The “What if” Question

By Lloyd Graff

I have spent my entire business life identifying price anomalies and taking advantage of them to make money. “Buy low, sell high” is my secular religion.

I am now confronted by a situation that screams BUY for me as a “comp” watcher, but everybody I know tells me I’m nuts.

This is the situation.

I live in the South Suburbs of Chicago in a lovely suburb of well-cared-for 2000- to 5000-square-foot homes on 20,000-square-foot lots. My home is 28 miles from downtown Chicago by car, 40 minutes by commuter train. It is peaceful, has nice parks and is surrounded by golf courses, including the Olympia Fields Country Club, where the 2003 U.S. Open was played.

My wife and I bought our 3000-square-foot home 39 years ago for $130,000. We have put a lot of money in it. We have an 800-square-foot workout area, mostly carpeted in the lower level.

Lloyd Graff’s home in Olympia Fields, IL.

We might be able to sell our house for $200,000, probably $180,000.

Why has housing inflation ignored my neighborhood? Will young people discover the price disparity between comparable suburbs or neighborhoods in Chicago and rush in to take advantage, or will homes continue to go begging where I live?

I have left out some pertinent information. The area where I live used to be primarily comprised of white people. Today it is a “mixed” area of whites and African Americans. I stress “mixed” because as I look out my big kitchen window I see a soccer game being played in the schoolyard with half of the kids being white and half being black. This is not the ghetto. This is not gang infested Englewood, where I live.

I prefer to stay away from the racism issue for the moment. There is more interracial marriage than ever in America today. If Dancing with the Stars, that icon of American television, is any guide our society is becoming more accepting of black and white coupling than ever before.

Big money is pouring into development of sites that used to be primarily Black on Chicago’s near Southside. Oak Park, Evanston and Hyde Park are integrated communities with booming property values, and the public schools in those areas are definitely not the best in Chicagoland.

I ask myself this question, if I ran a hedge fund would I be a buyer or a seller where I live? Would Warren Buffett buy or sell the South Suburbs of Chicago?

Warren Buffet and Carl Icahn are cold blooded investors. I think they would ask the real economic questions. How much is race fear worth? How much should you deduct for B- public schools? How accessible are private schools and what do they cost? How much money will it cost to make the South Suburbs of Chicago sexy?

If a house in Evanston is $1 million and the same house in Olympia Fields is $200,000, how long will it take and how much money and effort will it take to pull the value up to $500,000?

Creative people in business like to ask “what if” questions. It is a way to tap into creativity and stretch oneself.

The Buffetts and Icahns of the world constantly bring in people to pose “what if” questions. Buffett had his eye on Heinz for 20 years, but in his mind the price was always too high. A few years ago he asked or was asked by Paulo Lemann of 3G Partners, a Brazilian investment banker that bought Burger King and turned it around, if it would make sense to buy Heinz if 3G cleaned up its inefficiencies. And Bingo. Buffett had the money. 3G had the ruthless expertise to squeeze out the fat and they made a deal.

What are the “what if” questions about real estate in the area I live in? Can you convince a gutsy advanced group of young white people to take advantage of a bargain? How long would it take for the followers to push up the price of the housing market if the intrepid few came?

I understand that America is still beset with racial fear and anger, but times, they are a-changing, too. I think it is quite possible that at some price disparity and with shrewd marketing, white folks will buy a house next to black people and communities will change shades. And home prices will rise, not fall.

Question: Is America less racist than it used to be?

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24 thoughts on “The “What if” Question

  1. chuck snow

    No it is actually much more racist now than it was 20 years ago, Somehow all of the progress that was made in the 60’s and 70’s somehow became lost.

     
  2. Joe

    No it’s not. More people are expressing their racism now because we have a bigot as president. They are all coming out of the wood work.

     
  3. Peter Croak

    I’d have to disagree with Chuck. In my small corner of America I see my father’s generation as very racist and vocal about it. My generation still harbors some racial tension, but for the most part does not act upon it. My son’s generation seems the most part to be more accepting of all races, creeds and orientations. I am very proud that I was able to remove the bigotry from my son that I struggle with at times.

