Welcome back to the Deep Dive. Today, we are
turning our attention to the single largest asset
class in the entire world. It's a big one. It's
a huge one. It's a topic that really sits at
the intersection of your personal net worth,
the global economy, and the physical environment
itself. We were talking about real estate. But
before you tune out thinking this is just going
to be about... mortgage rates or how to flip
a duplex. Which it is not. It is not. I want
to be really clear about our mission today. We
are not looking at the market in the Zillow scrolling
sense. We are looking at the machinery. Exactly.
I think the term real estate is so ubiquitous
that it's kind of lost its weight. We just see
it as a transaction, buying a house, renting
an apartment. But if you zoom out. Real estate
is, and I mean this literally, the stage upon
which all human history plays out. That's a great
way to put it. It is the ground beneath our feet,
yes, but it is also this, this legal fiction
that allows us to claim we own a piece of the
planet. That is the part that always trips me
up. The idea that you can just draw a line in
the dirt and say, okay, everything inside this
square is mine and everything outside is yours.
Right. That's actually a pretty modern invention.
in the grand scheme of things. And it's an invention
that, well, it requires a massive amount of legal
and economic infrastructure just to maintain
it. It's the ultimate universal asset. And it's
defined by one very specific legal concept. Right.
Unlike, you know, stocks, bonds or gold bars,
you can't put it in your pocket. You can't move
it. It's fixed. And because it's fixed, it becomes
the foundation pun definitely intended for the
entire concept of the nation state and the modern
economy. So, OK, let's peel back the layers.
We have a stack of research here. And I mean,
yeah, that covers everything from Roman law to
the carbon footprint of concrete. It's a lot.
It is. We're going to look at how land became
property, the very specific economic disasters
that invented the 30 -year mortgage. Which is
a surprisingly recent invention. It really is.
And we're going to touch on the darker side of
the industry from, you know, money laundering
all the way to environmental degradation. And
I think we should probably start with that core
definition, immovable property. Because in the
legal world, the distinction between real estate
and, well, everything else is the most fundamental
line in the sand. Right. Okay. So this is the
big one. Real property versus personal property.
I think most people sort of intuitively get this.
You know, my car is personal property. My house
is real property. But the legal implications
are huge. It's not just about what you can carry.
It's about something called the bundle of rights.
That is the key phrase, the bundle of rights.
When you buy a piece of real estate, you aren't
just buying the dirt in the wood. You are buying
a bundle of legal privileges. Okay, so what's
in the bundle? You've got the right of possession,
so you can occupy it. The right of control, you
can use it as you like within the law, of course.
The right of exclusion. Keeping people off your
lawn. Exactly. Keeping others off. The right
of enjoyment, using it in any legal manner. Crucially,
the right of disposition. Meaning you can sell
it. You can sell it, lease it, give it away.
But as you said, that bundle can be unbundled,
which is where it gets really interesting. This
is what blows my mind. I can sell the land, but
keep the mineral rights under the ground. You
can. Or you can sell the building, but lease
the land underneath it. It's called a ground
lease. Or you can sell the air rights, which
is how we get those, you know, those super skinny
skyscrapers in midtown Manhattan that seem to
just hover over old, smaller buildings. Precisely.
In a place like New York, air rights are a tradable
commodity. You can literally buy the empty space
above a historic church and stack it on top of
your new luxury condo tower a block away. That
is just wild. It's turning three dimensional
space into a financial asset. But going back
to that basic definition, this distinction between
real and personal property can get really tricky,
especially in the commercial world. We have this
concept of fixtures. The famous shake test. I've
heard of this. The shake test, yeah. If you could
theoretically pick the building up and shake
it, whatever falls out is personal property.
Whatever stays attached is real estate. That's
the shorthand, yeah. And it's a good one. But
legally, it's a little more nuanced than that.
For example, if I own a factory and I bolt a
massive 10 ton printing press to the concrete
floor, is that real estate? Well, according to
the shake test, it is. It's bolted down. It's
not falling out. Right. But in most cases, that
would be considered a trade fixture. It's personal
property that's used for business. The intent
is that when I move my factory, I'm taking my
press with me. OK, so intent matters. Intent
is huge. Whereas if you bolt a big crystal chandelier
to the ceiling of your dining room. That sting.
