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Doesn’t this represent a huge potential financial opportunity to whoever can figure out how to properly recognize the value in these places/owners? What’s stopping some forward looking bank from doing so?
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
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".
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)?
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?
[0] https://www.zillow.com/homedetails/2121-Avenue-I-0-Birmingha...
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.
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…
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.
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…
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.
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?
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...
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-...
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…
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.
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…
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 choosi…
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.
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...