     
  4. Bob Ducanis

    I grew up in Miami, FL in the early 1960s and I still remember side-by-side water fountains in some stores…..one for ‘whites’, one for ‘colored’. Reference movie ‘WHITE WATER’……it’s not about river rafting. That’s all gone now thankfully, but most likely some of the attitudes remain. I lived in Franklin, TN just south of Nashville in the early 1980s. A few time on Saturday afternoons, the Klan would be handing out flyers on the little town square. Most people driving by ‘flipped’ them off with the one finger salute. I now live in a nice suburb of Orlando and have 3 wonderful families of African Americans as neighbors. I think times have changed, albeit slowly, and a lot has been due to legislation outlawing discrimination.

    Lloyd, as far as your real estate situation, all real-estate is local as they say. I believe the southside of downtown near the lakeshore (McCormick Place vicinity) was upscaled with loft apartments etc. Same thing just west of downtown on the other side of I-94? But I think there might be an upcoming quandary with real estate in Illinois. If what I have read is true, it appears as if there is an exodus of population from Illinois to neighboring states. Are the city of Chicago and possibly the state of Illinois heading towards bankruptcy? You can only tax the populace so much until you break their backs.

     
    1. Emily Halgrimson

      Bob, this was my experience. I tried to buy a home in the south suburbs of Chicago, but I couldn’t bite the bullet. The low cost of the homes there was overshadowed by the property taxes, which seemed just crazy high. I remember making an offer on a modest 1800 sqft. 1960s ranch in Flossmoor, IL with a foreclosure cost of $115,000, but when I learned the annual tax bill was $7500 I went running. Now I live in Munster, Indiana, a town that borders Illinois. Great schools, great quality of living, and it’s basically a suburb of Chicago. It’s true, Illinois residents are fleeing here, and for good reason. The main problems with Indiana are the outdated environmental regulations that poison the air, and the religious politicians down south.

       
      1. rick

        “the religious politicians down south.”

        Perhaps that provides a moral compass that instills respect in people. Just saying.

        I find it interesting how those who are more liberal flee the areas destroyed by liberal policies to beautiful areas of conservatism, yet they demand the policies that ruined from whence they came.

        Whats wrong with the southside? I am sure property is cheap as long as you can deal with the murder rate.

        Why are the taxes higher in the democratic state, and lower in the republican state? I find it sad that you do not want to spend your fair share. Bernie would be disappointed!

        If a conservative doesn’t like guns, he doesn’t buy one….
        If a liberal doesn’t like guns, he wants all guns outlawed.

        If a conservative is a vegetarian, he doesn’t eat meat…
        If a liberal is a vegetarian, he wants all meat products banned for everyone.

        If a conservative is homosexual, he quietly leads his life.
        If a liberal is homosexual, he demands legislated respect.

        If a conservative is down-and-out, he thinks about how to better his situation.
        A liberal wonders who is going to take care of him.

        If a conservative doesn’t like a talk show host, he switches channels.
        Liberals demand boycotts that those they don’t like be shut down.

        If a conservative is a non-believer, he doesn’t go to church.
        A liberal non-believer wants any mention of God and religion silenced.
        (Unless it’s a foreign religion, of course!)

        If a conservative decides he needs health care, he goes about shopping for it, or may choose a job that provides it.
        A liberal demands that the rest of us pay for his.

        If a conservative reads this, he’ll send it so his friends can have a good laugh.
        A liberal will be “offended”…

         
      2. Emily

        You don’t know what you’re talking about, Rick. Lake County is liberal. Your words appear eloquent, but your stereotypes hold little truth. It’s just not that simple. Don’t you ever get tired of preaching?

         
  5. John

    The most bigoted people are the ones who make exceptions due to race. It can be for positive or negative, but both use the color of the skin to determine how to act. Looking at predominate Democratic Chicago, it is the most Bigot place I have lived and often visited. How can a 3rd world city be within blocks of most renown 1st world city on the planet?

     
  6. Rod Hatcher

    I believe it to be less racist. The illusion of it being more racist is created by the press and politics. I could write a long essay to provide evidence to support this view but it would not change any minds.

