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Non-consensus thinking

The venture capital industry likes to talk about the importance of investing in ideas that are and turn out to be both non-consensus and successful. The idea here is that if an idea or opportunity is already consensus, then there’s too much money flooding into that space and it becomes too difficult to make money. This is particularly true in venture capital where a select few companies usually end up generating most of the returns. This is a high risk business. Supposedly, even the best VCs end up having to write off a big portion of their deals.

But I don’t think that this logic need only apply to venture capital. In real estate development, you are often faced with similar situations. For example, if an area is already consensus — that is, it is already considered to be highly desirable — then capital is going to naturally flow into it and land prices will be relatively high. These high land prices might be justified by the revenue side of your pro forma, or they might not be. I know many developers who avoid “core” locations simply because the land is too much and the margins are too little.

On the other hand, if an area is non-consensus — that is, you’re not sure people will want to rent or buy new space in the area — then the land prices should reflect this. But here’s the thing. What you’re doing is trading, among other things, a lower land price for greater market risk. Because the non-consensus bet could turn out to be either successful or unsuccessful. People will either want to occupy space here or they won’t. And remember, by definition, it being non-consensus means that most people believe they won’t — or at least not at the prices you might need in order to make the math work.

What all of this means is that if you’re right about something that most people think is wrong, then you have the opportunity to do quite well. (Though I am not suggesting that you need to follow this framework in all situations.) This is on my mind right now because it feels to me that there are certain consensus opinions emerging as a result of this pandemic. For example, opinions around the demise of office space and the demise of downtown living. If you’re a regular reader of this blog, you’ll know that I think these death-of-the-city predictions are largely bullshit.

I could be wrong. Or I could be right.


  1. Yes, exactly! Break the mold. Create a new paradigm. That’s been my philosophy behind the world’s only major river-spanning building from the beginning. Economies of scale allow for both affordable housing at 50% off market price (30% of units) and Market Rate @ $2,000psf (70%), while delivering unparalleled views, amenities both residents and NYC citizens.
    The building would be the largest in the world by floor area, and in downtown NYC, yet would not displace any current residents – it’s all on manufacturing zoned land or over the East River.
    This is ground-breaking enough that the concept made the front page of the local downtown NYC paper, The Broadsheet:
    (It’s not exactly a secret, so I can write about it here without fear of revealing anything proprietary).
    Our consortium of 6 is looking to form a JV with the appropriate Seed investor(s) willing to put up to $10m (on a 5:1 ROI in 5-7 years, if successful) for lawyers, lobbyists and others who can successfully petition the city, state and federal authorities (it’s over a federal maritime body). Our first lawyer said we need a zoning text amendment, but he couldn’t do state and federal applications, so we need a better (read: more expensive) lawyer(s).
    We are currently entered into the NYSERDA Buildings of Excellence contest. From our consultant’s report (EBI Consulting), it’s clear that no building is as energy efficient at this scale: 62% self-sufficient now, but probably more as pervoskite solar starts to become more efficient than solar panels (as well as cheaper and more easily installed and maintained), and the other 5 offgrid sources develop. EBI gave the building a perfect 100 SEDI score too.
    Full presentation upon request to accredited investors and qualified partners.

    Liked by 2 people

  2. I couldn’t agree with you more on the death of the city predictions. People like the convenience of living downtown and I think the trend will swing back to working in an office eventually.

    Liked by 1 person

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