Tag: real estate

• Thinking differently and what courses to take in school

  When I was in grad school studying architecture and real estate, the Zell/Lurie Real Estate Center used to run a regular lunch series with real estate executives. The way it worked is that executives would come in to the school and 15 or so students — all of whom were studying real estate — could sign up to have lunch with them in a boardroom. I can’t remember if the school provided us lunch or we had to bring our own, but either way, you had an hour to hear them talk about the industry and ask them whatever you wanted to know.

  One time somebody asked a question about what courses they should take outside of their business and real estate classes. And I’ll never forget what the executive said. His recommendation was to take courses that were as far away from business, finance, and real estate as possible. He said take fine art history classes, learn about ancient civilizations, or whatever. Just take classes that force you to think a little differently than everybody else.

  The reason, I think, this resonated with me so much was because I had a certain amount of academic insecurity at that moment in time. I was coming from an architecture and design background and my classmates were former investment bankers and management consultants, all of whom had a far better grasp of “the numbers” than I did. It meant that real estate recruiters didn’t want to talk to me because I was the square peg for their round hole.

  But being a square peg really motivated me.

  I remember walking into the program director’s office at that time and requesting that I be put into what was considered to be the more difficult real estate finance class offered at Wharton. He said that he didn’t recommend it. Non-MBAs (which I was at the time) can’t typically handle it. And if he put me into it, I would likely come back to him crying about how hard it was. I asked him to put me in it and said that I would come back to show him my “A.” He put me in it and, yes, I got an “A.”

  But at the end of the day, the point that this executive was making at the lunch was that the math and mechanics behind things like cap rates, IRRs, and DCFs is not rocket science. Real estate is not rocket science. You of course need to know how this stuff all works, but it is not the be-all and end-all. The other critical parts of this are more art than science. What are the assumptions that I am making as part of my analysis? What do I believe about the future of the world? To answer these questions, you need think critically and laterally. And having a different perspective can help you do exactly that.

  This was true back in 2008 and it’s still true today.

  2020.12.21

• Sleeping well at night

  

  I get that real estate developers don’t always have the best of reputations. We build buildings that cast shadows. We invest in (or gentrify) neighborhoods. And yes, like every other for-profit business, the goal is to make a bit of money along the way.

  But believe it or not, there are developers out there who care deeply about the work that they do. They care about their craft. And they want to do the right thing.

  Perhaps the best way for me to start to explain what I’m getting at here is to quote the late Steve Jobs. An obsessive perfectionist, Jobs was known for focusing on every little detail in the projects that he worked on. Here’s an excerpt from an interview he did for Playboy back in 1985:

  “We just wanted to build the best thing we could build. When you’re a carpenter making a beautiful chest of drawers, you’re not going to use a piece of plywood on the back, even though it faces the wall and nobody will ever see it. You’ll know it’s there, so you’re going to use a beautiful piece of wood on the back. For you to sleep well at night, the aesthetic, the quality, has to be carried all the way through.“

  As a developer and a fake architect, this paragraph really resonates with me. But here’s the thing. One of the differences between making a beautiful chest of drawers (or a computer) and making a beautiful building, is that buildings have an inordinate amount of rules that tell you what you can build where and then how you need to build.

  Some of these rules, of course, make a lot of sense. Life safety is no joke. But some of these rules also make no sense. And sometimes these rules — that don’t make sense — prevent you from putting what I would metaphorically consider to be that beautiful piece of wood on the back.

  The beautiful piece of wood isn’t about money. In fact, it’s going to cost you more compared to just using a piece of plywood. It’s about giving a shit and caring about your craft, even if nobody else does. It’s so you can sleep well at night.

  Photo by Michał Kubalczyk on Unsplash

  2020.12.02

• The Ringelmann Effect and why Zoom meetings suck

  For a lot of us, this is now month eight of constant Zooming. The big question, of course, is whether this new habit is going to stick or if it will wane along with the virus. Because the degree in which it sticks will have an impact on cities, real estate, and how we move about these spaces. Anecdotally, it would seem that a lot of people seem to think that some element of working from home is destined to remain. People like the increased flexibility. And I don’t disagree that flexibility is an attractive feature.