     
  7. Tony

    Joe, Joe, Joe. Have you not been paying attention to the last several elections and not noticed how polarized we have become as a society? There is no middle ground, only extremes. It is not just starting with the current “bigot as president”. Many people were not happy with the last administration, and what they perceived it (he) stood for. The current situation is a flip-flop from one “extreme” to the other- sometime in an upcoming election, we will right ourselves and find a better center, assuming that either party (or viable 3rd party) can offer a more moderate, level-headed candidate, that people can vote for, instead of voting against the other.
    I agree with Peter- my children’s generation seems to be much more accepting of not just race, but any kind of creed, religion, orientation, identity, et c.

     
  8. Paul Huber

    Yes, on the surface.
    No, if you could read the mind of an average person.

    The Connecticut Magazine does publish every so often a list and photos of Connecticut professionals.
    Top Realtors photos: not a single person of color.
    Top Dentist photos: a few.
    Top Doc’s photos: a few.

    Enough said.

    Paul Huber

     
  9. Seth Emerson

    On the housing issue. That pricing is driven by outside sources. As homeowners, we get to sit by and watch things change. The value of our house may go up, but, unless your property taxes are directly connected to that, it only matters when we sell. Retired and with the house paid off, I have no incentive to sell. But I still pay attention as houses around me appreciate (almost) relentlessly. Sell and be “rich”? And move where? I am sure that, as time passes, we will be downsizing. I see older neighbors taking the money out, buying smaller/cheaper in the rural, but still populated areas, living off the difference and seeking a more laid-back lifestyle. I am not yet ready for that. My little home-based business likes Fed-Ex, UPS and USPS just a few minutes away. I like good medical care close by, if(when) needed. You have spent the last 39 years making the house comfortable for your lifestyle. If you are comfortable there, what does the actual cash value matter? (Except, maybe, to your estate!)

     
  10. Joe L

    Like it or not, “racism” and “white flight” are very real and still happening today. On the east side of Cleveland we have malls that look like Chernobyl and in other malls “flash mobs” have forced new rules never thought of in past times to try to keep a civil public place. When these things happen, it is only normal to react with fear and wanting to create distance from the fray. I think President Trump is less polarizing than Obama was.

     
  11. allen

    A coupla things.

    First, there’s just a smaller market for $1,000,000 homes, and fewer of them, than $200,000 homes so market pressures, positive or negative, are going to show up and too greater effect in the $1,000,000 home market.

    Second, Icahn and Buffett understand that a bargain bought at the wrong time transforms itself into an investment. Timing is a big consideration and if the market’s overlooked your little slice of heaven well, it’ll get around to you eventually.

    Which brings us to item three; real estate is a very high friction market. There’s no commodification, no trading pits or formal markets to make buying and selling simple, easy, quick and cheap. Precisely the opposite.

    Imagine what it would cost to dump that block of IBM if it were noticeably better kept-up than another block of IBM and, oh by the way, there are legions of agents, lawyers, clerks and other functionaries too numerous to list who all expect a slice of the transaction.

    When you buy 100 shares of IBM you know what you’re getting. When you buy a house you don’t know that it wasn’t built on an old Indian burial ground with the resulting poltergeist as uninvited guests.

    The question you have to ask yourself is, what’s my time frame?

    If you have no intention of bailing for ten years than give me a beer the burgers are almost ready. If you want to be on to new adventures by the time of the mid-term elections well, hop to it and try to decide what you want as a price and what you need.

    As for the 3G example, not really relevant.

    The analogous situation, with which you’re already familiar is finding a screw machine that looks like a refugee from the La Brea Tar Pits but is otherwise fully functional, within specs and owned by someone who doesn’t see it’s value. You take a look at it and with your experience of the market you see dollar bills. Heck, you’d probably have a pretty good idea what it’ll cost to make it look presentable, who you’ll sell it to and for how much.

     
  12. Lloyd Graff

    Love your writing Allen.
    Actually, planning a trip to the LaBrea Tar pits next week to look at petrified 1 1/4″ RB8 National Acmes. But don’t whisper a word.

     
    1. allen

      Your secret’s safe with me. But when you get to the LaBrea Tar Pits ask to see the Machine Tool Annex. That’ll save you a lot of time over grubbing about in tar.

      Don’t recall seeing any RB8 National Acmes on display. Mostly lots of Bridgeports and Bridgeport parts. But heck, you never know what they’re going to pull out of the tar.

