Tag Archives: Real estate

Adam Neumann Was Their Biggest Investor — Now He’s Their Biggest Competitor

It didn’t take long for Adam Neumann to find controversy. Before starting his new residential real estate startup Flow, Neumann made a big investment in a company that’s suspiciously similar.


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From an excellent report out yesterday in Forbes:

When staff at real estate startup Alfred arrived at work last Monday morning, they were surprised to discover that their largest investor, former WeWork CEO Adam Neumann, appeared to have started a rival company — and raised $350 million to compete against them.

Flow, Neumann’s splashy but mysterious new real estate venture, was aiming to build “the future of living,” influential venture capitalist Marc Andreessen wrote in a blog post announcing the investment. Alfred’s motto — “welcome to the future of living” — sounded uncomfortably similar.

Neumann is still a major investor, though he has stepped back from the board.

Neumann had wanted to acquire Alfred, but the terms of a new funding round blocked it. He appears to have set up Flow as a response.

Investors in startups are not supposed to back competing companies.

An investor is privy to tons of confidential information about a startup. Were that information disclosed to a competitor, even accidentally, it could cause serious damage.

Starting a competing company rarely comes up, but should be out of bounds for the same reasons.

Flow already appears to be cannibalizing Alfred’s business:

Alfred may have already started seeing the effects of Neumann’s influence. One of the Norwalk, Connecticut, apartments where Alfred participated in the experiment with Greystar had been featured on Alfred’s site as an example of how it works with landlords. But when a Forbes reporter stopped by to speak to residents, one told them that the app the building offered for use was Carson, the Neumann-owned competitor. The Norwalk apartments have since disappeared from Alfred’s site.

With a serious competitor that just raised $350 million, Alfred will find it hard to raise more money. Do investors want to back Alfred’s team against a more experienced and better funded rival?

This controversy shows the danger of doing business with unscrupulous people. Neumann’s money was tempting, but the juice wasn’t worth the squeeze.

Normally, a founder who created a multibillion dollar public company would be a great business partner — even if he’d made some mistakes. Mistakes help people learn.

But we must distinguish between strategic errors and plain lack of ethics. You can learn strategy, but you can’t learn scruples.

What do you think of Neumann’s return? Leave a comment at the bottom and let me know!

More on tech:

Will Adam Neumann Change Housing Forever?

John Doerr’s Biggest Mistake

Talking Startup Fundraising with Travis King of Launch Point Labs

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

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Photo: WeWork and Flow founder Adam Neumann

Chinese Stop Paying Mortgages as Real Estate Crisis Spreads

Chinese homebuyers are refusing to pay their mortgages in a boycott that’s spreading across the country. Many fear the homes they’re paying for will never be finished.

Now, suppliers to builders are also defaulting on loans.


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From ABC News Australia:

A fast-growing mortgage boycott across dozens of cities in China has prompted some property suppliers to cease their bank loan repayments, raising fears the escalating situation could trigger a further downward spiral in the sector and even threaten the country’s financial stability. 

Hundreds of landscapers, sculpture-makers and construction companies have expressed their anger that they have been bled dry because some debt-saddled developers did not pay their bills while they continued to service or help build apartments, Chinese media Caixin reported.


Chinese usually buy homes and start making payments before they’re complete.

The boycott has spread to 90 cities in mere weeks.

The Chinese government is censoring reports on the boycott, per Bloomberg. So the situation inside China may be even worse than reported.

A real estate meltdown is a catastrophe for the average Chinese saver. Chinese put 70% of their wealth in real estate, compared to 35% in the US.

The property sector accounts for about 25% of GDP. China’s GDP growth has flatlined as the sector sputters.

And it gets worse. Chinese banks have lent huge sums to property developers.

As developers default, bank runs are spreading across China. Government thugs have beaten protesters desperately trying to recover their life’s savings.

Amid a bleak economy and constant COVID lockdowns, workers are struggling. Youth unemployment has spiked, hitting over 19% last month.

Consider the picture for the average Chinese person: most of your savings are tied up in an apartment that will never be completed, the rest is in a bank that’s insolvent, and your only child can’t find work.

Revolution might start to sound good.

In the US, we know that a property crisis fueled by heavy debt can spread quickly. Huge liabilities pop up at different institutions unpredictably.

This undermines confidence in the entire financial system. When that happens, you get a financial crisis.

