The Foxconn Effect and How to Invest

19 Replies

Last year news was announced that Foxconn plans to build a large plant in Racine County, WI. My initial thought was that housing prices and rents should continue to rise nearby to accommodate the future workforce and current demand, so rental property could be a good investment approach. However, maybe I'm not thinking deeply enough.

What other ways could investors approach a development of this size? Will the main beneficiaries be close by Kenosha and Racine or will the true beneficiaries be nearby Chicago and Milwaukee?

Instead of residential real estate, would a savvy investor look to commercial property, self-storage, land development, all of the above in this situation?

I'm bullish on Southeastern Wisconsin and the I-94 corridor. I had been researching Kenosha and Racine before the Foxconn news was announced and made my first purchase in the area about 6 months ago. So far I've bought 2 single-family rentals and am set to close on my first 4-unit building next week. My initial goal is to purchase $1M in B-C+ class cash flowing rentals in the region.

It would be great to hear your thoughts and ideas BP!

I think Illinois is the quiet winner in the Foxconn deal.  Illinois will get a lot of the benefits, with it being placed so close to the border, but Illinois didn't have to shell out the billions in tax breaks and subsidies that Wisconsin did.  

land in the path of progress creates some of the biggest profits in the industry.. as long as you can still buy at farmer prices.. and not speculator prices.

@Jeff Burdick  True, I think IL will also be a beneficiary.  Although I wonder if we would have been able to provide such subsidies given our fiscal situation.  A lot a of nice areas in Northeastern IL that make for a convenient commute to Racine.

@Jay Hinrichs Yes, the trick now seems to be determining where the ripple effect of the planned plant heads next since adjacent land to the site is certainly not going for farmer prices any longer.  

Thanks for the input!

Originally posted by @Michael Kretch :

@Jeff Burdick  True, I think IL will also be a beneficiary.  Although I wonder if we would have been able to provide such subsidies given our fiscal situation.  A lot a of nice areas in Northeastern IL that make for a convenient commute to Racine.

@Jay Hinrichs Yes, the trick now seems to be determining where the ripple effect of the planned plant heads next since adjacent land to the site is certainly not going for farmer prices any longer.  

Thanks for the input!

tilt up logistics buildings could be a good play as well. 

@Michael Kretch I’m sure a few people will come to Illinois but I feel many will stay in Wisconsin. I can tell you many families that live in northern Illinois are either in the process or discussing moving over the border to Wisconsin. We have high property taxes, sales taxes, and state income tax. People want to get away from it. 

I had a conversation with a rehabber that told me business is booming for him in the pleasant prairie area. He has a large number of people jumping the border. It’s an opportunity I’ve been meaning to look into along with the other areas closer to the plant. I’d be interested in talking more and learning more about how to invest in this region. 

@Jay Hinrichs Yes, I'm sure there will be further demand for logistics and warehousing in the area.  However, I had to google what tilt-up construction is, so I'd be learning a lot with an undertaking of that size to say the least.  The distribution centers recently built by Amazon and U-Line on the I-94 corridor are gigantic.

@Bob Floss II I agree, one of the intermediate-term tailwinds of SE WI is the migration of some IL residents to lower tax areas, NW Indiana has also added residents from this trend.  Kenosha and Racine property taxes are still fairly high compared to the rest of the country though, something to watch for when looking at rental properties.  

Pleasant Prairie is definitely in high demand, as well as much of Kenosha and Racine...and you can see it in the property values.  Have also spoken with several contractors swamped with work.  Haven't bought anything in Pleasant Prairie yet but continuing to write offers nearby.

google is our friend.

I actually did a talk Friday at Google world headquarters in Mt. View it was on alternative investing.. IE every thing but buying a rental house.

and one of my main subjects was how to determine and buy in path of progress this is a prime example of what my talk entailed .. now I gave examples of what I personally did in OR CA and SC.

but I will be on a plane to Racine in the next 90 days and spend some time there figuring it out.. this is a gold mine waiting to be opened..

PS you want to talk about a cool company to work for.. its off the charts if I was uber smart ( which I am not) I would for sure be trying to get on with that company..

it was a combination of being on a cool collage campus and then anti cube ..  food all free was off the charts good.

people have all sorts of amenities who work there you would never have to buy food  at least during the week breakfast lunch dinner snacks.. its also like a nice resort and spa... what a place.