That becomes part of the house. It's a fixture.
You sell the house, you're selling the chandelier.
And unless you specifically exclude it in the
contract. So it's about the relationship of the
object to the property and the intent behind
it. Exactly. And this gets even wilder when you
look at natural resources. The definition of
real estate includes the trees, the water on
the land, the minerals underneath. But what about,
say, the wildlife? I found this absolutely fascinating
in the research. The legal concept of What was
it, ferre naturae? Yes, wild animals. It's Latin.
Under common law, generally, wild animals are
considered part of the natural resource of the
land, but only in a very specific sense. Wait,
so you don't own the deer walking across your
property in the same way you own the tree it's
standing next to? You don't. You have the right
to hunt it on your land, subject to state and
federal laws, of course, but until you capture
or kill it, it technically belongs to no one,
or, some would argue, it belongs to the state
in trust for the public. So the deer is kind
of a free agent until it interacts with my bundle
of rights in a very final way. In a way, yes.
But the tree, the tree is real estate. It's attached
to the land. It's immovable. Until you cut it
down, the moment your chainsaw severs it from
the stump, it undergoes a legal transformation.
It's no longer real property. It becomes personal
property. It's lumber. So you can have a magical
transformation of asset classes just by starting
up a chainsaw. That is the machinery we're talking
about. These are the invisible rules that govern
everything. And this machinery didn't just appear
out of thin air. It evolved over centuries. And
the very word real estate is itself an etymological
clue, right? Real. Doesn't mean genuine or authentic
in this context. No, not at all. It comes from
the Latin word res, which just means thing or
matter. In old law, it referred to a real action,
a lawsuit that was about recovering the thing
itself, the land, as opposed to just getting
monetary damages. And estate. Estate comes from
status. It refers to the nature and extent of
your interest in that land, your status in relation
to the thing. So when we say real estate, we
are effectively saying. The status of your interest
in the thing. You could absolutely say that.
It's a very precise legal term. It defines the
relationship between a person and a piece of
land. Are you a feudal tenant paying tribute
to a lord? Do you have a fee simple interest?
Which is the one we think of today. Total ownership.
Right. Absolute ownership. Or do you have a life
estate where you own it only until you die and
then it automatically reverts to someone else?
All of those are different types of estate. Fee
simple is the gold standard, though. That's what
you want when you buy a house. That is the goal.
Total ownership, transferable to your heirs,
in theory, forever. But that concept that a single
individual can hold fee -simple dominion over
a slice of the earth is a very specific product
of history. It's not a universal human constant.
Which takes us back to the roots. We usually
just nod to Roman law here and move on. But I
want to dig into the philosophical shift that
had to happen later, the idea of natural law.
This is absolutely crucial. In the 15th, 16th,
17th centuries, you have European thinkers who
were trying to justify the concept of ownership,
especially as they start exploring and colonizing
the rest of the world. They needed a theory that
could travel. A portable justification. And a
big name here is Emmerich de Vittel. De Vittel.
His book, The Law of Nations, from 1758. Yes.
Vattel was a Swiss jurist, and his work basically
became the handbook for international relations
for centuries. He argued that private property
ownership was a natural right, that it was essential
for the cultivation of the earth and for the
advancement of society. And this was, well, it
was a very convenient argument, right? Because
if you land on a continent where the indigenous
population doesn't have fences and deeds and
property records. You can use Vettel's logic
to say, well, they aren't improving the land
in a way that we recognize. Therefore, it's basically
vacant. It's up for grabs. It provided the legal
and, in their view, moral cover for colonization.
Vettel argued that if land wasn't being used
for agriculture, if it was just, say, hunting
grounds, it wasn't really being used at all,
and thus it wasn't fully owned in the natural
law sense. That's a powerful idea. It's an idea
that shaped the world. This thinking underpinned
the expansion of European powers, and eventually
it was baked into the DNA of the United States.
