The frustration of trying to invest in my hometown(bbc.com)
bbc.com
The frustration of trying to invest in my hometown
https://www.bbc.com/news/business-53473239
139 comments
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?
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?
Researching deeper, I found Ensley was originally built as an industrial town for a massive US Steel plant. that plant is now gone. If the jobs are gone, its a tough proposition to invest in the neighborhood.
There are plenty of boom/bust towns in the US where investment has netted benefits. This entrepreneur isn't trying to turn everything in the town around, nor would that be a requirement of any investment.
Set that aside.
Imagine instead that he has found undervalued property in an area with low-labor costs and high potential demand.
It’s exactly the type of investment opportunity banks and financiers should be looking for. It’s literally how our housing system gentrifies.
He didn’t ask the banks to buy the properties. He was seeking an LOC with a personal guarantee and the buildings as collateral.
Imagine instead that he has found undervalued property in an area with low-labor costs and high potential demand.
It’s exactly the type of investment opportunity banks and financiers should be looking for. It’s literally how our housing system gentrifies.
He didn’t ask the banks to buy the properties. He was seeking an LOC with a personal guarantee and the buildings as collateral.
> high potential demand.
That would require growth. Birmingham is not growing.
> the buildings as collateral.
Except the buildings are not worth much of anything. I may as well offer my shoe as collateral.
That would require growth. Birmingham is not growing.
> the buildings as collateral.
Except the buildings are not worth much of anything. I may as well offer my shoe as collateral.
Why would that require growth?
An underserved market exists on its own. If I find 100 customers willing to pay X for a service that no one is offering, I do not need that 100 number to grow. I just need to make that existing base profitable.
Second, garbage buildings as collateral combined with a personal guarantee is the least uncommon thing in real estate investment you’ll find.
An underserved market exists on its own. If I find 100 customers willing to pay X for a service that no one is offering, I do not need that 100 number to grow. I just need to make that existing base profitable.
Second, garbage buildings as collateral combined with a personal guarantee is the least uncommon thing in real estate investment you’ll find.
Where did you get the exact addresses of the buildings he wanted to invest in?
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_PropertyTaxParcel...
Not sure where others found them, but there is an investor prospectus on his website.
https://853a1197-2eb8-42a1-88fd-f004b8256f56.filesusr.com/ug...
https://853a1197-2eb8-42a1-88fd-f004b8256f56.filesusr.com/ug...
You can’t know Birmingham just from Google Maps. That’s a so-called opportunity zone...I thought this sort of development is exactly what is encouraged in those areas?
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
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
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?
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”.
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”.
What is considered "proximity" for jobs? Would that be considered jobs in the neighborhood or adjacent neighborhods? It's not terribly far from downtown Bham.
Thats an open question, but for us it is within a long walk or a short bike ride to a lot of high quality jobs. For Ensley, you are most likely hopping on the interstate to get to work. Once you have to get on the interstate, why not keep going another few miles to a stronger economy? Or even better, why not just invest closer to the jobs? For a Bham specific example, there are probably very low cost properties closer to UAB or Regions.
To make the case that someone SHOULD invest in Ensley, the investor has to make that case defensively for why Ensley instead of 3 miles east closer to downtown.
The biggest issue for Ensley, not mentioned in the article, is that Ensley was built as an industrial village for Tennessee Coal and Iron (TCI) with an absolutely mammoth manufacturing facility alongside Ensley (largest in the world, per wiki). TCI was acquired by US Steel and US Steel relocated and expanded the plant to Fairfield. Now that the jobs are gone, Ensley has struggled to survive. I would imagine the completion of I-20 was the final straw, since it is now easier to access cheaper land further out. It is unfortunate, but not unreasonable.
To make the case that someone SHOULD invest in Ensley, the investor has to make that case defensively for why Ensley instead of 3 miles east closer to downtown.
The biggest issue for Ensley, not mentioned in the article, is that Ensley was built as an industrial village for Tennessee Coal and Iron (TCI) with an absolutely mammoth manufacturing facility alongside Ensley (largest in the world, per wiki). TCI was acquired by US Steel and US Steel relocated and expanded the plant to Fairfield. Now that the jobs are gone, Ensley has struggled to survive. I would imagine the completion of I-20 was the final straw, since it is now easier to access cheaper land further out. It is unfortunate, but not unreasonable.
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.
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.
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.
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.
If I say you have to be 5'9 to get a loan, I'm not discriminating based on gender. It's just a total coincidence that more than 50% of men qualify and less than 10% of women qualify.
Every policy you can create will have differential impact on any group you create. The question is, was the policy created with the intent of racism.
And this is for policies in the abstract. Debt is an incredibly dangerous tool. It is not charity to give someone a loan they cannot afford - I've personally experienced it and I've personally seen it destroy lives. When I see someone get denied for a loan or a mortgage in my circle of friends - in every case, that was a good thing. It would have killed them.
And this is for policies in the abstract. Debt is an incredibly dangerous tool. It is not charity to give someone a loan they cannot afford - I've personally experienced it and I've personally seen it destroy lives. When I see someone get denied for a loan or a mortgage in my circle of friends - in every case, that was a good thing. It would have killed them.
> The question is, was the policy created with the intent of racism.
This sounds reasonable, but this is not how US Federal law works.
One key concept is strict scrutiny [1] -- when a regulation that infringes fundamental constitutional rights (such as equal protection under the law), or when a law pertains to a "protected class" like race or national origin, the standard is much higher.
In particular, in such cases, you do not have to prove, for example, racist intent to strike the law down. See the link for more. The obvious reason is that it's very hard to prove intent.
The current administration did manage to be blatant enough in its attempt to add a question to the census to suppress counting of people it does not like, that it did indeed reveal intent. [2]
[1] https://en.wikipedia.org/wiki/Strict_scrutiny
[2] https://www.aclu.org/blog/voting-rights/trump-administration...
This sounds reasonable, but this is not how US Federal law works.
One key concept is strict scrutiny [1] -- when a regulation that infringes fundamental constitutional rights (such as equal protection under the law), or when a law pertains to a "protected class" like race or national origin, the standard is much higher.
In particular, in such cases, you do not have to prove, for example, racist intent to strike the law down. See the link for more. The obvious reason is that it's very hard to prove intent.
The current administration did manage to be blatant enough in its attempt to add a question to the census to suppress counting of people it does not like, that it did indeed reveal intent. [2]
[1] https://en.wikipedia.org/wiki/Strict_scrutiny
[2] https://www.aclu.org/blog/voting-rights/trump-administration...
