Friends & Colleagues,
SCJ64. 64 weeks of hearing from me on Saturday mornings with this Cup of Joe. Thanks, as always for reading along with me. We have a bunch of new additions / subscriptions that came in this week so I just wanted to revisit a few things at the outset before we dive in. The idea of Cup of Joe was to stay in touch with my network of family, friends and colleagues as we moved to the Midwest and rode the Rocket into a new chapter in our lives. It grew from, essentially, a post card each week into anything of interest or relevant to our industry, our cities, our generation and, in many ways, our country.
One of my specific goals is a rebranding of the Rust Belt. I’ve only lived in Detroit 15 months but I’ve been connected to the city through Brad & Dana Frost for much longer than that. Each time I read an article or see a reference, journalists of all stripes use “Rust Belt” or “former Rust Belt” in the first paragraph if not the first sentence. In reality, Detroit, Cleveland, Pittsburgh, Cincinnati/Louisville and Milwaukee are so much more than that. These are maker cities. Authentic cities. With vibrant food & drink cultures, beautiful architecture and hard-working character, I believe the new “wild west” is actually the Midwest. The cost of launching a business in the Bay area or Brooklyn, even with the overflow of talent, makes the odds of success expensive. A colleague (who I added to the list, thanks Ed!) said to me this week — “the difference between Palo Alto and Detroit is the availability of capital. You can afford to fail several times in Silicon Valley and capital will eventually find a good idea. You have one shot in Detroit.” I don’t know if that’s true but it makes sense. The barriers to entry in Detroit are much lower but the “safety net” of asking for more funding or walking across the street to a new startup is still not here…yet. That said, I think its coming and I think Detroit is the perfect epicenter of the NextBelt. My response to Rust Belt. So when you see me #NextBelt or write NextBelt imagine the 5–6 authenticities in the Midwest where entrepreneurs and Millennials are flocking to (re)define success.
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We’ve been in Detroit’s West Village for a couple of months now and we love it. I’ve already met so many neighbors and in many ways West Village typifies the type of growth and diversity that Detroit is looking for. This week I found an article on Ozy.com that profiled one restaurant in West Village, Detroit Vegan Soul, but asks a more valuable question — can a restaurant or coffee shop or gathering place (re)define a place that triggers significant growth?
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Interesting Proposition: The WSJ profiled a MIT/Princeton/University of Copenhagen study finding that the mortgage interest deduction does nothing to promote homeownership. One professor calls it the “nail in the coffin.” Unsurprisingly, the National Association of Realtors undermined the study. Regardless of your perspective on the mortgage interesting deduction, I think we should all agree there’s two issues here — the reality of whether the math supports true savings and the perception of whether homebuyers believe it does. For now, perception matters most. We should start thinking about how long that’s likely to last.
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Included below:
1. How is corporatizing the single family rental market going to change the game? (Of Interest)
2. Pittsburgh has a major university, a food scene and an attitude. How does it stack up to Detroit? Or visa versa. (NextBelt)
3. The case for millennials in real estate (Millennial Minute)
4. Macroeconomics 101 in 30 mins — an interesting video. (Walk the Talk)
5. Honest mistakes are still costly when everyone’s watching (Valuable Lessons)
6. Today’s Thought and the Quote
Of Interest: One thing that real estate companies tend to do a little better than mortgage companies is keep pace on current cultural changes and trends. Right after I sent out last week’s Cup of Joe, I noticed an article with some important commentary on the home buying market. Hedge funds and investors have created new privately-held and public companies that buy up single family homes, often clustered together in middle class neighborhoods, and offers them for rent.
What’s interesting is how these companies frame the future. For instance, “[o]n a call with investors earlier this year, Mr. Mullen said Progress Residential was betting that much of the middle class will have to rent if it wants to maintain the suburban lifestyle of the past. He said Progress offers ‘aspirational living experience’.” The article went on to talk about the type of tenant that was typical for these rentals. Apparently here is that profile: “38 years old and married, with a child or two, annual income of about $88,000, less-than-stellar FICO credit scores of 665 and $45,000 of debt.”
