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Resi Wrap - Feeling The Flow
September 2022

Friends of ResiShares:

So Adam Neumann is back. After having read a litany of articles on Flow, his new Andreesen-backed venture, I have absolutely no idea what it does (by design, I’m sure). Is it a blockchain-based equity sharing play? A rent-to-own model? Is it apartments? Condos? Single Family Homes? Is it a tech-enabled platform to turn every multi-family building into a digital kibbutz with free beer and coffee and a vegan cafeteria? All of the above?

Or is it that Andreesen, very astutely, is looking for a way to get leverage to the residential real estate market into a potential buying opportunity?

For all the spilled ink about Neumann’s last venture, where it went wrong, and what it means for technology investing and the “Softbank Model,” WeWork was on the wrong side of a very large real estate trade. They were long a whole bunch of downtown office space into a global pandemic. Whether or not their technology and marketing innovation created value, it would have been difficult to outrun that macro headwind.

By the same token, whether or not Neumann can get prospective tenants/owners/investors (we still don’t know who his target customers are) to “feel the Flow” (like Happy Gilmore, Neumann has his own sort of bull dance), a well-timed bet into the undersupplied housing market may bolster his success with a macro tailwind.

Speaking of office space headwinds, San Francisco is still dead, while New York is not. It’s difficult to blame this on housing costs, as New York apartments still cost more than their San Francisco counterparts. We talk a lot at ResiShares about high-growth destinations hitting critical mass, insulating them from the inevitable pullback when the credit cycle turns. The metaphor of critical mass creating a self-sustaining chain reaction derives from the virtuous cycle of jobs and culture drawing people, who in turn draw jobs and culture. San Francisco, for all its charms, had an economic draw based on jobs that can all be done remotely, and a cultural draw as centered around access to beaches and mountains outside the city as anything within the city itself.

The divergence of fortunes between Manhattan and San Francisco may be a useful lens for evaluating what happens to some of the frothier markets from the Covid rally as the economy deflates. It stands to reason that a few of these housing markets “outran their coverage” in terms of whatever cultural or economic draws render their growth permanent, while others may be more resilient.

But San Francisco is not just failing to recover because it is losing out to other cities, but mainly because it is losing to its own suburbs. It’s not the only example of this phenomenon, obviously. While research shows that suburbs make us lonely, the next logical step for office work following new suburb-dwellers to critical mass is the return of the suburban office park.

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