No, the question is absolutely not whether ther policy was created with the intent of racism, because we don't live in a world where racism is defined as a guy in a pointy white hat who also happens to be the bank manager stringing black men up for cat-calling his daughter.
Every policy has a differential impact, that doesn't mean we chose not to address them when we see them.
Every policy has a differential impact, that doesn't mean we chose not to address them when we see them.
In that line of thinking ("banks are racist"), what's the exaplantion for why there's nobody disrupting the market, providing loans (at a premium) to minority investors and making off with large profits?
You've put "banks are racist" in speech marks, but I can't find where you're quoting it from.
The question is begging an easy answer to a structural problem. But note that, when a pandemic unfairly makes it expensive for businesses with disproportionately white shareholders to lend, the taxpayer spends trillions to make it cheaper.
Edit: Isn't that exactly what JP Morgan Chase are talking about doing about in the link?
The question is begging an easy answer to a structural problem. But note that, when a pandemic unfairly makes it expensive for businesses with disproportionately white shareholders to lend, the taxpayer spends trillions to make it cheaper.
Edit: Isn't that exactly what JP Morgan Chase are talking about doing about in the link?
"Banks are racist" is my very short summary of the supposed situation. The problem I have with such explanations is the same I have with "women get 20-30% less money for the absolute same work". Since labor is the major cost factor in most industries, any company exploiting that arbitrage would stomp their competitors.
Why wouldn't anyone want to get rich off of lending to minorities? Pecunia non olet, I'm sure even a committed racist would be quite happy to make 10% by lending to African Americans instead of 5% by lending to WASPs in a highly competitive market. They may not want to deal with them personally, but that wouldn't stop them. It's even more astonishing that rich Black people wouldn't do it, so I believe it requires a bit more of an explanation.
> But note that, when a pandemic unfairly makes it expensive for businesses with disproportionately white shareholders to lend, the taxpayer spends trillions to make it cheaper.
Are the shareholders mostly white? It's my understanding that most large investors are pension funds, insurance companies and the like, not individuals. We've supposedly saved the banks in pretty much every country because we'd wipe out those institutions, not because of some private individuals with giant investments.
Why wouldn't anyone want to get rich off of lending to minorities? Pecunia non olet, I'm sure even a committed racist would be quite happy to make 10% by lending to African Americans instead of 5% by lending to WASPs in a highly competitive market. They may not want to deal with them personally, but that wouldn't stop them. It's even more astonishing that rich Black people wouldn't do it, so I believe it requires a bit more of an explanation.
> But note that, when a pandemic unfairly makes it expensive for businesses with disproportionately white shareholders to lend, the taxpayer spends trillions to make it cheaper.
Are the shareholders mostly white? It's my understanding that most large investors are pension funds, insurance companies and the like, not individuals. We've supposedly saved the banks in pretty much every country because we'd wipe out those institutions, not because of some private individuals with giant investments.
A) They are doing it
B) Markets aren't perfect
C) You have to fight against, or change the influence of (through, say, commentary in the media), the government's funding and regulation.
>Are the shareholders mostly white? It's my understanding that most large investors are pension funds, insurance companies and the like, not individuals.
Who owns and benefits from the funds?
B) Markets aren't perfect
C) You have to fight against, or change the influence of (through, say, commentary in the media), the government's funding and regulation.
>Are the shareholders mostly white? It's my understanding that most large investors are pension funds, insurance companies and the like, not individuals.
Who owns and benefits from the funds?
If "they" are doing it, where's the issue? Markets may not be perfect, but they're not that bad, especially when huge profits are waiting to be collected with little risk.
> Who owns and benefits from the funds?
Everybody that gets any kind of pension or has any kind of insurance. Is your point that the majority of those may be white and therefore they should've let them crash?
> Who owns and benefits from the funds?
Everybody that gets any kind of pension or has any kind of insurance. Is your point that the majority of those may be white and therefore they should've let them crash?
> If "they" are doing it, where's the issue? Markets may not be perfect, but they're not that bad, especially when huge profits are waiting to be collected with little risk.
See C
>Is your point that the majority of those may be white and therefore they should've let them crash?
If you truly think that's what I'm saying, we're on very different pages. The pensions have greater political power than the people in black areas. Both of them have the same problem - an unfair pressure that drives costs of lending up - but when it affects the majority rich and white investors, spending money to fix it is much more palatable.
See C
>Is your point that the majority of those may be white and therefore they should've let them crash?
If you truly think that's what I'm saying, we're on very different pages. The pensions have greater political power than the people in black areas. Both of them have the same problem - an unfair pressure that drives costs of lending up - but when it affects the majority rich and white investors, spending money to fix it is much more palatable.
Tim O’Reilly has been talking about that with his fund recently:
https://news.ycombinator.com/item?id=23657403
https://news.ycombinator.com/item?id=23657403
>Every policy has a differential impact, that doesn't mean we chose not to address them when we see them.
What do you mean? If every policy has a differential impact, then your contention is that therefore we must address every differential impact?
If, let's say, bank has a policy that you need 20% down payment to qualify for a mortgage, and let's say this has a differential impact on some group, how do you go about addressing this?
What do you mean? If every policy has a differential impact, then your contention is that therefore we must address every differential impact?
If, let's say, bank has a policy that you need 20% down payment to qualify for a mortgage, and let's say this has a differential impact on some group, how do you go about addressing this?
>If, let's say, bank has a policy that you need 20% down payment to qualify for a mortgage, and let's say this has a differential impact on some group, how do you go about addressing this?
You look to see why that's the case, and if it happens to be that those people have been recently (relative to society) emancipated slaves who've barely had 4 generations in a society that still systemically kills them via law enforcement, then you do whatever you can to change that.
You look to see why that's the case, and if it happens to be that those people have been recently (relative to society) emancipated slaves who've barely had 4 generations in a society that still systemically kills them via law enforcement, then you do whatever you can to change that.
We don't need to chose to address every differential impact, only the ones that we see as being bad, or particularly worthy of attention, for example the systematic exclusion of black people from the normal financial tools that allow us to build wealth.
I agree with this goal, but I don't see systemic exclusion in this article because the article didn't bother to do any investigation to understand where these policies came from. I keep reiterating this, but debt is an incredibly dangerous financial tool and you have to take extra care in differentiating someone being denied a loan because the objective risk profile is high vs being denied a loan because the bank is following racist policies.
