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Episode 17 17, The atomic number of Quarry's Group 17 of the periodic table is called The Halogens. It is the age at which you can join the armed services. It is also the age at which one can apply for a private pilot license.


We're going to break the sound barrier with this podcast. Let's Chuck Yeager, this bitch.


Go, go, go. Welcome to the 17th episode of The Property Show and today's episode, we speak with Richard, Florida. Richard is an American urban studies theorist. That's a cool thing. I'm an American urban studies theorist.


That is a good rap in a bar focusing on social and economic theory. We talk about the cities he believes will have the biggest impact because of covid-19 to register the biggest impact from covid-19 as well as how, when, why. This is an incredible opportunity for social justice and racial and economic equity. Oh my God.


Let's take it more serious here anyways. Let's bust into today's episode. OK, so I get asked a lot about stocks, so I get right some. I get wrong. First off, this is the 13 month anniversary of the dog predicting in front of a cast of thousands at south by Southwest that Tesla, which is trading at three hundred and fifty dollars, would go below a hundred. I don't understand the company. I think they've been still I think they're an auto company, but that's neither here nor there.


The stock immediately dove to two thirty. OK, the dog was walking, the dog was barking. I thought, well, I'm good at this. And now the stock, I believe, closed at about thirteen hundred bucks. So let's be clear. The fine print, when I talk stocks, I get it wrong all the time. I've only really owned a handful of stocks. I've owned Apple and Amazon and Netflix since 2008. That's a good news.


Bad news is I sold Netflix in 2009 and it's gone up 40 cents. And I want to find a time machine and a cloning machine so I can clone me, go back in time, find me, hunt my ass down, kill me, and then commit fucking suicide. Sold Netflix at ten bucks a share. But anyways, I'm not angry. I'm not angry. I've owned I bought some Facebook in 2016 because I recognize their monopoly. I sold it about six months ago because I realized it was difficult for me to continue to be so sanctimonious about the company, about owning it.


So I primarily just owned Apple and Amazon. I've purchased I've sold one stock in the last twelve months and purchased two. I sold Facebook. I purchased Twitter. I believe that at about a thirty dollars billion market cap relative to Facebook's seven hundred, if Twitter can just sort of command a fraction of the space it occupies, it should be one hundred dollar stock. Specifically, they need to replace a part time CEO see above why part time. That just makes no fucking sense to increase the pace of innovation.


So they released products and services at double the velocity, which they be able to do if senior management was in a revolving door because no senior manager, any talent wants to work for a guy who spends his afternoon at another company that has, whereas 90 percent of his economic wealth resides a square. And then finally they need to launch a series of subscription based products. It can start as one percent of their revenue. A lot of people, including myself, would pay for Twitter and get a lot of influence and a lot of reward or economic reward from being on the platform.


And that business is just the fastest growing part of their business. Even if it's less than one percent of total revenue, that stock is one hundred bucks. So I like Twitter. The second stock I purchased was lemonade. I was fortunate enough to get allocation in the IPO at twenty nine. I think it went to about sixty or seventy on the first day and sits at about eighty now. So some people would argue that the underwriters did a terrible job of pricing this thing and that lemonade left money on the table and endured more dilution than they than they should have.


There's the counter to that argument with IPOs is they're they're no longer as much fundraising events. It's pretty easy to raise money in the private markets and also in the secondary markets and primary not only from institutions, but using forge from micro ventures or SharesPost. You can buy shares in the private market. They're more or less branding events. And that is you get a tremendous amount of awareness that pop creates a ton of stories. If you type in a lemonade IPO, there's probably more news stories on lemonade than there had been in the history of the company because of the pop.


And that creates a lot of awareness among consumers, investors, partners. So it is more of a branding event. Is it worth is it worth the additional dilution to have that pop, to get the additional press? Is it worth the seven percent fee you have to pay to the underwriters such that you can have these ingredient brands of Goldman and JPMorgan taking it public? Maybe, maybe. But there are alternatives now. One, companies are registering bigger gains in value.


They're staying private longer. So a lot of the gains have been captured by a smaller and smaller group of people. Public market investors don't get now even access to the huge upside represented by Google or Amazon or Facebook. The private market institutional investors are now capturing the majority of those gains because these companies are going public later. So let's talk specifically about lemonade. And I try to apply these criteria. I teach in the property online strategy, sprint to stocks to determine why I will invest or if I would invest in the stock or its prospects.


And loosely speaking, there are first and foremost a recurring revenue bundle. I think that is the future subscription. We're terrible at estimating time as a species. So if you can get into a monogamous relationship with your consumer set versus. A recurring revenue bundle, our prime, et cetera, or or syndicated research or even a gym membership. Right, or Sarsae is the most obvious recurring revenue bundle, if you will, that you're going to be valued at multiple of revenues as opposed to multiple EBITA takes a different just way past a company.


So lemonade has recurring revenue. It's not a bundle yet, but insurance is one of those things who just keeps renewing. It's a bit of a racket. I love companies that are disrupting industries that have unearned margins. How do you determine unearned margin? So, for example, the insurance industry, 45 percent of all revenues go to administration and profits, meaning that you're getting fifty five cents back in value, whereas on a car you're getting probably 80 cents.


Back on grocery, you're getting ninety six percent back because ninety six cents back because it's such a low margin industry. In the case of Amazon, I would argue getting one hundred and three cents back is a predatory pricing and dumping. But insurance, what Bezos said is your margin is my opportunity. There is a ton of opportunity, i.e. margin in insurance. By the way, by the way, how do you spot an industry that's really right to be disrupted?


