Recently Huff Post published a list of the top 10 most expensive office rental rates by city. It also listed the top ten least expensive rental rates. New York City (5th Avenue) ranked 2nd along the most expensive dimension at $97 per square foot. Omaha, Nebraska (less costly than hundreds of other cities) ranked 7th on “the least expensive” list at $15.23 per square foot. In terms of rank, the positions of these two office environments have not changed much over the years.
New York City is considered to be the center of the investment industry in this country. They why did Warren Buffett select Omaha as the address for Berkshire Hathaway? Hopefully the following discussion will help to answer this question.
Imagine if Mr. Buffett had decided to locate the headquarters of Berkshire Hathaway in a splendid office on the tony side of Manhattan beginning in 1967? According to my estimate, the difference in rent alone between fashionable New York City and Omaha at that time was more than 5 fold. For example, if Mr. Buffett had paid $10,000 rent for his Omaha office space in 1967, he would have had to pay $51,500 for the same space in New York City. The difference in that year’s rent alone ($41,500) if invested in Berkshire Hathaway shares then would be worth over $285,040,361 today. In 1967 an “A” share of Berkshire was worth $20.50. Last week it closed at $140,803.07.
How many public corporations or investment gurus for that matter have ever come close to matching the performance of Berkshire Hathaway? Remember that most of the big players are highly concentrated in and around the high rent districts of metropolitan New York, Chicago, San Francisco, Greenwich, Boston, etc.
What a wonderful world it would be if more business leaders were like Mr. Buffett. His passion is to allocate resources in ways that give the greatest return to his investors and not to spend lavishly on Taj Mahal grade headquarters.