      Lots of theories about how the machine tools got there. Mostly involving DeLoreans which seems a bit unlikely.

      You wouldn’t happen to have a flux capacitor collecting dust in your warehouse, would you? About 1.21 gigawatts? Thanks ever so much.

       
  13. rick

    Ask any black person which political party has been black people’s political ally. With near unanimity, blacks would answer the Democratic Party.

    Asked which political party has been hostile to blacks, they’d say the Republican Party with similar unanimity.

    For better answers, check out Dinesh D’Souza’s Movie Hillary’s America: The Secret History of the Democratic Party.

    Since its founding in the late 1820s, the Democratic Party has defended slavery, started the Civil War, and opposed Reconstruction. The Democratic Party imposed segregation. Its members engaged in the lynchings of blacks and opposed the civil rights acts of the 1950s and ’60s.

    Americans need an alternative to the mainstream media. But this can’t be done alone.

    During Reconstruction, hundreds of black men were elected to Southern state legislatures as Republicans, and 22 black Republicans served in the U.S. Congress by 1900. The Democratic Party did not elect a black man to Congress until 1935.

    President Woodrow Wilson was a progressive Democrat and an avowed racist who shared many views with the Ku Klux Klan.

    He resegregated the federal civil service. He screened the racist film “The Birth of a Nation,” originally titled “The Clansman,” at the White House—it was the very first movie ever played at the White House.

    What was the party of Faubus, the Arkansas governor who blocked the desegregation of Little Rock schools and defied the U.S. Supreme Court’s unanimous 1954 Brown v. Board of Education decision?

    What was the party of Bull Connor, who, as city commissioner, set vicious dogs, fire hoses, and billy clubs on black civil rights demonstrators in Birmingham, Alabama?

    Connor said: “You can never whip these birds if you don’t keep you and them separate. I found that out in Birmingham. You’ve got to keep your white and black separate.”

    If you answered that Faubus and Connor were Democrats, go to the head of the class.

    By the way, it was Republican President Dwight D. Eisenhower who sent troops to ensure that black students could attend Little Rock’s Central High School.

    What was the political party of Alabama Gov. George Wallace, who, during the 1960s civil rights movement, declared that he stood for “segregation now, segregation tomorrow, and segregation forever” and blocked black students from entering the University of Alabama?

    A few years later, the only serious congressional opposition to the landmark Civil Rights Act of 1964 came from Democrats.

    Eighty percent of Republicans in the House of Representatives supported the bill. Less than 70 percent of Democrats did.

    Democratic senators, led by former Klansman Robert Byrd’s 14-hour filibuster, kept the bill tied up for 75 days, until Republicans mustered enough votes to break the filibuster.

    Labor unions have always been allied with the Democratic Party and have a history of racism. Most of today’s black leaders give unquestioned support to labor unions and their policies that harm black workers, but yesteryear’s black leaders saw things differently.

    Frederick Douglass, in his 1874 essay “The Folly, Tyranny, and Wickedness of Labor Unions,” argued that unions were not friends of blacks. W.E.B. Du Bois called unions “the greatest enemy of the black working man.”

    Booker T. Washington also opposed unions because of their adverse impact on blacks.

    Today, Democrats use diplomacy to hoodwink blacks. They tell blacks to be against those—such as Education Secretary Betsy DeVos—who are for school vouchers that enable black parents to get their children out of rotten schools run by Democrats at the National Education Association.

    I think we should acknowledge that welfare programs are designed to encourage dependency. Slaves to the Democratic political machine insuring votes to continue free benifits

    The United States welfare system has not promoted prosperity and self-reliance but, rather, a culture of entitlement. Since the federal government got into the welfare business with the War on Poverty back in the 1960s, the poverty level has remained nearly the same, yet government welfare spending has soared. Today, the federal government operates over 70 welfare programs at a cost edging toward $1 trillion a year.

    Of the more than 70 welfare programs in operation today, only one requires able-bodied recipients to work or look for work.

    The one thing that has the greatest effect on reducing poverty—marriage—further evidences his misunderstanding of poverty in the United States.