Are you wealthy or are your wealthy friends being taken to dinner a lot by people in insurance or banking? If you're having dinner with strangers, it typically means the person on the other end of the table is selling you an undifferentiated product. So I think the insurance industry is incredibly ripe for disruption. Now we want to look to visionary storytelling, and that is someone who is able to outline a vision such that they get a larger multiple on revenues, cheaper access to cheaper capital, and they can pull the future forward.


Bezos, Tim Cook, all these guys just do an amazing job. You just listen to him and you want to buy stock. And I believe the CEO Eliminate has those attributes. Tells a really good story. Benjamin Button effect, that is, the company does a product age in reverse. Most companies, most companies products when they roll off the driver slot or the car lot or you twist the cap off, they declined by anywhere between 30 and 90 percent of value, whereas Netflix gets better every time you use it because it informs the algorithm.


Waze gets better, even Amazon gets better because of user reviews. Lebanon gets better because they're using I don't know how sophisticated the AI is to basically assess the underwriting risk based on everything from the IP address you're coming into, the way you answer questions, the language you use, some of it's kind of creepy, but you can see how it might be effective in that way. Every time somebody uses the product, they get better at assessing the underwriting risk, which lets them lower the price, the product, the access to cheap capital.


When you buy a hundred dollars worth of insurance, lemonade, you're probably right now getting one hundred and ten or a hundred and twenty dollars worth of insurance. And the traditional industry, the traditional players aren't going to move fast enough and they're not going to want to cut into their profits. They will not respond to this right now is an ankle biter of a company. Pretty soon, though, the insurance industry is going to look up and they're going to be happy to see their torso halfway in a great white shark called Lemina.


You have to have a reputation as an accelerant. And that is you have to give young, talented people who, in my opinion, are usually the call the infrastructure, the secret sauce of any super successful company. Unless you provide an environment that offers somebody, a 24 year old, a talented twenty four year old, the opportunity to live the life, a compensation responsibility of a 30 or 35 year old, it's very difficult to compete with the tech guys.


It sounds easy. It's not because that means clearing out people that aren't performing and clearing out senior people when they are no longer holding their weight or offering anything other than their senior. I would argue that's probably the most important thing for a company right now is to develop your reputation as an accelerant vertical. Most insurance companies are not vertical, they brand. Then they get their product from a provider. Then they they have a series of salespeople that they are not affiliated with other than they're allowed to sell their products that they pay ridiculous commissions to, and then they sell off the insurance to an underwriter.


Lemonade doesn't own sales. They've tried to digitize an entire experience to take humans out. And this is very inefficient in the insurance industry. Big margins, a lot of waste. They're trying to do the underwriting risk themselves. They do, I believe, underwrite or outsource or sell off some of the underwriting risk for capital risk. But this company, I would argue, is more vertical than most anyway. This company sort of checks all the boxes. So I think their challenge now is to effectively start showing that progress against that vision that the brand, if you will, our product is one part performance, one part promise.


And I think they've outlined the promise very well. Now they're going to have to show, obviously, steps against that promise. What is happening in the broader market.


Let's go, Netta. Let's go. Big picture. Let's take let's take some edibles without taking edibles and let's riff about the big picture that Grundig Ritrovato. I think that means big picture. I don't know. Anyway, we have this weird dynamic in the market and market dynamics will always trump individual performance. Let me repeat that again. Market dynamics will always trump individual performance. You'd rather own an average company in a grey market than a great company and an awful market.


And what are the market dynamics here? And why is the dog coming in big and buying stock in an IPO? Because. Because the IPO markets right now we're. Flicked a disequilibrium right now. What do I mean by that? Probably two thirds of the economy has been rendered obsolete for the time being. In other words, they don't have access to the IPO markets. It doesn't matter how good you are if you're a media company, if you're a travel company.


If you had anything to do with restaurants, you're just shut up. You're shut out. Right. So that takes out somewhere between one third and two thirds of the consumer economy. And then you have the demand side, and that is institutional investors. And we don't like to say this out loud who are living their best lives specifically. They have more money post pandemic than pre pandemics. So we have demand is higher and we have supply. The number of companies that can access the public markets right now is lower.


So we have an imbalance. Softbank did the last round. They were worried it was too high. Softbank needed, absolutely needed a pop, needed a win here. So they were willing to go in and price it below its natural level and in order to shock and win for their largest investor, Softbank, in order to get that branding effect. I just saw I saw the mother of all crowds trying to get through a small door here and thought that thing was going to pop and got this one right.


But in some sense, when you're investing stocks, I don't believe in trading stocks. If this thing hits one hundred bucks a share, I think it's at 80. I'll probably take my business off the table that I like to be a long term holder. It is very hard, I think, to trade in time markets. I don't have those skills. I like to hold stocks or at least five to ten years and not think about them every day, which is a lie.


I check my stocks probably four times a day and so does anyone else who own stocks, as far as I can tell. But you want to have a set of criteria. You want a stock that you're going to own for at least five or ten years makes stocks investing, not trading. Also, I think a big trend is trying to figure out a way to get into the private markets to recognize some of those big upsides. You can do that with some of these secondary firms and have a an investor mindset, not a trading mindset, but an investor mindset.


Let's get on with the show so tight. We'll be right back.


