The social implications of renovate vs. build

Right now:

  • There is a ton of demand for apartments in LA; and
  • There is a lot of capital seeking yield

This represents an opportunity for entrepreneurs, like Jon and me, to make money by partnering with the capital to provide housing.

Like most entrepreneurs in this space, we’re more or less agnostic about whether we service the demand by refurbishing older units or building new ones. If anything, we have a slight preference for building new, for ego reasons.

And yet our focus is almost entirely on refurbishing older buildings, which has the effect of driving up rents (because we’re taking low rent units and turning them into high rent units).

Why is our focus on these older units? Because the city makes building new ones so difficult and time consuming that the business is not really worth pursuing, unless you’re deploying capital at scale.

Think of entrepreneurial energy as water flowing downhill. You can let the water go where it wants to and just accept the consequences (in this case, refurbished apartments at higher rents). Or you can channel that water through a water-wheel on the way down (channeling energy into ground-up development)… the water still gets to the bottom of the hill, but in the meantime it’s done something socially useful.

So why are we doing the former, and not the later?