That’s what China is facing today.

At stake is the legitimacy of the Chinese Communist Party. Officials have staked their power on offering ever-increasing living standards.

Those days may be over.

I can only hope that Chinese citizens prevail and oust a government that has brutalized them for generations.

More on China:

Mass Protests in China as Bank Runs Continue

Will Evergrande Spark a Global Financial Crisis?

China Is Killing its Tech Industry

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: Unfinished Chinese apartment buildings being demolished in Kunming, China

Did LinkedIn Just Build the Future of Work?

I think I just saw the future of work. And it is good.

In an amazing new video from The Wall Street Journal, reporter Adam Falk tours LinkedIn’s completely redesigned headquarters. He finds every sort of office space a human could want…plus free lattes.


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LinkedIn’s headquarters in Silicon Valley used to look like any other office. Rows of identical desks and the occasional uninspired conference room.

But after the pandemic, LinkedIn knew it couldn’t bring everyone back into an old-school cubicle farm.

So it completely redesigned its headquarters for a combination of in-person and remote work. (Hint: it looks a lot like WeWork.)

The result: essentially every kind of workspace imaginable, grouped into little pods. Soft chairs, high-backed booths, outdoor seating and, of course, private offices.

I like this variety. The idea is to help people work in different postures throughout their day.

This avoids aches and pains.

I’m experimenting with it myself right now! Instead of the table where I usually sit hunched for hour after hour, I’m in a comfy easy chair for a bit.

I don’t know about you, but my neck is sore just about every day! I’m hoping this helps.

The variety of seating also helps deaden noise. Those high-backed booths block sound a lot better than an open floor full of desks.

When I was working in an office, noise was my nemesis. Co-worker conversations could make it very hard to focus.

And best of all, LinkedIn doesn’t even make employees to come to this beautiful office! Everyone can be remote or in-office for whatever amount of time they like.

I love working from home. Cutting out a commute and avoiding noise make me a lot happier.

But it doesn’t work for everyone. My friend Tim*, who is in sales, hates remote work.

He explained that it’s very hard to get fired up about cold calling when you’re lounging in your living room. And there are lots of Tims, productive workers that love being in an office.

Then there are other people like my friend Jason*. He might enjoy remote work if he were single, but with a small child and a wife who also works remote, peace and quiet are hard to come by.

So any larger company like LinkedIn is wise to have at least some office space to accommodate workers like these.

The one problem I see with LinkedIn’s campus is too few private offices. Sometimes people need a room with a door so they can blot out the world and focus.

I’d also add an optional, free WeWork membership for every employee. This would be great for staffers that don’t live close to headquarters but still need to get out of the house.

And at $299 a month, the cost is nothing for a giant like LinkedIn.

In all, I think LinkedIn did an awesome job! Less pampered workers would be in awe of the glass atria and cozy couches.

I spent many years in grey cubicle farms and never liked it much. I hope this beautiful office serves as a model and we all work better in the future!

What do you think the future of work is? Leave a comment at the bottom and let me know!

More on tech:

Apple Tackles the Most Aggressive Spyware with New Lockdown Mode

Managing a Crisis the Sequoia Way

Why Tech Stocks Are Oversold

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Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

*Not their real names

Apartments Are Banned from 76% of San Francisco

I came across in incredible stat today. Apartments are banned in 76% of San Francisco. It’s no wonder that it’s the most expensive city in the United States.

In fact, given increasingly restrictive zoning, 54% of the homes in San Francisco could not be built today! The picture in New York City is similar, where 40% of Manhattan homes couldn’t be built under current zoning codes.

I find the anti-development discourse often focuses on “greedy developers” when a more appropriate person to focus on might be “working class mom who doesn’t want to live 90 minutes from work.” How we frame the problem may be the key to winning the argument. The “neighborhood character” trope is another NIMBY standby, but against a struggling single mom who spends four hours a day commuting on a bus to her job as a nanny and just wants an affordable place near her job, i think their argument loses its punch.

Housing in expensive cities like SF and NYC could get more affordable in a different, more painful way. Everyone I know of who lives in San Francisco is decrying staggering amounts of crime and school closures that have gone on over a year. The tech industry has moved to Zoom and found real efficiencies there. I live in the NYC area and can attest that crime has increased substantially.

Perhaps the way San Francisco and similar cities get cheaper isn’t by building, but by self-destruction.

