This article about banks bulldozing homes didn't surprise me one bit. You see, in a Twitter post a couple of years ago I predicted it would come to this (actually there have been a few news stories about banks taking to the 'dozer over the last few years, but now it's starting to happen more frequently and in greater numbers).

If you build a house out of real stone, brick and plaster, don't take short cuts while doing so and generally build to last, it can stand for quite a few years without much or any upkeep. But a new home? Sheesh. What Mother Nature doesn't destroy vandals will. On the other hand, while those prone to destroying things for fun can do surface damage to a well-built house, they have a much harder time damaging the structure. Granted, a CMU house will take a lot of punishment but why do homes built before WWII generally still look pretty solid while a lot of homes built since then look rather tired just a few years down the road? The answer? Ding, ding! Poor quality materials and construction all in the name of quick profits during the boom. Aannndd...mass production housing in general which started after WWII.

Right now primarily very low-value houses are the ones being leveled. But just wait. Take a read at my previous post about quantity over quality in the US and it won't be too long before recently built (< 10 years old) homes are flattened due to a combination of lack of care and poor quality. Banks already have hired companies to care for many of the properties but with more-and-more homes either becoming REOs (or not...because the banks don't have ability to deal with them) they will fall into disrepair beyond repair by the time the banks get around to them. Then what?

Well, the banks will take a look at the holding costs and period and what they can get for a house that needs a complete renovation vs leveling it and selling off the land (or donating it as many are doing and taking the tax write-off).

Honestly, if I was one of the few people living in a neighborhood with mostly empty, vandalized (or prone to being vandalized) homes I'd much rather see them torn down than sit there empty for an extended period of time. And if you think this only happens in older blighted urban areas like Detroit, take a trip to Florida, Arizona, Nevada and California to see relatively new, nearly empty suburban neighborhoods.

But in the end, this matter (along with the unemployment rate, screwy values, etc) are all just symptoms of a larger structural problem. I don't think it's news to anyone that things are out of whack. Dylan Ratigan hit the nail on the head the other day with his on-air rant. Take a look.

See ya.

Quantity over Quality - America's Problem. Part 2

Last time around I began a discussion of America's seeming obsession with quantity over quality and its impact on real estate development. I'll wrap up those thoughts this time.

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This is not to say all homes and buildings need to be exquisitely handcrafted by master craftsmen using only the finest materials. That's great if you're a billionaire but the average person is certainly not that..

I believe much of the source of the problem lies in the current business school / MBA philosophy that the manager/executive is ultimately beholden solely to the shareholder to maximize returns. I get it. I went to business school and got my MBA but have never been comfortable with that position. Just as a real, live person is a member of his/her community and should act as a good citizen, a corporation, legally a person, should do so as well. 

This is not to say that profits are not important - they are. But I don't believe they are the be-all/end-all, especially "immediate quarterly profits" (and this belief is one reason I am a signer of the MBA Oath). The primary purpose of the oath is to encourage MBAs and businesses to "create value responsibly and ethically". A business needs to look to the long term health of the company, not just upcoming quarterly profits. And of course the compensation structure of C-level execs has long been a subject of debate and continues to be.

I worked for a company that was private when I started and went public during my tenure there. There was a major shift in corporate culture (and not for the better) and the company slowly went downhill as it chased quarterly profits, eventually going bankrupt (of course a major factor in its downfall was the Great Recession, but still...).

You might say "So what? A company is there to make money. Who cares if the employees are happy? The company is not there to serve them." I'd have to strongly disagree. Happy employees (but not so fat and happy they aren't striving to be better) make for happy customers and happy customers make for a successful, profitable company. 

So how do we tie this back into real estate development? Builders and developers need to once again take pride in their work. Almost more than any other product, ours is visible to the general public. We have chosen to create the built space the human race lives its lives in. Think about that. It's a fairly awesome responsibility. 

I won't berate the point. Long story short is that those of us in real estate development and construction need to stand up for providing profits AND value AND quality.