The near-term reality is that construction companies and contractors will need a far greater number of people than are currently available in southeast Wisconsin to build the FoxConn campus. That should draw people into the area, many of whom will be more likely to rent than to buy. Ergo, rental property demand will increase.

The longer-term reality, if it comes to fruition, is twofold: (1) FoxConn reports that its campus will host 10,000 employees, all those people and their families will need to live somewhere, and there isn't enough housing stock for them right now; (2) the demand for services will increase with the influx of people, which will increase the demand for commercial property. A third element may also be brewing. I've heard anecdotal evidence that other support businesses and B2B suppliers are looking to establish locations in southeast Wisconsin. I've heard other anecdotes about the rush of out-of-state and foreign money that is coming in for bigger apartment development projects.

Preliminary construction on FoxConn has started. I live 5 miles from the FoxConn site and have seen more than a few of the 100 daily trucks that are bringing in gravel. I've also been living through infrastructure projects that are tying up traffic with road construction. Lastly, I've seen fewer good deals for SFR's as realtors have started to push prices in anticipation of the demand. That said, I think that the realtors are still selling the sizzle, and that there is a good amount of steak in Racine and the surrounding counties for people who commit to doing the footwork to find it.

Southeast Wisconsin is at the front end of a growth cycle that will push into Illinois and well beyond the local communities, assuming that FoxConn becomes what it is projected to become here. None of this is a done deal, but it has potential to be a rare opportunity for RE investors that exercise diligence and intelligence.

Originally posted by @John Franczyk :

The near-term reality is that construction companies and contractors will need a far greater number of people than are currently available in southeast Wisconsin to build the FoxConn campus. That should draw people into the area, many of whom will be more likely to rent than to buy. Ergo, rental property demand will increase.

The longer-term reality, if it comes to fruition, is twofold: (1) FoxConn reports that its campus will host 10,000 employees, all those people and their families will need to live somewhere, and there isn't enough housing stock for them right now; (2) the demand for services will increase with the influx of people, which will increase the demand for commercial property. A third element may also be brewing. I've heard anecdotal evidence that other support businesses and B2B suppliers are looking to establish locations in southeast Wisconsin. I've heard other anecdotes about the rush of out-of-state and foreign money that is coming in for bigger apartment development projects.

Preliminary construction on FoxConn has started. I live 5 miles from the FoxConn site and have seen more than a few of the 100 daily trucks that are bringing in gravel. I've also been living through infrastructure projects that are tying up traffic with road construction. Lastly, I've seen fewer good deals for SFR's as realtors have started to push prices in anticipation of the demand. That said, I think that the realtors are still selling the sizzle, and that there is a good amount of steak in Racine and the surrounding counties for people who commit to doing the footwork to find it.

Southeast Wisconsin is at the front end of a growth cycle that will push into Illinois and well beyond the local communities, assuming that FoxConn becomes what it is projected to become here. None of this is a done deal, but it has potential to be a rare opportunity for RE investors that exercise diligence and intelligence.

Intel 10 years ago decided to build there 10 B fab plant in Hillsboro Oregon and brought in 6k workers and single handily took the pdx metro out of the deep recession.. and it just keeps steaming along.. all the other companies that now want to locate there and all the talent they bring in.. some will go on to start thier own companies etc etc.. TOP Golf even built a facility 1 mile away.. :)

@Jay Hinrichs  Would you happen to have a link to your talk at Google?  Their fairly recent Chicago HQ is a beautiful building and a big reason Fulton Market went from red-hot to white-hot...certainly wouldn't mind working there.

If you do visit Racine/Kenosha area, obviously would love to hear your insights. There is a public use regional airport about a mile from the 4 unit building I'm closing on today, if you fly yourself ;)  Really do think there had already been a lot of opportunity in the area and Foxconn multiplies it's potential, both residential and commercial.  

@John Franczyk Great to hear from someone seeing the project in motion day to day.  Residential prices have definitely shot up after already being on an upward trajectory with the lower inventory in both counties.  Anecdotally, seems like 20-30% across the board is pretty common past 6-9 months.  Looking at a couple properties in Kenosha before closing in Caledonia today, I agree there is still good value out there but much harder to find than even last fall.  Encouraged by the steady redevelopment of both city's downtowns and new construction heading West.

