Tag Archives: profits

Build it – the residential and commercial development around a suburban football stadium – and they will profit?

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What if the new football stadium is less of a draw in the long run than the development right around the stadium? Here is one report about what has changed in Glendale, Arizona, home to today’s Super Bowl, where the stadium opened in 2006:

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Far out? The site of Sunday’s Super Bowl is about 13 miles northwest of downtown Phoenix. Arlington Heights is about 30 miles northwest of downtown Chicago.

The distance is less of an issue than it was when State Farm Stadium was built, said Kevin Phelps, Glendale’s city manager. Some projections show that two out of three newcomers to the Phoenix area will live in the West Valley…

The last time Glendale hosted a Super Bowl, it had about 800 hotel rooms near the stadium. By next year, that number will be 3,000. The city has found that most people spend money on dinner and shopping within two miles of their hotel. But a new development has to deliver.

“You have to have a ‘there’ there,” Phelps said. “I don’t care how good your advertising is. If we told everyone to come to Glendale and they got here and there was an ice cream shop and a Denny’s and that’s all there is, you’d never get them back again.”

Just having a superb stadium experience is not enough. The stadium can anchor a larger entertainment district where people come for a variety of events, enjoy food and other experiences, and are willing to spend a few nights or a long day. The real activity and money is in the year-round potential of the property that at the center has a recognizable stadium but also has enough to attract people when there is not a big game.

Still, the more important question is this: who benefits from the new development? Does the suburb of Glendale? Do its residents? Or, does this primarily enrich the team owners who see the value of their franchise increase?

The suburbs are about homeownership but some property owners see more money in rental units

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The American suburbs revolve around single-family homes. But, in recent years some property owners see more money to be made in converting housing units into rentals. Here is a recent example from Arlington Heights, Illinois:

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Interra Realty, a Chicago-based commercial real estate investment services firm, announced this week it brokered the transaction — equating to $242,500 per unit — for the property at 1 N. Chestnut Ave. The firm represented both the seller, the Chestnut Street Condominium Association, and the confidential buyer, according to the announcement…

“As long as there remains potent rental demand in desirable communities like Arlington Heights, I expect to see continued deconversion opportunities in select Chicago suburbs,” Interra Managing Partner Patrick Kennelly said in the company announcement. “This submarket, in particular, has become more of an investment target following headlines related to Arlington Park.”

If homes, single-family dwellings and otherwise, are now primarily about financial investments, is this one of the logical consequences?

Suburbanites can often have negative perceptions of renters and apartment-dwellers. How do residents of Arlington Heights feel about more housing units becoming rentals? Does it matter if the conversions are happening in or near suburban downtowns compared to in single-family home subdivisions?

If this continues to spread – and I saw numerous stories in the last few years about single-family homes turned into rentals as well – I would imagine there will be some concern and attempted regulations.

Nextdoor as a kinder, community oriented social media platform and still looking to make money

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Nextdoor wants to offer more positive content but is also trying to figure out how to increase profits:

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“We actually have data that shows that in the short run, toxic content absolutely drives more engagement,” Nextdoor Chief Executive Officer Sarah Friar said in a recent interview. “But over a six month period, it drives down overall engagement.”

It explains why the company chose the ticker KIND when it went public on the New York Stock Exchange last year. Nextdoor wants to distinguish itself from social media peers like Twitter Inc. and Meta Platforms Inc.’s Facebook as a friendly, down-to-earth platform that fosters connections between real neighbors, not anonymous trolls and scammy bots. There’s also local utility: Users can find a couch to buy, a plumber to fix a leak or a barbecue to attend…

The strategy has not translated into profitability for Nextdoor, which reported a loss in 2021 on revenue of $192.2 million, almost all of it from advertising. Friar says the company is in “investment mode” with plans to expand abroad in the UK, Germany, France, Canada, Denmark and Australia. It’s ramping up marketing and trying to figure out a way to capture more small businesses beyond the 30,000 that currently advertise on the platform. The company is focused on the hyperlocal, but large national advertisers are still how it makes most of its money.

But Nextdoor is competing for those accounts with advertising behemoths, and its users are still older and whiter than other social media networks, according to a survey by the Pew Research Center. Its $51 million in first quarter revenue is a 48% year-over-year jump, but a blip compared to advertising giants like Meta and Twitter, which posted revenues of $27.9 billion and $1.2 billion, respectively. Frontdoor Inc., a platform for home services and repairs, and Yelp Inc., both eclipsed $250 million for the quarter. Unlike Nextdoor, all of them have been profitable. 

