Buying “up” and how!
There are a lot of op-eds detailing the gentrifying neighborhoods of America. They’re often spoken as if it’s a rising tide lifting all boats sort of scenario. For most people it means yet another neighborhood has become a lot more expensive than it used to be. Besides existing property owners, gentrification isn’t much of a windfall as increased commercial and residential rents offset much of higher standard of living associated with “revitalized” neighborhoods.
So how do you benefit? Simple. Get better at identifying up and coming neighborhoods. Where? Here. Right here.
Step 1 : Nearly Invisible Changes
The earliest signs of gentrification precede any substantial change to the built environment. They usually begin with a new demographic moving into the existing inventory. Imagine MacArthur Park between 2011 and 2014. The dense neighborhood immediately to the west of the Downtown LA did not see any construction during those years, but what was happening was a population shift. It’s hard to notice a change like this unless you’re already living there and witnessing the change.
Step 2 : Changing storefronts
Keep in mind, this is only applies to the existing storefronts, not new construction. However, if there is a noticeable trend of new commercial options that means the erstwhile “invisible” population change has reached a tipping point where it’s economically viable to cater to them. At this stage it becomes slightly more noticeable and begins to attract the attention of commercial real estate agents.
Step 3: Rehabilitation
This is a foreshadowing of true construction, but rehabilitation of existing structures usually means the rehabilitation of prominent existing structures. Imagine a disused firehouse, library, office building vacant above the first floor etc. Rehabilitation is the easiest way for developers to test the strength of an area without going through the cost of ground-up construction. It’s at this stage where a neighborhood will have some article written by the plethora of urban planning/architecture blogs out there.
Step 4: Renovation
By step 4, steps 1–3 have continued apace and accelerated. When landlords believe they can substantively renovate a property it means they believe in the long-term ascendance of an area. By the time renovations are completed there are likely new-constructions permits already filed or at least on the drawing board. Renovated properties command a higher rent and rents determine the value of multifamily/commercial properties. Once a certain threshold is reached, developers have the data they need to substantiate the funding for their ground-up projects.
Step 5: New Construction
At this stage, it becomes common parlance to call an area “gentrifying” because it will be visually obvious. It’s an oversimplification, but imagine some downtown-adjacent residential neighborhood that was adversely affected by deindustrialization, suburbanization and the riots of the 60’s. It’ll be pock-marked with vacant lots and abandoned buildings, but nevertheless possesses a density not found in suburban areas. This means developers have mini blank-slates to work with. Mt. Vernon Triangle in Washington DC, South Lake Union in Seattle, and Rincon Hill in San Francisco are good examples of this type. New construction in these areas is also a self-fulfilling prophecy. New construction creates the much needed “comps” or comparable sales for other developers to follow suit and build new constructions of their own. With an increase in foot traffic from visitors, workers and residents, you get more commercial options.
Step 6: Repurposing
This is the first indicator of a “mature” market. If developers are resorting to unconventional projects like repurposing old office buildings for residential uses or adding a several story addition to a building, like so, then the low-hanging fruit has already been picked.
That’s not to say that there aren’t any opportunities in mature markets like Rittenhouse Square in Philadelphia, the entirety of Manhattan, or Dupont/Logan Circle in Washington DC, it’s just a lot less frequent.
Step 7: Plateau
At this point in time, there are few developments and builders begin to start “grasping” at the straws for opportunities. Unconventional sites like gas stations, and irregular sized lots become more common. Spot zoning changes, a technique used by large construction firms, become more normal as the organizational know-how and financial hurdles needed to get those changes done are prohibitively expensive and time consuming for smaller developers. Think of Beverly Hills (LA), Upper East Side (NYC), Georgetown (DC), Gold Coast (Chicago).
Ok great, but how do I get a step ahead?
For starters, look at the construction and urban design websites that monitor this stuff. All the information is out there — you just have to do your due diligence to find it. Secondly, work with an agent who is on my platform. If they aren’t, they’re not getting access to hundreds of pockets.