So you really can't separate the history of real
estate from the history of conquest. You absolutely
cannot. The surveyor's chain followed the soldier's
musket almost every time. Speaking of surveyors,
we should give a little nod to the profession
itself. You know, we see them on the side of
the road with their tripods or their... Total
stations, I guess they're called now. But back
in the 1500s and 1600s, this was high -tech,
cutting -edge work. It was the data science of
its day. You had surveying in England, which
was this broad profession of measuring, mapping,
and managing land. But in North America, we kind
of split the job in two. How so? We developed
surveyors, who were the people who measured the
boundaries, drew the lines on the map, and we
developed appraisers, who were the people who
determined the value of what was inside those
lines. And that split kind of makes sense in
the context of the American frontier, doesn't
it? Yeah. You had these vast, unmapped, unvalued
territories. Exactly. You needed the surveyor
first just to tell you what was there. Then the
appraiser could come in and say what it was worth.
And that profession is older than you'd think.
The oldest continuously operating real estate
brokerage firm. I saw this fact. It's Baird and
Warner, right? Baird and Warner. Established
in Chicago in 1855, it was originally called
L .D. Olmsted & Co. So, you know, this business
of buying and selling land has been a formal
industry for a very long time. And all of that
surveying and appraising and selling leads us
to the biggest real estate deal in the history
of the world. The Louisiana Purchase, 1803. This
is the moment where the scale of American real
estate goes from, I don't know. colonial to continental.
It's hard to overstate the magnitude of this
deal. The U .S. acquired the Louisiana Territory
from Napoleonic France. We're talking over 800
,000 square miles of land. It doubled the size
of the country overnight. For a price of $15
million. $15 million. I've seen the math on this
and it's just staggering. It comes out to something
like four cents an acre. Roughly four cents an
acre. It's an unbelievable number, but we have
to be really careful with how we interpret that
number. Right, because this goes right back to
what we just said about Vittel and natural law.
The U .S. didn't pay France for the fee -simple
ownership of every single acre. No, France didn't
own the backyard of a Sioux family living in
the Dakotas. What the U .S. bought was the preemptive
right. The preemptive right. What did that mean?
It means they bought the sovereignty from a European
perspective. They bought the exclusive right
to be the ones to negotiate with, or more often,
conquer the indigenous peoples who were actually
living there. They bought the right to acquire
that land without interference from Spain or
Britain. So the four cents an acre was just the
entry fee. It was the entry fee, the actual cost
of acquiring that land in terms of wars, broken
treaties, displacement and payments was vastly
higher over the next century. But from a purely
economic perspective, that deal just flooded
the American market with land. It created this
national ethos that land was basically infinite.
And cheap. It set off a century of rampant speculation.
When land is that abundant, people don't just
buy it to use it. They buy it to flip it. This
is where the American obsession with real estate
speculation really begins. Absolutely. You had
the canal booms, the railroad booms. Everyone
was trying to buy the empty plot of land where
they thought the next town or the next train
station would be built. And speculation, as we
know, inevitably leads to bubbles, which in turn
leads to busts. The biggest of them all. Which
brings us to the Great Depression. I feel like
when we learn about the 1929 crash in school,
we focus so much on the stock market. We see
the images of the ticker tape. We don't talk
enough about the real estate crash that followed.
The real estate crash was arguably more devastating
for the average American family. And to understand
why, you have to understand what a mortgage looked
like in, say, 1928. It wasn't the 30 -year fixed
-rate loan that we think of as normal today.
Not even close. It was a totally different animal.
Back then, a typical mortgage was a short -term
loan, maybe three to five years. That's it. That's
it. And you usually had to put 50 % down, a huge
barrier to entry. Then, for those three to five
years, you paid interest only. So your payments
weren't even touching the principal. Not a dime.
And then at the end of the term, a massive balloon
payment was due for the entire principal amount
all at once. Wow. So every three to five years,
you had to either have enough cash to pay off
the entire house or you had to find a bank that
was willing to refinance you into a new loan.
Exactly. And that system works OK, I guess, as
long as property values are steadily rising and
banks are liquid and happy to lend. But in 1930.
In 1930, the music stopped. The banks had failed.
There was no money to lend. Property values had
dropped by 50 percent in just four years. So
even if you still had your job and you were making
your interest payments on time, when that balloon
payment hit. You were out. Your bank couldn't
refinance you because they didn't have the cash.
