Investing in Illinois

[woodstove]

In a recent interview WEB made a remark about potential future economic burden of state debt, on business enterprises located in some states.  The interviewer asked if he had Illinois in mind, to which WEB responded that he preferred to praise specifics but only negatively comment on general categories of behaviour.  This news item on top of other downbeat articles re Illinois economy, which I am presently noticing in conversation on my current visit to Springfield.

 

However, as a contrarian value investor:  I am seeing opportunity, or rather opportunities.  Strengths quite visible to a visitor are well educated and young group of potential employees with good attitudes, excellent state buildings and private buildings in the capital area, Amtrack train service is excellent though some track improvements are in order (and underway, I heard). 

 

So I would like to hear thoughts of others on opportunities for investing in Illinois.

 

Here is a quote which I saw upon a statue of Abraham Lincoln: 

 

"Why should there not be a patient confidence in the ultimate justice of the people?  Is there better or equal hope in the world?" 

 

(From Lincoln's 1861 innaugural address.)

 

That expresses my take:  If the chattering crowd reading news reports from afar is anticipating disaster, and a personal on the ground visit discovers opportunities, then patience and trust, and suitable alignment of participation, will often be rewarded by the passage of time.

 

Over to you-all !

 

Cheers,

woodstove

 

[gfp]

I can only comment on individuals, not businesses. I have clients from Illinois, and the overwhelming trend has been to give up Illinois residency as soon as possible. Between property taxes in the Chicago suburbs and the State income tax, Illinois is not a great place for wealthy folks to officially call home. Plus it’s cold.

[cubsfan]

I can only comment on individuals, not businesses. I have clients from Illinois, and the overwhelming trend has been to give up Illinois residency as soon as possible. Between property taxes in the Chicago suburbs and the State income tax, Illinois is not a great place for wealthy folks to officially call home. Plus it’s cold.

 

Yes, no doubt - the high end home market in Illinois (beyond $500K) is in real trouble. Exactly what GFP said. The state tax burden is terrible and will only go up with our current government.  People with money want out - I live in the Hinsdale area (near west suburbs) - you can't believe the number of homes on the market -and nothing is moving. I've lived here all my life and want out. House has been on the market for almost 4 years.

 

I can only speak for the Chicago area.

[PullTheTrigger]

I can only comment on individuals, not businesses. I have clients from Illinois, and the overwhelming trend has been to give up Illinois residency as soon as possible. Between property taxes in the Chicago suburbs and the State income tax, Illinois is not a great place for wealthy folks to officially call home. Plus it’s cold.

 

Yes, no doubt - the high end home market in Illinois (beyond $500K) is in real trouble. Exactly what GFP said. The state tax burden is terrible and will only go up with our current government.  People with money want out - I live in the Hinsdale area (near west suburbs) - you can't believe the number of homes on the market -and nothing is moving. I've lived here all my life and want out. House has been on the market for almost 4 years.

 

I can only speak for the Chicago area.

 

I live in western suburbs as well. Anecdotally, I agree with gfp and cubsfan. Most people I talk to say the real estate taxes are ridiculous. I constantly hear people talking about leaving the state to lesson the tax burden. Many parents I've talked to have commented, "as soon as my kids are out of school, I'm out of here."  All anecdotes, but I hear very few people saying anything positive.

[Castanza]

That expresses my take:  If the chattering crowd reading news reports from afar is anticipating disaster, and a personal on the ground visit discovers opportunities, then patience and trust, and suitable alignment of participation, will often be rewarded by the passage of time.

 

Reminds me a bit of the book "Better Angles" by Steve Pinker. Premise: The world is the least violent it has ever been, contrary to what media and people assume.

 

However, it's difficult for me to see value in Illinois because of all the pension and govt related issues. Even with a 30 year horizon it's difficult to justify. Look how long Detroit has been going downhill. Even if Illinois makes the right decisions and economic slowdown or recession could halt all efforts for a decade or more.

 

[DTEJD1997]

Hey all:

 

I would add to this thread that a person would ALSO HAVE TO CONSIDER what county and city that they will be residing in and doing business in.

 

Here in MI, we have tremendous problems with CITIES that are going to have to go bankrupt to deal with pensions and post retirement benefits. 

 

I suspect that the situation is similar in IL.

[Gregmal]

Has there ever been a positive turn around story? I haven't heard of one.

 

The reason there is not is because there is no incentive and the people in positions of power only react in in a reflexive manner to issues. There is no upside and all downside for the town officials and politicians. The problems are largely because they have it too good. So to fix them they have to remove the punch bowl from not only their office, but from the offices of all their colleagues as well. Which again is a very unpopular thing to do. So instead, they just milk it for all it is worth and then pass the problem to the next in line. Thats why these things never get fixed. The only half assed efforts to "do something" are raising taxes...

