REAL ESTATE TRENDS: A Bellwether For The Economy

 

I’m still not used to seeing so many empty retail storefronts.

Many of us, including me, noted that people were still spending, just not on stuff. We’d all rather spend on experiences like restaurant dinners. Well, not so fast. While there are still lots of hot spots where reservations are impossible to come by, the restaurant biz is rapidly running out of steam (blame it on crazy rent hikes, minimum wage increases, or just too many restaurants).

Whatever the reason, I’m picking up signs everywhere that we will soon see a restaurant collapse similar to what we experienced with retail. Some early indicators include more restaurants doing out-of-character promotions e.g. Rebelle, a very high-end chef-driven spot downtown, is suddenly doing $5 happy hour cocktails with Stoli (they did not carry vodka previously). And then there are the restaurants that are inexplicably renting out their spaces during the day for co-working e.g. Public and Daniel Boulud’s DBGB. Not surprisingly, word just hit the street that Public is closing at the end of June and Rebelle looks like it is on its last legs.

Want more proof that the commercial real estate apocalypse is upon us? Bank branches closing en masse. Not surprising, of course, since we’d all rather venmo and bank electronically. I haven’t seen much of this yet in my neck of the woods but I hear it is happening elsewhere.

Definitely time for some belt-tightening. Last month’s anemic job numbers are just the tip of the iceberg for joblessness as retailers, restaurants, and banks continue to lay off thousands of workers.

Read on below for info on co-living.  It’s the one commercial real estate bright spot I see. It has big potential – especially if it is designed for broader audiences than just millennials.

Co-Living Spaces (or “hacker houses”) are going mainstream as millennials continue to migrate to high-priced urban areas (Source: Business Insider)

 

 

I first heard about co-living at a dinner with Brad Hargreaves who is the founder and CEO of Common. It is an incredibly intriguing idea – primarily aimed at millennials (often students or startups) but it is a concept that could work for multiple age groups. What I love about the concept is that it simplifies your life and lets you get on with it unburdened by stuff. Co-living members also get lots of perks and amenities that streamline life e.g. free internet, maid service, and new friends – if you are so inclined.

To learn the market, Brad Hargreaves visited dozens of shared housing developments, from hacker houses in the Bay Area to a desert commune in Arizona founded in the 1980s. He studied the pain points and cherry-picked the details he liked for Common’s design, amenities and layout.

Examples of Co-Living Spaces:

Common received 10,000 applications to fill nine residences across three US cities in 2016.

  • The company’s $23 million in funding pales in comparison to WeWork’s $3.6 billion, but Common operates more properties and is focused on making co-living work at scale.
  • Common says it hasn’t been able to keep up with demand for its co-living spaces and receives 300 applications for rooms in its buildings each week.

WeLive, a subsidiary of WeWork, has locations in New York City and Arlington, Virginia.

  • Their furnished apartments serve as short-term landing pads for people moving to a new city.
  • In its Wall Street location, they charge $1,900 for private room with a Murphy bed.
  • Private studios start at $3,050 ($500 more than the median rent for a studio in Manhattan).

Open Door, founded in 2013.

  • Has three co-living spaces in the Bay Area including Euclid Manor, a 6,000-square-foot single-family home in Oakland, California.

 

Investment Properties (Source: Seeking Alpha)

  • 37% of all homes sold in the U.S. last year were purchased for investment purposes.
  • The homeownership rate in 2016 was the lowest in 50 years, as renting has been increasingly the more frequent choice compared to purchasing.

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