Tag: Bay Area

The Paradox Of Buying Real Estate

In any growing and economically vibrant location with strong future prospects, real estate always seems very expensive and almost out of reach in the present moment.

However, in hindsight after multiple decades, the same asset looks dirt cheap.

Anyone living in a major and growing economic hub would have felt the pain while looking at home prices. From SF and Singapore to NY and Gurgaon, home prices always feel “out of reach” in the moment.

However, now that I have enough grey hair from living through multiple economic cycles, hearing stories from many generations in my family, and also personally going through various real estate deals both as a buyer and seller across the Bay Area and India, I have noticed an interesting paradox:

In any growing and economically vibrant location with strong future prospects, real estate always seems very expensive and almost out of reach in the present moment. However, in hindsight after multiple decades (or sometimes even as short as a decade in alpha zones like the Bay Area), the same asset looks dirt cheap.

Story #1 – the grandparents

As an example, in the 70s, my maternal grandfather built a house in Lucknow, the capital city of the Indian state of Uttar Pradesh. As a kid, I remember hearing stories from him and my grandmother about how they had to struggle to put together money each month to pay the contractors. They ultimately built an amazing house over many years of scraping and saving. Cut to today, 50 years later, the location of the house has become very central and extraordinarily scarce, organically driven by the growth of the Indian economy. Needless to say, its price today has exponentially appreciated.

Story #2 – the auction

Second story – while growing up, we stayed in a rented house in South Delhi for a few years. For those who don’t know, South Delhi is now one of the premium parts of the Indian capital, but when we used to live there, it was just about at the tipping point with the first-generation multiplexes and the first-ever McDonald’s store coming in.

Our landlord was a very senior army officer and a really nice gentleman. As a teenager, I remember him telling stories of how he bought the house. While he was away fighting on the border, his wife saw the ad for plots of land being auctioned in the area. Even though in his own words “this was the time when there was nothing here and one could even see foxes in the neighborhood”, these plots of land were still out of reach for a working-class army officer.

Gathering courage, his wife borrowed money from her parents to make the downpayment and ultimately, got allotted a plot of land in the auction. Through monthly savings, they ultimately built this house. Cut to today, this house is now in one of the most prime locations of the capital of the soon-to-be world’s 3rd largest economy. You don’t even want to know the current price of the asset. In hindsight, the prices in the original land auction look like a steal.

Story #3 – the parents

A similar story from my family. My parents purchased a home in the mid-90s again in South Delhi and much before its tipping point. As a kid, I remember how big of a stretch that was for the family back in the day. My parents borrowed from every source of capital – my dad’s employer, his old business associates, my dad’s brother, my mom’s sister. Servicing this debt required major financial discipline on a monthly basis, needing hard choices that both I and my sister remember to this day.

Cut to today, the location of that house has become super-premium, and again, those prices that stretched our family thin back in the day, now look like a steal.

Story #4 – the Bay Area

Over the last decade, I have observed similar trends in SF/ Bay Area at large, albeit on a significantly compressed timeline (heck, we are talking about Silicon Valley here where everything happens exponentially faster and rises exponentially higher):

  • Then, downtown SF ended at the Giants stadium. Once you crossed the creek, you felt unsafe. Now, that same area begins with Mission Bay (home to the Warriors and UCSF), moves on to Dogpatch (home to YC), and beyond.
  • Then, Potrero Hill was just starting to get premium, and Bernal Heights had those old SF single-family homes with weird layouts and stairwells. Now, Potrero Hill is beyond premium, and Bernal is now what Potrero was back then.
  • Then, we used to make fun of one of our colleagues who bought in San Ramon in 2013 (who lives in that jungle anyway?) and made the commute to Mountain View every day. Now, San Ramon is one of the most premium Bay Area locations, especially post the development of Bishop Ranch and City Center Mall.

Illiquidity is key to long-term compounding

As I reflect on these stories and experiences, I kind of see why people call the illiquidity of real estate a feature, not a bug (Btw, I say the same thing about venture capital as an asset class).

Of course, this doesn’t mean real estate is a free lunch. I know a few Indian diaspora tech folks who took a bet on Oakland back in 204/15, buying homes there driven by news at the time that the likes of Amazon and Uber would be moving there. Unfortunately, Oakland has become an even bigger sh*tshow since then. Governance and security have massively deteriorated, none of the tech giants have moved there, and major sports teams like the Warriors and the Raiders have ended up moving their home bases out of Oakland.

To make the illiquidity-led, long-term compounding in real estate work for you, I would like to refer you to the guiding principles that Bruce Flatt, CEO of Brookfield, lays out for any type of real asset investing:

  • Buy great assets – pay more, if one has to, for quality.
  • Invest assuming we will own the assets forever – even though we may not. Eg. Brookfield has owned marquee buildings in Manhattan for 20+ years.
  • Go against the trend and buy value, especially in times of distress.
  • Finance prudently, as surviving downturns is paramount.
  • Acquire when capital is scarce (in other words, when interest rates are high like in 2023-24), as it is the best indicator of the right time.
  • Never become too positive, or too negative.

If this is too much, I have a TLDR for you:

Outsized long-term compounding in real estate seems to happen in locations that are positively aligned for future economic growth over decades. If you can buy at the bottom of the cycle/ in times of distress, even better!

I don’t know if this post is helpful for you. It’s definitely a departure from my usual topics of startups and venture capital. Still, I felt like penning this down, more to document these stories and aggregate my observations around them. Hopefully, you found it interesting!

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Cooking with the Bay Area secret sauce

I often get the question from founders – “what makes the Bay Area successful? And how can I replicate its model in my teams?”.

