
The frustration of trying to invest in my hometown - Apocryphon
https://www.bbc.com/news/business-53473239
======
etchalon
Reading these threads, it’s always frustrating to see people insist that it
can’t be because of race. “There must be a logical, mathematical reason for
this!”

As a graduate of the Goldman Sachs 10KSB program, one of the most shocking
things I found amongst my cohort was how many of the black small business
owners were struggling with credit and financing. It didn’t make any sense
when we discussed their business.

Often times, their companies were in better financial situations than my own,
yet, whereas I was fairly easily able to secure low-interest LOCs and credit
lines, they were stuck with high-interest consumer cards, or worse.

This made their businesses inherently more fragile than mine, as the interest
payments alone were eating into what would have been otherwise healthy
margins.

There is often no logical, mathematical reason.

There is just new racism justified by the lasting impact of old racism, and
sometimes it’s not even that:

[https://www.nytimes.com/2020/07/15/business/paycheck-
protect...](https://www.nytimes.com/2020/07/15/business/paycheck-protection-
program-bias.html)

~~~
aliante
Check out the area where he wants the bank to “invest.”

608 19th street Ensley. Look on Google Streetview and Google Earth.

Roofs have collapsed. Half the windows around there are smashed. A few large
holes in walls.

What would you value buildings in that area at?

~~~
raziel2p
Where did you get the exact addresses of the buildings he wanted to invest in?

~~~
treis
The pictures and then you can verify he owns it through county records:

[https://eringcapture.jccal.org/caportal/CA_PropertyTaxParcel...](https://eringcapture.jccal.org/caportal/CA_PropertyTaxParcelInfo.aspx?ParcelNo=22%2000%2031%203%20018%20003.000%20%20%20%20%20%20%20%20%20%20%20%20&TaxYear=2020)

------
ethagknight
I recently led an $80mm mixed use investment in a 10 derelict properties in an
offbeat part of Memphis next to a few large government housing projects. Some
takeaways reading the article. Banks are not the problem; banks are just doing
their jobs by trying to make securable loans. Appraisals aren’t the problem;
appraisers are hired and paid to be non-creative and non-biased they assign a
value to property. If a group of properties were acquired for next-to-nothing
because they’ve been vacant for a decade, it’s tough to assign more than a
pittance because there is simply no value comps. The market agrees with the
banks and the appraisers, hence not enough people have attempted to
concurrently try to develop in Ensley, thus there’s not enough value.

What succeeded for us in Memphis is threefold: 1) proximity to jobs, 2) group
buy-in of participation into the vision, and 3) some very wealthy investors
who believe in the vision.

I’ve toured Ensley, I looked at buying that mid rise in the back of the
article’s picture, and it’s a neat place. It has the fabric of old small towns
that used to thrive. However, I don’t think Ensley has any proximity for high
quality jobs or prospects for job growth, so that’s probably square one for
Ensley. Historically, this has been “the creatives” who need cheap space but
also like to buy expensive lattes And generate a micro economy, but in our
case in Memphis, a bank wanted to move its headquarters into the neighborhood,
alongside several smaller businesses.

Modern day construction is extremely expensive and complicated, to the point
that acquisition price in cheap parts of town are a rounding error on the
project budget. You need to find a way to guarantee that rents will be
sufficient for the long haul, and if you believe banks and appraisals are
being short sighted (and they always are..) then you have to provide that
guaranty yourself by setting aside a pile of cash or stock to secure the debt.

I could write for days on this topic, more than happy to continue discussion
offline or elsewhere