    Children in single-parent homes are five times more likely to be poor, and 80 percent of all long-term poverty occurs in single-parent homes. Little wonder, then, that nearly three-quarters of all families with children on welfare are headed by single parents. Tragically, the number of out-of-wedlock births has skyrocketed since the War on Poverty began. The majority of these births occur to low-income women, those most likely to struggle as single parents. Sadly, many of these women come from communities where marriage is all but obsolete and where they rarely, if ever, receive the important message of waiting to have children until they are married.

    We are not a racist, as Dr Martin Luther King, Jr. said. “I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin, but by the content of their character.” We judge each person by their character, however will you wander about in the southside of Chitown at night with 1,081 shootings with 1,119 victims between Jan. 1 and May 31. At least 228 people were killed in those shootings!

    The problem is that a huge portion of the black community has been sold a false bill of goods by the democratic party!

    It takes a long time to shake off stereotypes…

     
  14. Sara

    Rick if only everyone could read your writings. After 60 plus years of Democratic rule in Chicago the problems increase daily. Now that is the definition of insanity. Money is the root of all evil. To Politicians money is everything no matter how obtained.

     
  15. Mark

    White flight occurs as their peaceful neighbor hood becomes a war zone. We try to fool ourselves that mixed neighbor hoods are wonderful, I tried that too. I was one of the last white folk to leave my old neighbor hood and only left when the last white police officer and family left. Location Southeast Arlington, TX. I can name a dozen ex-white towns, mostly along the South DFW area, that large demographic changes have taken place. I’m sure it’s repeated across the nation.
    What was the fate of white people in Rhodesia, now Zimbabwe? How about South Africa? How about White people in Africa? The answer is troubling even frightening and we tend to ignore the obvious due to PC brainwashing.
    Our only edge is concealed carry. Our only hope is education. Our only answer in interaction, to offer friendship and acceptance.
    Some people take a mile when you give and inch. We’ve lost a lot of ground. Time to take some back! We have to do it right, maybe slightly far right:-)

     
  16. bryan

    The social, political, and economic miscircumstances of chicago are only part of the problem.

    Another part is the differential slope. By definition, there can only be 1 best school district near whatever key jobs are bound to chicago, and that district will tend to have higher prices.
    There can only be 1 most stylish area. It will have higher prices.

    So, if your house in a not so sought-after neighborhood reached $1M, it implies the houses in the highly sought-after will be say $3M or $5M.

    In order for the neighborhood to rise up the slope – for the houses to be worth 1/2 of the sought after houses rather than 1/5 – it has to “do better in the tournamet”.

    And of course, not only are people leaving chicago for indiana, they’re leaving for the west coast as well…

    An odd aside – WA has (so far) no income tax and is heavily driven by property taxes. Yet my house apraised at $2M has only about 2.5x the property taxes of the house Emily described valued at about 10x less. This suggests that chicago and illinois have a tax problem. The bond market agrees…..

     
  17. bryan

    by the way – the last bit of the above implies that the smart hedge fund move isn’t to buy this “low priced” property in south chicago, but rather, to move your operation to someplace better, so as to be far away when chicago blows up….

    what Buffet and Ichan do NOT buy is actually more interesting than what they do….

     
  18. rick

    Just a quick update:

    At least six people were fatally shot and 37 others were wounded in Chicago over the weekend in attacks that included two rifle homicides in Back of the Yards, nine people shot in a single incident in Lawndale and double shootings on the Riverwalk and at 31st Street Beach.

    The violence, on the warmest weekend of the year, brought the number of homicides in Chicago this year to at least 275 — nine fewer than last year but substantially higher than in other years going back to 2013, according to data kept by the Tribune.
    ADVERTISING

    At least 1,520 people have been shot in the city this year, down 150 from the last year. But again, this year’s tally is higher than at this time in 2015, 2014 and 2013. Last year was the most violent in Chicago in two decades.

    This past weekend included two fatal shootings by rifle fire within 24 hours of each other, in a neighborhood where rifle shootings have become the norm as gangs in the Back of the Yards and neighboring Brighton Park have turned to the high-powered weapons.

    I would post the link from the Chicago Tribune, but if you post any links, your post is held for approval, but is never approved…

     
  19. Seth Emerson

    Just for reference, Lloyd, about your California trip. Your phrase, “the LaBrea Tar pits” with the Spanish translated, reads “The the Tar tar pits”.

     

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