You don’t have to have racist intents to execute a policy that enforces racism. Unfortunately when we talk about systems of society within humans, individual human intentions begin to dissipate.
>The question is, was the policy created with the intent of racism.
That's convenient for the people it doesn't affect. Not only do you not have to worry about the policies: by choosing not to be racist, you absolve yourself of blame or privilege for benefiting from them.
It also depends on you being able to infer another person's intentions. Intentional racists have always been in favour of covert racism in the form palatable policies that indirectly harm the groups they dislike and have always benefited from the unintentional bias of others.
Models are models, not a representation of reality. As long as the model is close enough to the local maximum that the providers keep making money, it keeps existing. And history suggests lenders are not perfect at calculating diversified risk.
The only assumption that OP made is that cheap credit makes it easier to make money, and that makes it easier to get cheap credit. That's not especially controversial.
That's convenient for the people it doesn't affect. Not only do you not have to worry about the policies: by choosing not to be racist, you absolve yourself of blame or privilege for benefiting from them.
It also depends on you being able to infer another person's intentions. Intentional racists have always been in favour of covert racism in the form palatable policies that indirectly harm the groups they dislike and have always benefited from the unintentional bias of others.
Models are models, not a representation of reality. As long as the model is close enough to the local maximum that the providers keep making money, it keeps existing. And history suggests lenders are not perfect at calculating diversified risk.
The only assumption that OP made is that cheap credit makes it easier to make money, and that makes it easier to get cheap credit. That's not especially controversial.
>That's convenient for the people it doesn't affect.
It's not convenient because it allows for conspiracy theories like yours to take hold.
Tell me, how do you decide that a policy which makes no reference to race, and is implemented in a regulated environment that makes racist policies illegal, is actually racist?
To me, it seems like the only yard stick you have is if the policy has differential impact on some group. That is as low a bar as you can have and it completely dismisses personal attributes that are actually used to qualify for loan. It's also lazy, and malicious.
>The only assumption that OP made is that cheap credit makes it easier to make money, and that makes it easier to get cheap credit. That's not especially controversial.
Yes it is controversial. It's also idiotic and dangerous. Interest rates are low now, max out your HELOC and go make money with it - see how easy it is ... alternatively, try getting a business loan without collateral and see how fast you're rejected. Nobody is going to care that you are in a 'privileged' class.
It's not convenient because it allows for conspiracy theories like yours to take hold.
Tell me, how do you decide that a policy which makes no reference to race, and is implemented in a regulated environment that makes racist policies illegal, is actually racist?
To me, it seems like the only yard stick you have is if the policy has differential impact on some group. That is as low a bar as you can have and it completely dismisses personal attributes that are actually used to qualify for loan. It's also lazy, and malicious.
>The only assumption that OP made is that cheap credit makes it easier to make money, and that makes it easier to get cheap credit. That's not especially controversial.
Yes it is controversial. It's also idiotic and dangerous. Interest rates are low now, max out your HELOC and go make money with it - see how easy it is ... alternatively, try getting a business loan without collateral and see how fast you're rejected. Nobody is going to care that you are in a 'privileged' class.
Who cares about intent? Can I cash in a banker's "good intentions" elsewhere to get a loan for my business that I would otherwise qualify for if not for my name, zip code, alma mater, or my dialect? Can I pay the rent with the banker's "good intentions"?
The idea that racism exists exclusively inside the heads of racists, and that the actual physical material and financial harm it does to disadvantaged groups is unimportant compared to the subjective feelings of the person who is hurting them is so absurdly privileged that it borders on racism itself.
Imagine I burn your house down by pointing big fireworks directly at it. Would you be happy with the excuse "I didn't mean to hurt you, I was just aiming for the house with the least trees to get a better view of the explosion"? Are you suddenly happy with the loss of your house knowing that I targeted you for non-personal reasons?
The idea that racism exists exclusively inside the heads of racists, and that the actual physical material and financial harm it does to disadvantaged groups is unimportant compared to the subjective feelings of the person who is hurting them is so absurdly privileged that it borders on racism itself.
Imagine I burn your house down by pointing big fireworks directly at it. Would you be happy with the excuse "I didn't mean to hurt you, I was just aiming for the house with the least trees to get a better view of the explosion"? Are you suddenly happy with the loss of your house knowing that I targeted you for non-personal reasons?
>Who cares about intent?
If you're human you care. There is an extra level of malevolence when there is explicit intent. It makes a difference to people.
> I would otherwise qualify for if not for my name, zip code, alma mater, or my dialect
And where are you getting all that from? Loans are given based on personal attributes, like past ability to pay back debt (i.e. credit score), income, savings and collateral. Nobody gets a loan because of their zip code or dialect. What are you even talking about? Also, business loans are impossible to get for almost anyone. Banks just do not lend money for high-risk ventures like starting a business unless you put up collateral.
Also, debt is an incredibly dangerous tool. Do not treat it like charity. I've seen debt destroy people and here everyone is treating it like it is a human right. I get the sentiment behind it (everyone should get screwed with debt equally), but the actual mechanism (i.e. debt) is terrible.
>Can I pay the rent with the banker's "good intentions"?
You don't need anybody's good intentions to pay rent. What are you talking about? Who is preventing anybody from paying rent?
>The idea that racism exists exclusively inside the heads of racists
Where else would it live? This distortion of a simple concept does not advance anything. It makes everyone confused.
>Imagine I burn your house down by pointing big fireworks directly at it.
Oh stop with these idiotic hypotheticals. Nothing about what we're talking about is like arson.
If you're human you care. There is an extra level of malevolence when there is explicit intent. It makes a difference to people.
> I would otherwise qualify for if not for my name, zip code, alma mater, or my dialect
And where are you getting all that from? Loans are given based on personal attributes, like past ability to pay back debt (i.e. credit score), income, savings and collateral. Nobody gets a loan because of their zip code or dialect. What are you even talking about? Also, business loans are impossible to get for almost anyone. Banks just do not lend money for high-risk ventures like starting a business unless you put up collateral.
Also, debt is an incredibly dangerous tool. Do not treat it like charity. I've seen debt destroy people and here everyone is treating it like it is a human right. I get the sentiment behind it (everyone should get screwed with debt equally), but the actual mechanism (i.e. debt) is terrible.
>Can I pay the rent with the banker's "good intentions"?