~~~
nicoburns
You say banks are just doing their job. But you also admit that they're short
sighted. Doesn't that suggeat that they're _not_ fulfilling the role that we
need them to fulfil in society. I don't want to live in a society where you
can only take on a project like this if you are wealthy or have a wealthy
backer. Do you?

~~~
ethagknight
Banks job is to get money out there door and get it back with interest as
agreed in loan documents. When I say short sighted, I intended to convey a
lack of imagination for the future. Banks are asking, “how does this debt get
serviced day1? Day30? Day365? What could interrupt those payments into the
future? They do not buy into “but imagine what this will look like in 5
years!” that isn’t their job, that’s the investor’s job.

As for the wealthy gate keeper fulfilling a role in society: Well, generally
yes I support that with the caveat that HNWI s are required for an $80mm risky
investment, but not for a neighborhood coffee shop investment or for a
business owner moving their business into Ensley, creating jobs in Ensley. But
there must be people with money making decisions against the risk, and that’s
important. Here’s why: why invest in Ensley vs the same investment in the
middle of nowhere, Alabama? Why shouldn’t the US Government (the ultimate
wealthy gatekeeper) invest in a bespoke vision for a large luxury mixed use
community in the middle of miles of farmland? Because the investment doesn’t
work, a total waste of money! The Ensley investment, as proposed, is an
investment that doesn’t work. Capital is limited, capital flows to the highest
risk adjusted returns, blah blah blah, and there are similarly dilapidated
parts of Birmingham AL that have received massive investment because those
investments DO work. Investors are investing in those parts of town instead.
It’s a sliding scale balancing opportunities, risk, time and effort, and
investing in an unproven area is risky proposition and someone needs to step
forward to personally take on the unmarketable risk. For someone who knows
what they are doing, there is tremendous opportunity for value. That’s what my
company does.

There may be a path forward for Ensley, and I suggest starting with direct job
creation, not finishing out a dilapidated building and hoping someone shows up
to pay rent. If this person from the article wants to invest in Ensley,
starting very small could be a ticket, building a case for investing in
Ensley, and then convincing others to come along side, but there must be a
leader taking a load of the initial risk, as well as ongoing risks, and those
risks are great.

I should also mention, real estate development in general is incredibly
complicated, risky, and difficult, even when the odds are in your favor
starting out. Just getting the building open to public (Fire and life safety
regs) is a major challenge, let alone ever making a return on investment. We
typically receive plenty of rejections for loan proposals for development
deals, or offers with onerous terms that are intended as a “nice way of saying
no”.

------
bbarnett
This could be a chicken and egg problem, too.

Banks lend on statistics, just as insurance companies have rates based upon
the same. And insurance companies, for the most part, can assign rates based
upon _average_ accident rates, for identifiable traits.

Like one's sex. Or where they live (a common way to get statistics without
'race/colour').

So what do I mean by the chicken and the egg, here?

Well, imagine that black landowners go bankrupt more often. And sadly, this
could be because black landowners go bankrupt more often!

If a specific statistical classification indicates more bankruptcy, then it
becomes true. For example, bank $a is bold enough to lend to someone whom they
view as, statistically, more likely to fail. Then.. a few years later?

That person needs a fiscal injection. Were that person not black, it would be
_easier_ to get funding at a time of need. However, since that person is?

Well, then they get more denials, go bankrupt, and add to the proof that
"statistically, more black people go bankrupt". Or as the banks are likely
doing it, "the area where people live in".

In other words, unless you can make EVERYONE, 100% not deny based upon an
statistical models? Race/gender/sexual orientation/sex/where they live, etc,
etc? Anyone, like bank $a lending outside of those models, will be lending to
people less able to find additional assistance when/if the time comes.

Chicken and egg. It's not right, but I view this a little bit like certain
regulations, where corporations can't compete against other corporations which
'cut corners', so we have to mandate all corps behave in a certain manner to
level the playing field.

~~~
macspoofing
There is no 'chicken and egg' problem. Banks don't use race as criteria for
loans, just as auto insurance companies don't use race as criteria for setting
rates.

I also find perspectives like yours very perplexing. Debt is not charity. It
is not charitable to provide debt to someone who cannot afford it. Not for the
debtor, nor the lender. I've seen people suffer for years drowning in debt
they could not afford. I've seen people with mortgages (variable rates in
foreign currency) that went underwater when the rates and currency exchange
shifted the wrong way. Bankruptcy is an incredibly painful process to go
through as well. Debt is not charity.

Banks also do not _just_ give out big loans (no matter what your credit score
is) unless there is collateral. It is clear as day, that the bank valued the
collateral to be low or inconsequential (i.e. judged one property at land-
value at $1/sqft and $0 for the building). So there was no collateral for
those loans, because redevelopment of those properties was expensive, with
lots of risk. Why do you think it hasn't happened yet? Why do you think these
properties were standing there rotting away? Why didn't anybody take a flyer
on those, given how inexpensive these properties probably are? Because there
are major risks associated with redevelopment. In our city, a property,
seemingly in a prime location, stood abandoned for years .. turns out, the
property was cheap, the land was cheap, the environmental cleanup necessary
for redevelopment, was not.