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We're back, here's our conversation with Richard, Florida and American urban studies theorist and university professor at University of Toronto School of Cities and Rotman School of Management.


Richard, where does this podcast find you?


We're at our place in Toronto, which has been actually a pretty good place to deal with this covid-19 crisis. And when you say good, why has it been good? Well, you know, we were we were at a condo in Miami Beach. And when we were in Miami Beach, up to the middle of May, things were pretty following in greater Miami. We came back in the middle of May and, you know, the crisis had hit Toronto, didn't hit it as hard as New York, but it ended pretty hard.


And I think, you know, Canadians and Torontonians are pretty small c conservative, and they just stayed pretty locked down and stayed with social distancing. So it seems like things are really on a pretty good track right now.


Well, I've always said, you know, Canada, I wonder if Canada thinks that they're in an apartment living above a meth lab. I mean, they must just look down or hear the noise downstairs in America and go, what is going on down there? You know, it stuff's always looks better from afar. But whether it's Trudeau taking 20 seconds of silence such that he could actually answer something thoughtfully, whether it's this crisis, bringing them together as a part as opposed to tearing us apart, it just go Canada anyway.


Cities, Richard, you I consider you my go to my yota my sensei on urbanization and cities. Talk to us about what you see, the major impacts and kind of and then second order effects the novel coronavirus on this massive move towards city over the last 30 years. What what impact does it have on cities, second tier cities? What do you see happening? Well, it's a big question and first of all, I think in the wake of these kinds of crises and this is the latest and it's it's a very serious one, but 9/11 and then certainly the financial and economic crisis of 2008, many people were quick to come out with dystopian takes, especially about New York City.


I mean, New York City's obituary has been written three times over the past 20 years. And and if you asked me what my single biggest error has been, it has been actually taking those takes too seriously. So I wrote my book, Rise of the Creative Class in the early 2000s and people said cities won't come back. Backoff, your thesis. And I kind of said, well, OK. And then after 2008, I wrote a book called The Great Reset and they said, you know, New York is dead, London instead, they won't come back.


The financial markets will move to Charlotte or wherever. Both times, cities came back with a ferocity and veracity I would have never expected and became hyper gentrified, incredibly unaffordable. Now, I'm not saying that's going to happen this time again, but I have been able to go back and read a lot about the history of pandemics, infectious disease, pestilence and plagues. You know, they've never really dampened the trajectory of urbanization. You know, they may have killed many more people, but the force of urbanization in making people more innovative and more productive has always been stronger.


And the thing that really struck me, I was born in the middle of the nineteen fifty seven pandemic which killed a hundred thousand Americans, far less than the current pandemic, but which also killed infants and children. My parents never told me about it and I never knew it existed. And moreover, my parents were born in the nineteen twenties and they were the youngest, both the families of seven, which means most of my aunts and uncles were kids during the Spanish flu.


No one ever told me about the Spanish flu. So it seems to me that we have gotten overly vexed about this end of this argument. And I think that cities will face challenges, but I don't think this will kill off cities. And I think at the end of the day, when we're through this in a year or two or three, New York will still be the greatest city in the world. It will still have the leading concentration of the financial markets.


San Francisco, warts and all, will still be the center of high technology. Toronto, Paris, London will all be great cities and they'll be change. Maybe we can talk about that a little, but I think that we've gone far too overboard in predicting the end of cities.


So let's let's unpack that a bit. Let's talk about New York. I'm going to throw out a couple hypotheses and you tell me where I've got it wrong or where you disagree. I was thinking New York singular. You said it's the best city in the world. The density of grit, talent, creativity, nothing like it. You've had a real estate actually coming down the last two or three years, but people are always going to want to live in New York.


The wealthiest people in the world have homes in London and oftentimes in New York, store value real estate might get hit a little bit and not a lot.


But but if you're living in Greenwich, Connecticut, Short Hills or Montclair, New Jersey, and you're paying a thousand dollars a square foot for a home, that would be three hundred dollars a square foot in any other suburb, which would look, smell and feel the same. And the seven hundred dollar per square foot premium is a function of its proximity. Specifically, it's an hour train ride to Midtown and your employer tells you you no longer need to live within an hour of Midtown.


Do those neighborhoods off the path train of the Metro North or what have you, Long Island radio, do they get crushed to suburbs near big cities, get crushed?


Yes and yes, I think so. So first on New York City, you know, if you look at the New York Times data, not on the people who left the four hundred twenty thousand, which included a lot of students, that's still only five percent of the city's population. If you look at the mail forwarding data, which is really interesting, that The New York Times, it's about one point six percent of New York City's population had their mail forwarded, most to areas surrounding New York.


I think it's zero point zero two percent to Miami, point zero two percent, L.A. point zero one percent of Washington, D.C. What happened is it compressed moves that might have been made over one, two, three, four, five years. Family formation moves, expensive city, hard to raise. Kids can't get a lot of space. Those folks left. I think the city gets way younger. Younger people are risk oblivious. You can meet great people there.


You can forge a career there. With regard to the suburbs, I think your hypothesis is right. And I actually said this I, I think cities that are suburbs that are linked by transit, that that people paid a premium because they're lovely places because they could take a train or a transit, they could get whacked, whether it's true or not. And there's a whole bunch of differences of opinions and differences that trains and transit are vectors and superstring.


