". Dougherty did, however, warn that the necessity and usage of cars in the area made Culdesac's pitch "both intriguing and a little hard to believe" (Dougherty).

Recommendation:

AMDP should invest in Culdesac because of its long term ability to reshape urbanism in America. While, it is currently focused on one development in Tempe, Arizona, the goal is to build the first carless city in America. There is substance to its financial pitch as a new-age real estate developer focused on the urban environments of the future while also having a material pitch on the sustainability front. They are creating master-planned communities that combine retail and residential experiences that drive revenue while also designing the communities to be accessible and energy-efficient. While 52% of Americans want to live in a walkable city, only 8% does. Culdesac can fix that.

Works Cited:

Brown, Brandon. “Car-Free Community in Tempe Leases Final Retail Space.” Phoenix Business Journal, ABC15 Arizona in Phoenix (KNXV), 6 June 2022, https://www.abc15.com/news/business/car-free-community-in-tempe-leases-final-retail-space.

“CULDESAC - Announcing Our $30M Series A.” Culdesac, Culdesac Living, 20 Jan. 2022, https://culdesac.com/blog/post/announcing-our-30m-series-a.

“CULDESAC: Car-Free Community.” CNU, Congress for the New Urbanism, 10 May 2022, https://www.cnu.org/what-we-do/build-great-places/culdesac-car-free-community.

“CULDESAC Tempe: Designed for Everyone.” Culdesac, Culdesac Living, 19 Aug. 2022, https://culdesac.com/blog/post/culdesac-tempe-designed-for-everyone.

Dougherty, Conor. “The Capital of Sprawl Gets a Radically Car-Free Neighborhood.” The New York Times, The New York Times, 31 Oct. 2020, https://www.nytimes.com/2020/10/31/business/culdesac-tempe-phoenix-sprawl.html.

Elkington, John. “25 Years Ago I Coined the Phrase ‘Triple Bottom Line." Here's Why It's Time to Rethink It.” Harvard Business Review, Harvard Business Publishing, 13 Sept. 2018, https://hbr.org/2018/06/25-years-ago-i-coined-the-phrase-triple-bottom-line-heres-why-im-giving-up-on-it.

Gretczko, Michael. “The Rise of the Social Enterprise.” Deloitte United States, Deloitte, 22 Nov. 2021, https://www2.deloitte.com/us/en/pages/human-capital/articles/social-enterprise.html.

Kusisto, Laura. “New Arizona Development Bans Residents from Bringing Cars.” The Wall Street Journal, Dow Jones & Company, 19 Nov. 2019, https://www.wsj.com/articles/new-arizona-development-bans-residents-from-bringing-cars-11574164801.

Peterdy, Kyle. “Corporate Social Responsibility (CSR).” Corporate Finance Institute, CFI Education Inc., 5 Mar. 2023, https://corporatefinanceinstitute.com/resources/esg/corporate-social-responsibility-csr/.

“What Is Your Carbon Footprint?” The Nature Conservancy, https://www.nature.org/en-us/get-involved/how-to-help/carbon-footprint-calculator/.