[Spekulatius]

Has there ever been a positive turn around story? I haven't heard of one.

 

The reason there is not is because there is no incentive and the people in positions of power only react in in a reflexive manner to issues. There is no upside and all downside for the town officials and politicians. The problems are largely because they have it too good. So to fix them they have to remove the punch bowl from not only their office, but from the offices of all their colleagues as well. Which again is a very unpopular thing to do. So instead, they just milk it for all it is worth and then pass the problem to the next in line. Thats why these things never get fixed. The only half assed efforts to "do something" are raising taxes...

 

NYC and Boston are turnaround stories on an urban scale.

 

On Illinois, I agree, it seems a basket case. NY and CA at least have the high paying jobs to make it worthwhile to work their. I don’t see they being the case in Chicago. If I were to look for contrarian bets in the heartland, I would look probably at something like Pittsburgh or other ares in PA.

[Crip1]

Background is that I took a corporate transfer from the Chicago area to the Dallas area at the end of 2005, leaving all of my family and my wife’s family there. Grandparents were not happy that we took two grandsons away but we made the move, unsure whether or not it was the right thing. Having made the move and having virtually all of our family and a number of good friends there gives us a little perspective.  Remarks, in no particular order:

·        The history of politicians who have ended up in jail is remarkable…just insane.

·        The two main reasons for Illinois’ development into a reasonably economically powerful state were agriculture and transportation. The former is a shrinking part of our economy and the latter has become far less important than it was when the easiest way to get things from the Atlantic Ocean to the middle-west of the US was through Chicago.

·        The state is broke

·        I left 14 years ago, moved to a larger house in Texas for less money. Property taxes were about 20% higher here than in Illinois but the absence of state income taxes more than made up for the property tax increase. After 14 years, according to Realtor.com the taxes at my old home are the same as they are in my new one. My new home has appreciated in value where my old home is not worth what I sold it for in 2005 and Illinois’ state income tax has almost doubled and Texas still does not have state income tax.

·        Most of my family and extended family have indicated that the only thing keeping them there is family and/or kids in school. This is consistent with net population outflows experienced for years.

As a dyed-in-the-wool Chicagoan who still supports the Bears, Blackhawks and White Sox (Sorry Cubsfan, I hate the Cubs) and who will always call the area “home”, it pains me to see this take place. We miss our family tremendously. And, Chicago is nothing short of a remarkable city. But, it would take a financial fortune to get me to move back from Dallas.

I’m a bit of a contrarian at heart, but there is very little about that state that compels me to want to invest there.

-Crip

[Jurgis]

On Illinois, I agree, it seems a basket case. NY and CA at least have the high paying jobs to make it worthwhile to work their. I don’t see they being the case in Chicago. If I were to look for contrarian bets in the heartland, I would look probably at something like Pittsburgh or other ares in PA.

 

There's a large Lithuanian community in Chicago. I have relatives there and have visited them recently. Chicago is great city: great downtown, arts, culture, eating. I'd probably be happy living there. Climate sucks more than Boston though and there's no ocean, but overall it's a good place to live. RE is way cheaper than Boston. Jobs are there. There's tech sector that might not be as big as Boston/NY, but not tiny either. Logistics/transportation is still there and large.

 

Pittsburgh is contrarian? It's got CMU and that's one of the hottest schools in tech/AI. I'm pretty sure there's tons of tech jobs based on CMU collocation/startups/spinoffs/etc.

[Castanza]

On Illinois, I agree, it seems a basket case. NY and CA at least have the high paying jobs to make it worthwhile to work their. I don’t see they being the case in Chicago. If I were to look for contrarian bets in the heartland, I would look probably at something like Pittsburgh or other ares in PA.

 

There's a large Lithuanian community in Chicago. I have relatives there and have visited them recently. Chicago is great city: great downtown, arts, culture, eating. I'd probably be happy living there. Climate sucks more than Boston though and there's no ocean, but overall it's a good place to live. RE is way cheaper than Boston. Jobs are there. There's tech sector that might not be as big as Boston/NY, but not tiny either. Logistics/transportation is still there and large.

 

Pittsburgh is contrarian? It's got CMU and that's one of the hottest schools in tech/AI. I'm pretty sure there's tons of tech jobs based on CMU collocation/startups/spinoffs/etc.