And you couldn't sell the house to cover the
loan because it was now worth less than what
you owed on it. You were underwater. It was a
systemic collapse. A total meltdown. Foreclosures
were happening at a rate of a thousand per day
in 1933. A thousand families a day losing their
homes. So the government has to step in. And
this is where the alphabet soup of the New Deal
doesn't just save the economy, it actually changes
the fundamental structure of the American dream.
They had to reinvent the entire market from the
ground up. First you get the HOLC. The Homeowners
Loan Corporation. What did they do? Their job
was to go out and buy up all these toxic, defaulted
mortgages from the banks. And then they reinstated
them with new terms for the homeowner. They stretched
the payments out to 15, then 20 years. And crucially,
they introduced this new idea of amortization.
Yes. This was the birth of amortization on a
mass scale. The idea that each monthly payment
would include both interest and a little bit
of principal so that over the life of the loan,
you're slowly but surely paying it down. That
seems so obvious now, but it was a radical idea
at the time. It was a game changer, but it created
a new problem. Banks were terrified of lending
money for that long. 20 or 30 years is a huge
risk for a lender. So how did the government
solve that? They created the FHA, the Federal
Housing Administration, with the National Housing
Act of 1934. The FHA basically went to the banks
and made them an offer they couldn't refuse.
Which was? You lend the money to the home buyer
for 30 years with a low down payment, and we,
the federal government, will insure that loan.
If the borrower defaults, we will pay you back.
So it completely de -risked the entire system
for the banks. Completely. And it unleashed a
torrent of capital into the housing market. Suddenly,
you didn't need 50 percent down. You could buy
a home with 10 or 20 percent down. Then to complete
the picture, they created Fannie Mae in 1938.
To create a secondary market. Exactly. Fannie
Mae would buy the FHA insured mortgages from
the banks, which gave the banks their cash back
immediately so they could go out and fund new
homes. It created a perpetual motion machine
for. housing finance. But we have to pause here
because while this new system saved the housing
market and built the American middle class, it
also codified segregation. This was not a rising
tide that lifted all boats. No, it absolutely
was not. The FHA had to decide which loans it
was going to insure. And to do that, they created
these elaborate maps to assess the risk of lending
in every neighborhood in America. And they explicitly
graded those neighborhoods based on racial composition.
Explicitly. This is the origin of the term redlining.
Explain that. The FHA appraisers would literally
draw lines on maps. Green areas were the new
homogenous white suburbs. They were deemed the
best credit risks. Blue areas were still desirable.
Yellow areas were definitely declining. And red
areas were hazardous. And the red areas were?
The red areas were almost always the neighborhoods
where African -Americans and other minority groups
lived. The FHA would not. insure mortgages in
those redlined areas, period. So this meant that
while white families were getting these government
subsidized, low interest wealth building loans
to move to the suburbs and buy new houses. Black
families were completely locked out of the formal
mortgage market. They couldn't get loans to buy
in their own neighborhoods and they couldn't
get loans to move to the new suburbs. They were
trapped. And because real estate is the primary
way. that middle -class families build generational
wealth in America, this one policy created a
racial wealth gap that we are still dealing with
today. Precisely. This wasn't just about the
personal prejudice of some banker. This was official
federal policy, written down in black and white
in the FHA's underwriting manuals. And it wasn't
until the Civil Rights Era. It wasn't until the
Fair Housing Act of 1968, which was Title VIII
of the Civil Rights Act, that this was finally
made illegal. But by then, 60 years of damage
had been done. The suburbs were built, the equity
was generated, and the economic patterns were
set in stone. It's a really sobering reminder
that this machinery of real estate isn't neutral.
It can be and has been tuned to include some
and exclude others. And that machinery keeps
evolving. Let's fast forward a bit. Jump to 1999,
the World Wide Web. Ah, the internet arrives.
Zillow. Redfin, the democratization of data.
It completely changed the information asymmetry
in the market. Before the internet, your real
estate broker held all the cards. They had the
big book of listings, the multiple listing service.
The MLS. Yeah. You as a consumer had no access
to it. Now you can sit on your couch and see
the price history of every house on your block,
the tax assessment, the school ratings, everything.