The analysis by WSJ in the article shows that renting is 32% more expensive than buying the comparable single family home in one area of Tennessee. However, when profiling a couple in Tennessee, the couple was found to be paying more to own than to rent. The fact is the monthly payment is always a better deal to own (and you get the savings account established in the home’s equity). Factor in unexpected maintenance & the time spent in upkeep as well as the type of financing and it’s less clear.
Articles like this never value the homeowner’s time and energy. For renters able to utilize the free time (and possibly less stress) associated with renting, the time can be spent in other ways — raising children, creating a new business or side hustle, working more or pursing hobbies & interests. I’m not sure if that’s not a data point we should start trying to factor into this debate. With the rise of uber, p90x, Stella & Dot and Roldan & Fields, people are making money in a variety of different ways. Not having to buy a new water heater or fix the roof might mean additional investment in your business or your kids. I don’t know. But it is curious and seems some things are changing.
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NextBelt: Pittsburgh rivals Detroit for tech and Austin for cool. On Sunday, the New York Times highlighted Pittsburgh’s growing tech scene and the accompanying food boom in the hipster and historic neighborhoods in and around Carnegie Mellon. It’s been a few years since I’ve visited Pittsburgh but between this project looking at the #NextBelt and the charcuterie board at Cure, I’m definitely going to have to go.
As the debate for the next authenticities continues so does the debate inside Detroit about where and how our economic growth should be shared between 8 mile and the Detroit River. Also on Sunday, the Times Sunday Review published an op-ed about Detroit’s tax foreclosure crisis. The “crisis” surrounds how the city treats delinquent property taxes on many of the city’s properties. Many Detroiters do not realize the taxes are owed and/or do not agree with the assessed value. At the same time, they do not access any of the mechanisms for how to deal with those two issues. In fact, there are exemptions and appeals processes that can be successful in most cases. Problem is that long-time Detroiters, so familiar with being left behind, are not aware of any of these options. The question becomes what should city officials and those of us who know about these mechanism do? I’m torn on this issue because on one hand, the city must balance how tax assessments and foreclosing on properties owned free and clear hurts the city’s vulnerable residents. On the other hand, the city cannot make the type of progress we’re talking about without establishing the basic mechanisms of property ownership & sales, revenue and record keeping.
My problem with articles like this one is that while obviously an expert (and well intentioned) the author scuttles the city’s narrative before it even has a chance to take off. Of course, the city has to be sensitive to its most loyal and vulnerable residents. Yet, if we do not attract investment in the form of several large, viable employers, the growth that has begun as a modest flower downtown will never pollinate the rest of the city. If that metaphor isn’t your cup of tea, Dan Gilbert often says “we have to get the heart healthy to pump blood to the rest of the body.” The goal is to get healthy economic growth into all Detroit’s neighborhoods. Ya gotta start somewhere.
Jobs in the D: If you needed any proof that the job market for tech is still heating up, and to use a tech word to describe it — disruptive, companies like Google, Goldman Sachs, Blend, Quicken Loans, and Two Sigma stood side by side recruiting interns at an event held in NYC called Internapalooza. One bright spot for the future and (more specifically) for the future of the D, it appears young people are interested in learning, growing and having a valuable experience. It’s not about big corporate security. It’s about building something, being challenged and being a part of something special. Based on that standard, Detroit and the #NextBelt not only have a fighting chance but could eventually be the standard.
