Buried Beneath the Earth
Victor and Grace asked at the same time, “Warehouse auctions?”
“Yeah. Say an entire neighborhood goes bankrupt in some area. Then all the old warehouses there get put up for auction as a batch, right? I’m planning to buy them all up cheap, check what’s inside, and then appraise each piece one by one before sending them back to auction.”
It was 1991.
Across the United States, it was not unusual for whole neighborhoods to collapse at once.
The oil companies in Texas still had not recovered from the crash in crude prices in 1986.
Office vacancy rates in Houston and Dallas had climbed past 30 percent, and where the oil companies had once stood, only FOR SALE signs remained in bleak rows.
The small towns that had once flourished on oil money were turning into ghost towns.
And then, right on its heels, the savings-and-loan crisis hit.
The S&L crisis.
More than a thousand savings banks failed one after another across the country, and the federal government had to pour in hundreds of billions of dollars.
The real estate those banks had held as collateral flooded the market all at once.
Factory sites, commercial buildings, houses, warehouses—anything and everything was thrown onto the market for a pittance.
Then came the end of the Cold War.
As the Soviet Union collapsed, the U.S. government began cutting military spending, and bases across the country started shutting down one by one.
The small towns built around those bases lost their reason to exist overnight.
Bars, laundromats, auto repair shops, motels—what remained after the soldiers were gone were empty buildings and overdue tax notices.
Where those three waves overlapped, entire towns were sometimes sold off whole at auction.
The abandoned oil-field districts of West Texas, rural Oklahoma, the small towns around former military bases in inland California...
Warehouse complexes in places like that were now being dumped into the auction market for next to nothing.
From a bank’s perspective, they were bad assets that needed to be stripped off the books as quickly as possible.
Dead weight nobody wanted, the kind of properties that often went unsold even when the opening bid was 10 percent of appraised value, sometimes even 5 percent.
I was aiming straight for that gap.
Of course, at this point in time, nobody knew it.
They had no idea just how massive a gold mine these heaps of junk really were.
...I’d seen this kind of thing countless times in my previous life.
Famous investment stories from Wall Street drifted through my mind.
In 1991, there had been a real estate investor who bought up a deserted warehouse complex on the outskirts of Austin, Texas, for a song.
The purchase price had been just 120,000 dollars.
All that remained where the oil companies had fled were rusting containers and weeds, and everyone laughed at him for being insane.
Ten years later, a Dell Computer logistics center stood there.
The sale price had been 3.4 million dollars, a return of 2,700 percent.
The story near George Air Force Base in inland California was even more dramatic.
When the Cold War ended and the base shut down, the surrounding commercial district collapsed like dominoes.
One Korean immigrant bought three abandoned motels in the area in a single lot.
The total price was 80,000 dollars—an offer the bank had practically thrown away just to get rid of them.
Five years later, as the Victorville area was redeveloped into a logistics hub, land values soared vertically.
That Korean immigrant sold the property for 1.8 million dollars in 2002.
...And the most famous one of all.
The farm parcels outside Orlando, Florida, that had been dumped onto the market through savings-and-loan bankruptcies.
Between 1989 and 1992, those lands were auctioned off at one-hundredth of their appraised value.
At the time, people sneered and said, who on earth would buy some miserable swamp-adjacent wasteland like that?
But the Walt Disney Company thought differently.
Quietly, but relentlessly, they bought those parcels up.
Ten years later, what rose there was the expansion zone of Disney World and a resort complex.
Land that had once been worth only 2,000 dollars an acre was suddenly commanding 200,000 dollars an acre.
...The problem is, even if I say all this now, nobody would believe me.
It was 1991, before the internet boom, before the dot-com bubble, before the real estate frenzy.
To everyone else, these ruins were just ruins.
But I knew better.
This very moment was the lowest point in American real estate history.
And only the man who could buy at the bottom would ever have the right to sell at the top.
Meanwhile, Victor looked at me with a worried expression.
“Th-That’s... less of a business plan and more like... pulling a slot machine in Las Vegas, isn’t it? I heard most of the stuff that comes out of those things isn’t even worth scrap value... and if disposal costs end up being higher...”
“My uncle runs a scrap yard. We can just dump it there.”
“...”
Grace propped her chin on one hand and stared at me.
“Sanha. Is your risk-management model basically reduced to a single word: luck? At least my plan has statistical backing. But what exactly are you basing your decision to acquire abandoned warehouse sites on?”
Their criticism was only natural.