It turned real estate into the spectator sport
we were talking about earlier. But even with
all that data at our fingertips. The actual ownership
structures can still be incredibly confusing.
We tend to gloss over this, but let's really
drill down into the difference between a condominium
and a co -op. Because if you're trying to buy
an apartment in a city like New York, or if you're
even looking at international markets, this distinction
is legally massive. It's the difference between
owning a piece of real estate and owning a piece
of a business. Okay, walk us through it. Let's
start with a condo. A condominium is real property.
It's fee simple. You own your unit, that box
of air and everything inside it is yours. You
get a deed for it. You pay property taxes on
that specific unit. And I can sell it to pretty
much anyone I want. Generally speaking, yes.
The condo association might have a right of first
refusal, but they can't just arbitrarily tell
you who you can and can't sell to. Okay, so that's
a condo. Now, a co -op. A housing cooperative
is a totally different legal structure. In a
co -op, a corporation owns the entire building,
the land, the bricks, everything. The whole thing
is one asset. One asset owned by one corporation.
You, as a buyer, do not buy your apartment. You
buy shares of stock in the corporation that owns
the building. So I'm not a homeowner. I'm a stock
investor. You're a shareholder. And along with
your shares comes a document called a proprietary
lease, which gives you the right to live in apartment
4B. Okay, but why does that matter so much in
practice? It matters because you are going into
business with all the other shareholders in the
building. And because you're business partners,
they have a legal right to decide who they want
to do business with. This is why co -op boards
are so notorious. They can reject you for almost
any reason. Any reason that doesn't violate fair
housing laws? Yes. They can look at your finances
and decide your income isn't stable enough. They
can reject you because they don't like that you
play the drums. In a condo, your neighbor can't
stop you from buying the unit next door. In a
co -op, that neighbor is on the board and they
are interviewing you to be their new business
partner. And this model isn't just a weird New
York thing. We saw notes in the source material
on similar structures globally. That's right.
In India, for example, particularly in big metro
cities like Mumbai, the Cooperative Housing Society
is a very common model. It allows for collective
management and ownership of these really high
-density residential buildings. And speaking
of Mumbai, the research also highlighted a type
of housing called chawls. Yes. These are fascinating.
They often get described in English as just tenements.
But they seem to have a unique social structure.
They really do. A chal typically consists of
many small one or two room private units for
families, but they all open onto a shared long
corridor or veranda and they often share sanitation
facilities. So there's this forced interaction.
An intense communal social fabric is created.
The chal culture is a recognized social phenomenon
in Mumbai literature and cinema. It's high density
living where the boundaries between public and
private space are incredible. It really challenges
that American ideal of the white picket fence
and the isolated single family home. Completely.
And then on the other end of the spectrum in
South Asia, you have the Havelis. These are the
traditional mansions often built around an internal
courtyard. They were designed for large, multi
-generational families and also for climate control
in very hot weather. The architecture of real
estate is always a reflection of a culture's
family structure and climate. Which brings us
to the structure of our future, or maybe the
crisis of our future. We can't have this conversation
in the 21st century without talking about the
environment. And not just, you know, planting
some trees in the front yard. No. We need to
talk about what some people are calling the carbon
bomb of the built environment. The central statistic
that everyone needs to know is 39%. 39%. Real
estate buildings and their construction is responsible
for roughly 39 % of global carbon emissions.
It is a staggering number. It's more than transportation.
It's more than industry. And we need to break
that down because it comes from two different
places. About 28 % of that total is what we call
operational carbon. That's the energy to run
the building, right? The lights, the heating,
the air conditioning. Exactly. And that's the
part we're getting better at fixing. We can add
solar panels. We can install heat pumps, better
insulation. We have a roadmap for that. But the
other 11%, that's the hard part. That's embodied
carbon. This is the carbon footprint of the materials
themselves, the concrete, the steel, the glass.
The process of making cement, which is the key
ingredient in concrete, is responsible for something
like 8 % of all global CO2 emissions by itself.