For more on zoning and politics, check out these posts:

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Photo: “Typical San Francisco house” by 4nitsirk is licensed under CC BY-SA 2.0

Rocket Companies Is One of the Most Active in the Options Market

Shares in Rocket Companies jumped over 70% today, and that optimism is also reflected in the options market:

RKT stock was one of the most active stocks in the options market yesterday with total volume of over 365,000 contracts. Call option volume outpaced puts by a ratio of 6-to-1. Overall volume was nearly three times higher than normal.

More here. This is particularly striking given that Rocket Companies, while a substantial company, is tiny compared to giants like Apple, Amazon, etc.

For more on the Wallstreetbets phenomenon, check out these posts:

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Photo: “Dan Gilbert (left) and me” by Moondog Mascot is licensed under CC BY-NC-ND 2.0

Big Profits And Lots of Short Sellers Could Make Rocket Companies a Winner

Rocket Companies, a mortgage originator, has returned solid profits in 2020’s hot real estate market:

Boosted by the boom in mortgage refinancing activity, the company had $15.7 billion in total revenue, or more than triple its $5.1 billion revenue in 2019.

Its net income, or profit, skyrocketed to $9.4 billion from just under $1 billion the year before. And the company increased its closely watched gain on sale margin by 127 basis points year-over-year to 4.46%.

It’s also the number 2 most popular stock on Reddit’s Wallstreetbets.

And yet, short sellers are betting against the company: 37% of shares are sold short (measured as a percentage of the float). This is comparable to money losing companies like Tanger Factory Outlet Centers.

It’s true that Rocket does face risks from increasing interest rates, but big profits along with a not-outrageous valuation for a high growth company mitigate that. Add in the possibility of a short squeeze and things get interesting.

I prefer a more diversified portfolio, but compared to other Reddit darlings like GameStop, Palantir and Sundial Growers, Rocket looks a lot more attractive.

For more on the Wallstreetbets phenomenon, check out these posts:

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Photo: “ATREX – Sounding Rockets” by NASA Goddard Photo and Video is licensed under CC BY 2.0

This One Trend is Driving Every Financial Market

Regardless of which market we look at, we see a similar trend: skyrocketing prices since the beginning of the pandemic. You can see this in the S&P 500, a broad measure of stocks:

In commodities:

In the increase in real estate prices and the corresponding decrease in capitalization rates (this chart is from Dallas…see similar trends in other cities in the research papers linked in this post):

And even in Treasury bonds (recall that the yield moves in the opposite direction from the price, so a lower yield means a higher price):

Why are all these markets looking the same? The likeliest cause is a huge jump in the money supply. The Federal Reserve has aggressively printed money since the beginning of the pandemic, looking to counter the seismic economic shock. I think this is probably appropriate. In any case, the effect is unmistakable, however you measure money supply.

Here’s how the “monetary base,” or “the sum of currency in circulation and reserve balances (deposits held by banks and other depository institutions in their accounts at the Federal Reserve),” has expanded:

If you look at another definition of the money supply, M1 (“the sum of currency held by the public and transaction deposits at depository institutions”), it looks like this:

And if you broaden your definition of money supply to M2 (“M1 plus savings deposits, small-denomination time deposits (those issued in amounts of less than $100,000), and retail money market mutual fund shares”), you see the same familiar pattern:

Whichever way you slice it, there’s a lot more money out there than there used to be. That money can be used to bid up stocks, bonds, real estate, commodities, bitcoin, Gamestop, or whatever you like.

There is some debate in the literature about whether you can draw a correlation between the money supply and increasing stock prices. This study sounds a cautionary note:

future profits may not change, if interest rates decline at the same time that demand for firms’ products, and thus their sales, decline.

This could be relevant for companies that can’t deliver their products in a contactless manner. But companies that can have been thriving.

In all, it appears that the massive increase in the money supply is driving financial markets of every stripe in one direction: up. Until the Fed changes policy, I suspect the bias is likely to be toward buoyant markets, especially with vaccines coming on line and the pandemic’s end in sight.

Have a great weekend, everyone!

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Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?'” by BrookingsInst is licensed under CC BY-NC-ND 2.0

What Does the Pandemic Mean for Real Estate Investments?

A health and economic crisis is scaring nearly everyone right now, including investors. Stocks recovered in record time, but what about investments in real estate? Are they doomed, or is the bad news perhaps a bit overblown?