>Were that person not black, it would be easier to get funding at a time of
need

Says who!? Have you actually tried? Our company was only extended a line of
credit years after we were in business, and it was collateralized against
purchase orders and revenue (and we had to provide lots of documentation to
prove those). Banks do not want to give out loans with even a little bit of
risk associated. They are not like venture capital firms and haven't been for
a long time.

~~~
gwd
> Banks don't use race as criteria for loans, just as auto insurance companies
> don't use race as criteria for setting rates.

If this article is correct, then this claim is wrong. Banks may not _directly_
use race as a criteria, but the claim is that they use race as a criteria for
_property value_ , and then use property value as a criteria for loans:

> _Five of his properties were in a decent state of repair and some had
> sitting tenants, while three needed a complete refurbishment. ...One bank
> finally sent someone on location to assess his properties 12 weeks later.
> They valued the buildings at zero dollars and just over a dollar per square
> foot for the land only. As the rules for most banks say a property must be
> valued at a minimum of $50,000 (£39,000) to get a line of credit against it,
> his case was shut._

Counting a building with active tenants paying rent as being valued at $0 is
ridiculous.

~~~
macspoofing
>Banks may not directly use race as a criteria, but the claim is that they use
race as a criteria for property value, and then use property value as a
criteria for loans ...

You have to do the leg-work to show that Banks have a policy that is in intent
racist because every policy you can ever think of will have a differential
impact on any group you create - because groups will never be perfectly
uniform.

>Counting a building with active tenants paying rent as being valued at $0 is
ridiculous.

Not necessarily.

This is why these articles are so terrible. They didn't do investigative
journalism. They didn't do the legwork. I can tell you right now, there is a
reason why it is valued at $0 - we just didn't get that reason because the
journalist is lazy.

~~~
bluntfang
Redlining is a real practice done by banks and credit issuers that use race
criteria based on where you live to discriminate against people of color.

[https://en.wikipedia.org/wiki/Redlining](https://en.wikipedia.org/wiki/Redlining)

~~~
kyrieeschaton
Redlining ended over fifty years ago. Pick a different bugaboo.

~~~
bluntfang
According to this article, it hasn't. Provide contradictory evidence.

------
wjnc
Proper valuation of real estate takes into account the future: usually 15+
years of rental income, maintenance cost, interest on loans, vacancies and
churn, the development of surrounding areas in that period and then as a
clincher: the future value that the building can be sold for. The underlying
principle of any valuation is that there is "At Least One" potential buyer.
That makes valuation of real estate an art. Say in a downturn when nobody is
buying, the value is suddenly non existent. Valuers have solved that by the
"At Least One" criterium: you just value in the fiction that there is always a
buyer. I've been involved in several dozen valuations from a risk management
perspective and that is the one thing that stuck by me. The downside risk of
no liquidity is not in the valuation.

What does this lead to? A value of zero in case of tenants is highly unlikely
unless there are some large cost are modelled. If there are a lot of vacant
properties with zero current value, that might lead to all values being
depressed. If in the set are buildings with high future maintenance cost
modelled, the value of the set could become zero.

Perhaps the bank didn't want the risk of all eight properties at the same time
and he should have moved step by step: first buy and redevelop the buildings
with tenants, only then to expand and get leverage while building on an
existing portfolio. That is the way real estate fortunes are made where I
live. Get a building, make condos, fill them, show a positive cashflow and add
leverage. Rinse and repeat. With rental income in 5%+ and interest moving to
1% it has been a few lucky decades for those involved.

The statistics mentioned between loaning in white and black communities are
quite stark. However, to give some more perspective from the lender. A low
interest rate signals even smaller risk appetite for the lender. If there ever
was room for defaults in portfolios, there is none at interest rates < 1%. It
just kills your business to have any one customer fail on payments or worse
needing auctioning off. I guess he could easily get crowdsourcing or private
investment at 25% of needed capital with his story if he did 75% downpayment
at 4%. But that would kill his part of the business case. I would agree that
this risk management view could blow up inherent biases in the way valuation
work.

------
johnyzee
> Financial reparations to African American communities are key, argues Prof
> Baradaran

This seems obvious and fair. Blacks have never been given a fair chance in
America.

> In 1863, when President Lincoln signed the Emancipation Proclamation, black
> Americans owned less than 1% of US total wealth. Nearly 160 years later,
> this number has barely budged.

Just setting slaves free did not, in any way, put them on equal footing with
the rest of the population, and they are still mostly in the hole today that
they were then, through mostly no fault of their own.

Yet it is my impression that most white Americans, across the political
spectrum, are repelled by this idea. There seems to be a widespread, though
usually not so bluntly stated, sentiment, that blacks are to blame for their
own problems. And not much recognition of how utterly disenfranchised, and
frankly destroyed, this people were during slavery, and that this has effects
generations later.

