Urbanexus Update - Issue #125

The U.S. economy closed out 2020 on increasingly unsteady footing as more states tighten restrictions on businesses and travel amid the country’s worst-yet stage of the pandemic. Cases have been soaring by 1.5 million a week, while a new version of the virus identified in the U.K. has added to the risks. The surge threatens to undermine improvements in the job market, despite the promise of new vaccines and progress in Congress toward fresh fiscal stimulus after months of delay.

Click on the image below to view Bloomberg Economics’s weekly dashboard of high-frequency, alternative and market-based data tracking the plunge into recession and eventual recovery.

LOCUS, in partnership with the Brookings Institution, has released a document called The Great Real Estate Reset. It is an in-depth series of five research briefs that takes a long look at how the broader real estate industry is failing to fully address persistent segregation by race and income, pent-up demand for more attainable housing, destabilized regional housing markets fueled by climate change, and other converging trends. 

Real estate is cyclical. Industry players are accustomed to periodic market resets, where credit tightens, demand is weak, and the construction sector sheds jobs. During these “resets,” some combination of time, bailouts, and corporate pivots ushers in the next cycle of growth. The current cycle began with a reset triggered by the subprime mortgage lending crisis and subsequent Great Recession of 2007 to 2009. Today, the industry is overdue for its next reset—but this one is different.

For generations, the presumptive American real estate consumer has been a middle-class white family—a fact that is reflected in the products, pricing, planning, and public policies that form the baseline of industry practice. But today, five converging trends are disrupting this market fundamental: persistent segregation by race and income, the demographic transformation of America, destabilized regional housing markets, the future of work, and disruptions to the retail ecosystem. Thus far, the real estate industry has only responded at the margins to these trends. Continuation “business as usual,” risks not only another market crash, but also deterioration of American political and social cohesion.

The trend of working remotely swept the nation as a result of the COVID-19 pandemic this year. While some are relishing the opportunity to test drive their home offices, a large number of Americans are ready to return to the workplace. According to a recent survey of employed Americans commissioned by OfficeSpace Software, 71 percent of respondents currently working from home are eager to move back to the office once it is safe to do so. Over 70 percent indicated that they feel more engaged and more productive in the office, and 80 percent indicated that they miss in-person collaboration with their coworkers.

The novelty of virtual meeting programs like Zoom — a boon for keeping colleagues connected during the pandemic — has also worn thin, with 57 percent of respondents indicating that they are tired of meeting through video.

Some workspaces in central employment districts may become housing, and some housing in residential areas may become workspaces.These changes will be gradual, but they will have a significant impact on urban office buildings, which used to be perceived as almost as safe as government bonds.

Consider, in comparison, that the “retail apocalypse” that led to multiple bankruptcies and the closing of tens of thousands of stores was a result of less than 12 percent of all activity moving online, over a period of two decades, while total sales were still growing.

Over the next decade, the transformation of the office market figures to be less comprehensive, but it will probably happen faster and to an industry that is far less prepared. And just as in retail, it will create some new winners, as well as a multitude of losers — those unwilling or unable to adjust to an era of worker choice.

Pennsylvania Real Estate Investment Trust (PREIT) has received a zoning approval that will allow the Philadelphia-based mall owner to add up to 1,065 multifamily units and a hotel to its Moorestown Mall in Southern New Jersey.

For PREIT (NYSE: PEI), which filed for Chapter 11 bankruptcy in early November, the move is part of a larger effort to diversify the real estate at several of its regional malls. Dubbed a “densification plan” by company executives, PREIT’s plan to sell parcels of land to multifamily developers is expected to generate as much as $150 million in proceeds that will be used to reduce its outstanding debt.

The company is in the process of delivering 3,500 apartments across its properties as part of the initial phase of the plan, which could ultimately see as many as 7,000 multifamily units and several hotels added to PREIT’s properties. The first phase of the multifamily component at Moorestown Mall will consist of 375 units and a hotel with an unspecified number of rooms.

According to the Harvard Joint Center for Housing Studies’ Rental Housing 2020 report, the number of all single-family rentals—both previously existing homes and new build-to-rent units—grew 18% from 2008 to 2018 to 15.5 million units, or about a third of all rental units nationally.