You don't need anybody's good intentions to pay rent. What are you talking about? Who is preventing anybody from paying rent?
>The idea that racism exists exclusively inside the heads of racists
Where else would it live? This distortion of a simple concept does not advance anything. It makes everyone confused.
>Imagine I burn your house down by pointing big fireworks directly at it.
Oh stop with these idiotic hypotheticals. Nothing about what we're talking about is like arson.
Racism isn't bad because it's done by bad people. It's bad because it hurts people. Racism done by "good people" is still racism, and it's still bad for all the same reasons.
Nobody cares about racist intentions. Despite what fox news tells you, antiracists are not interested in prosecuting thoughtcrime. Have racist thoughts all you want, nobody gives a fuck. The problem that antiracism and all other egalitarian movements are interested in solving is racist/sexist/homophobic/whatever EFFECTS. Intent doesn't matter. Actual material harm matters.
Nobody cares about racist intentions. Despite what fox news tells you, antiracists are not interested in prosecuting thoughtcrime. Have racist thoughts all you want, nobody gives a fuck. The problem that antiracism and all other egalitarian movements are interested in solving is racist/sexist/homophobic/whatever EFFECTS. Intent doesn't matter. Actual material harm matters.
>antiracists are not interested in prosecuting thought crime.
Come on. Nobody believes that. It is a practically a religious tenant that racism is hiding in the brains of people unbeknownst to even them even ready to strike at any moment and therefore you need to root it out! Where do you think the idea of 'implicit bias' and 'implicit bias training' comes from?
>The problem that antiracism and all other egalitarian movements are interested in solving is racist/sexist/homophobic/whatever EFFECTS.
No. The problem with antiracism all related movements is the same problem as with all ideologies. Everything is framed as either stemming from racism, or being racist. It's like a conspiracy theorist that sees everything as the work of the illuminati. Or a Marxist that sees everything as a class struggle. Or a Libertarian that sees everything as a collectivism vs individualism. Or a Feminist that sees everything as a result of patriarchy. Ideologies are blunt instruments that are occasionally useful but are disastrous when applied universally. There is never any reflection on false positive identification of racism. There is never reflection on whether some policy (for example, differential mortgage approvals) is the result of racism or other factors (hint: it's always racism) - maybe racism comprises 5% of the differential mortgage approvals and the rest is dominated by other factors? There is never any nuance. There is no evidentiary support for vast majority of claims, and counter-evidence is ignored or disparaged (for example 'implicit bias' and associated training has been discredited for a long time now, but no matter!).
Come on. Nobody believes that. It is a practically a religious tenant that racism is hiding in the brains of people unbeknownst to even them even ready to strike at any moment and therefore you need to root it out! Where do you think the idea of 'implicit bias' and 'implicit bias training' comes from?
>The problem that antiracism and all other egalitarian movements are interested in solving is racist/sexist/homophobic/whatever EFFECTS.
No. The problem with antiracism all related movements is the same problem as with all ideologies. Everything is framed as either stemming from racism, or being racist. It's like a conspiracy theorist that sees everything as the work of the illuminati. Or a Marxist that sees everything as a class struggle. Or a Libertarian that sees everything as a collectivism vs individualism. Or a Feminist that sees everything as a result of patriarchy. Ideologies are blunt instruments that are occasionally useful but are disastrous when applied universally. There is never any reflection on false positive identification of racism. There is never reflection on whether some policy (for example, differential mortgage approvals) is the result of racism or other factors (hint: it's always racism) - maybe racism comprises 5% of the differential mortgage approvals and the rest is dominated by other factors? There is never any nuance. There is no evidentiary support for vast majority of claims, and counter-evidence is ignored or disparaged (for example 'implicit bias' and associated training has been discredited for a long time now, but no matter!).
> 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.
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.
> Counting a building with active tenants paying rent as being valued at $0 is ridiculous.
Depends on how much rent they are paying, what other large costs repair costs might exist for the building, and whether anyone is buying in that neighbourhood.
Depends on how much rent they are paying, what other large costs repair costs might exist for the building, and whether anyone is buying in that neighbourhood.
>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.
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.
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
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Redlining ended over fifty years ago. Pick a different bugaboo.
According to this article, it hasn't. Provide contradictory evidence.
Bank loans are very hard to get for properties like this. Further, there are many extra opportunities for minority owned businesses. The hard truth is that being black is an advantage for loan seekers, not a disadvantage. It simply doesn’t outweigh the risk of failure. My spouse is a minority but with no interest in business. Man, would I like to take advantage of that, but I’m on my own ;)
> Counting a building with active tenants paying rent as being valued at $0 is ridiculous.
No it's not. If they live without running water, no toilet or heating with a leaky roof the tennants don't magically add value to the building.
No it's not. If they live without running water, no toilet or heating with a leaky roof the tennants don't magically add value to the building.
> Banks don't use race as criteria for loans, just as auto insurance companies don't use race as criteria for setting rates.
That's similar to saying a soap dispenser doesn't use race a criteria, that doesn't change the fact that the thing discriminated PoC.
The core problem is biased data in the model - in this case ethnic composition of neighborhoods, in the case of the soap dispenser a lack of testing staff with non-white skin leading to misadjusted sensitivity for the photosensor - not being adequately filtered out. Banks and auto insurances absolutely do take account the neighborhood in their calculations and models.
That's similar to saying a soap dispenser doesn't use race a criteria, that doesn't change the fact that the thing discriminated PoC.
The core problem is biased data in the model - in this case ethnic composition of neighborhoods, in the case of the soap dispenser a lack of testing staff with non-white skin leading to misadjusted sensitivity for the photosensor - not being adequately filtered out. Banks and auto insurances absolutely do take account the neighborhood in their calculations and models.
>that doesn't change the fact that the thing discriminated PoC.
Intent matters. Every policy you can ever create will always have differential impact on any group you create. That's just a fact of reality. If you set a policy that you can only get a mortgage if you have 20% down, that could impact some ethnic group more than another - but that differential impact does NOT mean it is a racist policy.
> in the case of the soap dispenser a lack of testing staff with non-white skin leading to misadjusted sensitivity for the photosensor - not being adequately filtered out.
On a side note ... the criminally under-appreciated show, Better off Ted, did a bit about this: https://www.youtube.com/watch?v=XyXNmiTIupg
Intent matters. Every policy you can ever create will always have differential impact on any group you create. That's just a fact of reality. If you set a policy that you can only get a mortgage if you have 20% down, that could impact some ethnic group more than another - but that differential impact does NOT mean it is a racist policy.