It doesn't matter. People are scared. So, yeah. And there I think you do get the possibility of. Going further out, you certainly seeing this preference for places like the Hudson Valley, there are about a hundred places in the United States, these rural and I'll use my own term, create I'm making air quotes, creative class centers, some outside of New York, some outside of Boston, some outside of Denver, some outside of L.A. and San Francisco and other places that are kind of artsy fartsy and have nice natural amenities and may have a local college.


Those places get real attractive.


There's there's so much there. So one hundred percent agree that covid-19 is more of an accelerant than a change agent.


And the virus itself isn't impacting cities its people because of the virus rethinking their life and accelerating forward 10 years. In the number of calls I have received over the last 60 days from people who would have never considered moving to Florida, calling and saying, what are the schools like? Do you know a real estate agent? They were I shouldn't say that. It's not that they would have never called me. They weren't going to call me for five or 10 years.


And now they're like, how do I want to live my life? And they're not they're not leaving. I think their general viewpoint is I will figure out a way to get through the pandemic. The question then is, but how do I want to live my life moving forward? This has given everyone pause to say, where do I want to be in five or 10 years? Life is short. This is a great stopping point or a great opportunity to pivot to another another city.


It seems to me that Florida, if you can go long, Florida real estate right now, if you can go long, Texas kind of low taxes, sunshine, that trend that's been in place for a while, doesn't that just accelerate? Isn't this just taking every trend in migration and accelerating it?


Yeah, and those trends are not all pointing in one direction. So I think there are many kinds of places. There are many, not many. There is a short list of kinds of places of every category, whether that's big mega city like New York or London, whether that's a city of the sun in Florida, Texas, whether that's a rural place or suburban place. And I think it means acting really intentionally and strategically to get yourself on that list.


And let me go back to your thing about the accelerant. When people become unmoored like like all of us have during this crisis, they begin to raise it. Just as you said, these questions about how do I want to live my life and where do I want to live? And this is a horribly tragic pandemic and it's terrifying. And it's don't it's killed too many people already amid many, many, many other sick. But I tell my wife all the time, I'm the happiest I've ever been.


Why is that? Because I've always hated to go to the office, I've always kind of worked remotely. I never really like to travel. I'm home with my girls and my wife, and we have a very small wife. And I ride my bike and I go for a walk and it's like the best life I could live. Why would I want to change it into? I think many people are then saying, well, if I'm going to live that kind of life, where do I want to live it?


And if you have kids, it seems to me things like backyard play set, swimming pool and nice weather matter marginally more if you're going big city, lots of excitement, lots of other girls and boys ability to start a career matter marginally more or maybe a lot more. So one of the things I what I worry about is Florida and we spend the winter there. So I know it pretty darn well. I worry about two things. One, I worry about the condo market because what I see happening in people in Florida is saying, I'm scared to be in my condo.


I want a single family house. And and so I hear a lot of people from Miami Beach going, OK, why? I moved to Florida in Palm Beach, don't move to Boca. Where do I get a house that's more affordable than a house at more than a thousand dollars a square foot in Miami Beach? The second thing I worry about, Florida, and this is by no means alarmist because I think South Florida will do great. There is no real economy there, so a lot of what South Florida is a function of people getting on planes, maybe not every week, but certainly every other week and going up to where the real economy is called New York City.


And the connection between South Florida in New York City in terms of the financial markets is humongous. If it's hard to get on a plane. Then I think people might be forced. I'm not saying that some fraction, those people might be forced to live closer to New York City than they otherwise might. So that's what worries me. That's it. I think you're right about betting long on big cities in the Sunbelt. So that would be Miami then and South Florida metropolitan area, the Miami metropolitan area, Houston, and which I would bet long on Dallas for sure, Atlanta.


And then there are others. But but Charlotte maybe. But the national for sure. But then it gets harder. And I think there are second and third tier cities in other parts of the country that have less rosy prospects. So let's go there. Give us give us a ranking here. What two or three cities are your most bullish on and why in which two or three cities are you most bearish on and why?


It's funny that you and I had this conversation in another way a couple of years ago when anyone asked me this. I just say, look at Amazon as much as I was a critic of the whole Amazon HQ to rigged up process, extract incentives. Look at that. Twenty cities on the list. That's a pretty good first estimate. So what is it? You know, you know, I think if you're smart and you wanted to buy real estate now, if it and I'm not a real estate investor, it's not a chicken.


But you know, New York City, if if prices drop, New York City always bounces back. You know, people in San Francisco has plenty of problems and it's filled with problems and it's super expensive. But maybe the silver lining in this is if if there's a crisis of the commercial real estate market and if coworking space is crash and if there's a retail apocalypse, maybe a lot of that stuff gets converted to residential. And that's what drives cities anyway, the ability to attract talent.


And if you convert that stuff and you can drive housing prices lower and cities actually are concerned about creating affordable housing for less advantaged people, then I think, you know, I think you've got to look at this next group, a city. So in my mind, that's a hard one to parse. What I would say is it's not going to be the rise of a hundred of the rest. It's probably going to be the rise of a dozen of the rest.


And they're in you know, I think places like we talked about Houston and Dallas, which certainly behind as well, you know. No, I think we probably do better than L.A. I think L.A., L.A. was the metro that grew the most during the Spanish flu of any in the in the country. It just looks like a place that has sun, it has weather, it has a real economy and has single family homes. And then probably, you know, the smaller places are places that have already been on an upward trajectory.