To them, my plan must have looked like nothing more than reckless gambling.
But I couldn’t very well tell them I was a regressor, so I tossed out a convenient string of excuses instead.
“In 1978, a 1952 Topps Mickey Mantle rookie card was found in a warehouse in California and sold at auction for 125,000 dollars. The warehouse itself sold for only 200. In 1985, an issue of Action Comics No. 1 was discovered in a warehouse in Pittsburgh among the belongings of a deceased collector. That comic, which contained Superman’s first appearance, fetched 500,000 dollars at auction. And in 1987, at a warehouse auction in Brooklyn, New York, an early Andy Warhol sketch of Campbell’s Soup Cans was found buried in a stack of canvases labeled as an unknown painter’s work, and it was appraised at 180,000 dollars. And just three years ago, in a savings-and-loan liquidation in Florida, an entire Victorian furniture set from the nineteenth century came out of the lot. The original owner had been a desperate antiques dealer who couldn’t even pay storage fees and ran off with creditors on his heels. The bidder paid 500 dollars, and that furniture set later sold at Sotheby’s for 90,000.”
In truth, what I was banking on wasn’t just the real estate.
The flower of warehouse auctions.
It was the unboxing—opening the containers and seeing what was inside.
That was the world of warehouse auctions.
In every hundred piles of junk, there was one lump of gold hiding somewhere.
And that one lump of gold paid for the cost of the other ninety-nine piles, with plenty left over.
The only question was whether you could find that one piece or not.
But I had two kinds of future knowledge on my side.
One: the real estate in these abandoned warehouse districts was going to skyrocket anyway.
And two: inside those warehouses, buried under dust, were treasures that would make collectors’ eyes roll back in their heads.
...I’m glad I kept subscribing to those Wall Street magazines.
The magazines that circulated through Wall Street were always full of stories about people who had turned small sums into huge ones.
Having subscribed to them for more than a decade, I remembered most of the big cases—what was in which warehouse, what went to auction, what record-breaking price it fetched.
...As for the criteria for picking them out, I can always dress it up into a theory by fitting the results afterward.
Of course, I had no intention of saying that out loud here.
Grace still looked unconvinced, unable to read my thoughts.
“Hmm. Well. It still sounds like you’re just talking about clouds in the sky.”
“Doesn’t matter. The competition is judged on profitability and originality, right? The idea itself—finding treasure in forgotten warehouses—already gives me the originality. All that’s left is the profitability.”
“And you have enough capital?”
“I’ll be using my personal investment money, so don’t worry. I did make some actual investments in Professor Cromwell’s class, after all. Oh, and the business profits are mine too, right?”
“Of course. Any income from a business run with your personal investment money is entirely yours. It has nothing to do with the club’s share.”
Grace nodded.
Victor, still looking uneasy, trailed off at the end of his sentence.
“I’m still worried. About the warehouses being full of nothing but junk. And it’s not like we can crack open every warehouse that goes up for auction one by one. I’m not good enough with real estate values to know.”
“I do have my own standards for choosing warehouses. And to be honest... the real estate itself, or even the things inside the warehouses, isn’t my true goal.”
“What? Then why buy the warehouse sites at all?”
Victor’s question drew Grace’s agreement; she nodded along as well.
I answered their questions with a faint smile.
...
When I first sketched out this plan in my head, I had already decided that the warehouse land and whatever sat inside the buildings were just bonuses.
In areas where entire neighborhoods had gone bankrupt, sites sold through tax delinquency usually opened at around 20 percent of appraised value.
Even if I assumed high vacancy rates and weak rental demand, once I ran the numbers using assessed land value and comparable nearby transactions, the expected return was already positive.
In the worst case, even if the warehouses were nothing but heaps of scrap metal, I could probably break even—or come close to it—just by clearing the land and reselling it immediately.
Well, if a few valuable antiques came out of the warehouse buildings, that would be even better.
On top of that, after the savings-and-loan crisis, these warehouse complexes were being discounted even more aggressively by the market.
They were being treated as ugly liabilities that had to be purged from the banks’ books as fast as possible.
I was taking that excess discount in one clean sweep.
And apart from all that—
...What I’m really after isn’t inside the warehouse buildings or around them. It’s underneath them.
The items inside the buildings, and the properties around them, would all have some value of their own. But they were nowhere near the level of profit I wanted.
The real prize was under the warehouse sites, beneath the skin of the earth.
The things buried alive under those vast abandoned warehouse grounds.
That was what I wanted.
—