ARES Urbanexus Update #160
ARES Urbanexus Update #160
The American Real Estate Society (ARES) distributes this monthly selection of real estate and community development news and information. H. Pike Oliver curates it, as he has since 2018.
Office
A suburban office exit
The suburban Interstate 90 corridor east of Seattle was once a popular outpost for large employers like Microsoft, Boeing, and T-Mobile. But now offices sit empty. An analysis of CoStar data for 2023 showed that six of the 15 emptiest buildings in the Puget Sound region were along I-90. The submarket (see blue dots on the map below), which began showing cracks in the 2010s, was once home to thousands of Microsoft, Boeing, and T-Mobile employees, but today, it lacks the amenities and accessibility that newer offices tout.
You can learn more here.
Office building valuations in Denver
A Denver Business Journal analysis of Denver Assessor’s Office and Board of Equalization data shows high-profile building owners succeeded in knocking down their tax liabilities by millions, especially in downtown, where some older officer towers have been defaulting on loans. Learn more here.
Retail
A small-scale culinary hub
A complex of houses-turned-restaurants is changing this ‘forgotten edge’ of Chinatown in Los Angeles. Victor Heights is a sliver of a neighborhood on the first hill just north of Los Angeles’ downtown core in the shadow of Dodger Stadium. It borders Echo Park, cut off from the greater part of Chinatown by the 110 freeway. The neighborhood is also known as the “Forgotten Edge,” a name coined in the early ’90s because of neglect from local police divisions confused over which district it belonged to.
Today, six small buildings stand out at the corner of Alpine and Centennial streets. An architect named Jingbo Lou is developing the complex into a culinary hub called Alpine Courtyard — with a roster of several L.A. chefs and restaurateurs. In the process, Lou says he’s hoping to preserve a piece of the city’s history by restoring buildings that have been there for more than 100 years in a neighborhood that once brimmed with small retail businesses. Learn more here.
Residential
Homeownership rates in the USA by race and ethnicity
The latest CPS/HVS data shows that the overall homeownership rate was 65.7% in the last quarter of 2023. This was 3.5 percentage points lower from the peak of 69.4% in 2004. In this post, we focus on the homeownership rates by race and ethnicity over the past decade.
According to data from the Census Bureau, homeownership in the U.S. varies significantly by race and ethnicity. In the 4th quarter of 2023, the homeownership rate among non-Hispanic White Americans was 73.8%, followed by Asian Americans (63%), Hispanic Americans (49.8%), and Black Americans (45.9%). You can learn more here.
The great compression
Several colliding trends — economic, demographic, and regulatory — have made smaller housing units the future of American housing, or at least a more significant part. Over the past decade, as the cost of housing exploded, home builders have methodically nipped their dwellings to keep prices within reach of buyers. The downsizing accelerated last year when the interest rate on a 30-year fixed-rate mortgage reached a two-decade high, just shy of 8 percent.
Mortgage rates have fallen since, and sales, especially of new homes, are beginning to thaw from the anemic pace of last year. Even so, a move toward smaller, affordable homes — in some cases smaller than a studio apartment — seems poised to outlast the mortgage spike, reshaping the housing market for years and changing notions of what a middle-class life looks like.
The shift is a response to conditions that are found in cities across America: Neighborhoods that used to be affordable are being gentrified, while new condominiums and subdivisions mostly target the upper end of the market, endangering the supply of “starter homes” in reach of first-time buyers. That developers are addressing this conundrum with very small homes could be viewed as yet another example of middle-class diminishment. But buyers say it has helped them get on the first rung of the housing market.
Stalled project being supersized in San Francisco
It took nearly five years for MX3 Venturesi to win approvals to transform a Mission District parking lot across the street from a historic Armory building into 60 apartments. That was in 2019, and the site remains a surface parking lot, likely a victim of the pandemic fallout in the real estate market. Almost a decade later, Mosheydi is essentially starting over, taking advantage of recently enacted housing density bonus legislation.
MX3 Ventures proposes to boost the height from 7 stories to 11. The firm is also proposing ground-floor retail and 164 rental units — nearly triple the number of units to which his project was entitled. A majority of the apartments, 99, would be studios. A total of 26 units would be designated as affordable to low-income and middle-income households. As previously entitled, a seven-story building at 344 14th St. would have yielded eight affordable units.
An analysis of homelessness in U.S. cities
The Brookings Institution has posted an updated analysis of homelessness in U.S. cities using the most recently published Point-In-Time (PIT) count data from 2023 (data collected in January 2024 will not be released until the end of the year). A nuanced patchwork of trends across cities and regions reveals stark new challenges in some cities (e.g., New York) and bright spots of success in reducing homelessness in others (e.g., Austin, Texas, and Indianapolis). These findings make it clear that cities have the evidence and tools to reduce homelessness—there needs to be the political will to invest in and scale them.
In nine out of the 44 major cities that completed full PIT counts in 2023, homelessness rates either remained stable or declined between 2022 and 2023, with rates in Austin, Texas, Raleigh, N.C., Indianapolis, and Colorado Springs, Colo. declining over 10 percentage points. On the other hand, New York, Albuquerque, N.M., Portland, Ore., Atlanta, and Boston saw sharp increases in total homelessness. You can learn more here.
Europe’s most expensive cities for renters
The Economist ranking includes the 35 cities for which the data are available, ranging from London to Ankara. Using a popular guideline that states that no more than 30% of an individual’s pre-tax income should be spent on rent, they calculated the wage needed to afford the average one-bedroom flat in each city comfortably, what they call our “recommended renters’ wage.” Learn more here.
Master-planned communities
PBS News Hour looks at California Tomorrow
A group called "California Forever" wants to build a livable, affordable, and eco-friendly community near San Francisco. However, some local officials and residents are skeptical about the proposal. Paul Solman visited the area for PBS News Hour to examine whether the developers' dreams could come true. Learn more by viewing this nearly nine-minute video.