Millennial Minute: Interesting shift this week from understanding millennials to hiring millennials. Last week, I profiled an open letter to management written by a young professional looking to explain how she feels at work. This week, we have a point-counterpoint in the conversation of how to attract and higher millennials. Point — HousingWire published an opinion piece titled “Why a career in real estate is the perfect fit for many Millennials.” Counterpoint — Crain’s Detroit published an opinion piece about United Shore’s decision to establish a campus in Pontiac/Auburn Hills instead of a building in downtown Pontiac. Beyond just the locate impact of downtown Pontiac versus suburban Pontiac, United Shore’s decision weaves in themes from almost each section of the Sat Cup of Joe this week. To the point made in HousingWire, there is a lot about real estate and mortgage finance that should attract millennials. Similar to what we hear from tech startups about these new companies disrupting and revolutionizing the way people access goods and services (impliedly, always for the better), finding someone a home or helping a family fulfill the American Dream is deeply meaningful work. It also involves teamwork & collaboration as well as speed & urgency. It’s a wonder the mortgage business is lagging behind from an innovation perspective given all that. At the same time, we hear that millennials want to live in urban communities with access to food (avocado toast, anyone?) and cultural events but will ultimately buy a home someday. My question is where? Will it be the ¾ bedroom house in the suburbs with a SUV and golden retriever or will it be a variety of condos, townhouses, apts, carriage homes, bungalows and restored churches/Victorians/apartment buildings? Setting up a sprawling suburban campus — whether in Pontiac or Cupertino — bets on a shift to traditional home ownership trends over the next 10 years. Banking on urban development with a variety of living and employment options bets on millennials maintaining current trends even after marriage and kids. Right now it feels like Detroit is well situated for the best of both worlds moving forward. We have the best suburbs in the United States and enough space and real estate in Detroit to redefine how urban living looks and feels over the next 20 years.
Sidenote on this — according to the Urban Institute this week, it’s not first time homebuyers that are lagging behind historic trends but second/third time homebuyers. First time homebuyers are outpacing repeat homebuyers and have been since 2008. The report argues it’s not the Millennials who are stuck renting but the previous generation (X) who haven’t been able to upgrade from their first home.
Walk the Talk: Hedge fund billionaire, Ray Dalio, is famous for 2 things — his philosophy outlined in a new book known as The Principles and his execution of that philosophy in the shape of radical transparency within his company, Bridgewater Associates. This week I stumbled upon a new project where Dalio spends 30 mins explaining macroeconomics in a clear and easy to understand way. The video covers the effect of individual transactions, money versus credit and the short & long term debt cycles. I expected to watch 5 or 10 mins and watched the whole thing. The video ends with 3 rules of thumb (presumably for the whole economy but they apply to everyone on some level):
1. Don’t have debt rise faster than income.
2. Don’t have income rise faster than productivity.
3. Do everything you can to raise your productivity because it matters most.
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Quirky story of the week: Luxury camps and lake houses have always been the norm in places like Wolfboro, NH and Redmond, WA just to name a few of the many places that come to mind. I couldn’t help notice a headline subtitle declaring a “fancy summer camp for adults.” It’s long been my dream to find a ranch that has a luxury spa on one side and a paramilitary training camp (complete with survival skills trips) on the other. While Taylor River Lodge in Colorado isn’t quite that, it is the adventure spot you’ve been wishing for. Robb Report actually reported on the Ritz Carlton’s Lake Tahoe “Lake Club” opening recently as well. Only $65,000 per couple for that trip. Luxury lake houses/resorts are where it’s at this summer.
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Valuable lessons in unexpected places: This goes in the “when it rains it pours” category. A lawyer representing Wells Fargo inadvertently disclosed the personal financial information of other bank customers when responding to a discovery request in a lawsuit. The plaintiff now has data on the clients of Wells Fargo Advisors which includes the bank’s wealthiest set. It’s not clear whether this story makes the New York Times if Wells Fargo is not already a front page story as a result of the bank’s conduct in other areas. Certainly, some attorneys may have just returned the CD with the data on it (even attorneys engaged in contentious litigation) as opposed to calling a reporter at The Times. Here, however, when an institution is already involved in scandal & public scrutiny, a plaintiff that wants to either a). turn up the pressure on the bank during the lawsuit and/or b). simply make the bank look bad out of spite has the power to provide another damaging story in the national press.
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Today’s Thought: The power of silence can be valuable. How often do you utilize silence? On the flipside, have you ever broke the silence merely out of being uncomfortable with the pause? I saw an interesting article about it this week on BBC and wanted to share. Power of silence.
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Quote: “Your calling is the place where your deepest joy meets the world’s deepest need.” — Frederick Buechner
Bonus Content: People hate clickbait but it works. So, what do you do? Try a customer map and/or some old fashioned trust. Hope this helps.
Continued success,
