I recently met with two visionaries in the heart of Washington DC to discuss their latest project, Places Platform.
Founders Chris Leinberger and Jack Horton have an objective of creating a technology that will track the $54 trillion U.S. property market in a manner similar to how the Bloomberg Terminal enables professionals in the financial service sector to monitor and analyze real-time securities and financial market data.
Places Platform is focused on guiding investors to navigate the Walkability Trade, which is a shift in value from driveable suburban properties to walkable urban places, in both center cities and urbanizing suburbs.
It’s important for mortgage professionals to watch this trend as its implications will affect housing prices, potential migrations, and development of existing areas.
Both Horton and Leinberger come from a deep understanding of the real estate market and technology. Horton had a distinguished career in IT, including IBM and Booz Allen Hamilton, where he helped launch Realtor.com, and has been involved in a number of start-ups.
Leinberger is an author and professor at George Washington University School of Business and a former Brookings Institution Senior Fellow. Previously, he was the owner and managing partner of RCLCo, an international real estate advisory firm, as well as a founding partner of Arcadia Land Company.
Professor Leinberger has been able to document the resurgence of American cities in the 1990’s, which helped reverse the trend of suburban sprawl that dominated post-war America. Cities became attractive to millennials gravitating to jobs in the knowledge economy, particularly the techno hubs including Austin, Boston, New York, Seattle, San Francisco and Washington DC. Baby Boomers also responded to the attraction of cities for convenience and cultural activities.
Reversing Reverse Migration
The key for both demographics was and is walkability – the ability to satisfy day-to-day living needs by walking rather than getting into a car. The net effect has been good for the environment as less fossil fuels are burned because people have shorter commutes and shopping trips. They also benefit from the opportunity to exercise by walking and bicycling more.
The result of this reverse migration is a disproportionate amount of capital flowing to center cities and urbanizing suburbs as prices for scarce property continue to rapidly escalate. Leinberger noted that metro Washington, DC has only two percent of its total land available for walkable urban housing and commercial development, due to a lack of high density zoning.
At a time when the nation has a massive housing shortage of over 7,000,000 units, cities such as San Francisco and DC face a huge surge of homelessness and onerous rents particularly for the low wage service jobs that go unfilled. This is a self-inflicted result of artificially high land prices in a country with no shortage of land.
One result is that inner suburbs are rapidly transforming into walkable spaces. A “prime” example of this (pun intended) is Arlington, Virginia – the winner of Amazon’s contest for its second headquarters. Arlington beat out more than 300 other contenders. Leinberger points out that Arlington’s proposal was essentially a roadmap for cities to position themselves to economically thrive in the future. As a result of this win, Arlington is expected to have a very desirable mix of affordable housing, mass transit, access to an airport, and good schools at both K-12 and the university level.
The 2.1-million-square-foot development (called Metropolitan Park) is slated to be completed in 2023. It will be very walkable, clustering large-scale office, retail, apartment and condominium buildings together; even Ronald Reagan airport will be walkable from Amazon HQ2.
As winners of the RFP, the state of Virginia is going to invest a billion dollars in a one million square foot “innovation campus” of Virginia Tech, co-located with HQ2. This investment will benefit the booming northern Virginia area well beyond the 25,000 jobs Amazon has promised.
Places Platform is set on tracking the shift in value from driveable suburban properties to walkable urban and suburban spaces, in both center cities and urbanizing suburbs like Arlington, Virginia. Leinberger states that Places Platform analyzes data such as the “$19 trillion real estate market that is metropolitan New York, 90 percent of which is walkable, with premiums that are two and a half to three times driveable suburban values.”
The need to monitor this shift can be seen in the precipitous decline in value of the shopping malls that were once the anchors of suburban life. 2019 saw the highest number of store closures – over 10,600 – and we are already on a pace to eclipse that this year. Similarly, home prices for distant drivable-only suburbs continue to stagnate while walkable areas command a 50 to 100 percent premium per square foot. Home prices in upscale New York City suburbs like Greenwich, Connecticut have flatlined for the last decade, while walkable Brooklyn values have soared.
Communities need to plan for their own walkable urban strategies. Leinberger pointed out that his experience in Chattanooga and Detroit have successfully embraced this trend, demonstrating that it is not just for the more celebrated mega-cities. While this seems like an obvious thing to do, it is often blocked by the same gridlocked politics that are hamstringing the country. Forces on the right object to the introduction of perceived undesirable elements and the potential for undermining the built-up equity of their low density housing. Those on the left are concerned that gentrification will drive out minorities from their traditional neighborhoods and exacerbate affordability problems. This played out recently when New York rejected Amazon’s desire to open another headquarters in Queens. The episode neatly frames the clash of important dynamics.
Walking into the Future
The trend to walkability has important implications for how we manage and direct capital and tax policies. More established cities that can be seen as winning such as San Francisco also appear to be choked by their success, as the median home price of $1,300,000 is coupled with camps of homeless. East coast cities such as Boston, New York and Washington DC, face huge costs in keeping their aging subway systems running while bridges and roads crumble. Driving long distances, particularly in gridlocked traffic, is a major factor in climate change. Extending the infrastructure of existing cities is much cheaper than attempting to add it to distant suburbs.
Cities can be seen as far more efficient but have also demonstrated a resilience to economic downturns that have eroded areas that peaked with the industrial age. Boston boomed during the mini-computer era of the 1980’s through companies such as Digital Equipment Corp. (DEC), Data General and Wang Laboratories, which are now long gone.
But Boston is booming again as a leader in robotics, artificial intelligence and bio-engineering. Simultaneously, smaller cities and towns in the nearby Connecticut river valley such as Springfield, MA that were economic powers during the industrial revolution continue to shrink in population and opportunity. This bi-furcation in value creates the potential for the next Black Swan event in the capital markets, which will be explored in an upcoming post.
Bill Kelvie has had a long and varied technology career as a programmer, strategist, CIO of Fannie Mae, and CEO and founder of Overture Technologies. He currently is an advisor to technology start-ups and publishes a blog on technology disruption at AWWEW.com.