The places on that HQ to list. Columbus, Ohio. Indianapolis, Indiana. Pittsburgh, Pennsylvania. Nashville, Tennessee. And then of smaller places, you know, I think smaller places that really get their act together. You know, I've been doing work both in Bentonville and in Tulsa, two very different kinds of places. But both of them have put attracting talented people at the top of their list and gone after that like gangbusters and have had some success in especially in attracting young families who are getting priced out of pricey markets.


I still think we're going to have a geographically unequal economy. It's just that certain places can improve their position because people are really questioning where they're going to live and work.


There's a sort of these golden ages where a city is expensive but doable and a wonderful place of growth. It feels like New York could have that again. And instead of paying fifteen hundred bucks a square foot in Brooklyn, it goes to, I don't know, nine hundred or a thousand and a thirty year old making a decent a good living, great living can leave a reasonable life there. Whereas now it feels like San Francisco, New York, if you're not making a million dollars plus you just feel you feel lower middle class and which is fine when you're when you're younger, but that you start collecting dogs and kids, it gets kind of tough.


It might it might be it might be just an incredible place.


And the other thing that intersects this I just want is, is the Black Lives Matter protest and the incredible multiclass, cross-class, professional work or service work or disadvantage, multiracial movement for social justice and racial and economic equity. That puts a lot of political pressure on cities to finally address issues of affordability and gentrification and inclusion. So, you know, this sounds so ridiculous because everybody's going, oh, my God, called and unrest. People are going to band in cities.


You could almost have a perfect storm. And I don't mean to sound like Pollyanna over here where those two things coming together, falling real estate prices and and the fact that people are saying enough's enough, you can have a perfect storm where for the first time in my life, you would have an urban policy agenda that would make our cities more inclusive, more equitable, more resilient, more sustainable.


And and the other thing and one of the thing that I think is really interesting, if that perfect storm came together and you begin to convert commercial and real estate to residential. Why do we have people commuting an hour and 90 minutes into cities? It's almost like the central business district is the last relic of the old industrial economy. It's like these giant towers. That said, we're a great company. We're all the rank and file employees. What if we begin to think about our cities reconfigured around 15 or 20 minute neighborhoods?


You know, where? And in the suburbs you rebuild some reasonably decent office parks to fix the suburbs. Then we're declining as our housing. So people don't have to commute an hour or an hour and a half. They can kind of live and work and do their lives in almost the same place. There is a moment here and it's a fleeting moment. So we have to take advantage of it where we can rethink how our cities move forward and have not only our cities, but how we can finally make our bland generic suburbs reasonably better places to live and work.


I wonder if that happens or if what happens is we actually end up commuting, our commutes become longer, just more infrequent and this is pulse marketing, but I commute from Palm Beach to New York or used to for the last nine years, every week, Sunday night for my kids down to the airport, the nine p.m. JetBlue, PBI to LaGuardia, Thursday to 30 p.m., same flight back. I commute the easiest I believe the most fluid thousand mile commute in the world is southern Florida to New York, I think with something like eleven hundred flights a day.


If you missed a flight, it wasn't a big deal. There was something 30, 60, 90 minutes later. I have now decided I'm only going to do that twice a month instead of four times a month. I'm going to do it twice a month. And I wonder if the same thing is going to happen where people move further away from their offices, not as much to move to little hamlets where they support a small micro city, but they move further away and just commute longer commutes just less, less often.


They're a lawyer for Skadden Arps and they say you need to be in the office two days a month for our big meeting and for to rub elbows with clients. But you can live in Wisconsin. And I want to talk a little bit about you pick this class of cities that you thought we're going to do really well. And another thesis I've had is that the key to urban development? And you're going to forget more about this and I'm never going to know is a world class university.


And you mentioned Pittsburgh. You mentioned Houston, Dallas. I think of Nashville. I think of Atlanta. What do you think about covid-19 impact on universities and what it means for urban university environments or these towns that are supported? The Ann Arbor is the Raleigh Durham of the world. The Gainesville is of the world. What does it mean for those cities and what do you think happens to our universities, our university towns?


You know, actually, the comment you made in the question are related to tackle them together. Two big drivers, aside from the cluster of talent and the cluster of great tech companies, you have that drive urban growth or whether you have a great university or great universities and whether you have a great airport. And it seems to me that one of the big things that might limit supercomputing is if air travel becomes very restricted, not even very expensive, if it just becomes hard to get flights and people are scared to get up.


So and that if that happens, it actually makes location in and around a global hub airport much more valuable. So it makes Miami or Houston or Dallas or New York, what, a couple of dozen places like that, because you can't get anywhere from anywhere else with regard to universities. We know that they are powerful, powerful drivers of urban economic development and that flow of talent.


And that's probably a big thing in the rebuilding of New York. In fact, New York, we know this retains a lot of young talent that goes to New York, stays in New York, where a lot of the young talent that goes elsewhere does.


So I think if universities really can't open or have to open in some hybrid way, that's a big deal, a bigger deal than a lot of the other stuff people are talking about. And then secondly, no one talks about this.


But, you know, I worry about places like Arnab or Boulder or Madison, these wonderful techie college towns that have become really interesting, micro clustered economies. But the whole town economy is dependent on the college. I mean, New York is dependent on NYU and Columbia. Boston and Cambridge are dependent on Harvard and MIT, but not like Ann Arbor is dependent on the University of Michigan or Madisons, dependent on the University of Wisconsin. And so what happens if these places really take a hit that I worry about?


And and those economies, if if universities can't open, may be more vulnerable to this, then bigger, bigger companies.