> in the case of the soap dispenser a lack of testing staff with non-white skin leading to misadjusted sensitivity for the photosensor - not being adequately filtered out.
On a side note ... the criminally under-appreciated show, Better off Ted, did a bit about this: https://www.youtube.com/watch?v=XyXNmiTIupg
> but that differential impact does NOT mean it is a racist policy
Oh it does. This unintentional racism is still racism, structural racism in this case as a decently diverse QA could have prevented this outcome.
A PoC unable to get soap doesn't care why the soap dispenser refuses to disperse soap, all he cares about is that he's getting racially discriminated based on his skin color.
Oh it does. This unintentional racism is still racism, structural racism in this case as a decently diverse QA could have prevented this outcome.
A PoC unable to get soap doesn't care why the soap dispenser refuses to disperse soap, all he cares about is that he's getting racially discriminated based on his skin color.
>Oh it does.
I absolutely disagree with that statement. A uniform standard for all is the opposite of racist. It is literally what was fought for by every civil rights movement. We used to live in a world where certain groups had racist barriers placed with intent to bar them from those institutions. A Jewish teenager had to get through harder entrance exams and/or a quota to get into a university. The way to fix that was to provide a universal standard. If you meet these criteria, then you're in. A policy that requires 20% down payment for a mortgage is NOT a racist policy, even if it has differential impact. It just sets a bar for every individual because math doesn't care about race. People intrinsically understand fairness like this.
It is why Rosa Parks' refusal to sit at the back of the bus as a protest was so powerful - because everyone understood, even the racists, that it is unfair for the color of your skin to dictate your bus seat. And it was clearly a malevolent policy. And this is where the modern approaches to solve 'systemic' racism really worry me. A modern (satirical but not far from reality) spin on that racist bus policy would have white people sitting at the back of the bus in order to make up for past racism ... but in that case, you still cannot get away from intuitive notions of fairness. The fact remains, the idea that skin color dictates bus seat is unfair, even if you try to claim that you need to do it to make up for systemic racism and the races are reversed.
Sorry for the rant. You and I have fundamental disagreement on this point.
>A PoC unable to get soap doesn't care why the soap dispenser refuses to disperse soap
This has nothing to do with anything. It is a silly example. Yes, the soap dispenser company effed up (not maliciously, just ignorantly) and should be embarrassed about it, and it will cost them to replace those dispensers, and I can guarantee you they will learn their lesson. It isn't the end of the world, and we're all on the side here, even the good people at the soap dispenser company.
I absolutely disagree with that statement. A uniform standard for all is the opposite of racist. It is literally what was fought for by every civil rights movement. We used to live in a world where certain groups had racist barriers placed with intent to bar them from those institutions. A Jewish teenager had to get through harder entrance exams and/or a quota to get into a university. The way to fix that was to provide a universal standard. If you meet these criteria, then you're in. A policy that requires 20% down payment for a mortgage is NOT a racist policy, even if it has differential impact. It just sets a bar for every individual because math doesn't care about race. People intrinsically understand fairness like this.
It is why Rosa Parks' refusal to sit at the back of the bus as a protest was so powerful - because everyone understood, even the racists, that it is unfair for the color of your skin to dictate your bus seat. And it was clearly a malevolent policy. And this is where the modern approaches to solve 'systemic' racism really worry me. A modern (satirical but not far from reality) spin on that racist bus policy would have white people sitting at the back of the bus in order to make up for past racism ... but in that case, you still cannot get away from intuitive notions of fairness. The fact remains, the idea that skin color dictates bus seat is unfair, even if you try to claim that you need to do it to make up for systemic racism and the races are reversed.
Sorry for the rant. You and I have fundamental disagreement on this point.
>A PoC unable to get soap doesn't care why the soap dispenser refuses to disperse soap
This has nothing to do with anything. It is a silly example. Yes, the soap dispenser company effed up (not maliciously, just ignorantly) and should be embarrassed about it, and it will cost them to replace those dispensers, and I can guarantee you they will learn their lesson. It isn't the end of the world, and we're all on the side here, even the good people at the soap dispenser company.
Does the gender gap in arrests, convictions, and prison population (which is several times larger than the racial gap) prove that our justice system is systematically/structurally biased against men?
I saw a comment on HN a while ago that this reminded me of. It made the argument that the primary value of a lot of machine learning models is essentially to "launder" information about protected classes so that it becomes harder to discover when you have been discriminated against, and harder to assign blame to a specific entity when that's the case. For instance, using a complicated nonlinear combination of address (e.g. predominantly black neighborhoods), educational history (e.g. historically black colleges), work history, credit rating, and who knows what else, might simply allow a model to recover a feature (ethnicity) which is correlated with likelihood to repay a loan in historical data.
Like you pointed out, that would lock us into a positive feedback loop where people are being denied loans based on "statistical, race-blind models based only on data", but the data only looks that way because of existing racism, which is now being further enshrined and legitimized.
But the thorniest issue is that the model reflects an actual, true, relationship in the world, so asking banks to ignore it would be asking them to leave money on the table until such a time as society has eliminated the structural inequalities that cause those correlations. How do we get them to do that, instead of just engaging in more and more sophisticated data laundering like above? Would we have to create an approved list of features that can be used for loan approval, which provably cannot be used to discover race? How would we even know that such a rule was working?
Like you pointed out, that would lock us into a positive feedback loop where people are being denied loans based on "statistical, race-blind models based only on data", but the data only looks that way because of existing racism, which is now being further enshrined and legitimized.
But the thorniest issue is that the model reflects an actual, true, relationship in the world, so asking banks to ignore it would be asking them to leave money on the table until such a time as society has eliminated the structural inequalities that cause those correlations. How do we get them to do that, instead of just engaging in more and more sophisticated data laundering like above? Would we have to create an approved list of features that can be used for loan approval, which provably cannot be used to discover race? How would we even know that such a rule was working?
> imagine that black landowners go bankrupt more often. And sadly, this could be because black landowners go bankrupt more often!
But to fix this is "simple" - lend to those higher risk businesses at a higher rate. If those businesses are actually _not_ in reality more likely to fail, then the lender makes more money.
As lenders are able to make more money, there should be more competition to lend to those risky-seeming businesses which isn't actually risky. And competition would then drive the rates back down. Therefore, leading to an equilibrium rate.