Wow. You cannot build a modern skyscraper without
a massive upfront carbon footprint, no matter
how many solar panels you eventually put on the
roof. The damage is done before anyone even moves
in. So when we hear about green development or
buildings with LE certification, is that actually
solving the problem? Or is some of it just, you
know, marketing? It's a bit of both. LED, which
is the Leadership in Energy and Environmental
Design certification, has definitely raised the
baseline for the industry. It forces developers
to think about water efficiency, material sourcing,
and indoor air quality. Which is all good. It's
all good, but there's a valid critique that it
can be gamified. You can get points for putting
in a bike rack or using bamboo floors, which
is great, but that doesn't really offset the
thousands of tons of concrete you just poured
into the foundation. The real pressure for change,
though, it seems like it isn't coming from the
plaque they put in the lobby. It's starting to
come from the insurance companies. This is where
the rubber meets the road. This is where climate
change stops being an abstract concept and starts
having a price tag. We are now seeing a major
retreat of insurance carriers from entire markets.
Like Florida and California. Florida because
of hurricanes and flooding. California because
of wildfires. The risk models are telling these
companies that some areas are becoming uninsurable
at any price. Yet if you can't get homeowners
insurance. You can't get a mortgage. The bank
will not lend you hundreds of thousands of dollars
on an asset that could be wiped out in an afternoon
with no insurance to cover the loss. So if you
can't get a mortgage, the value of that real
estate. Goes to zero or close to it. We are facing
a potential climate correction in real estate
values that the market has not fully priced in
yet. The fact that some of this land might be
underwater or uninsurable in 20 or 30 years is
a huge looming financial risk. So the old mantra
of location, location, location is being replaced.
It's being replaced by environment, environment,
environment. The location doesn't matter if the
environment becomes hostile. OK, let's pivot
now to the money. Because for all the talk of
homes and habitats and carbon, for a certain
segment of the global population, real estate
is purely a financial instrument. And this brings
us to, well, the dark side. The world of ultra
high end real estate, anonymous shell companies
and money laundering. I think people have a vague
sense of this. You know, the trope of the Russian
oligarch in the London penthouse. But how does
it actually work? How do you use a condo to wash
dirty money? It works through one key vulnerability.
Anonymity. In the U .S., for a very long time,
it was incredibly easy. You could form an LLC,
a limited liability company in a state like Delaware
with almost no disclosure. And then the LLC buys
the property. You could buy a $50 million penthouse
in New York City, and the public deed would just
say the owner is 123 Park Avenue, LLC. No one
had any idea who the actual human being, beneficial
owner behind that company was. So let's say I'm
a corrupt foreign official from a country with
a weak rule of law. And I've just siphoned off
$50 million in bribes. I can move that money
into the U .S. banking system, use it to buy
a penthouse through an anonymous LLC, and my
money is now parked in a stable U .S. dollar
denominated asset. It's clean. Precisely. It's
often described as a safety deposit box in the
sky. You aren't buying the apartment to live
in it or even to rent it out. You are buying
it simply to store value in a stable jurisdiction,
the United States, where it's protected by strong
property laws from being seized back home. And
so the apartment just sits there empty. towers.
You walk past these ultra luxury new developments
at night and there are almost no lights on. And
this contributes to the housing crisis in these
cities because all this capital isn't building
housing for people who actually live and work
there. It's building high end storage units for
global capital. Is the government doing anything
to stop this? They are trying to. The Treasury
Department, through FinCEN, has started using
something called geographic targeting orders,
or GTOs. What's that? In certain high -risk markets
like Manhattan, Miami, Los Angeles, they now
require title insurance companies to identify
and report the actual human being behind any
all -cash purchase of luxury real estate made
through a shawl company. So they're trying to
peel back that corporate veil. They are, slowly.
But the money is like water. It always tries
to find the cracks in the system. Now, for the
investors listening who are not laundering money
but are just looking for a legitimate return,
we need to talk about how money is actually made.
Because there is this pervasive myth that real
estate always goes up. That is a very dangerous
lie. The land under the building usually appreciates
because supply is fixed and population and demand
tend to grow. But the structure itself. The house.
That is a depreciating asset. This is the concept
you see in a phrasal called hedonic regression.
It sounds fancy, but it just means things rot.