  Personally, I am bullish on cities and on old-fashioned human interaction, because here’s how I am feeling about virtual meetings. One, we all have too many of them right now. The barriers to scheduling a virtual meeting are extremely low (one click in Outlook), and so it’s painfully easy to fill up a calendar with them. Two, it can be difficult to stay focused when jumping from back-to-back virtual meetings all day. And three, because we all have too many of these meetings, everyone is trying to multitask and respond to emails at the same time. This degrades the overall effectiveness of each meeting.

  Sarah Gershman published an article earlier this year in Harvard Business Review where she talked about some of the problems surrounding online meetings. One explanation for why many of us are losing focus is something known as the “Ringelmann Effect.” The theory here is that as group sizes increase, it can be easy for individuals to feel less responsibility for a meeting’s outcome. So they tune out. Max Ringelmann, who was a French engineer, demonstrated this effect by asking both individuals and groups to pull on a rope. What he found was that people generally tried less when they were part of a bigger group. There’s always somebody else who will pick up the slack, right?

  Sarah makes the argument that this phenomenon gets magnified in virtual meetings. We’re all just a little box, sometimes existing on another page, hidden mostly from view. Surely there’s another black box somewhere in this meeting who will pull the rope for me.

  2020.11.10

• CloudKitchens has spent more than $130 million on property over the last two years

  According to a recent Wall Street Journal review of property and corporate records, Travis Kalanick’s ghost kitchen startup, called CloudKitchens, has spent over $130 million over the past two years buying more than 40 properties in about two dozen cities.

  Travis is co-founder and the former CEO of Uber and this latest startup provides commercial kitchens to restauranteurs who are looking for a low-cost way to launch delivery-only food concepts.

  In some ways, it can be compared to coworking spaces for delivery-only restaurants. Instead of renting a full restaurant space, you lease 200-300 square feet of real estate at a lower cost address. CloudKitchens then handles all of the distribution and fulfillment, effectively lowering the barriers to entry for food startups.

  Some of the properties that they have been buying include a vacant restaurant space in Miami Beach for $9.2 million (May 2020) and an industrial property in Queens, New York for $6.6 million (March 2020). They’ve also bought in cities like Portland and Las Vegas.

  As you might imagine, now is a pretty good time to be buying some of these properties. And if you think about it, there are some real cost advantages to what they are doing, not to mention some co-working-style arbitrage on the real estate.

  The company is apparently going to great lengths to conceal what and where they are buying. But what is perhaps more interesting is their asset-heavy approach. They’re buying lots of real estate, which is inline with what companies like Opendoor are doing, but is distinct from Uber’s asset-light approach.

  It is also different from what many other ghost kitchen startups are doing. It seems that most are leasing their spaces. There has to be a reason for this difference.

  2020.10.24

• The importance of the RCP

  One of my colleagues likes to remind me that in an open concept floor plan, which is obviously pretty common these days, it is the RCP, or reflected ceiling plan, that really defines a space. (For those of you who might be unfamiliar, an RCP is a plan drawing that shows you what the ceiling of a space looks like.) What he means by this is that it is things like dropped ceilings and bulkheads that really define a space. And when you’re designing a multi-unit building, you are going to have these things to contend with and coordinate (though you can also run exposed ductwork, which eliminates the need for some bulkheads/drops).

  I like this reminder for two reasons.

  One, he’s right. Ceilings matter. Frank Lloyd Wright, for example, is well known for playing around with them in his projects. He would take you through compressed spaces with lower ceiling heights and then “release” you into grand open spaces. The contrast made it all feel even more dramatic. (But I reckon Mr. Wright was pretty short because I swear I’ve been in some of his houses and the ceilings were in the range of 6′-6″.) And two, I want us to focus on this level of detail in our projects. They can be a pain in the ass to coordinate and you can’t always get them exactly how you want them, but we are paying attention.

  2020.07.17

• Three-legged stool

  

  A good friend of mine, who is also in the industry, once described real estate development as a three-legged stool. In order to develop, you really need three things: expertise, capital, and a site (i.e. land). This probably seems fairly obvious. I mean, you need to know what you’re doing, you need the money to do it, and then you actually need a place to build. But as simple and as obvious as this may seem, there are barriers to entry. Real estate is a capital intensive industry. And despite what the general public seems to believe about the pockets of developers, most are raising outside capital.

