3 ms·

'but a pot of money is just asking to get stolen, wasted, diverted or otherwise cause mischief' This sounds to me like short sightedness is the ultimate proble

'but a pot of money is just asking to get stolen, wasted, diverted or otherwise cause mischief' This sounds to me like short sightedness is the ultimate problem at hand.

PaulHoule 5y ago
It's predictable that a portland cement + rebar building will need repair in 40 years. It's not so predictable what financial markets will do. Retrospectively, financial markets performed very well from 1980-2020; had they set aside $X a month per unit and invested it in stocks and bonds it would have been easy to accumulate $20M, so long as they didn't draw down during 2000 and 2008. Had they actually tried they might have asked for $2X or $3X a month and wound up with too much money and the question of what to do with it (build a bowling alley, pay themselves a dividend, ...) -- which could put them right into "too little money" territory. Condominiums themselves were an answer to financial instabilities at the time. In a conventional apartment the developer is going to raise money to build the building and get one or several bank loans for 20 years or so. That kind of person easily gets overleveraged, goes bankrupt, etc. For the condominium the developer gets construction finance for a year or two and then gets a huge chunk of cash and the bank is made whole. The owners of the units have mortgages with many different banks so the risk is spread out. It might be good "long term thinking" for some of the parties to structure the deal so that they don't need to think about how the economy is going to go over the next 40 years. It's not good in the long term for the owners because the governance structure isn't adequate to what it governs. The apartment building would concentrate risk in some respects but also concentrates responsibility. A real estate developer who owns 20 apartment buildings will have some that need more repairs and some that need less; that developer can go to the banks or government for funding to make repairs and raise the rent to pay back the loan. If the developer gets over their head the bankruptcy courts can keep the business a "going concern."

'but a pot of money is just asking to get stolen, wasted, diverted or otherwise cause mischief' This sounds to me like short sightedness is the ultimate problem at hand.

PaulHoule 5y ago

It's predictable that a portland cement + rebar building will need repair in 40 years. It's not so predictable what financial markets will do. Retrospectively, financial markets performed very well from 1980-2020; had they set aside $X a month per unit and invested it in stocks and bonds it would have been easy to accumulate $20M, so long as they didn't draw down during 2000 and 2008. Had they actually tried they might have asked for $2X or $3X a month and wound up with too much money and the question of what to do with it (build a bowling alley, pay themselves a dividend, ...) -- which could put them right into "too little money" territory. Condominiums themselves were an answer to financial instabilities at the time. In a conventional apartment the developer is going to raise money to build the building and get one or several bank loans for 20 years or so. That kind of person easily gets overleveraged, goes bankrupt, etc. For the condominium the developer gets construction finance for a year or two and then gets a huge chunk of cash and the bank is made whole. The owners of the units have mortgages with many different banks so the risk is spread out. It might be good "long term thinking" for some of the parties to structure the deal so that they don't need to think about how the economy is going to go over the next 40 years. It's not good in the long term for the owners because the governance structure isn't adequate to what it governs. The apartment building would concentrate risk in some respects but also concentrates responsibility. A real estate developer who owns 20 apartment buildings will have some that need more repairs and some that need less; that developer can go to the banks or government for funding to make repairs and raise the rent to pay back the loan. If the developer gets over their head the bankruptcy courts can keep the business a "going concern."