~~~
ShamelessC
You might be right about the "most" qualifier (although I hope you're not) but
have you been paying attention to the protests and media/editorial coverage of
the black lives matter movement? It seems many white people are finally
starting to grasp the idea that black people have always been severely
disadvantaged in this country. A good example is the popularity of the "white
fragility" concept and a broader effort to call out racism when it happens
instead of worrying about the egos and shame of those accused.

Of course, there's also a lot of white people (conservatives, mostly) offended
by this notion who are pushing back heavily. There's also obviously the issue
that the majority of police in certain areas are particularly fragile and
defensive when accused of being racists.

Two sides to the issue n all that.

~~~
johnyzee
I partly base the 'most' part on seeing how widespread the idea is here on HN,
which I generally consider to consist of reasonable, and mostly liberal
leaning, white people.

Honestly, though the BLM movement is a nice gesture, it seems mostly prompted
by the string of high-profile police brutality cases, and limited to that. I
haven't seen a real agenda of change beyond that, like, for example, the
suggestion of reparations, or other significant economic initiatives.

~~~
ShamelessC
Yeah, I agree that it's not nearly enough yet. The level of support for
defunding police to fund social programs was surprising to me but of course
our presidential candidate doesn't seem to be on board so that's not great.

But yeah, there's been a substantial increase in conservative viewpoints here
lately. Not that they're all racist, but I see a lot more racist dog whistling
here than I used to. It's really unfortunate because it means anything
politically charged tend to get flagged really quickly. I do appreciate seeing
it in a way as it keeps me aware of just how popular those viewpoints are even
among some otherwise talented people. But it does shut down a lot of
productive discussion as well.

Strange times.

------
Aeolun
He bought eight buildings, then didn’t have enough left to redevelop any of
them?

While it sucks if you can’t get a loan, maybe you should have tried this with
one property before trying to do it with 8 at the same time...

~~~
MattGaiser
In fairness to him, all the buildings are part of a complex, so buying the
entire set for redevelopment would normally make sense.

[https://www.google.com/maps/@33.5124301,-86.8954494,58m/data...](https://www.google.com/maps/@33.5124301,-86.8954494,58m/data=!3m1!1e3)

------
MattGaiser
How much did he pay to buy those buildings in cash? That seems like key
information to allow readers to draw conclusions.

What was the market value for them?

~~~
e1g
I was curious too, so quickly checked on Zillow. In this neighborhood, the
land is up for sale at ~$1/sqft[0] which is what the bank estimated. Many
homes in the range of $30-50k, but the article says his properties are 100
years old and half are not inhabited, so the cost might be near the lower
bound.