This description of the platform raises multiple questions. Here are a few in my mind:

  1. Is profitability in the social media space now inextricably tied to anger and provocative content?
  2. Platforms offer different affordances, features for users and groups to utilize. How much can these features specific to different platforms tame negative content and behavior or is this a problem endemic to social media or society at large?
  3. Can a social media platform be more of a public service than a profitable private company?
  4. Once a social media platform has an established base – other parts of the article discuss Nextdoor’s appeal to suburbanites interested in crime and safety – can it actually change audiences and purposes?
  5. What happens if Nextdoor is acquired by another tech or media company?

As a Nextdoor member, I will keep my eye on this.

What children learn from HGTV #2: Houses pay off financially

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In watching HGTV with children and studying suburbs and housing, I have several ideas of what kids learn while watching the network’s programming.

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In addition to the upbeat emotions on HGTV, the network relentlessly suggests houses are worth the financial investment. Numerous shows discuss how much money is involved, whether that is in the purchase price or the profit or equity made in repairing a home or the costs to particular changes. These are often not small sums; budgets are usually in the tens of thousands or more and few characters discuss how they have such money to spend.

But, the big sums of money are worth it in the end because homes are an important investment. Sure, they are to be enjoyed – and the reveals at the end of many HGTV episodes are full of positivity – but the money may be even more important. Everyone has spent a lot of money on these homes and they are worth it because they will be worth even more in the future.

HGTV often embodies the shift in the United States from homes as important centers of family life to financial investments. The money to be gained by owning or renovating a home is never far away on HGTV.

“The stadium is the spiritual home”

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With the opening of a new stadium for Nashville SC, the team’s CEO described its importance:

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“For any team, whether it’s in soccer or other sport, the stadium is the spiritual home,” Nashville SC chief executive officer Ian Ayre said. “If you’re renting, it’s not the same as owning, right? Of all the infrastructure and the parts we build, it’s the most important.”

The team’s coach added:

Nashville SC coach Gary Smith called the crowd “magnificent,” adding that the players felt the energy from the moment they walked onto the field for warm-ups. “The expectation and excitement that surrounded this opening game was huge,” he said after the match. “To think that the players didn’t feel that would be inhuman. The atmosphere was terrific.”…

“To have our own home is vitally important,” Smith said. “This venue now will be the place over the coming years and decades that fathers and sons will come to and look back on and say, ‘Do you remember?'”

As a sports fan, I understand this sentiment. Going to the physical home of your favorite team or to an interesting stadium or a stadium where there is clearly fan interest is exciting. It is not just watching teams play in a physical setting; there is a collective effervescence that can arise to the level similar to how people describe spiritual experiences.

On the other hand, the team benefits from this spiritual home in the terms of dollars and cents. The stadium and all it entail makes money. It is an improved property. And increasingly so these days, owners and teams develop the land around the stadium in ways to further enhance revenue. This is not a sacred place maintained for the well-being of people who visit; it is for a business.

This mixing of business and spirituality is not uncommon in the United States or elsewhere in the world. Is the spiritual homeness of the sporting event ruined because money is being made? Perhaps not for most of the fans who are there for what the trivial can produce. For some of those fans, the sports stadium is more sacred than a religious building or congregation. At the same time, a new stadium and sports in general are big business where producing spiritual homes and transcendent experiences keeps consumers coming back for more and cities eager to keep teams or introduce new teams to the local economy.

Doctors connecting health and land use policies

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A recent document from the American Medical Association and the Association of American Medical Colleges asks doctors to address health inequities by prioritizing structural conditions. Here is one example involving land use which first asks the conventional question and then highlights a health equity perspective:

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How can we promote healthy behavior?

How can we democratize land use policies through greater public participation to ensure healthy living conditions?

The second perspective highlights a structural perspective in two ways.

  1. Healthy behavior leans more toward an individualistic perspective. A person who has health concerns should adapt their behavior in order to be more healthy. In contrast, healthy living conditions suggests there is a broader context for the individual’s health. Healthy living conditions can help lead to healthier individuals.
  2. With healthy living conditions in mind, the new question highlights two ways that healthy living conditions come about: land use policies and greater public participation. This likely refers to research and experiences certain communities have with decisions made about where to locate land uses – ranging from coal power plants to landfills to manufacturing facilities with toxic output and more – that then affect health. Such decisions involve power, race/ethnicity, and social class as well as decision-making processes.

More broadly, land use in the United States is often determined by zoning and profit-seeking. Zoning often has the goal of protecting single-family homes. Land and location can be turned into money. Health is not a primary concern in all of these decisions even as it can lead to better health outcomes for some compared to others.

h/t Conor Friedersdorf in The Atlantic.