Outlier success is usually driven by a set of interconnected factors. But there is one element behind the Valley’s success that is less talked about. Sharing that secret sauce here for your own cooking!

During this India trip, a bright young founder asked me an interesting question – “why does the Bay Area keep doing better at thinking big & innovating? And how can I get my engineering team in India to start doing the same?”. These questions got me to reflect on my own experience of operating in Silicon Valley & what makes it different from other geos.

Any region that becomes an industry hub (erstwhile Detroit in auto, New York & London in finance, the Bay Area in tech) is usually the result of a complex web of factors. These go top-down, starting with the country’s history, values & socio-economic structure at the macro level, to local factors like weather, presence of feeder universities & a critical mass of companies that drive network effects.

However, based on my experience, there is one important element in these complex webs that’s less talked about – the presence of “Relatable” role models. While social, economic & cultural factors set up an amenable environment, seeing people you know or can relate to, pushing boundaries & a few getting outstanding rewards for it, is what drives daily action from talented folks.

Doing anything new or unconventional requires 2 things:

  • Inspiration – stories that create a desire to chase something better than the status quo.
  • Action – internal motivation to translate inspiration to daily action.

Each of these is driven by a different set of role models. Inspiration is driven by what I call as “Prominent” role models while Action is driven by “Relatable” role models.

Prominent role models

These are the handful of most visible, externally successful and recognized leaders of their fields. I have been inspired by many of these in my own life.

Even before startups were a thing in India, I remember discovering Steve Jobs’ famous 2005 Stanford Commencement Address while I was working as an investment banker at Citigroup (& hating it). Looking back, this was my initiation into this world that now deeply lives within me. Jobs inspired me to start looking beyond spreadsheets & discover unsolved problems in the world.

When I entered venture capital, I discovered Fred Wilson of USV & reading his blog inspired me to start writing articles & become an early adopter of Twitter in 2011 when most Indian VCs didn’t even have Twitter accounts. Many years later, as I was driving global expansion for Alibaba, observing Jack Ma’s leadership & learning about his backstory inspired me to startup on my own.

Steve Jobs, Fred Wilson & Jack Ma are Prominent role models that inspire you to the very core, creating those moments of decision-making that change your direction. However, a long & arduous journey only begins in these moments, and walking the path requires years of daily action. This is where the ongoing presence of Relatable role models is super-important.

Relatable role models (the secret sauce!)

Completing the loop I started in the beginning; I believe one of the core strengths of the Bay Area that makes it an ongoing innovation engine is the vast presence of Relatable role models doing non-incremental things.

These are people you either know directly or know of in your extended network. These are people just like you, sometimes at the same stage of the journey as you, maybe a few steps ahead in a journey similar to yours, or perhaps already rewarded for walking the path.

These are ex-colleagues, batch-mates, friends-of-friends & social media acquaintances. To you, they are reachable, approachable, understandable. They aren’t necessarily outlier successes. It’s just that they are either walking the same part of the hike as you or have already walked this segment & reached the next check point.

When I first moved to the Bay Area & was looking to meet people in the ecosystem, I still remember one of my close friends introducing me to his “Mamaji” (mom’s brother) who had sold 2 companies & was living in Saratoga. One of the first intros I got was to this kid in his mid 20s who had just sold a company to LinkedIn & was on to his next startup already.

As I started working in the Valley, I saw colleagues building side-products on weekends & senior leaders joining startups with significant pay cuts. I saw peers investing into startups with salaried money & heard stories of friends-of-peers who were the first angel checks into now-prominent startups.

Humans learn the best by observing others in their surroundings. The core value prop of top universities is not classroom learning, but a high-quality peer group you end up learning with on campus for 4 years. Paul Graham realized this & therefore, created YC as a community-driven venture model where founders build largely on the back of peer learning & support. I can confirm this as a parent too, when I see my kids largely learning by osmosis from their friends & indirectly observing behaviors of grown-ups.

Living in the Bay Area exposes one to a continuous stream of relatable, real-life stories of risk-taking, of taking big bets & importantly, of creating all types of success, big or small, by taking these bets. In most cases, you can even get direct access to the protagonists of these stories, who are more than happy to pay-it-forward by sharing their learning & actively helping out. They do this because they too, are on the way to their next base camp & are looking up to their own Relatable role models for it. And so, the cycle continues!

Coming back to Part 2 of the question I got from the founder – how can one drive a non-incremental culture in your own teams?

As a leader, consciously surrounding your team with Relatable role models is a strong step towards this. It could be by encouraging team members executing differently to share their approach or bringing in folks from other companies for sessions & fireside chats. It could be doing knowledge sharing sessions at an offsite, or discussing a case study of a similar product or company that is nailing something you are struggling with. It could be recognizing taking on large problems & bold approaches via hackathons & ideathons. Or it could be setting up days where talented younger folks shadow leaders, sitting in important meetings & observing how they execute.

I tried to leverage this concept in my own startup a few years back wherein I convinced one of my batch-mates who was the ex-CTO of a large Internet company to come onboard as a CTO-in-residence. Him spending a few hours every month with the team & joining townhalls to share his perspective on technology transformed the learning trajectory & energy levels of our young engineering team. Even today, everyone fondly remembers that experience as a game changer for them personally.

So that’s it, I gave you the Bay Area’s secret sauce. Each of you is a Relatable role model for someone out there, so go ahead & pay-it-forward by sharing your stories, supporting other builders & connecting people to each other. If this becomes the dominant culture in your ecosystem, whatever that might be, success will follow!

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