I invest in real estate through Fundrise, which allows me to spread my money across many projects nationwide. I prefer this to the concentration risk I would face in, for example, owning an apartment building in New York City, where a recent rent law change has substantially reduced the value of buildings.

But regardless of how diversified you are, the pandemic is impacting all aspects of life…and business. So I set out today to gain more understanding of how these changes would affect my real estate investments.

The national picture for apartments, which is most of what Fundrise owns, is surprisingly good. Vacancy rates in major markets including Dallas, Los Angeles and Washington DC, all areas where Fundrise has many buildings, are not all that elevated. This squares with my returns in Fundrise, which were over 7% in 2020 despite just about the worst market conditions imaginable.

Indeed, despite the strong and sustained lockdown measures in LA, its vacancy rate is comparable to that of Dallas, an area that locked down a lot less. Dallas, LA and DC all have a vacancy rate around 5%. Only LA is materially above its Q1 2019 vacancy rate, and keep in mind that LA has had a serious housing crisis for many years.

Of these three markets, LA definitely concerns me the most, with higher unemployment. But prices have held up so far.

So, what’s the upshot? National unemployment is up but still not extremely high, and the higher end apartments Fundrise tends to own are less likely to be occupied by those in leisure/hospitality, who may struggle to pay their rent right now. Add that to the fact that more vaccines are being deployed daily, bringing the beginning of the end of this health crisis.

So, I see the outlook for residential real estate investments as fairly bright, all things considered. To sell now in the face of slight weakness and a coming end to the pandemic simply wouldn’t make sense.

I intend to sit tight.

Note: If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

Photo: “Boarded up & masked – 10th Avenue, New York City” by Andreas Komodromos is licensed under CC BY-NC 2.0

Is Zoning Keeping Poor People Poor?

I recently subscribed to a newsletter from the journalist Matthew Yglesias that has turned out be outstanding. A message I received this morning really struck me. Yglesias argues that the best thing we can do for the poor, given that housing is their biggest expense, is to build housing like crazy:

This is diametrically opposed to the narrative we so often hear, that new development replaces the urban poor with, well, people like me. Yglesias’ argument makes sense in terms of basic supply and demand. New York is creating 3.9 jobs for each new housing unit. In San Francisco and Silicon Valley, the numbers are far worse, at over 6 jobs per new housing unit! (And sure enough, SF/Silicon Valley is more expensive than NY.) Unless the average household size is about 4 in the case of NYC or 6 in SF/Silicon Valley, this simply won’t work. There will be more workers who need apartments than there are apartments.

What happens then? You guessed it: your rent goes up. However, I was greatly encouraged by this tidbit:

Now, you’re on my territory! I’ve lived in Hudson County, NJ for about 6.5 years and love it here. And I did notice that we seem to build a lot more than New York does. But you know what they say: the plural of anecdote is not data.

The data is in! And it’s striking, especially since Brooklyn’s population is around 2.6 million and ours is under 700,000! Dividing Brooklyn’s roughly 2,559,903 residents by 9696 new permitted units gives us 264 residents per new apartment allowed to be built. In Hudson County, that ratio is approximately 672,391 residents divided by 8,238 units, or 82 residents/new unit.

We are building housing more than three times as fast as Brooklyn, our nearest competition!

So, is all of Hudson County a noisy construction site surrounded by snarled traffic? Hardly! There are countless parks, a beautiful waterfront walkway, and lively, pedestrian-friendly streets. It’s actually not so different from Brooklyn, except it’s cheaper and arguably safer, especially these days.

Yglesias’ argument also makes sense given an inside view into NYC development that I happen to have: my friend Tim* is a commercial real estate broker in New York City. He often works with owners of lower productivity industrial real estate in poorer parts of the city that were recently upzoned to allow apartments. A typical client might be the owner of a small factory that is not very profitable, who can do better selling his land to a developer who will build apartments. The factory can move somewhere cheaper nearby (hello, New Jersey!) and people can have places to live.

My one bone to pick with Yglesias’ otherwise excellent article is:

I think a lot of sensible people have different opinions on that one!

Check out Yglesias’s website here. Tons of great reporting of the sort we don’t see enough of!

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*Not his real name

Photo: “MichaelPremo_MsWard-4364” by michaelpremo is licensed under CC BY-ND 2.0