Zillow sought pricing predictability in the supposedly predictable market of Phoenix

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With Zillow stopping its iBuyer initiative, here are more details about how the Phoenix housing market was key to the plan:

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Tech firms chose the Phoenix area because of its preponderance of cookie-cutter homes. Unlike Boston or New York, the identikit streets make pricing properties easier. iBuyers’ market share in Phoenix grew from around 1 percent in 2015—when tech companies first entered the market—to 6 percent in 2018, says Tomasz Piskorski of Columbia Business School, who is also a member of the National Bureau of Economic Research. Piskorski believes iBuyers—Zillow included—have grown their share since, but are still involved in less than 10 percent of all transactions in the city…

Barton told analysts that the premise of Zillow’s iBuying business was being able to forecast the price of homes accurately three to six months in advance. That reflected the time to fix and sell homes Zillow had bought…

In Phoenix, the problem was particularly acute. Nine in 10 homes Zillow bought were put up for sale at a lower price than the company originally bought them, according to an October 2021 analysis by Insider. If each of those homes sold for Zillow’s asking price, the company would lose $6.3 million. “Put simply, our observed error rate has been far more volatile than we ever expected possible,” Barton admitted. “And makes us look far more like a leveraged housing trader than the market maker we set out to be.”…

To make the iBuying program profitable, however, Zillow believed its estimates had to be more precise, within just a few thousand dollars. Throw in the changes brought in by the pandemic, and the iBuying program was losing money. One such factor: In Phoenix and elsewhere, a shortage of contractors made it hard for Zillow to flip its homes as quickly as it hoped.

It sounds like the rapid sprawling growth of Phoenix in recent decades made it attractive for trying to estimate and predict prices. The story above highlights cookie-cutter subdivisions and homes – they are newer and similar to each other – and I imagine this is helpful for models compared to older cities where there is more variation within and across neighborhoods. Take that critics of suburban ticky-tacky houses and conformity!

But, when conditions change – COVID-19 hits which then changes the behavior of buyers and sellers, contractors and the building trades, and other actors in the housing industry – that uniformity in housing was not enough to easily profit.

As the end of the article suggests, the algorithms could be changed or improved and other institutional buyers are also interested. Is this just a matter of having more data and/or better modeling? Could it all work for these companies outside of really unusual times? Or, perhaps there really are US or housing markets around the globe that are more predictable than others?

If suburban areas and communities are the places where this really takes off, the historical patterns of people making money off what are often regarded as havens for families and the American Dream may continue. Sure, homeowners may profit as their housing values increase over time but the bigger actors including developers, lenders, and real estate tech companies may be the ones who really benefit.

Developers not willing to build a particular Chicago project because of affordable housing requirements?

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Chicago, like many American cities, asks developers of particular projects to include a portion of the space for affordable housing. But, developers argue this may make an entire project not worth their while. Here is a recent example from proposed developments on Chicago’s North Side:

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But those fees and the sites’ location within a pilot area where there are higher affordable-housing requirements – 20%, all on-site – have made some projects difficult to finance. The 700 W. Chicago project also has been made more difficult by the COVID-19 pandemic, which leaves a record level of vacant office space in downtown Chicago…

Omni Group appears to have been able to overcome financing challenges in part because it negotiated a lower purchase price for the site – $38 million, down from an initial $50 million deal with Greyhound – in response to the affordable-unit requirements

The firm is also known for keeping apartment buildings it develops, rather than selling them after they’re built and filled with renters. The decades-long investment strategy may help offset the 500-plus affordable units, which typically lose money for developers because of high construction costs.

The affordable housing requirements are not the only factor at work here but they are a regular part of proposals in many locations. The goal is to have some of the benefits of a new development in a desirable urban location – a valuable asset – address the important issue of affordable housing. If developers have no or little interest in constructing affordable housing on its own, the construction of desirable projects can still help lead to affordable housing.

What would be very interesting to know is how exactly the money, including financing, costs, and profits, works out with the requirements for affordable housing. Can the developers here not make any money or does it reduce their profits below acceptable levels? It is one thing if money will be lost but another if the affordable housing requirements limit the profit. How much return do they expect on a large project like this? Is the goodwill of participating in providing affordable housing worth anything (status, money down the road, favorable approaches to future projects, etc.)? While this is likely firm-specific proprietary information, I imagine some money still could be made.