[0]
[https://www.zillow.com/homedetails/2121-Avenue-I-0-Birmingha...](https://www.zillow.com/homedetails/2121-Avenue-I-0-Birmingham-
AL-35218/2103491102_zpid/)

~~~
MattGaiser
A landmark "historic" building in downtown Ensley is an abandoned hazard.

[https://bhamnow.com/2020/04/23/ensleys-ramsay-mccormack-
buil...](https://bhamnow.com/2020/04/23/ensleys-ramsay-mccormack-building-to-
be-demolished-and-redeveloped/)

And it turns out that his properties are close to this large abandoned one.

[https://www.al.com/news/birmingham/2020/04/johnson-with-
rams...](https://www.al.com/news/birmingham/2020/04/johnson-with-ramsay-
mccormack-20-finally-happening-will-businesses-come-to-west-birmingham.html)

I found another article where at least one building is described as held
together by decay.

[https://www.bloomberg.com/news/articles/2020-05-13/why-
it-s-...](https://www.bloomberg.com/news/articles/2020-05-13/why-it-s-so-hard-
to-invest-in-black-neighborhoods)

------
esalman
It is just depressing to read these comments. Most of these are arguing that
it is not a good investment for the banks to invest in a high crime rate area.
Well if it is not the banks, who else? If it is nobody, are these areas
condemned to be in this state forever? It just shows how broken the American
society and psyche has become. I am sure even if the local, state or federal
government try to make the same "bad" investment, the same people will come
out demanding that tax dollars be spent elsewhere.

~~~
Apocryphon
It’s also been said that zero-interest rates has led to an economy awash in
dumb money looking for a place to invest:

[https://themargins.substack.com/p/zirp-explains-the-
world](https://themargins.substack.com/p/zirp-explains-the-world)

> Treasury investors shift to corporate debt. Public equity hedge funds shift
> to late-stage private equity. Late-stage private equity shifts to mid-stage,
> mid-stage to early stage. Seed rounds become bigger. Angel investors become
> a thing. Unicorns, unicorns, and more unicorns. Ashton Kutcher.

> And that's how we end up where we are. In the past, if somewhat risky
> corporate debt got you 10%. It now gets you 7% (I'm making up numbers here)
> so you start taking meetings with late-stage growth companies. The Saudi SWF
> wants to modernize their economy, but they are also looking to achieve
> returns once found in public equities, so they have to get creative.
> Blackrock gets jealous of KKR who gets jealous of a16z who gets jealous of
> YC. There is just so much money looking to do so many new, riskier things.

> And again, that's exactly how it's supposed to work. Cutting interest rates
> spurs demand and risk-taking.

> When that much money finds its way into places not used to that much money,
> weird things happen. It's how we got to Community-Adjusted EBITDA and sleep
> economies. You don't create a ridesharing service, but a service that oddly
> loses money on every ride with a promise to figure out some future business
> [Tough, but fair -Can]. The distortions live at the valuation level, but
> also the communications and expectations level. Things just get weird.

In which case, why opt for risky profit-less startups, and not attempts to
revitalize local communities? It’s almost as if these cost-benefit analyses
are skewed with built-in cultural biases and expectations.

------
giorgioz
I'm deeply sorry to hear that he's great endeavor to do well by doing good is
being blocked. This is not an apology to the systematic racism that prevents
the entreprenur Brian Rice to get a loan. He's right to make his personal
struggle known and try to improve the system. This said and given I'm a single
founder of a boostrapped startup:

is there anyway he could bootstrap his project and do that in a smaller scale
without funding?

As I said before it's terrible to force him to do so, but at least if he does
bootstrap and succeed and many do the same one day some of them will be
banks/VC and will remember the inequality they suffered and they will not push
it further to others.

------
projektfu
It’s especially frustrating when you see how banks will fund SBA projects for
fad businesses like cupcake bakeries that are unlikely to be in business in 5
years. By then, the bank has made its profit and can dump the loan on the
government.

~~~
lazyjones
Why is this frustrating? The banks make a profit this way, just like you
described. They are not public services. Banks that operate with alleged
"systemic racism" are bound to lose out on profits to banks that don't,
therefore the case for it isn't very strong in this situation.

~~~
papaf
_They are not public services._

And yet the public does bail them out which suggests a symbiotic relationship
with the economy and that banks have some responsibility to the greater whole.

~~~
lazyjones
> _yet the public does bail them out_

Involuntarily, due to corruption of public officials. Don't read too much into
it.

There have been some attempts to run banks in an "altruistic" manner. I don't
know of a successful one, just failures.

~~~
dlkf
> Involuntarily, due to corruption of public officials. Don't read too much
> into it.

