What the world’s richest man can tell us about Omaha – and, no, I’m not talking about Warren Buffett

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Aside from the occasional plague and peasant uprising, Europe during the early 1500’s was an exciting and prosperous place to be. New worlds were being discovered, art and technology flourished in the Renaissance, nations emerged from fiefdoms, and religion was undergoing a massive reformation.

medieval-peasants

In spite of growing wealth in the 1500’s, peasants could still prove to be an unruly bunch.

The strongest financier during this period was a German by the name of Jacob Fugger (rhymes with cougar) who hailed from Augsburg, in present day Austria. He transformed his family’s textile business into a massive empire of banking, mining, and trade. Fugger was wealthier than the famous Medici clan who received much more historical attention. As a percentage of GDP, his wealth would dwarf Rockefeller, Gates and Buffett.

Fugger financed the Habsburg dynasty and the expansion of the Holy Roman Empire – an empire that ruled the core of Europe for four hundred years until World War I swept aside Austria-Hungary. He was a shrewd operative who financed the Vatican (indulgences aren’t free, you know), and obtained the ownership of entire villages when debtors defaulted on their loans.

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Fugger did not mince words with the Habsburgs. In one undocumented incident, he threw his gold cap at Maximilain and told him to “Fugg off”.

Greg Steinmetz’s book “The Richest Man Who Ever Lived” is the latest book to revive the legend of Jacob Fugger.     The book is a business biography, but it is also a geographical instruction manual.

The story of Jacob Fugger illuminates the importance of cities in the development of commerce. Augsburg, Rome, Venice, Antwerp, and Mombasa are the supporting cast of characters in the book. The evolution of these cities provides insights into our own urban areas. For me, the book provides a lens through which to look at he challenges faced by Omaha as it tries to surge past 1 million people and reach the second tier of US cities.

Fugger maintained his home in Augsburg, but he located important business centers in Venice and, later, Antwerp. He chose to locate in Venice early in his career because the Venetians were the leaders in big business at the turn of the century. Their fleets traded goods from all over the world and their management skills were second to none. Most importantly, the Venetians mastered the system of accounting. Double-entry book-keeping was a new science, and Fugger used his mastery of accounts to centralize his far-flung empire. Later, Antwerp became popular as shipments from the New World increased. It’s massive port and access to the European heartland drew Fugger.

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Charles V borrowed heavily from Fugger and took it on the chin.

This process of city and regional emergence is on display today as ConAgra considers moving its executives to Chicago. Omaha has a strong infrastructure in place to serve the agricultural industry, but Chicago has what it takes to reach consumers: It has a core group of companies like McDonalds, Kraft, Mondelez, ADM, and Ingredion all sharing resources. Chicago has thousands of well-educated people, young folks who can identify with a growing millenial target market, and dozens of advertising and marketing firms. Chicago, with its high cost of living and pension problems, trumps Omaha when it comes to innovation and sales. Like Silicon Valley, the costs of living are far outweighed by the opportunity to rapidly gain from networks of people. Omaha lacks the talent needed to reach rapidly-evolving consumer tastes.

Omaha also suffers from its peripheral location on the Great Plains.

One of the most fascinating stories in the Fugger biography is the rise of Portugal. Once a European backwater, the Portuguese decided to punch above their weight. They spotted their opportunity in pepper.

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The Portuguese galleon. A badass to be reckoned with. Shut up and dance with me.

Pepper was essential for the bland European diet. Spoiled meat was a frequent entree and it needed a little, ahem, flavor. At the time, the Venetians controlled the pepper trade from India. They had a direct route but it required an overland trans-shipment at Suez. The Portuguese made the bold move of sending ships around the Horn of Africa to the Indian Ocean. While the route was dangerous, it was much faster than the Venetians could manage.

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Augsburg. It’s no Frankfurt, but Pope Leo X said it was “pretty darn good.”

One of the most exciting chapters in the book is the siege of Mombasa in present day Kenya. Only a few cannon blasts allowed the Portuguese to take over the trade hub. From there, it was a direct route to India. The galleons returned to Portugal loaded with pepper. They reaped a fortune from the trade. Fugger, as their investor, took his handsome share as well. Steinmetz argues that the loss of the pepper trade is what directly led to the demise of the Venetians.

The story illuminates the role of trading hubs and transportation centers to the growth of an economy. It seems fairly obvious, but it is remarkable that a city or region can grow exponentially without having a local industry. Singapore and Hong Kong are certainly modern examples of this phenomenon. Closer to home, Louisville and Memphis show how modern transport hubs have emerged in the jet travel era as the hosts of UPS and FedEx respectively.

“I’ve already bought my Cubs season tickets. Last one to leave Omaha, turn out the lights.”
– ConAgra Executive O. Redenbacher

Omaha may have lost it’s stockyards, but it remains an important commodities trader with firms like Scoular and Gavilon. Trucking is big here. But at the periphery, Omaha will probably never emerge as a transportation and market hub. Alas, it does not have a fleet of galleons to lay siege to The Loop.

Remaining a lower tier City is not all bad. Cost of living does matter when it comes to location selections. Nice people and good education systems do add value. By all accounts, Augsburg remains a pretty nice place to live even though the banking capital of Germany moved to Frankfurt centuries ago.