But to fix this is "simple" - lend to those higher risk businesses at a higher rate. If those businesses are actually _not_ in reality more likely to fail, then the lender makes more money.
As lenders are able to make more money, there should be more competition to lend to those risky-seeming businesses which isn't actually risky. And competition would then drive the rates back down. Therefore, leading to an equilibrium rate.
I assume by higher rate you mean interest rates. (as opposed to lend to more people at the same interest rates) those higher rates themselves cost more and in turn make it more likely that they go bankrupt. The higher interest rates are (if set right) enough to recover the from the bankruptcy that happens.
If Rice's risk/reward assessment is correct, it seems strange to not have even one lender offer a loan that aligns with his analysis.
I have no clue about how prevalent racism is in the lending institutions that serve that geography. But I'd expect at least one of them to have looked at this carefully, in order to maximize the value of their portfolios.
I have no clue about how prevalent racism is in the lending institutions that serve that geography. But I'd expect at least one of them to have looked at this carefully, in order to maximize the value of their portfolios.
Well why don't black landowners simply not go bankrupt and change the statistic over the years ? Why don't black landowners support each other to make it easier for them to get a fiscal injection when needed ?
> He had enough cash to buy eight buildings, all around 100 years old, in his majority black neighbourhood of Ensley, but he needed a banking loan to redevelop them. He thought it would be just a formality.
Why did he not buy 4 building instead not needing the loan ? Something is fishy here.
> He had enough cash to buy eight buildings, all around 100 years old, in his majority black neighbourhood of Ensley, but he needed a banking loan to redevelop them. He thought it would be just a formality.
Why did he not buy 4 building instead not needing the loan ? Something is fishy here.
Meanwhile the buyer in the white-majority area continues to buy 8, enjoys a higher leverage for the same interest, and makes a higher profit. And so it repeats. Leverage is forgiven when the faceless metaphorical person does it but, when it's given a black face, suddenly the black community as a whole has to answer to you?
Why didn't GM simply not go bankrupt?
Why didn't GM simply not go bankrupt?
What interest are you talking about? The article said he had money to pay for 8 buildings in cash and he wanted to loan to renovate them.
I suggested that if you can't get a loan you should tune down your ambitions a bit. There are many white people who can't get a loan too, tune it down with the racist us vs them thinking. It's not like all white people gain from that one person getting more leverage.
I was talking about doing this to remove the statistics that cause the apparent racism, while you want to keep perpetuating the same mentality. Wake up or keep wondering why you are still losing.
I suggested that if you can't get a loan you should tune down your ambitions a bit. There are many white people who can't get a loan too, tune it down with the racist us vs them thinking. It's not like all white people gain from that one person getting more leverage.
I was talking about doing this to remove the statistics that cause the apparent racism, while you want to keep perpetuating the same mentality. Wake up or keep wondering why you are still losing.
I know what the article says. A person who can't get a mortgage on 8 won't be able to get a mortgage on 4 at the same rate as another person who can get a mortgage on 8.
>I suggested that if you can't get a loan you should tune down your ambitions a bit.
This is not about the ambitions of the individial in the link, it's an issue of structurally unequal differences that make it harder for black areas to see investment.
>tune it down with the racist us vs them thinking. It's not like all white people gain from that one person getting more leverage.
>I was talking about doing this to remove the statistics that cause the apparent racism, while you want to keep perpetuating the same mentality. Wake up or keep wondering why you are still losing.
Please stop telling me what I'm thinking.
>I suggested that if you can't get a loan you should tune down your ambitions a bit.
This is not about the ambitions of the individial in the link, it's an issue of structurally unequal differences that make it harder for black areas to see investment.
>tune it down with the racist us vs them thinking. It's not like all white people gain from that one person getting more leverage.
>I was talking about doing this to remove the statistics that cause the apparent racism, while you want to keep perpetuating the same mentality. Wake up or keep wondering why you are still losing.
Please stop telling me what I'm thinking.
> A person who can't get a mortgage on 8 won't be able to get a mortgage on 4 at the same rate as another person who can get a mortgage on 8.
Sure, but since he had cash to pay for 8 I assume that he would not need a loan if he bought 4 instead.
> it's an issue of structurally unequal differences that make it harder for black areas to see investment
Yes and I've suggested a way to fix these differences. Stop risking so much and support each other as a community to reduce the rate of bankrupcies.
> Please stop telling me what I'm thinking.
OK, no problem.
Sure, but since he had cash to pay for 8 I assume that he would not need a loan if he bought 4 instead.
> it's an issue of structurally unequal differences that make it harder for black areas to see investment
Yes and I've suggested a way to fix these differences. Stop risking so much and support each other as a community to reduce the rate of bankrupcies.
> Please stop telling me what I'm thinking.
OK, no problem.
Well this is why we need more Dumb Bankers. It would work out better than bailing out the mindlessly ambitious pseudosmart ones every 2 years. Nature has provided us a surplus. We must use it.
> If a specific statistical classification indicates more bankruptcy, then it becomes true.
Fortunately this isn't actually the chicken and egg problem you think it is.
Suppose that for defunct historical reasons the model is predicting a higher default rate for some population, so it says to approve 85% of their loan applications rather than 95%. Then half of those people get into trouble that getting a second loan would save them from, but because of the model, only 85% rather than 95% are given the other loan.
So then their repayment rate will be 90% rather than 95%, because not as many were saved by the loan, but wait -- 90% is more than 85%, because only half of them needed the second loan. So now the model starts predicting that it should expect a 90% repayment rate for that population, which then increases their actual repayment rate, and so on until it stabilizes at 95%.
If you could identify the exact degree to which the prediction is affecting itself then you could take it all out at once, but doing that is hard. If the evidence shows a lower repayment rate in a particular area, is that just the holdover, or is it because that area still has a present-day higher level of drug use and violent crime which negatively affects repayment? If it's the latter and you give them loans at scale under the assumption that it's just an artifact, the bank is going bust.
So unless you can disentangle it all, the data to do which is often not reasonably available, the only realistic option is waiting for it to filter through.
Fortunately this isn't actually the chicken and egg problem you think it is.
Suppose that for defunct historical reasons the model is predicting a higher default rate for some population, so it says to approve 85% of their loan applications rather than 95%. Then half of those people get into trouble that getting a second loan would save them from, but because of the model, only 85% rather than 95% are given the other loan.