I would defer anymore investment until they have poured concrete on the plant. These companies made big announcement to boost it stock prices. Then it is all quiet. Foxconn like other companies has done that many times and pulled the plug. We have a solar panel company here received Federal grant and tax incentives. President Obama came as cheer leader claiming he created jobs. Then it went bankrupt. Billion dollars of semiconductor equipment sitting there. Now it is a warehouse for disarrayed Tesla parts department as a staging ground because Musk bought it for his relative who is losing millions.....


@Sam Shueh There are a number of economic tailwinds in SE Wisconsin that have contributed to the recent rise in prices so I don't think the area is solely reliant on Foxconn to continue to grow.  I do agree though, there are a number of uncertainties with the Foxconn plans and development being completed so there is a distinct element of speculation.  Also, just being in close proximity to the planned site may not necessarily mean a property should hold longer term value, I think an investor has to consider where the potential workforce actually wants to live.

I have developed some sceptisism towards "home run play" type of investments - buying farm land cheap in the path of development and the scoring big is financially appealing, but the idea  also strokes the ego; every investor loves a good turn arround story!

You never hear about the guy who bought the cheap and land and then sold it for less ten years later. I think the boring approach might be the better one, because there is still a lot of uncertainty. The Milwaukee economy is gaining momentum and it's very visible when you drive around. There are lot of good reasons why the metro area will continue to propser. 

Foxconn would be an accelerator to the development and have cascading effects throughout the area. Any plant that size will atract a slew of affiliated and supporting businesses both to the plant and the people working there. From grocery stores to movie theaters and hospitals to logistics companies and sub contractrors, service providers and suppliers.

I am not too worried about investing in close proximity to the plant, because there will be displacement effects throughtout the area. We already have a housing shortage in Milwaukee, in particular homes under $300k in good school districs. Adding another 13.000 families plus I don't know how many from indirectly related will just turn up the heat some more.

Personally as an investor I am looking to position myself to be successful with or without Foxconn. If it turns out to be a home run then great (I am mildly optimistic it will happen), but if not I'd like to see healthy retruns as well.

Originally posted by @Jay Hinrichs :

PS you want to talk about a cool company to work for.. its off the charts if I was uber smart ( which I am not) I would for sure be trying to get on with that company..

it was a combination of being on a cool collage campus and then anti cube ..  food all free was off the charts good.

people have all sorts of amenities who work there you would never have to buy food  at least during the week breakfast lunch dinner snacks.. its also like a nice resort and spa... what a place.

 Jay, I have been to Facebook last year and have experienced the same thing - the campus feels more like a vacation town than a work place. People are hanging out in a coffee shop or playing games or woodworking in the middle of the afternoon. My niece works there and she said don't get fooled the pressure to perform and deliver results is high and many people stay late. To me it seems like they have created a genius system to get more out of their workforce: it's like a smart farmer, who get's more milk from happy cows. The company makes life easier, so people don't have to worry about their commute or buying groceries or getting the bike fixed, because they do that on site (facebook has a bike shop on site of course), so you can spend more time and energy working on your projects.

For an alternate perspective on life at the FB campus, read "Chaos Monkeys" by Antonio Garcia Martinez.  The author's tone makes him out as a royal jerk (particularly in a few passages where he talks about his impressions of women in San Francisco), but his perspective on life at FB is certainly unique.

@Marcus Auerbach I agree.  Removing Foxconn from the equation doesn't completely reverse the trajectory of the area and if it does come to fruition, should be a major tailwind.  There would likely be a price drop in intermediate term if project fell through.  Separately, got a house under contract in a solid neighborhood of Kenosha this week, continuing to invest in the area.

Kenosha/Pleasant Prairie has seen massive industry and manufacturing expansion in the past 4 years thanks to large scale trendsetters like Uline and Amazon.   It is also becoming popular for business looking to exit the "failing" state of Illinois while not moving too far from their usual base.  I wish I could remember more details but another company just announced they were in talks to build a facility in Pleasant Prairie and they anticipated having about 150-200 employees on site.

FoxConn just announced (cautious skepticism) in the past week or so they will be building a corporate office building in Milwaukee.  If I recollect correct, the corporate office will employ around 300 people.