I think I agree with you. I think the kind of the untold story here that's going to have the biggest impact is what's going to happen to our universities come September and the impact it's going to have on everything from the cities to the way we approach learning to whether or not we decide our society needs that certification of a college degree is the last thing. Richard, you are I mean, you're fantastic at this Toronto and Miami. You've kind of got this wired.


If you were twenty five year old male college degree off to a decent start, what city would you want to live in and not just talk about someone who's decided not to go to college and wants to go to a just a great place to try and forge a different path? What cities would you tell your twenty five year old self to move to?


Well, if I was twenty five, I would be worried about my career and whatever career that was. I'd be worried about developing the personal contacts to develop, to move forward in my career. But I. Even more worried about finding a mate. I think I think it's New York. I mean, I think it's New York because it has the most possible economic opportunity and it has a fantastic selection of people to meet. And to date, even Toronto I mean, I moved to Toronto has been the best thing we've ever done.


And I mean, the reason I say that's not because Toronto's a great city, which it is because it makes you understand. America seamer more. Martin Lipsett, the great the late, great American political sociologist who wrote his thesis on the rise of socialism in the Canadian plain provinces said the greatest thing about study in Canada was everything he learned about the United States like living in outside the United States helps you understand the United States so much better. So I'd also say one young person, maybe go elsewhere, maybe go to a nice, great city outside the United States.


Yeah, we're contemplating and these are good problems, but we've always thought about moving to London and we've always just said, you know, when we're near the end and hopefully have grandkids, it's just unlikely we're going to look back and think, wow, we really screwed up moving to London for two or three years. Richard, Florida is a writer and a journalist having written several global bestsellers, including the award winning Rise of the Creative Class and his most recent book, The New Urban Crisis, is co-founder of City Lab, the leading publication devoted to cities and urbanism.


He's also an entrepreneur and founder of the Creative Class Group, which works closely with companies and governments worldwide. He joins us from Toronto. Richard, stay safe.


Thanks, Scott. Hopefully I'll see you in person soon. We'll be right back.


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Welcome back. It's time for office hours, the part of the show where we answer your questions about the business, world trends, career advice and anything else, I will answer questions about things that have absolutely no domain expertise in. Why? Because I have that I'm infected with that unique breed of narcissism, meaning arrogance, to believe I can talk about things I have no domain expertise in. Anyways, if you'd like to submit a question, please email a voice.


According to office hours at Section four dotcom question number one.


Hey, Scott, this is Jay from Connecticut. First, I really love your podcast. It's so thoughtful and addresses issues that are really important. So thank you for that. I have a question for you on impediments to innovation. So startups have been enjoying all sorts of attention in the popular press, almost to the point of really being fetishized. But in reality, new business formation is at historic lows. And I have a theory that because health care is shackled to employment, many people, particularly parents with families, are reluctant to go out and take risks.


And because of that, innovation is suffering. So first, do you think there's anything to that theory? And if so, what do you think are some viable ways to address that issue in the near term? Thanks, Scott.


Jay, thanks for the thoughtful question and also the kind words. I think you're right. What I think you're talking about is, OK, so there is a a destruction in innovation. If you think about we like to think we live in an era of innovation. According to CNBC, we don't we live in an era of anon innovation, and that is the number of startups being formed or business formation has been cut in half since the Carter administration, 15 percent of companies used to be less than a year old.


Now it's seven percent. And the question is why? Given that we turn entrepreneurs into Idle's, what is going on? Why are young people not starting companies? And I think you touched on one of the problems, if not the biggest problem, and that is if until health care is portable and as long as health care becomes the largest single source of bankruptcy, your ability to go naked without insurance is just a huge impediment to going out on your own and then the cost of insurance to go through an independent provider.


I have a small company, 12 people, and based on how young they are and how many kids they have, the insurance cost is 20 to 40 thousand dollars a year per employee. So small business to top people and we're paying a quarter of a million dollars a year, maybe three hundred and fifty thousand dollars a year to insure our staff. I mean, I have access to cheap capital. I have a decent track record. I can raise a lot of money, but the majority of companies can do that.


They can't afford health care. And then so you have companies, small businesses can't get out of the gates. You have people not wanting to leave their jobs. You also have you know, I'm part of the problem specifically the amount of student debt that young people take on. It's also a bit of a generational issue. Young people are supposedly more risk averse and there's fewer of them. When there's fewer people and you have a graying of the country, you're just going to have fewer innovators because part of your ability to start a company is not having dogs and spouses that you need to support in a big mortgage.


We also have a monopoly problem, and that is the fastest growing parts of our economy, whether it's hardware, social networking devices, search, e-commerce, the fastest growing parts of our economy, the cloud are dominated by a monopoly or duopoly. So it's just not easy to places we should have. The most startups are the places where you can't get funding for a startup. And let's talk about funding while on a growth level is more funding than ever, it's kind of a winner take all.


And that is one company emerges in the private market as the disruptor in that category. And maybe there's one other and they get 95 percent of the funding. So it's just not a very robust startup environment where more funding going to fewer players, monopolies, depress innovation and competition are risk averse generation because of crushing student debt and fear around how they're going to survive and pay for their health care costs to their employees. All adds up to a great era of non innovation.


