When we began the Common Knowledge series in May, the world was in a different place. COVID-19 restrictions had (in hindsight) only just begun, and the effects of the pandemic on the economy and industries were apparent but ultimately unclear. There were major questions to be asked: Would renters leave cities forever? How would investors change their strategies? Where were the opportunities in this new world we were entering, and what would have to be left behind? We started Common Knowledge as a way to begin answering those questions — bringing together experts from across real estate, investment, and design to share their perspectives on the future of city living.
Seven months and 20 episodes of Common Knowledge later, many questions are still up in the air. But we do have a better understanding of what the world might look like on the other side of COVID-19. We’ve gathered our top 5 learnings from the discussions we’ve had, from the cities that will come out on top to what investors are looking for in new deals.
Tertiary cities will emerge stronger than ever — but only if they embrace certain criteria
We’ve seen over the past 7 months, through both market studies and the submissions for our own Remote Work Hub, that despite COVID-19, city dwellers aren’t ready to give up urban life for the suburbs just yet. However, with the rise of remote-work, they are seeing the opportunity to move out of gateway cities like New York and San Francisco. This new-found flexibility creates opportunities for tertiary cities to gain residents and grow their economies. As a Partner at Rise of the Rest Real Estate, Clint Meyers focused on identifying emerging markets using three key criteria pre-COVID — criteria that can also help identify where renters might migrate to post-COVID. These three factors — cheap, smart, and fun — take into account the various elements that will draw in young people who are looking for alternative options to expensive urban hubs, but still want to enjoy the nightlife, dining, and other cultural institutions that brought them to large cities in the first place. Clint gives Minneapolis, Raleigh-Durham, Salt Lake City, Pittsburgh, and Columbus as examples.
Localization, in business model and marketing, is essential
While the economy has slowed, investment continues — however, what investors and lenders are looking for has slightly shifted. To back up investments, investors are looking for a deep understanding of the local market, including both macro- and micro-trends, on a city and neighborhood level. According to Danielle Duenas, VP at Mesa West Capital, this research is key to accessing/unlocking capital for any new project right now, but especially in new markets. But that doesn’t mean that investors are eagerly exploring new markets just yet. Many are sticking with the markets they’re most familiar with, even doubling down on them, because they believe in their fundamentals in the long-term. This research really counts for areas where we’ve seen net-migration since the start of COVID, like Texas and Denver. In these markets, lenders are also looking for strong sponsors and near-term deliveries.
Austin Mitchell, Nuveen’s Head of International Housing & Global Strategy, also noted the importance of local knowledge in Episode 16 of Common Knowledge, “The cultural differences between places is much more challenging than you’d think, so the value proposition is knowing the nuances on a local basis. Groups that have a specific focus, like coliving or student housing, must know their value proposition, their consumer needs, their pain points, and common dynamics that can translate in different markets, which can overpower the challenges of localization if you know your consumers really well.”
Affordability continues to be key, in the U.S. and globally
As Head of International Housing & Global Strategy at Nuveen, Austin Mitchell is focused on global real estate trends, with a special focus on the top 2% of urban cities. According to Nuveen’s research, affordability continues to be a major issue in global markets, and the need for affordable housing will only increase as we see the effects of COVID-19 on the economy. For example, in Spain, 20% of the population rents (as opposed to 50% in the U.S) but when looking at the younger demographic, that number jumps up to 70%. Additionally, stock and supply is dire: only 1% of supply in the last 120 years has been created in the last 10. Any product like coliving, that creates housing opportunities and where affordability is at the core of the product, will be of huge global interest.
Companies that leveraged technology before COVID-19 are adapting more easily
Fifth Wall is a venture capital firm focused on the global real estate industry and proptech for the built world. We turned to Brad Griwe for his perspective on how LPs and institutional companies were approaching the changes brought about by COVID-19, and where they were seeing success. According to Brad, companies that had implemented the latest technology before the pandemic were having an easier time transitioning than those who had resisted new technologies while they weren’t 100% necessary. While “business as usual” was a successful approach when their business model was working, a global crisis created an onslaught of challenges that required developing new approaches quickly. At Common, we’ve seen this play out with virtual touring. Our goal was always to be able to give renters a seamless digital leasing process, way before virtual tours were necessary or the norm. When they became mandatory due to protect both our team and prospective members, our leasing team was fully prepared. Post-pandemic, companies should be ready to embrace new technology when they have the opportunity, instead of waiting until a crisis point.
Coliving continues to rise, and blended assets are the future of residential
Susan Tjarksen, Managing Director at Cushman & Wakefield, oversaw the creation of one of the most influential white papers about coliving. During her discussion with Brad, she noted that there were natural opportunities and use cases for coliving not only in the U.S, but throughout Europe and Asia. For example, in European countries, 63% of the people attending university have emigrated from other countries, and remain in place after graduating — coliving is the natural next step for them as they leave student housing. In Asia, where city dwellers are more comfortable with high-density housing, new coliving developments offer a still affordable but upgraded version of living, with modern finishes and technology.
At last year’s Capital Market’s Summit, Susan predicted that coliving would only increase in popularity as institutional investors began paying more attention to the asset class. However, a year later, the market looks different. While Susan still believes that coliving is here to stay, she sees blended real estate assets as the way of the future. A renter might start out with roommates, but as their lifestyle changes — they get a significant other, they make more money — they’ll be able to move into a studio or 1- or 2-bedroom apartment in the same building, retaining the community they built with coliving. Additionally, in Episode 17, Jonathon Yormak, Founder + Managing Principal East End Capital, noted that his firm was beginning to look at coliving as a unit type, not an asset class. He predicts that in 10-15 years, coliving units will be part of every development, as they allow for a more diverse range of renters in any given building.