Haha! "Please disregard any obvious counterexamples to my broken ideology."

~~~
lazyjones
The "counterexample" is an interpretation of events based on wishful thinking,
I was stating known facts. How is governments saving banks proof of their
higher purpose or morals? Saving them saved a few rich clients and
shareholders while distorting the market by rewarding badly managed banks.

------
DFHippie
Some context:
[https://en.wikipedia.org/wiki/Redlining](https://en.wikipedia.org/wiki/Redlining)

------
trabant00
The title is misleading at best. He wants the banks to invest in his
buildings. Which they don't want to because they don't see it as profitable.

"You don't want to give me money? RACISM!" \- USA 2020

~~~
Traster
He doesn't want them to invest, he wants a collateralized loan.

~~~
tomcam
Unfortunately those cool old buildings are horrible collateral. If he fails
the bank simply cannot recover its costs. And he will fail because if the
buildings can even be legally rehabbed it will take years and at least a
million dollars or so just to get the doors open.

------
yardie
The way the US property market works just completely blows my mind. Even with
federal regulation there is a lot of racism inherently built into the system.
Cities drain money from predominantly black neighborhoods by not repairing or
updating infrastructure. Banks drain money from those neighborhoods by denying
loans and undervaluing property. No surprise the buyer got an appraisal of $0.

~~~
throwaway0a5e
It's not racism unless you subscribe to highly inclusive definitions of
racism. It's just that government is mostly made up of people who are upper
middle class or higher and government reflects their values so development
they consider "nice" is facilitated and regulatory roadblocks are added to
development they are suspect of.

If you told HN that some random dude buying a bunch of dilapidated buildings
and make them into apartments and commercial real estate people would
basically assume you're dealing with a slum lord. These are the kinds of
assumptions that government codifies. They don't care that you're black or
brown or white. You're just a name on a form to them. What they care about is
that your proposed development meets X, Y and Z which triggers scrutiny A B
and C (which was all originally passed to curtail slum lords back when the
municipality got rich on a boom of local industry 0-70yr ago and could afford
to drive them out).

And of course the bank knows all this and they figure that into their
calculations when they're deciding whether or not to lend to you and what
interest rate you'll get.

~~~
yardie
> government is mostly made up of people who are upper middle class or higher

Go to your city hall or their website and see if they have an organizational
chart. For some of us one thing will overwhelmingly stick out. For others it's
just business as usual.

> the municipality got rich on a boom of local industry 0-70yr ago and could
> afford to drive them out

This did not happen. Local industry collapsed and ushered in slumlords. City
living has only started trending up within the last 2 decades.

Banks still rely on an outdated, and I would say racist, method of property
valuation called "comps". The value of the property around you determines the
value of the property you are buying. If you are trying to rehabilitate a
distressed neighborhood you can't use that method. You'll end up with
situations like this. Needing hundreds of thousands of dollars in loans
meanwhile the buildings around you are valued at $0.

Of course you don't have to take my word for it. HUD has a whole enforcement
arm targeting racial discrimination in banking [0].

[0]
[https://en.wikipedia.org/wiki/Redlining#Court_system](https://en.wikipedia.org/wiki/Redlining#Court_system)

~~~
treis
>Go to your city hall or their website and see if they have an organizational
chart. For some of us one thing will overwhelmingly stick out. For others it's
just business as usual.

I assume you mean that they're all white. Which isn't true at all. Birmingham,
as an example, has had black mayors for 40+ years now. Most of the cities in
the south are like that. Whites fled to the surrounding suburbs leaving
political power to the Blacks that remained.

------
aliante
When he says “historic”, the bank thinks “decrepit.” Unless they building is
the Empire State Building, age hurts value.

Seriously, the fact that he had the cash to buy the buildings but needs a line
of credit against them to develop them tells me that the value of the
buildings was quite low to begin with.