And it's one of those emergencies we'd be focused on if we didn't have these constant dumpster fires of one of the most incompetent, bigoted and morally corrupt administrations in history. This is another one of those national emergencies. We need to focus on how to create a more robust, inviting world for wannabe entrepreneurs such as myself. I lead a exceptional life largely because this country was able to provide me with almost debt free education that gave me the skills, the contacts and the confidence to start a business.


I've paid a lot in taxes. So I think that this this engine of good in America, two thirds of job creation comes from small businesses. There's sand in the gears through poor leadership, terrible fiscal policy, out of control, health care costs, and generally has resulted in a less friendly environment and a more risk. First generation now is a mouthful, but I think it's an important topic. Thanks for the question. Next question. Hi, my name is Omar.


I'm a professional living in Thailand. My question is around the evolution of rewards based crowdfunding platforms. Since the coming of Kickstarter, the platform has served as a launch pad for many brands, including Brooklyn and Albats. The next step is an equity based crowdfunding platform where everyday people have the ability to invest in startup companies, that there are a couple of companies doing this, but none have emerged as the clear winners in this space. I'm wondering if you have any thoughts on if this will change the traditional venture landscape and also the company customer relationship?


I would think that if you own a piece of a company, there is a completely different set of incentives in place that can drive purchase behavior. Thank you for all that you do. Cheers.


Thanks for the question, Tomasso. Equity crowdfunding is something I don't know a lot about. But let's look at let's look at the venture market. Typically, venture capitalists raise money from institutional investors, and a lot of those institutional investors, especially allocators in funds of funds, are getting paid by their limited partners. And then they invest in a VC company or a, B, C firm that takes two and twenty. And that is they take two percent fees each year and then 20 percent of the upside.


That is expensive. So there's a lot of margin in that supply chain, which logically means the disruption is kind of do, if you will, in terms of venture investing. And why is that? It's just that non accredited investors didn't have access to private investments. And that changed a bit in 2016 when Title three of the Jobs Act went into effect and allowed startups to raise money from non accredited investors. So you've had the emergence of these crowdfunding, right?


And you've also had a decrease in funding from VCs in Q1. I don't know if that's a bit of a trope. I think that will probably pick up again. But when you think about about two percent of these investments goes to women led startups, despite the fact four in 10 startups are women, less than three percent of the U.S. funding goes to black or Latino that startups. Three quarters of EU funds have zero female investors and most investment lives in California.


So you have sort of this geographic and racial and gender. What's the right term? Bigotry kind of built into our system? Systemic bias, racism built into the funding model, which needs to kind of a wheel there needs to be broken, not accredited. Investors want more access to the private markets where the majority gains are being registered. So I think crowdfunding, there's going to be more of these platforms. So I'm bullish on it. I think it I think it's going to continue to be big.


The two leading guys start engine and we fund our reported record chewin investment volumes and record diversity and founding teams and industry focus. So I think the best VC firms are going to continue to get their deal flow. They'll consolidate the market, the tier two or tier three. The people that I think are probably going to go away. I think angel investing is going to go. I find most angel investors are either gridiron great kind of old economy guys. They want to help out entrepreneurs, but the majority of kind of full time angels, I find are just failed venture capitalists and their track record is really spotty.


I think angel investing is a is consumption. It's not really an asset class. OK, so so thank you for the question. I think we're going to see a lot more of this, but we're going to see just as we're seeing disruption in other high margin, inefficient industries, it would make sense. We're going to see disruption in in the funding of startups.


Next question has got my name is Max. This question comes to you from covid Ground Zero, Kirkland, Washington. I have two short questions as follow ups to where you previously said the first, as you mentioned before, and your winners and losers series. The brick and mortar stores are important ingredient to a strong omni channel strategy and that it serves as connective tissue to other platforms. Do you still see them as this way or more? Now is a liability for covid reason I ask is because of the announcement to close down Microsoft stores.


My second question is in regards to the economy. You mentioned all of your best businesses have been started in a recession and I think that rings true with many entrepreneurs. Is there any businesses you think that could benefit from a recession? More importantly, businesses you would advise not to be started. Thanks again for all your wisdom and insight. Thanks, Max, a lot in there. So brick and mortar, the retail landscape is being decimated right now, specifically the retailers that are more dependent upon their brick and mortar footprint.


And there's nothing unusual here. It's just, again, this notion of covid-19 being Acceleron, we have three to five X amount of square feet of retail per capita, as many other Western nations, Japan, UK, Europe, we're just overstored. And it's finally we've been predicting a regression to the mean for a decade. And it's finally here and we're going to see just a ton of brick and mortar stores close. Does that mean the store goes away?


Absolutely not. Multichannel strategy is something is a key learning. They need to apply to all components of your life. If you're selling something, if you can sell it to a consumer or you can get the consumer to interface with your product or service via multiple channels, they become much more much more loyal and spend more. So the moment Williams-Sonoma and I remember doing this analysis in the 90s can get someone to buy from their website, their catalog and in-store, they've got you hooked.


And that consumer, the multichannel consumer, is more loyal and more valuable. So if you're producing content, if you're a professor, you absolutely want to be doing online and offline courses and writing case studies and writing books. If you can get somebody to consume your IP or use your service across multiple platforms, the barriers of exit become much greater. They don't want to learn how to absorb that information via these different channels from another company. So it's a tremendous multichannel.


Is the future, including retail now? Now, that also means that also means that likely in this era we're going to see a reduction in the ratio or switching in the ratio of the proportion of online to offline. Specifically, it's flipping. We've had a decade in eight weeks. What do you mean by that? E-commerce was going up one percentage point a year as a as a ratio of total retail, started to one percent in 2000 and was 18 percent as of two, three months ago.


