If you would like to receive weekly updates like this, sign up here.
In a blog announcing the investment, Andreessen Horowitz co-founder Marc Andreessen said Flow would bring about a “seismic shift” for people who rent their homes.
The blog provides few details of what Flow plans to do but claims the business will “create a system where renters receive the benefits of owners” and give “renters a sense of security.”
What an interesting statement?
Let me give some context here.
Andreessen-Horowitz is a Silicon Valley venture capital firm. “Flow” is the name of a new start up business created by former WeWork founder Adam Neumann.
Now, there’s not a whole lot out there in term of details behind what exactly Flow is.
It’s mainly sweeping statements like the one above.
But this deserves more than a cursory glance.
It’s my contention that this sort of disruption in the real estate market is about to ramp up significantly.
And as emotions rise during the 2nd more speculative half of the 18.6-year Real Estate Cycle, you can bet the level of FOMO will also rise amongst the unsuspecting masses.
And those same masses will be asked to dig deep into their pockets once “Flow” is inevitably listed on a US stock exchange sometime soon.
Are you missing out too if you let this pass?
Let us look.
The big pitch.
Adam Neumann is an interesting character.
Former co-founder of WeWork, the real estate company that pioneered the flexible shared workspace for tech startups and small businesses.
It’s quite a clever set-up truth be told, as I’ve personally used them before.
Much like Flow, such was the hype surrounding WeWork that talk soon turned to listing on the NASDAQ.
Famously (though quickly turning to infamously), Japanese based Soft Bank founder Masayoshi Son heavily backed its listing with Soft Banks own money.
At the same time grandiosely self-proclaiming that WeWork should have a $47 billion USD valuation once it was listed.
WeWork today is valued at $4 billion USD.
And that long mooted listing failed at the first attempt and saw Neumann forced to resign as CEO as WeWork raced towards utter collapse.
I won’t go into too much detail here but suffice to say I reckon I have identified what Adam Neumann does best.
He can speak billions into existence out of thin air.
Not a bad trick. Who wouldn’t want to fail up.
But how can you argue. I still can’t determine what’s behind Andreessen Horowitz’s Marc Andressen deciding that this thought bubble about Neumann’s below is worth a billion dollars.
“…a visionary leader who revolutionized the second-largest asset class in the world — commercial real estate” and stood to shake up residential property, the only larger asset class.
“Only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam Neumann,” he said.
Anderssen of course believing that is what this idea should be worth.
I can only imagine he drank the Kool Aid on what Flow promises to be.
So, what is the premise?
Again, all we have right now are what Neumann himself has said.
In a recent interview with the Financial Times in March Neumann said he was tapping into housing supply and affordability crises that were forcing more young Americans to rent rather than buy.
He saw “tremendous opportunity” to provide a greater sense of community in multifamily accommodation and was targeting cities such as Austin, Miami, and Nashville, which combine growing populations of young people with job growth, cultural attractions, and pleasant weather.
So, Flows business case is predicated on a mismatch between supply and demand for what Neumann calls the ‘We’ generation. These are people for whom ever rising home prices are locking them into becoming and staying renters.
And with a shortfall of approx. 5 million newly constructed homes in the US, and the median age of first-time homebuyers rising from 31 years old in 1981 to almost 45 years old today, you can see why there’s some legit business sense in this.
Some $300 million worth of rental properties have now been brought in these locals awaiting the Flow effect.
And this is now the point where behavior betrays the hubris.
It can never be any different.
I count a handful of people in my life as true mentors.
One thing they have always stressed to me is this. If you develop an edge in the markets, you need to consistently use it to your advantage.
Investing and trading is a dog-eat-dog world.
My contention is; knowledge of the history of the 18.6-year Real Estate Cycle is one such edge.
Even more than the history, it’s the recurring behavior, even the things people say and do. It just continues to repeat. Because the underlying cause hasn’t changed.
The chase for the unearned rent.
So, forgive me if I sway towards being skeptical when I read things like this.
In a blog post, co-founder Marc Andreessen heaped praise on Neumann as “a visionary leader who revolutionized the second-largest asset class in the world — commercial real estate” and stood to shake up residential property, the only larger asset class.
“Only one person has fundamentally redesigned the office experience and led a paradigm-changing global company in the process: Adam Neumann,” he said.
Really!
This is exactly how to create hype over a company that doesn’t yet exist I suppose.
However, this talk is no different from this time last completed real estate cycle.
There is nothing visionary here.
Andreessen is hiding from you his true intentions. No different from any other real estate spruiker who has ever lived.
I’m looking at his behavior; in other words, how much does Marc Andreessen know about the true drivers of the economy?
Didn’t have to look too far it turns out.
On the Andreessen-Horowitz website I discovered a blog that Marc wrote back during the height of the Covid lockdowns.
In it he wrote that more needs to be done to build more affordable homes, wipe away the smugness inherent in permitting developments and which had led to among other things “crazily skyrocketing housing prices in places like San Francisco, making it nearly impossible for regular people to move in and take the jobs of the future.”
Now, Marc lives in San Francisco himself.
In a place called Atherton in Silicon Valley.
Marc and his wife obviously love the view because they lobbied to get cancelled zoning rules in their town which would have allowed the construction of multifamily homes!
Can’t let anything jeopardise those crazily skyrocketing housing prices in places like San Francisco!
How duplicit can you get. This is what I mean that knowledge of the cycle really gives you an edge.
Don’t look or read words, find out the behavior.
Adam Neumann is no different. He talks about disrupting the residential real estate rental market with grandiose terms.
I found out this week that Flow intends to launch with a crypto wallet, a way to tokenize all those apartments and houses his company recently brought.
Neumann says this is the way that renters can build equity. Folks, this is simply a rent-to-build scheme, a land banking operation.
And who do you think will be first in line to secure these tokens at pre-IPO discounts?
Who will then allow their grateful tenants to “buy” them as equity at 100’s of percentage points higher than when they were minted.
The landlord wins, again.
Regardless of where you reside whilst reading this, you will find similar schemes coming to a neighborhood near you soon.
The cycle demands this happens. And you need to have your wits about you if tempted to become involved in them.
Start viewing the world around you with your own real estate cycle lens, the Boom Bust Bulletin can help you get it.
It will teach you the history of the 18.6-year Real Estate Cycle, why it continues to repeat repeatedly and provide guidance to the myriad of opportunities that arise as it turns.
And provide you the street smarts to see directly through schemes like the above.
All for the price of a takeaway coffee a week! Are you kidding!
Incredible value.
Sign up now.
Best wishes,
Darren J Wilson
and your Property Sharemarket Economics Team
P.S. – If you would like to receive weekly updates like this, sign up here.
P.P.S – Find us on Twitter here and go to our Facebook page here.
This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.