------
joshgel
Doesn’t this represent a huge potential financial opportunity to whoever can
figure out how to properly recognize the value in these places/owners? What’s
stopping some forward looking bank from doing so?

~~~
catmanjan
What if the banks have properly recognised the value?

------
aliante
Check out the buildings he owns and the neighbourhood he is in on Google Earth
and Google Streetview.

One address is 608 19th street Ensley.

He is surrounded by buildings which are abandoned and the roofs have caved in.
Half the windows in the area are smashed. Saw a few crumbling walls.

Those building aren’t worth anything.

------
osmay88
Well guys I did some work in a insurance company a few years ago. From my
experience, the issue here is not that the guy is black, the issue is the
location where the business are to be open. The banks and insurance companies
will evaluate the risk of lending money more than twice for business in those
high crime areas.

Just take a look at the news in the Minneapolis protests and the amount of
black owned business burn to the ground on those areas. After events like this
most banks will be reluctant to invest money there, is not so complicated.

[https://www.neighborhoodscout.com/al/birmingham/crime](https://www.neighborhoodscout.com/al/birmingham/crime)

------
mjevans
Tech isn't really a solution to this problem, but maybe some outside of the
box thinking could setup a newer framework that would help.

If private lending doesn't want to back this project, even if there isn't
'strong competition' (at least 5 lenders willing to accept the land within a
city as collateral), then the government (whichever layer values the land the
highest) should be willing to be a buyer at that value and that should be the
collateral for a loan at median market rate.

Automating that process and making it easier for consumers to check that data
is a natural fit for tech.

------
tomcam
Sadly, these buildings just aren’t good investments, and he’s not a good
investor. Buildings that old are subject to all kinds of safety regulations,
and Birmingham is not an easy town to work through that kind of thing. No one
in the city is going to stick their neck out to cut through decades of
regulations only to lose their job when there’s a fire or collapse. Any new
owner will be tied up in red tape and rehab requirements that would dwarf the
value of the buildings themselves. It’s likely that feasibility studies,
inspections (and reinspections), and permits alone would cost more than the
buildings. They also tend to take months and even years to get through.

I’m a successful real estate investor and while I absolutely love old downtown
areas like that, and would love to revitalize them myself, I couldn’t even
talk my wife into one of those properties, much less eight for which I had no
budget. The numbers just don’t pencil out.

Racism has nothing to do with it. In fact, banks love to make loans to women
and minority business owners. But there are some risks that would be
irresponsible, and this is a textbook example of a loan that’s likely to
default, leaving the banks with costs they couldn’t possibly recover.

Just to make sure this post gets flagged to extinction, I’d like to suggest to
anyone sure that this is a case of racism and not pragmatism put together an
investment group and help out.

~~~
wegs
Racism has nothing and everything to do with it. The word 'racism' has several
very different meanings, depending on which dialect of English you speak.

* In my hometown, racism would have nothing to do with it. The math doesn't work out for the investment, he was denied, case closed.

* In my current town, racism has everything to do with it. We've set up structural barriers to success, which correlate strongly with race. We have a moral duty to remove those barriers.

The difference comes down to different definitions of the word 'racism.'

It's not a question of precision either. Just as the same sound might mean
something different in Italian than in English, the same word will mean
something different in Seattle than in Alabama. The differences tend to be
more subtle, so people don't recognize that they're talking about completely
different things. That goes for a lot of words ("white supremacy" especially).

The high-level problem, though, is if we did invest in lower-income
communities in the way the author describes, we'd be wealthier as a nation as
a whole. Individual investments might not come out ahead (so private banks
wouldn't necessarily want to finance that), but the net wealth generated in
the community would more than make up for the new risk. If the federal
government ran banks, even human element aside and just looking at likely
expected impact on taxes, those loans would make sense. That's a problem it
makes sense to fix. And the article gets back into reparations. Even if we did
come out behind, morally, those risks would probably make sense too -- the
multiplier of a loan like this which might be defaulted on is far greater than
hand-outs. If nothing else, we've improved a few buildings and a community.
But I don't think we would come out behind. Even back-of-the-envelope numbers
place us well ahead.

~~~
tomcam
Nothing stopping you from such investments.

I put my money where my mouth is.

~~~
wegs
Something is stopping me. If your analysis is correct, I'd lose money.

Given you reading comprehension skills, though, I'm beginning to question your
analysis. If you can't understand a 6-paragraph post, I can't imagine why
you'd be qualified to analyze ROI for an investment.