Twelve planned community trends
Popular features in master-planned communities range from water elements to work hubs and include overarching themes such as affordability and wellness. According to Mollie Carmichael of housing marketing firm Zonda, these trends characterize the top 25 selling communities and are essential to driving more sales and creating value for the residents. Learn more here.
Regional and metropolitan trends
Millennials are fleeing cities
Millennials are officially getting old. They’re having children, buying houses, and getting replaced by Gen Z in urban areas. As one article from Business Insider puts it, “Millennials are getting priced out of cities” and are starting to leave the urban neighborhoods where they’ve been building their lives. According to the author, since the cost and types of housing available in urban areas aren’t conducive to family life, millennials are forced to flee to the only place they can afford to live: the exurbs. Learn more here.
Housing affordability shapes migration in the USA
The affordability search has led to a strong migration flow into states like Florida, North Carolina, South Carolina, Tennessee, and Texas, said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors.
In 2023, consumers moving interstate tended to pick new metropolitan areas where housing costs and competition are less severe, and construction is keeping up with demand, according to a recent Zillow Group analysis of United Van Lines data. The Zillow analysis shows that the most inbound moves include Charlotte, North Carolina; Providence, Rhode Island; Indianapolis, Indiana; Orlando, Florida; and Raleigh, North Carolina, according to the Zillow analysis. You can learn more here.
Firm founders who launch where they studied
Switch On Business searched for the U.S. colleges that see the most business founder graduates launch companies within their college’s city or state. According to LinkedIn's college profile pages, they first retrieved the 250 U.S. colleges that have produced the most business founders, adding the most enrolled colleges locally to their seed list for states represented by just one university. Using Crunchbase, they then retrieved the number of business founders from each college who launched a business between 2014 and September 2023 within the same state or city of their alma mater. They could then calculate the proportion of their graduate founders who launched a business locally for each college.
Key Findings
Hunter College has seen more graduate founders (54.55%) start a business in the local city (New York) than any other college in the U.S.
But 80% of Utah Valley University alums who have founded businesses have done so in Utah — more than any other state.
61.6% of the time, business founders who graduated from a college in California have started a company within California — the highest rate of any state.
California is the top state where graduate founders from 14 other states start a business.
You'll be able to learn more here.
A surprising comeback in San Francisco
Whenever a global economic transformation occurs, a single city usually drives it forward. In modern-day Belgium, Ghent was at the core of the burgeoning global wool trade in the 13th century. The first initial public offering took place in Amsterdam in 1602. London was the financial center of the first wave of globalization during the 19th century. And today, that city is San Francisco.
California’s commercial capital has no serious rival in generative artificial intelligence (AI), a breakthrough technology that has caused a bull market in American stocks and which many hope will power a global productivity surge. Almost all big AI startups have their headquarters in the Bay Area, which includes San Francisco and Silicon Valley (largely based in Santa Clara County, to the south). Openai is there, of course; so are Anthropic, Databricks, and Scale AI. Tech giants, including Meta and Microsoft, also spend heavily on AI in the city. According to Brookings Metro, a think-tank, last year, San Francisco accounted for nearly a tenth of generative AI job postings in America, more than anywhere else. New York, with four times as many residents, was second.
You can learn more here.
Resilience and sustainability
Climate-adaptive building materials
In an era marked by climatic extremes, 2023 was the hottest year, with global temperatures soaring to 1.18 degrees Celsius above the 20th-century average. This alarming statistic underlines the urgent need for climate-resilient buildings. The United Nations Environment Program (UNEP) emphasizes five strategies to bolster buildings against climate change. Two approaches, “building resilience to heatwaves” and “building resilience to cold,” address the need for structures to accommodate wider temperature swings and the increased energy demand accompanying these fluctuations.
At the forefront of these efforts are phase-change materials (PCMs), which offer a novel approach to managing building temperatures. These materials are thermal media that can store and release significant energy by capitalizing on a material’s phase transition, such as from a solid to a liquid or vice-versa. The building facade has long been considered a promising application for PCMs, given their potential to enhance facades’ thermal performance. PCMs help control the thermal load of building envelopes—thus reducing operational energy—and assist in achieving and maintaining optimal thermal comfort levels. There are three classifications of PCMs: organic (e.g., paraffin wax), inorganic (e.g., salt hydrates), and eutectic (e.g., sodium chloride and water).
You'll be able to learn more here.
Environment and sustainability
Golf courses gone wild.
According to the National Golf Foundation, the United States has more golf courses than McDonald’s locations and more than any other country, accounting for about 42 percent of all courses worldwide. Oversupply and development pressures have led more golf courses to close than to open since 2006.
A return to nature, or a version of it, is still relatively rare for former golf courses, most of which end up in the hands of commercial or residential developers, according to the National Golf Foundation. One recent example was a former 36-hole golf facility in New Hampshire that Target bought for nearly $122 million in 2023 to build a new distribution center.
A few shuttered golf courses around the country have been bought by land trusts, municipalities, and nonprofit groups and transformed into nature preserves, parks, and wetlands. Among them are sites in Detroit, Pennsylvania, Colorado, the Finger Lakes of upstate New York, and at least four in California. Learn more here
Graffiti and real estate
Art or vandalism?
The sky-high graffiti covering dozens of floors of the Oceanwide Plaza development in downtown L.A., a $1 billion project abandoned in 2019, has captured the world’s attention. It’s created eye candy for Instagram. It’s become fodder for conversations about urban blight and foreign investment. And despite graffiti’s undeniable rise to the mainstream, it’s reignited an old debate over whether it is art or vandalism. Learn more here.