  The thing about this three-legged stool is that you don’t necessarily need to have all of the legs at once, and in many cases you won’t. If you have two of them in place, it’s usually feasible to figure out and get the last one. For example, if you know what you’re doing (expertise) and you have a site (owned or “under control”), then presumably you have a development pro forma that makes some economic sense. And with those things, you generally should be able to find the capital that you need to execute on your project.

  I’ve also met people who have managed to build this three-legged stool starting with only one leg. They didn’t have much development experience or capital connections, but they learned enough to figure out how to value development land. They then went out and started knocking on doors, eventually putting together a development assembly. They then took this assembly to developers (people with expertise) and the stool eventually got built. Starting with only one leg just means you’re going to have to work harder to fill in the others.

  A one or two-legged stool won’t stay upright on its own. But hustle will hold it up temporarily while you figure out a creative way to attach the missing leg(s).

  Photo by John Boatile on Unsplash

  2020.06.28

• $27 million worth of condos in New York

  This week it was reported that a South American family has bought and closed on ~$27 million worth of residential condos at Waterline Square in Manhattan. Apparently they went into contract (after the online showings) and closed on the same day, which I suppose you can do when it’s an all-cash deal like this was. The agent, Maria Velazquez, didn’t disclose who the family was, but apparently they’re from Peru and they wanted a safe place to park their money during this pandemic. Uncertain times usually create buying opportunities, and it sounds like the family did get a bit of a bulk discount here. But it’s also interesting to see where capital is flowing right now and what is perceived as a safe haven. Residential real estate in one of the world’s preeminent global cities probably won’t come as a surprise to any of you.

  2020.04.16

• Jason Statham’s home is on the market for $6.995 million

  

  I keep coming across actor Jason Statham’s homes (or former homes) in design publications. At the beginning of this year, he and model Rosie Huntington-Whiteley sold their Malibu beach house for $18.5 million. It was beautiful. And last month, he listed a home — he seems to have many — near LA’s Sunset Strip for $6.995m. (Pictured above.) A renovation of an existing 1957 house, Statham purchased the house in 2015 for $2.7mm and completed a meticulous renovation with Standard Architecture. Look at that roofline! For those of you in the market, here’s the listing.

  Photo: ©Benny Chan | fotoworks

  2020.04.01

• A transactional real estate marketplace

  I would like to revisit the post that I wrote last week about the Brazil-based real estate startup, Loft. In it, I said that they are doing in Brazil what Opendoor, and others, are doing in the US. They are buying and flipping homes using algorithms. This has become known as “iBuying” and we’ve talked about it a lot here on the blog.

  But we have also talked about how this is probably not the end game. These companies are seeding a marketplace, because in every new two-sided marketplace you are always faced with a chicken-and-egg problem. You can’t attract supply if you don’t have demand. And you can’t attract demand if you don’t have supply.

  In reading the investment announcement by a16z, this larger vision is pretty clear:

  They [Loft] are building a transactional marketplace for the biggest asset class in the world, starting in the biggest market in Latin America, on a time horizon that makes it hard to believe it’s been less than a year since the PowerPoint. They buy homes, fix them (often according to formulaic specifications provided by active buyers), and sell them — what is now known as “i-buying,” with the vision of turning this into a transactional marketplace.

  If successful, these companies will transform from just “iBuyers” to fully fledged marketplaces for the buying and selling of homes. And when that happens (I believe it’s a when), it is likely to mean dramatic changes to the commissions landscape. Today, over $100 billion in residential real estate commissions are paid out across the United States each year.

  2020.01.08

• Software eats real estate

  At the beginning of this year, a16z announced that they co-led a $175 million investment in the real estate company Loft. Based in São Paulo, Loft is doing in Brazil what Opendoor is doing in the US. They are bringing more liquidity to the residential real estate marketplace, and it turns out that the need for this is even greater in Brazil. That has apparently made Loft one of the fastest growing real estate companies in the world today. Here are some interesting facts about residential real estate in São Paulo. And here is a talk by Alex Rampell (general partner at a16z) on how software is going to eat the real estate world.

  2020.01.04