Flipping houses stats – up then Great Recession then up then down again – and questions

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How many houses have been flipped in the United States in the last fifteen years? Here are some of the stats:

person holding pencil

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In the first three months of 2020, 7.5% of homes sold in the United States were flipped, according to a June report from real estate research firm ATTOM Data Solutions. That’s the highest rate since 2006 and a jump from 6.3% at the end of 2019.

Home flipping rates had dropped drastically in 2007 and began to gradually recover in 2010. The number of flipped homes sold in a quarter peaked around 100,000 in 2005, and while it was on the rise in recent years, a decline began in the second quarter of 2019. In the first quarter of 2020, 53,705 single-family homes and condos were flipped, according to the report.

Profit margins have also dropped since 2019, hitting the lowest return-on-investment since 2011. After plummeting with the national economy between 2006 and 2008, profit margins on flipped homes grew at a steady rate until 2017. But since then, return-on-investment has been on a decline.

Still, it’s too soon to fully grasp how the coronavirus pandemic will impact the house flipping market through 2020 and beyond, ATTOM chief product officer Todd Teta said in a statement.

Flipping homes is by now a well-known process due to TV shows and personalities plus its spread throughout the United States. Yet, alongside other phenomena featured on HGTV and among certain groups (such as tiny houses), it can be hard to know how widespread a phenomena is.

Not surprisingly, these stats suggest flipping homes is connected to broader economic conditions: flipping increases when property values are high and repairs to a home can pay off in a sale. When times are tough and property values stagnate or even drop, there is less money to be made in flipping homes.

In the data above, it would be helpful to see how the national trends compare to patterns in particular places. Does flipping work in the hottest markets where prices are already high (limiting who can flip)? What about Rust Belt communities in good and bad times? Suburbs? Urban neighborhoods? I would guess there is a lot of variation across communities.

It is also worth considering what happens to the housing stock in places where flipping does or does not take place. If flipping happens, older housing stock gains new life. If it does not, do these homes simply keep sliding into disrepair?

Finally, this article starts with an example of a family involved in a flipping business but says very little about the role of small flipping businesses or more corporate operations. Even if flipping activity declines during tougher economic times, does it present opportunities for some to buy up properties to flip later? How do the profit margins differ across different kinds of flippers? Are smaller firms or family-owned flippers viewed more favorably by communities than corporate entities?

Building stadiums and arenas – but not for sports

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Concerts are lucrative, lucrative enough to construct buildings with 10,000-18,000 seats primarily for shows:

Los Angeles-based Oak View Group, an entertainment and sports-facilities company backed by private-equity giant Silver Lake, is slated to develop eight new arenas over the next three years, six of which will forgo major-league teams, largely to keep their calendars clear for concerts.

An arena can generate twice as much net income from hosting a concert than a National Basketball Association or National Hockey League game, according to Oak View. Live music is expected to balloon to $38 billion industry by 2030, from about $28 billion currently, according to PricewaterhouseCoopers. Oak View said being able to schedule twice as many concerts as it would otherwise with a professional team in house is an attractive prospect in markets including Palm Springs, Calif., and Austin, Texas. And as streaming is helping artists develop larger international audiences, markets including Manchester, U.K., and Milan are ripe for more arena shows, too…

The company said the arenas are being designed with music as the primary focus, from acoustics to VIP amenities. They will include fewer suites – a pet peeve of musical performers, who typically aren’t able to sell tickets for those seats – and add more clubs within the venue to entice concertgoers to linger before or after a show.

Multiple thoughts in response:

1. The ability to tweak the venue for music in multiple ways seems like a big win for artists and audience members. Instead of being in cavernous arenas that need enough floor space for a playing surface, everything can focus on a stage. It will be interesting to see how sound quality in new arenas like this compares to multi-use facilities.

2. This is a reminder that the big money in sports is not necessarily in attendance to games but rather in television rights and other revenue sources. Could this lead to a future with smaller sports arenas that provide an upgraded experience (it is already difficult to compete with large HD televisions) and more emphasis on what is built around the stadium?

3. Sports teams often ask for public money for facilities. And many communities seem willing to provide it, even when the evidence suggests it is not a good investment. Will music arenas also be funded with public money?

4. Since many larger cities already have arenas or stadiums, it will be interesting to see what mid-sized markets get music-only facilities. Some of the locations mentioned above are places without major sports teams (like Austin). But, I could imagine some of these facilities within large metropolitan markets in order to cater to musicians (imagine such a facility in the southwest or northern suburbs of Chicago taking away business from the United Center, Allstate Arena, and the Sears Centre).

5. Just as sports stadiums and arenas have limited games, these facilities will have a limited number of concerts each year. What else could the arenas be used for?