So then their repayment rate will be 90% rather than 95%, because not as many were saved by the loan, but wait -- 90% is more than 85%, because only half of them needed the second loan. So now the model starts predicting that it should expect a 90% repayment rate for that population, which then increases their actual repayment rate, and so on until it stabilizes at 95%.
If you could identify the exact degree to which the prediction is affecting itself then you could take it all out at once, but doing that is hard. If the evidence shows a lower repayment rate in a particular area, is that just the holdover, or is it because that area still has a present-day higher level of drug use and violent crime which negatively affects repayment? If it's the latter and you give them loans at scale under the assumption that it's just an artifact, the bank is going bust.
So unless you can disentangle it all, the data to do which is often not reasonably available, the only realistic option is waiting for it to filter through.
I don't think this needs to be such a simple chicken and egg problem.
Because, even if black landowners are say 50% more likely to go bankrupt, they could at the very least, still get some loans. Just maybe not as high a loan. It's not like banks have to say 'yes/no' to customers. They have variously strong variants of 'yes' when someone asks for credit.
I think there are many other cases (e.g. affluent people choosing a public school / area to live in) where this problem is much more prevalent, because the only options in the decision are 'yes / no'. And since there is a correlation between black neighborhoods / public schools and crime / worse results, it makes sense for these people to avoid the mentioned downsides.
Thing is, those correlations aren't causal. It's just that being black is correlated to being poor for historic reasons, being poor causes the downsides. And the above chicken / egg problem exacerbates the problem.
Because, even if black landowners are say 50% more likely to go bankrupt, they could at the very least, still get some loans. Just maybe not as high a loan. It's not like banks have to say 'yes/no' to customers. They have variously strong variants of 'yes' when someone asks for credit.
I think there are many other cases (e.g. affluent people choosing a public school / area to live in) where this problem is much more prevalent, because the only options in the decision are 'yes / no'. And since there is a correlation between black neighborhoods / public schools and crime / worse results, it makes sense for these people to avoid the mentioned downsides.
Thing is, those correlations aren't causal. It's just that being black is correlated to being poor for historic reasons, being poor causes the downsides. And the above chicken / egg problem exacerbates the problem.
An interest rate that makes whatever you're doing with the loan not worth doing is effectively a "no"
If you're gonna develop properties and the up front investment looks like it will take 10yr to pay off vs 5yr to pay off then that severely constrains the kind of development you can justify doing. You'll have to pick something safer which isn't necessarily the kind of development you want do to do. It's not banks and interest rates that are at fault here. All sorts of local permitting BS, laws about professional certifications, etc, etc, add up and compound each other to create a business environment where two development options are "tear down historic building and build spec luxury condos" or "tear down historic buildings and build a big box store".
And this business environment feeds itself as developers, banks, regulators, construction firms, etc, etc. get well practiced at it making them more hesitant to do business with people who want to do any other kind of development thereby raising costs (supply and demand).
Frankly I think this is all BS that could largely be solved if government got out of (or at least less involved in) the business of infringing on people's property rights.
If you're gonna develop properties and the up front investment looks like it will take 10yr to pay off vs 5yr to pay off then that severely constrains the kind of development you can justify doing. You'll have to pick something safer which isn't necessarily the kind of development you want do to do. It's not banks and interest rates that are at fault here. All sorts of local permitting BS, laws about professional certifications, etc, etc, add up and compound each other to create a business environment where two development options are "tear down historic building and build spec luxury condos" or "tear down historic buildings and build a big box store".
And this business environment feeds itself as developers, banks, regulators, construction firms, etc, etc. get well practiced at it making them more hesitant to do business with people who want to do any other kind of development thereby raising costs (supply and demand).
Frankly I think this is all BS that could largely be solved if government got out of (or at least less involved in) the business of infringing on people's property rights.
What you’re suggesting is illegal and has been illegal for quite some time. Credit policies have to be neutral in outcome. You can’t just cook up a clever way to be racist and hide it in some zip code algorithm. If your algorithm turns out to weigh against a certain people, it’s illegal. Even if it happened by accident, it’s illegal.
There are insurance companies that specialize in insuring weird one off things. They can figure out risk even if nothing like it has been done before.
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.
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.
> 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.
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.
you might be interested by what a particular black professor has to say on the subject:
https://www.creators.com/read/thomas-sowell/11/14/a-legacy-o...
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.
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.
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.
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.
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.
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.
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...
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...
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...
[deleted]
Maybe YCombinator companies should have tried bootstrapping.
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?
What was the market value for them?
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...
[0] https://www.zillow.com/homedetails/2121-Avenue-I-0-Birmingha...
A landmark "historic" building in downtown Ensley is an abandoned hazard.
https://bhamnow.com/2020/04/23/ensleys-ramsay-mccormack-buil...
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...
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://bhamnow.com/2020/04/23/ensleys-ramsay-mccormack-buil...
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...
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-...
Someone down thread posted addresses and this one on Zillow kind of matches the background pictures in the article. It may be for more than one address, since he could own contiguous buildings that got tagged to one transaction. https://www.zillow.com/homedetails/610-19th-St-Ensley-AL-352...
The building across the road sold for $1500 a year later.
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.
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
> 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.
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.
The government should do its job of preventing crime first and foremost.
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.
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.
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.
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.
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.
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.
> 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.
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.
> Involuntarily, due to corruption of public officials. Don't read too much into it.
Haha! "Please disregard any obvious counterexamples to my broken ideology."
Haha! "Please disregard any obvious counterexamples to my broken ideology."
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.
Corruption has nothing to do with it. Giving extra aid to the people on top while ignoring the people who are struggling is ideology, not corruption.
They are all around you. They are called credit unions and community banks.
Some context: https://en.wikipedia.org/wiki/Redlining
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
"You don't want to give me money? RACISM!" - USA 2020
What point are you trying to make? The article makes it pretty clear:
It didn't happen and Mr Rice believes the fact that Ensley is a black neighbourhood was the main factor, especially after being asked questions about the "demographics of Ensley".
It didn't happen and Mr Rice believes the fact that Ensley is a black neighbourhood was the main factor, especially after being asked questions about the "demographics of Ensley".
Yep.
The point is - as I see it - a little different, the valuation is lower (or in this specific case next to nothing) because the bank does not want to invest in a black neighborhood (racism) or because the bank has historical data saying that black neighborhoods (in general or that particular one) have lower value (pragmatism)?
