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The dozen architects and designers who work at the RED Office in Little Italy don’t get paid a dime.
Instead, the firm relies on what’s called sweat equity – employees are promised an ownership share of the company’s for-rent housing projects instead. Once tenants move into the finished buildings and start paying rent, the payout to each employee won’t be huge, but it will be steady and long-lasting.
Within the next year, the RED Office will break ground on a nine-unit apartment complex tucked behind a single-family house in North Park. It’ll also begin construction on a building in Hillcrest that includes seven apartments. And if the California Coastal Commission approves its permits, the office will soon get to work on a mixed-use project in Barrio Logan.
The three projects could not happen sooner for the folks at the firm. As it turns out, working for free comes with some hefty risks and challenges. Employees at the firm have spent the last five years working without pay on time-consuming projects that ultimately fell through. The company’s most recent endeavor was a big project in Encanto that Civic San Diego, the city’s nonprofit that oversees development in downtown and parts of southeastern San Diego, ended up awarding to a more traditional development firm.
Ted Smith, one of the architects and developers behind the RED Office, said the firm has been learning a lot in the process, but that it’s time for the fruits of its free labor to finally pay off.
“We’re having a good time, but we’re at the point now where we are going to have to see some money come out of this,” Smith said. “We need to get these deals done.”
Because no one makes any actual money yet, everyone working at the firm also has other paying gigs.
The RED Office was born out of the master’s program in real estate development for architects at Woodbury University in Barrio Logan. Faculty and graduates of the program have built some of the most innovative urban infill developments – projects within developed neighborhoods – in the region. But a persistent problem that continues to plague the architects who graduate and want to go out and finance their own projects is lack of access to money and investors.
Smith and fellow architect-developers Héctor Pérez and Kate Meairs have helped build the RED Office as a place where the architect-developers Woodbury turns out can use their free labor as their capital investment instead.
The office’s academic roots are also guiding the type of developments the firm goes after. Pérez said the firm wants each project to “say and prove something about smart development in San Diego.”
With the North Park project, for example, Pérez wants to show how developers can build density without ruining the look and feel of a traditionally single-family neighborhood. The existing house on the property will stay, and nine units will be built behind it on an alley.
“It’s like a mullet,” Pérez said. “Business in the front, and party in the back. The goal is to densify the alley, but also show how you can maintain the integrity of the neighborhood visually.”
The Hillcrest project will showcase micro lofts that feature high ceilings, large windows and a split level that can hold a bed, amenities that Smith said will make the 250-square-foot units look and feel much bigger than they are.
“It will demonstrate how much better it can be than the micro lofts I’ve seen,” Smith said.
For both projects, members of the RED Office purchased the land themselves. They could not risk another deal falling through, so it was the only way to ensure that the projects would actually be built.
The ideal architect-development deal, though, is showcased in the firm’s Barrio Logan project. The RED Office has partnered with the landowner there in a deal that will result in free labor in exchange for a 50-50 ownership between the landowner and the RED Office employees.
“That’s annuity for the rest of our lives,” Smith said. “So that money comes forever – that’s the big, important difference with this approach.”
The project also features dozens of tiny patios that make the units feel bigger, plus lots of uniquely designed big and small single-room studios geared toward artists who either want to live and work alone or split a big loft with friends.
“We really want to illustrate some kind of economic advantages of building spaces that are unusual and different,” Smith said.
Offering project ownership instead of pay is not exactly new for Smith. He’s used the method several times in the decades he’s been financing, designing and building projects across the region with his partner Kathleen McCormick. The Little Italy loft that houses the RED Office was even built on the concept. Decades ago, Smith offered the deal to a young draftsman at the time, Lloyd Russell, who’s gone on to build several successful projects.
What’s different for Smith this time around is the size and organizational structure of the Red Office, which has led to some complications.
“Generally, the idea here was that everybody’s hour was going to be worth an hour,” Smith said. “That’s easy in concept, but then we discovered that someone has to tell others to do something. Next thing you know, you have managers.”
Smith, Pérez and Meairs have emerged as the RED Office leaders. Another challenge popped up when some of the office’s partners started opting out of the free labor arrangement and paid younger, cheaper designers to do their portion of the work.
The office is still trying to figure out what that means for the eventual payout on the project.
“When you start coming across these things, you start to understand why these kind of idealistic economic systems fail through the years,” Smith said. “The initial concept has been hit with some realism, but we don’t want to give up on it, we want to work through it.”