That growth was spurred in large part during the Great Recession, when institutional investors swept in to buy existing, foreclosed single-family homes in bulk on the cheap, and began to rent them out at attractive yields. But when home prices recovered, it became more challenging to find enough homes at easy returns. Maintenance issues with older housing stock, as well as the hurdles of operating multiple units across different geographies, led those early single-family rental firms to explore building entire communities of new homes, and the build-to-rent boom was born.

Aegis Living, a seniors housing owner/operator based in Bellevue, WA, has acquired 10 properties from Healthpeak Properties Inc. (NYSE: PEAK). Aegis already operated the communities under a lease agreement with Healthpeak Properties, a Denver-based real estate investment trust (REIT). Aegis’ joint venture partner on the $350 million acquisition is Blue Moon Capital Partners LP, a Boston-based private equity investor in the seniors housing sector.

Every year since 1994, RCLCO conducts a national survey identifying the top-selling MPCs through a rigorous search of high-performing communities based on residential sales volumes.

U.S. weekly hotel occupancy fell back below the 40% mark, according to STR‘s latest data through 9 January. From HotelNewsNow.com: STR: US hotel results for week ending 9 January. The U.S. weekly hotel occupancy fell back below the 40% mark, according to STR’s latest data through 9 January.

·      Occupancy: 37.0% (-28.3%)

·      Average daily rate (ADR): US $87.97 (-27.1%)

·      Revenue per available room (RevPAR): US $32.59 (-47.7%)

Sustaining culture and character is more than a black or white proposition. It requires a careful blend that depends on local circumstances, meticulous research, and self-knowledge.

Like idiomatic phrases that say similar things in a variety of languages, urban environments are customized adaptations to different conditions. Sustaining culture and character is more than a black or white proposition. It requires a careful blend that depends on local circumstances, meticulous research, and self-knowledge. 

Whatever our role in managing urban change, we must remain mindful of the underlying context of the place at hand. Place-specific considerations suggest the inadequacy of a “one-size-fits-all” mindset. Priority and process may vary based on ethnicity, national heritage, generation, or profession. It is not just a question of whether “what worked there will work here,” but the existence of different mechanisms for resolving issues of social justice and change.

Adapted from Charles R. Wolfe with Tigran Haas, Sustaining a City’s Culture and Character: Principles and Best Practices, (Rowman and Littlefield, early 2021).

According to the National Low Income Housing Coalition, the United States had a shortage of seven million rental units for households with extremely low incomes as of March 2019. Now, as upward of 40 million people face the risk of eviction because of joblessness caused by the Covid-19 pandemic and ensuing recession, finding new solutions to creating affordable housing is key to abating an imminent national housing crisis decades in the making.

Around the country, groups are taking up the challenge. Their approaches are varied, addressing the unique conditions, jurisdictions, geographies, and categories of people in need. But they all call for letting go of outdated notions about what affordable housing is—and whom it serves. There are as many solutions to the country’s housing crisis as there are causes. We need them all.

New York’s highest court – the Court of Appeals – decided an important New York City land use question regarding how “open space” is accessed by residents on a zoning lot with multiple buildings In the Matter of Randy Peyton, et al v. NYC Board of Standards and Appeals

On December 1st, Hewlett-Packard–which has been headquartered in Silicon Valley since 1939–announced that its corporate headquarters would move to Houston. On May 9, Elon Musk announced that Tesla was moving its headquarters to “either Texas or Nevada,” but on December 7, he revealed that he personally had moved to Austin. On December 11, Oracle announced that it was also moving its headquarters to Austin.

Until the pandemic, people’s choices were largely shaped by their workplaces and commutes. A 25-minute drive to work could become an hour and a half at rush hour. One might have to wait 60 minutes to get their 7:00 p.m. reserved table for a 90-minute dinner. A 15-minute quick trip to buy a few items at the grocery store might take an hour because of the crowded aisles and long lines on weekends. Movie theaters were packed or even sold out on weekend evenings while they were virtually empty on Sunday or Monday evenings. Swim lanes at noon would be packed with six or seven swimmers, while mid-morning or mid-afternoon lanes would be almost empty.