The point is - as I see it - a little different, the valuation is lower (or in this specific case next to nothing) because the bank does not want to invest in a black neighborhood (racism) or because the bank has historical data saying that black neighborhoods (in general or that particular one) have lower value (pragmatism)?
You see how both of those are actually "racism", right?
> You see how both of those are actually "racism", right?
I suspect you and GP are using subtly different definitions of "racism".
I suspect you and GP are using subtly different definitions of "racism".
The point is who exactly is racist.
The bank that reads the data or the environment that over the years created the conditions for the data (values) to be so low?
Or maybe the unknown people that compiled (or even forged) the data?
Let's for the sake of discussion bring it to a different form of discrimination (ageism).
Here (EU) in most countries you can have your driving license at 18 years.
When you go to an insurance company and you are younger than 21 or in some cases 25 years you will pay a much higher insurance rate for your car then if you are (say) 40.
Same goes for renting a car, you simply cannot rent one if below 21 or in some cases 25 years.
Now, the bad, bad, insurance and rent a car companies may be populated by bastards, or maybe for some reasons drivers below 21 or 25 years actually have an increased risk of accidents.
The bank that reads the data or the environment that over the years created the conditions for the data (values) to be so low?
Or maybe the unknown people that compiled (or even forged) the data?
Let's for the sake of discussion bring it to a different form of discrimination (ageism).
Here (EU) in most countries you can have your driving license at 18 years.
When you go to an insurance company and you are younger than 21 or in some cases 25 years you will pay a much higher insurance rate for your car then if you are (say) 40.
Same goes for renting a car, you simply cannot rent one if below 21 or in some cases 25 years.
Now, the bad, bad, insurance and rent a car companies may be populated by bastards, or maybe for some reasons drivers below 21 or 25 years actually have an increased risk of accidents.
He doesn't want them to invest, he wants a collateralized loan.
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.
That's not a quote.
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.
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.
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.
> 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
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
>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.
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.
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.
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.
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.
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.
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
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
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.
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.
[deleted]
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.
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.
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.
* 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.
Nothing stopping you from such investments.
I put my money where my mouth is.
I put my money where my mouth is.
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.
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.
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.
How are you able to tell the state of the buildings in such details from the article alone? Unless I'm missing something, Rice pretty much addresses your comment in the article:
"It's one thing to do this with one building," he says, "if it is small and falling apart. It's another thing to do it with eight buildings with sitting tenants."
"It's one thing to do this with one building," he says, "if it is small and falling apart. It's another thing to do it with eight buildings with sitting tenants."
You’re right, I can’t be certain, other than being reasonably familiar with this business. That’s a lot of real estate. He doesn’t specify how many are paying. If he had enough tenants to move the needle and the buildings were up to code he would have little trouble getting a loan.
I’m also willing to bet some serious money that either the buildings aren’t properly permitted for tenants, or that the previous owners were grandfathered in so they didn’t have to observe the same regulations the new owner will.
If you haven’t gone through this process it ranges from difficult to imagine to nearly unbelievable what it’s like to bring buildings into compliance. You spend hundreds of dollars to apply for a permit, wait to get it, spend thousands of dollars for an inspection, get incomprehensible paperwork a month later, call someone to find out it means some aspect of your building didn’t pass, hire a lawyer to find out what compliance means, try to find a contractor to fix the things the previous contractor didn’t understand, pay for another inspection, get referred to a different department for something else you didn’t know about... it’s enervating, brutal, and expensive.
Think you should have known what to do when you started? No municipalities have clear documentation on what to do when. You are just supposed to know it all ahead of time. No lawyer will coach you through it. Maybe, just maybe, you can find a local GC who can help. Or not. All municipalities have different rules. If you’re super lucky you can charm someone in the planning office to coach you a little, but they aren’t responsible if they forgot to help you with something. This just isn’t a business for the undercapitalized.
I’m also willing to bet some serious money that either the buildings aren’t properly permitted for tenants, or that the previous owners were grandfathered in so they didn’t have to observe the same regulations the new owner will.
If you haven’t gone through this process it ranges from difficult to imagine to nearly unbelievable what it’s like to bring buildings into compliance. You spend hundreds of dollars to apply for a permit, wait to get it, spend thousands of dollars for an inspection, get incomprehensible paperwork a month later, call someone to find out it means some aspect of your building didn’t pass, hire a lawyer to find out what compliance means, try to find a contractor to fix the things the previous contractor didn’t understand, pay for another inspection, get referred to a different department for something else you didn’t know about... it’s enervating, brutal, and expensive.
Think you should have known what to do when you started? No municipalities have clear documentation on what to do when. You are just supposed to know it all ahead of time. No lawyer will coach you through it. Maybe, just maybe, you can find a local GC who can help. Or not. All municipalities have different rules. If you’re super lucky you can charm someone in the planning office to coach you a little, but they aren’t responsible if they forgot to help you with something. This just isn’t a business for the undercapitalized.
> ... he would have little trouble getting a loan.
Here’s the crux.
If you’re willing to argue that he should have little trouble, then excellent: we’ve got a barometer for whether discrimination is a factor.
Here’s the crux.
If you’re willing to argue that he should have little trouble, then excellent: we’ve got a barometer for whether discrimination is a factor.
Sorry, I’m not following?
You’re saying that if the details (the ones you mentioned being “enough [paying] tenants to move the needle” and “the buildings were up to code“) were in place that his loan acceptance would be guaranteed, but if the article is correct and he’s not getting the loans because of discrimination, then he wouldn’t get the loans even if the details were all correct.
So I’m saying that if your argument holds and he would be all but guaranteed to get the loans with the details sorted out and he doesn’t get the loans, then you would essentially have to agree that discrimination is a factor.
So I’m saying that if your argument holds and he would be all but guaranteed to get the loans with the details sorted out and he doesn’t get the loans, then you would essentially have to agree that discrimination is a factor.
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.
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.
If a building has tenants it's straightforward to value it, no need for comps or sqft calculations.
How long are those tenants planning to stay?
Check their leases, apply a vacancy rate of 5%-15% depending on history or estimation.
Assuming no major repairs required.
Repairs are estimate'able and often increase the value of a building by allowing for the increase of rent making the current leases a floor of value. The roi is relatively straightforward. Buildings are some of the simplest assets.
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.
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.
> 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...
Meanwhile in startups:
https://www.lightercapital.com/blog/startups-turn-to-non-dil...
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.
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.
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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...