The evolution of ride-sharing

Just got done reading this piece in Pando, which is basically Sarah Lacy complaining about Lyft’s new Lyft Line service, which is basically paid car pooling (eg the software lets you split the cost of a car service with some strangers, thereby reducing the cost).

Buried in the piece is an extraordinary insight from Lacy: That services like this compete more with municipal buses than they do with car services or taxis.

Every morning, on my way back from the gym, I walk past a crowded bus stop. Every day, when I pass, I think about how much time is wasted by people who use the bus for commuting. The trade-off with riding the bus in LA is basically that you can get anywhere for $2-3, but it’s going to take you an hour or more, plus a bunch of additional time to walk from the bus stop to your destination.

That’s a terrible trade, unless you’re incredibly hard-up for cash.

Enter Lyft Line, where, for $3-5 each (at least in San Francisco), a group of people can share a private car which will pick each of them up wherever they are and drop each of them off at their preferred destination. That means much less waiting and much less walking.

Yes, it’s more expensive, but my strong suspicion is that people will trade the extra $1-2 for dramatically better service.

And that’s going to revolutionize public transportation, which will (or, at least, should) revolutionize how we plan our cities.

Some thoughts on my visit to Troy

During my visit to Troy, NY, I was enchanted, as usual, by the large number of stunning old brick industrial buildings sitting vacant along the Hudson River.

These buildings are the kind that developers die for… brick (in an area with no earthquakes!), high ceilings, original casement windows, etc.

You can take buildings like those and turn them into AMAZING loft complexes.

So, why aren’t I buying them all right now? Well, there’s the small problem of finding tenants.

LA has a growing, diverse economy and a growing population. This means that, so long as your units are in reasonable condition and priced appropriately, they will rent. The vacancy rate is, for all intents and purposes, zero.

This is not the case in Troy, NY. There, the economy has been stagnant for a long time and the population is likely shrinking. Yes, there are a limited number of people who have good taste and the money to pay reasonably high rents. But not enough to fill a whole bunch of huge loft buildings.

So, while I drool over them every time I’m in Troy, I’m not a buyer.

Looking back at a miss

Periodically, I write pieces on here about how our knowledge of achievable rents cycles back into our acquisition process.

Wanted to give you a concrete example.

There’s a deal we looked at several months ago that sold in the $700-750k range.

At the time, not knowing as much about achievable rents, we thought the deal looked expensive.

Now I know we could have paid in the neighborhood of $850k for it and been fine.

Obviously, that one is a miss.

But I’m now circling back to other deals that looked marginal to see if they will work, given what we now know about rents.

(Sorry not to be able to give you the address, but I already give away more information to my competitors than I should!)

What you could learn from a wild-catter

Recently, I’ve found myself repeating the same piece of advice over and over, so I’m going to share it here.

The context is as follows: Someone comes to me for help in optimizing her real estate business. He wants to figure out how to generate more revenue per deal or how to do more deals in the same period of time or whatever.

I respond by saying the following:

Imagine you find yourself in the oil business. You’re trying to figure out how best to allocate your time to maximize your income. You’ve basically got two different choices:

1. Spend a ton of time optimizing your existing wells. You can add the newest drill rigs. You can calculate the best times to drill. You can blast water and chemicals in there to try to pressurize the oil and make it flow better. You do the super-secret oil dance around your property.


2. Go find a gusher, where all you need to collect the oil is a bucket.

Now I’m not saying you shouldn’t optimize your business. In fact, that’s what Adaptive’s all about… optimizing the shit out of the very complex process of repositioning apartment buildings. But we’re doing the work to optimize it because we have sampled the economics of the niche and believe we can build a profitable business in it.

This is NOT the case for all niches. There are plenty of niches where you can work like a dog and never create a business with compelling economics. Maybe the niche is too competitive and you can’t do enough to differentiate your product or service. Or maybe the deals are too complicated, so that doing them well requires a level of attention which is infeasible to provide, given the small commission. Maybe there simply aren’t enough deals to do.

The point is that, before you go spend a whole bunch of time optimizing your well, you need to make sure you’re drilling in the right place.


A dumb piece about Detroit

From time to time, I check in at Gawker, where the editors have recently taken to publishing anti-gentrification screeds.

Yesterday’s piece about Detroit is a classic, a model of the art.

Peter Moskowitz, the author, spends a bunch of time criticizing Detroit for allocating its scarce resources to the downtown area at the expense of the poorer, outlying regions.

This argument betrays a total lack of understanding about how city finances work.

In real life, everything comes down to property tax revenue. If you’re trying to increase city revenue and you have a bombed-out downtown full of huge vacant buildings, it’s pretty obvious what you do first: You get those buildings into the hands of someone who will fill them up with tenants.

Once those buildings are full, you re-assess them to reflect their new, higher value. Voila, you’ve got an expanding property tax base, which you can then use to fund improvements elsewhere.

That’s exactly what Detroit is going, and the city should be praised for it, not blamed.