For those who have been working at home (sans school-age children in their household), the pandemic has organized daily activities in a more reasonable way. It turns out people did not flood the swim lanes at noon because they wanted to swim at lunchtime, but because that was the only time available to them under a corporate schedule. When the swimming facilities started taking lane reservations to keep down the number of swimmers in each lane, the swimming activity was evenly distributed throughout the day. Interestingly, noon became the hour most available for reservations as this was a time the fewest swimmers signed up for. Swimmers naturally spread their swim sessions throughout the day to coincide with their personal work responsibilities and rhythm of life.

It may be that in 2021, we will see the beginning of a new, more flexible, more productive approach to life. With luck, corporate leaders will continue to provide their employees more freedom and flexibility.  Neighborhoods will flourish and cities will thrive if city officials and planners embrace Organic Urbanism, emphasizing the natural rhythms and desires of how and where people want to live and work.

From the 1980s to the mid-1990s, cities suffered from high crime rates and numerous quality of life issues. New York City, San Francisco, Los Angeles, and some other major cities have recreated the environment of that era, with non-scientific pandemic restrictions that devastated local businesses and a penchant for placing the mentally ill directly in family-oriented, residential neighborhoods. These cities have stopped prosecuting many property and quality of life crimes, inevitably leading to bad quality of life and apathetic enforcement of more serious crimes.

The coronavirus has reset consumer expectations back to suburban living with the mental health benefits of living in green space. There has been an exodus from major industry centers to their suburbs and to the alt-cities. The alt-cities of Miami, Austin, and Nashville all offer car-friendly, suburban living, relatively cheap housing, and continual housing construction. With the acceleration of sustainable building materials and clean and cheap energy, the urban planning rationale to pack people into urban cores with mass transportation was already beginning to fray, and the coronavirus may have sealed its fate.

Since there is evidence that individuals living in crowded housing situations are more likely to contract COVID-19, it is of public interest to understand what factors contribute to higher levels of crowding in the first place. And gven the highly contagious nature of COVID-19 and the medical community’s recommendations around social distancing, there is increasing discussion around whether dense urban environments are more susceptible to the spread of disease.  It turns out that crowding (a high number of per room) in housing, is much more of a factor than high density (a high number of persons per square mile.)

There is a weak correlation between density and household crowding. Southeast/East Vernon, Los Angeles, for instance, had the highest level of household crowding in the U.S., but did not have anywhere close to the level of density found in almost any neighborhood in Manhattan. On the flip side, Manhattan neighborhoods, which are the densest in the country, were only slightly more crowded than the national average, which shows that the benefits of density can be achieved without crowded housing conditions.

Per Wendell Cox, CA is home to the 5 major US metro areas (>1MM people) with the highest percentage of over-crowded housing. Could this be contributing to the rapid spread of COVID-19 in that state?

New Zealand home prices are among the highest in the world relative to incomes and rents, with the capital city of Auckland having a median home price of $830k and a house price to income median multiple of 8.6 – in contrast to Houston’s far more affordable 3.6 - as documented in the Annual Demographia International Housing Affordability Survey. At the root of the problem, new land was only developed when city councils allocated budget to build out new infrastructure like roads and sewers, which they almost never chose to do or where unable to do due to debt limits. The result of that limited supply was skyrocketing home prices.

In 2018, 42 New Zealand delegates came to the USA to study urban development in Portland, Denver, Dallas and Houston, with a focus on revenue bonds and municipal utility districts (MUDs) in Texas. MUDs allow developers to issue new infrastructure development bonds paid back by property taxes on the new properties. Hosted by the Greater Houston Partnership, the delegation learned from Houston in particular how housing and infrastructure can be supplied much less expensively when markets (particularly land markets and the supply of local public services) are designed to be competitive and well regulated.

The delegates brought the Texas MUDs model back to New Zealand, and after two years of work, passed the Infrastructure Funding and Financing Act in July. Similar to MUDS, the law allows the establishment of Special Purpose Vehicles (SPVs) to enable the private sector to raise debt for infrastructure paid back by levies on those properties. This make it easier to develop new housing, adding supply to keep up with demand so prices stay more affordable.

There won’t be much of a shift away from private vehicles in North America over the coming decade–largely because there aren’t many incentives for drivers to change their behavior.