 

As someone who frequents Pittsburgh quite often I can say that's about all it has. University of Pitt isn't bad either. But that city is still heavily blue collar and the younger generation doesn't seem to stick around. The city is very dated and doesn't have great cultural arts and entertainment like other cities. Don;t get me wrong there are some fun areas in Pitt but it's still got a long way to go. That being said I believe Uber and Google were both looking at it for possible corporate branches. Some tech companies are beginning to move in (probably due to CMU and Pitt). Definitely seems more contrarian.

 

PA has struggled with poor leadership and it's reliance on industrial jobs. Harrisburg is terrible, both in living conditions, high taxes, pension issues, etc. PA also has some ridiculous regulations which prevent a good entertainment (food, bars, etc) from opening.

 

The whole northern half of PA has been a continual boom and bust story with he natural gas job exploitation. And Philly is well, Philly. They have a solid college presence but "innovative industry" never seems to stick.

 

State College (Penn State University) area has seen some good uptick the past decade. I think it helps having a decent DoD presence there.

 

Long story short, PA needs better leadership if it's going to turn around.

[woodstove]

Thanks for all the great discussion and ideas!  Simplistic take: be aware of potential future tax burden, which is a caution not a halt.

 

Train observation: Metra commuter trains in Chicago have BNSF name on them.  Large fixed investment.  Can still do good business.

[Faustus]

I live in Chicago and enjoy it; contrary to the sentiment in this thread, I believe the data indicates there has been healthy growth of high income earners in the city itself. Part of the problem with using the suburbs as a barometer is that the younger generation is more inclined to live in the city—that’s where a lot of the $1MM+ homes seem to be moving. With Walgreens, McDonalds, and others also moving HQ from burbs to city, this trend may continue.

 

If you want a deep value play, the south side of Chicago may be somewhat interesting. Many ‘cool’ neighborhoods on the north side are thick w/ commuters, strollers, coffee shops, bars, restaurants, etc. and—as a result—are pricey and less attractive to the artistic class. Eventually these early stage gentrifiers will stop spreading farther north and decide for a shorter commute south.

 

Gun violence, depopulation, and lack of investment are the headlines on the south side today, but one day that will change. Bronzeville is already fairly  safe, close to downtown on the redline, has a small college, is near the lake and looks to be getting an MLS stadium (also close to White Sox). You can’t get bottom dollar prices there, but it’s still cheap and has fairly good prospects if I had to speculate.

[Faustus]

Perhaps Illinois (specifically Chicagoland) has some opportunity beyond the immediate budget/pension hurdles:

 

An estimated 100 million people will migrate into and around the country over the coming century. And as they do, more energy resources, water, and density will be needed. “Most demographers expect an increasing share of these people to live in major American cities like New York, Chicago, and Phoenix,” the project reads.

 

Away from the threat of coastal flooding, away from forests that might burn, and near an extremely large source of freshwater, I can see why Chicago makes an appealing option for refugees in a dire climate scenario.  The source is looking at the latter decades of this century — so requires a long time horizon!

 

https://www.citylab.com/environment/2019/12/green-new-deal-atlas-climate-change-mcharg-center-maps-model/603415/

[RadMan24]

I live in Chicago and enjoy it; contrary to the sentiment in this thread, I believe the data indicates there has been healthy growth of high income earners in the city itself. Part of the problem with using the suburbs as a barometer is that the younger generation is more inclined to live in the city—that’s where a lot of the $1MM+ homes seem to be moving. With Walgreens, McDonalds, and others also moving HQ from burbs to city, this trend may continue.

 

If you want a deep value play, the south side of Chicago may be somewhat interesting. Many ‘cool’ neighborhoods on the north side are thick w/ commuters, strollers, coffee shops, bars, restaurants, etc. and—as a result—are pricey and less attractive to the artistic class. Eventually these early stage gentrifiers will stop spreading farther north and decide for a shorter commute south.

 

Gun violence, depopulation, and lack of investment are the headlines on the south side today, but one day that will change. Bronzeville is already fairly  safe, close to downtown on the redline, has a small college, is near the lake and looks to be getting an MLS stadium (also close to White Sox). You can’t get bottom dollar prices there, but it’s still cheap and has fairly good prospects if I had to speculate.

 

Well, so called "Windy City" should have a platform for a lot of wind farms! And, all the big tech want renewable power for their data centers. Put the two together and bam! You have a mini growth spurt. Problem is, those are low density jobs.

[woodstove]

South side of Chicago is way better keep up, and I presume safer, than it was 50-60 years ago.  I think it is middle class neighborhoods.  There is tremendous capability of people in Illinois who have good attitudes to society, family etc and not enough opportunities to fully enable participation.  Classic value situations.