Roofs leak. Pipes burst. HVAC systems fail. Styles
change. If you don't constantly put money into
the house, what investors call capital expenditures
or capex, the value of that physical structure
goes to zero over time. So when you see a house
sell for a big profit 20 years after it was bought,
it's really the value of the land carrying all
the weight and overcome. the natural decay of
the building itself. Correct. Or the owner has
spent a fortune on maintenance and upgrades over
those 20 years that they aren't properly factoring
into their so -called profit. Okay. So let's
break down the risk profiles for a serious investor.
If I'm an institutional fund, I'm not just buying
a building. I'm buying a specific risk strategy.
That's right. In the industry, we generally categorize
them into three main buckets, core, value -add,
and opportunistic. OK, start with core. What's
a core investment? Core is the bonds of the real
estate world. It's low risk, low return. Think
of a brand new, fully leased apartment building
in a great neighborhood in Chicago with high
credit tenants on long term leases. It's steady,
predictable. Very predictable. It generates stable
cash flow from day one. You're not expecting
huge appreciation. You're buying it to preserve
your capital and get a steady dividend. OK, so
that's core. What's value add? Value add is the
fixer upper on a corporate scale. an office building
that is maybe only 70 % occupied. The lobby is
from the 1980s and looks tired. The rents are
below market rate. So there's potential there.
There's potential to add value. You put capital
in, you renovate the lobby, you upgrade the common
areas, you bring in a new leasing team to get
it up to 95 % occupancy with higher rents, and
then you sell it. You are actively manufacturing
appreciation. It's more risk, but a higher potential
return. And finally, opportunistic. Opportunistic
is high risk, high reward. This is often ground
up development. You're buying a dirt lot and
betting that in the three years it takes to get
permits and build the thing, the market will
still want what you built. Or you're buying a
truly distressed asset, a hotel in foreclosure,
a shopping mall that's half empty. You're betting
you can turn it around, but there's a real chance
it could go to zero. So it's not one monolithic
asset class. It's a whole spectrum of gambling.
It really is. From the safest bet on the board
to the wildest moonshot. Speaking of moonshots.
I want to end with the ultimate real estate speculation.
We'd spent this whole time talking about owning
the Earth. But what about owning, well, not the
Earth. Extraterrestrial real estate. I saw this
in the see also section of the source material
and I went at a complete rabbit hole. We have
the Outer Space Treaty of 1967. Yes, which is
the foundational document of space law. And it
states very clearly that no nation can claim
sovereignty over a celestial body. The U .S.
government can't plant a flag on the moon and
say this is the 51st state now. But the treaty
is conspicuously silent on the rights of private
individuals and corporations. That is the perceived
loophole. And you have the U .S. Space Act of
2015, which goes a step further and says that
American citizens are entitled to own and sell
resources they extract from space -like minerals
from an asteroid. But owning the land itself,
that is a gray area the size of the galaxy. So
if a private company like SpaceX actually builds
a self -sustaining city on Mars. Who is the landlord?
Who makes the rules? Do U .S. property laws apply
on Mars? If I buy a condo in Musqueville and
he decides to change the locks, what court do
I go to to enforce my property rights? It brings
us right back to the very beginning of our conversation,
back to the tell and the law of nations. We're
going to need a law of planets. We will because
real estate at the end of the day is a social
and legal construct. It's a system of human agreement.
If we all agree that you own that piece of land,
then you own it. If we don't, then you just have
a very expensive piece of dirt or I guess moon
dust. So we have gone from the Roman Forum all
the way to the surface of Mars. We've looked
at the four cent acre and the 50 million dollar
penthouse. It is a massive, complicated and deeply
human machine. I think the biggest takeaway for
me is that real estate isn't just a passive backdrop
for our lives. It is an active participant in
the economy and social justice and the climate
crisis. It's the most tangible thing most of
us will ever own. And yet its value is driven
by these powerful invisible forces, interest
rates, zoning laws, carbon targets and centuries
of legal theory. That's really well said. Next
time you walk down the street, look at the buildings
around you. Don't just see bricks and glass.
See the zoning laws that dictated their height.
See the carbon emissions from their concrete.
See the global mortgage markets that finance
them. And see the centuries of legal history
that allows someone to say, that building is
mine. That's a wrap for this deep dive. Thanks
for exploring the ground beneath our feet with
us. Thanks for listening. We'll catch you on
the next one.