Go back and re-read what I wrote a few times until you understand it, and then
we can talk.

~~~
tomcam
Good for you. It’s always, always smart to question any analysis. Your writing
isn’t interesting enough for me to spend anymore time on that post, however.
My sincere best wishes on your journeys.

------
aaron695
If you want a happy version of this try -

Apple TV's "Home" S01E02, Chicago

The show is more about artistically showing peoples Home's physically and
_spiritually_ for lack of a better word, not figures, but you can see the
money it would take in Theaster Gates's project.

If you can't see the money it would take, jump to something generic with $
like Grand Designs.

------
thinkloop
If a building has tenants it's straightforward to value it, no need for comps
or sqft calculations.

~~~
dillonmckay
How long are those tenants planning to stay?

~~~
thinkloop
Check their leases, apply a vacancy rate of 5%-15% depending on history or
estimation.

------
macspoofing
I hate these kinds of articles. There are thousands of reasons why this
gentleman was denied a loan for redevelopment of these properties, and it is
just taken as a truism that it must be racism. The article doesn't even
attempt to justify this view, and simply expects the reader to take it at
face-value.

This is serious stuff. If there is institutional racism, then we need to stamp
it out. You cannot be frivolous with these accusations. And the problem with
this case, there's nothing you can do. You can't even inundate the bank with
calls to stop their racism, because they didn't even bother doing any
investigative reporting to see if the bank is following some sort of stated or
unstated racist policy - so you have no facts to stand on. The article doesn't
say it, but it is clear as day that there is a lot of risk in redevelopment of
these properties. For one thing, nobody has done it yet. There is a reason why
these properties are abandoned and nobody took a flyer on their redevelopment.
Maybe it is oversight by existing real estate developers, but maybe they know
something you don't. Locally, there is a building, in a prime location, that
has stood abandoned for years - turns out though the building and land is
cheaper, redevelopment would mean doing an environmental cleanup that was
ostensibly cost-prohibitive. The city didn't even want to reposes it even
though they could (the property owned lots of bank taxes).

It's irresponsible journalism to do this.

>Properties in black areas are priced 23% lower than in white areas, says
Andre Perry

As always, whenever a line like this is presented, the reader is invited to
assume that the reason for that is racism. Is that true though? I have no
doubt that this fact is true as stated, but no effort has been done to explain
'why' this fact is. It could be the case that banks are racist (and even in
that case, there are multitude of modalities for racism so you still need to
do the legwork), but it could be a thousand other reasons. And it is important
to know.

>They compared my eight historic properties to farmland 14 or so miles away,
and they compared my buildings to an abandoned car wash.

I mean, yes, I believe it. Banks are weird like this. They are banks. They
don't understand the nuances of the business you're in. My farmer friend got
denied a loan (and even used farm collateral) for replacement of a machine to
aide in drainage tiling because it wasn't deemed a farm-centric operation by
the Farm Credit bank (or something like that). To be fair, he did use the tile
machine to contract out the service as a side-gig but that's a distinction
without meaning. Farmers always have side-hussles that fund farm operations.

>JP Morgan Chase, the largest bank in the US, launched its Advancing Black
Pathways programme just over a year ago.

I don't know anything about the program, but if it is debt-based (as opposed
to investment for equity), then I have mixed feelings, because debt is the
fastest way for a new business to go underwater. Starting a business is hard
enough, and when you have debt hanging over you, it makes it so much harder to
survive because business is cyclic - you have bad quarters and good quarters,
and debt will inflate a bad quarter and put a damper on the good quarters.

~~~
Apocryphon
> debt is the fastest way for a new business to go underwater. Starting a
> business is hard enough, and when you have debt hanging over you, it makes
> it so much harder to survive because business is cyclic - you have bad
> quarters and good quarters, and debt will inflate a bad quarter and put a
> damper on the good quarters.

Meanwhile in startups:

[https://www.lightercapital.com/blog/startups-turn-to-non-
dil...](https://www.lightercapital.com/blog/startups-turn-to-non-dilutive-
debt-capital-for-growth/)

~~~
macspoofing
Oh man - good luck to them. And if they think debt isn't dilutive, they should
just wait and see what happens when their runway runs out from underneath them
(and it will because startups and startup founders are terrible at estimating
revenue) and they can't pay back the note.

------
zo1
Would be great if all that "funding" that the banks send to the activist BLM
organization be rather sent/loaned to individuals such as this one to actually
develop and promote neighborhoods that needs some personal love and actually
foster the change that we all want to see.

