“The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people-men and women-rather than drill an oil well.” - Thomas Friedman
One of my favorite books is The World is Flat by Thomas Friedman. When it was released 10 years ago it introduced the revolutionary idea that location doesn’t matter much anymore since communications and freight costs continue to go down while their speeds increase. So much for my real estate mantra and model “location, location, location”. This was the start of some radical new world thinking.
Since the economy tanked in 2008 and brought real estate values to all time lows, my firm has been investing in distressed real estate. Under the flat world effect, the rest of the world’s real estate markets followed suit shortly thereafter. However, many countries in Europe did not take steps to rebound as quickly as the US, which has created many opportunities to buy assets at significant discounts to other countries. As a result, we now evaluate our new business opportunities by comparing current real estate values in the US to those of other continents, not necessarily to historic levels in the local market.
The flat world effect is also leading my investments to Brazil. Last year my company brought American investors to Brazilian real estate deals. Now we are focused on bringing money from Brazil to projects in the US, mainly due to a concern that their currency will be affected more by the US Feds’ eventual de-levering.
The manufacturing sector, which has not been a strength of the US for many years, has been more important to my firm recently. There is recent optimism due to very low fuel costs in the US (thanks in part to fracking) and a lower cost of labor due to extended unemployment. This effect has helped create more decent jobs in the US, thereby helping us rent apartments in the midwest and other places in the US other than the metropolitan hubs of NYC and San Francisco.
Some pretty amazing changes have taken place in the world since Friedman originally started the focus over 10 years ago. How has it affected you?