It's jumped to twenty eight percent. So we've had basically 10 years of e-commerce progress in eight weeks, which also means we're going to have ten years of deceleration in bricks and mortar. So where brick and mortar was supposed to be in 10 years or were there. So we're going to see probably 25, maybe thirty five thousand stores close of the six hundred thousand stores out there. But the rumors of a store's death are greatly exaggerated. The store is not going away.


There's just going to be much fewer of them. Multichannel is the way to go. Is this a good time to start a business? Yeah, typically I find recessions are a great time to start business because the inputs people real estate are a lot less expensive. So, yes, I think it's a great time to start a business. What areas would I avoid? There's always opportunity, but I would say stay away from what I would call specialty retail right now.


Anything involving apparel, anything that's connected to how much we need to go into the office is probably going to switch anything around the consumption of a product shoulder to shoulder, although that's distressed investing. Let me flip it. The places I would focus, the two areas I'm most excited about, if I was a young person looking to pick a career to allocate my most finite resource, my human capital, I'd look specifically at two industries. The first is education and the second is health care.


Thanks for the question, Max. Thanks for your questions. Keep sending them in again. If you'd like to submit one, please email a voice recording to office hours at Section four dotcom.


OK, so for our of happiness, I'm going to try to answer a question that I have received more via email than any other question I've received in a long time, and that specifically, should my son or daughter go back to school? And I think we're now fully in the switch part of the bait and switch being executed by my industry education, where a bunch of strident, delusional and disingenuous statements from university leadership saying we're looking forward to getting back in the fall.


We have a national obligation to welcome our students back, which was Latin for send in your deposit. So should your son or daughter go back to school? A lot of it's situational and that is if you're in a position to take a gap year, I would probably do that, especially if it's the freshman year. But the question then becomes, Will, where do you gap when Europe is decided they're no longer going to let in the nation of Typhoid Mary's, known as the United States?


You know, what exactly do you do? You have to sit down with your son or daughter and say, let's be honest about the experience. Realistically, the university is not going to allow in-person classes. That was a lie. Now they're continuing to say, well, we're going to have studio and labs. No, they're not. We're not going to have we're not going to have on campus learning. Let me just come out and say that the super spreaders in our society seem to be Republican governors and at least for the time being, university presidents who, in order to save their financial asses, are trying to say that we have an obligation to bring kids back to campus and put them in rooms where the windows don't open such that we can become, you know, in fact, 11 million asymptomatic carriers and then distribute them to the four corners of the earth.


It's like the opening scene of Contagion two. So that's just not going to happen. So the question becomes, do you want an online learning model? And you have to decide, is it worth it? Look at the amount of money you're paying for Zoome classes and you have to make a decision, I would argue, if in your sophomore junior year and you're going to be at home with your parents anyways, you might as well keep that momentum towards the accreditation and just figure out a way to kind of grin and bear it.


Hopefully we're back by the spring. There's also sort of a hybrid model and that is sending your kids back to Chapel Hill, back to Charlottesville, back to Berkeley, and they take their classes online. Maybe they're in the dorms, maybe they're not. I think that's a decent model. The land will be open at UVA, though. It'll be taped off for distancing. They'll just close the buildings and that gets the kid out of the house. Because let's be honest, parents, most of you are dying with your 19 year old brooding in the basement and he or she wants back to campus.


I think there's a non-zero probability that when that happens across these small towns, they may end up sending the kids back. When there is a massive outbreak of infections in these small towns, health care system is overrun. I realize that sounds troubling and cynical, but that doesn't mean I'm wrong. Also, I would call the university back and ask what they can do in terms of financial aid or financial relief. I think schools are in a difficult position, as they should be.


We've had it coming for a long time. And just as when there's too much inventory in the gap and just as there's probably too many seats at these universities, as international students are no longer allowed in our cash cows and the administration is used online learning as a criteria to extend their bigotry and decide we're not going to that that international students have to go home or we're suspending or rejecting their visas. If the university where they were getting a student visa is going all online, which makes absolutely no fucking sense other than a cloud cover to continue our racist culture wars from the far right that is decided, the only way they continue to hold the power of the white male patriarchy is to be overtly racist.


So that is now infected. The university system where we basically said no more foreign students, which will create a financial crisis. But anyways, that's not your problem. The bottom line is these universities, especially kind of the tier one and tier twos, need your son or daughter back. So I would call them and ask them for financial aid, assess your opportunities for a gap year if you're a freshman. I would probably think about putting it off a year because I think that freshman experience is important and wonderful and I wouldn't pay fifty eight thousand dollars to do my freshman year in my parents basement, most likely.


But more than anything, an open, honest conversation with your son or daughter right now that A, there's going to be no one class learning the off campus experience will be severely impaired. If it's not severely impaired, you're probably going to create a health crisis. And to remind him or her that a nineteen year old can't return to Chapel Hill or Austin or Ann Arbor or Madison, Wisconsin, there are a lot of 19 year olds in history that have been asked to do much worse.


And so buckle up. It's only going to be another semester at most and hopefully we're back to normal. But be clear to be clear, the university experience will not exist as we know it in the fall. Our producers are Caroline Chagrinned and Drew Burrow's, if you like what you heard, please follow, download and subscribe. Thanks for listening. We'll catch you next week with another episode of the property show from Section four and the Westwood One podcast network.