Factory 12: A Proposal for 12th & Cass

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Alchemy Development is one of two developers to submit proposals to the City of Omaha to redevelop a lot at 12th & Cass Streets in Downtown Omaha. The location is prominent for its proximity to the TD Ameritrade Stadium, Centurylink Center, and the burgeoning entertainment district on the north side of downtown. The project features 78 apartments and Alchemy Development is teaming up with the Old Mattress Factory bar and restaurant and Holland Basham Architects.HBA elevation

The Omaha World-Herald printed an article featuring the  two proposals for the site.

2 companies submit bids to develop prime downtown spot

POSTED: FRIDAY, SEPTEMBER 18, 2015 12:00 AM, UPDATED: 9:36 AM, FRI SEP 18, 2015.

By Cindy Gonzalez / World-Herald staff writer

Apartments with a view toward the home of the College World Series could be in store for a patch of city-owned land once embroiled in controversy.

Two local companies, Alchemy Development and Lanoha Development, have submitted proposals to develop the site at 12th and Cass Streets.

The last structure on the 33,600-square-foot area was a now-dismantled condo showroom and office for the failed WallStreet Tower project. The city had to turn to the courts to regain control of the Cass Street parcel after it sat idle for years as an out-of-town developer’s dream for the tower at 14th and Dodge Streets never got off the ground.

City officials recently put out a request for proposals to develop the 12th and Cass Streets site valued now at $910,000. The candidates are to be interviewed by a committee of various city department heads in early October. The top choice is to be approved by the mayor and City Council. City Attorney Paul Kratz said factors beyond price will be considered when choosing the winner.

Among the city’s objectives, according to public documents, is for the project to encourage a lively, pedestrian-oriented urban neighborhood that expands jobs and residential opportunities.

Both proposals offer residential living as a focus, but they look different and offer contrasting amenities.

Alchemy’s plan is primarily housing, calling for construction of a five-story, L-shaped structure with 78 apartments and indoor parking. A rooftop deck would be carved out of a top-floor space, offering a view of TD Ameritrade Park and the CenturyLink Center.

The $10.8 million project would seek $1.2 million in tax-increment financing and be called Factory 12 — a nod to the Old Mattress Factory restaurant across the street and to 12th Street, said Alchemy’s Bert Hancock. Owners of the Old Mattress Factory are signed on as co-developers. Also involved in Factory 12 are Holland Basham Architects and Dicon Construction.

While the Alchemy project won’t offer retail space, its street level will feature big glass windows through which pedestrians can see fitness and community rooms. “It gives it some liveliness at the ground-floor level,” Hancock said.

Competitor Lanoha proposes a four-story complex with fewer apartments, 45, but with office and retail space as well.

The first floor would contain retail and office bays, a lobby and 50 parking stalls. The second level would be made up of offices and a covered terrace, and the third and fourth floors would contain apartments. Lanoha’s design by Alley Poyner Macchietto Architecture also features a third-floor deck and a community space.

Jason Lanoha of Lanoha Development declined to disclose the project’s price tag. He said his firm chose a mixed-use approach to add around-the-clock action that he said would move north downtown forward. “When office workers are leaving, residents are arriving back home,” Lanoha said.

Hancock said he and his partners were attracted to the growing area of north downtown, even with the challenges associated with the property’s proximity to the Interstate. “We love the idea of being a part of what is happening on the north side of downtown,” Hancock said, citing the nearby CenturyLink Center, TD Ameritrade Park, Creighton University, the Slowdown and future development planned for the Yard parking site. “All of that points toward a direction of making the north side much more exciting, not just for entertainment, but as a place to live,” he said.

Kratz declined to provide any detail on the two plans, calling such details potentially proprietary information and part of an ongoing real estate deal. He said that although the request for proposals process has long been a way that the city sells or develops property, the improved economy and commercial market has led to increased interest in downtown parcels.

Omaha Economy Running Like a Deere?

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Don’t kid yourself Omaha, for all the hype about tech jobs and the evolution of youth culture in our fine hamlet, we are seriously dependent on the farm economy. And the trajectory of the commodities markets should have us looking over our shoulders.

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Below is a chart showing the six month performance of John Deere, September corn futures, and September cattle futures. Even if its hard to see this chart I copied from Yahoo! Finance (damn screenshot button), the trend is easy to identify.

Farm commodity prices are dropping. That means fewer trips to Omaha stores for back-to-school shopping, fewer trucks purchased at local dealers, a drop in irrigation system orders at Valmont and Lindsay, fewer combines rolling off the assembly lines at Claas, and a pull-back in rural lending.

Deere

Back in January, some of the warning signs emerged when Marubeni took a massive writedown on its purchase of Omaha commodities firm Gavilon. Although the writedown included crude oil assets, the entire amount approached $1 billion.

Union Pacific has made moves to lay off 200 Omaha managers due to declines in coal shipments and oil transportation. The rumors swirling around the future of ConAgra haven’t been positive.

irrigation

I recall a lunch I was invited to at a major regional bank back in 2010. The founder sang the praises of the farm economy and how important it had been for Omaha. The local economy had fared much better than most during the 2008 collapse.

Could the reverse become true? Rural banks could face headwinds and land prices could decline sharply. Indeed, Fed Governor Esther George argued that farm land prices had reached a bubble in 2013.

If Omaha is a big city now, it has to play by big city rules: the world economy does impact the prospects for local growth.