Thoughts on the 2019 ULI Fall Meeting in Washington DC

Thoughts on the 2019 ULI Fall Meeting in Washington DC

October 7, 2019

Takeaways and Observations from ULI SA’s Founding Chair, David Adelman

While your first thought about Washington D.C. might be political in nature, the Urban Land Institute (ULI) Fall Meeting started off about Amazon and HQ2.  What an amazing harvest for this city.  During my time in D.C., I probably wore down an entire shoe sole walking the city (great weather was a plus).  Only just a few years ago, I would likely have disappeared walking through some of the neighborhoods; however, today the development is nothing short of a miracle.  The amount of development I saw over the last 3.5 days was astonishing….literally billions.

Tuesday evening started with a late dinner at Barcelona, which was thriving.  Just a sliver of a building, it was deep, but well designed and bustling with people.  The prices were equal to or less than what I often experience in San Antonio, yet the quality of the interior and the food/beverage/service was on par with the best I have seen.

A group of members from ULI San Antonio toured DC with our own customized tour, led by Zac Harris!

Day two kicked off with a walking tour of the Shaw District.  Met up with a large contingent from home and we were led in part by Zac Harris….thanks Zac!  The Shaw District was one of the areas not far removed from dangerous conditions and blight; the turnaround is astounding.  Overall, the quality of the street level experience was super notable.  I cannot stress enough the size of the street trees that have recently been planted throughout the city.  Additionally, the graphics, way finding, market materials, etc. all reflected the Shaw District branding.  The area was colorful, playful and consistent, and included painted graphics on the sidewalks, banners on the lamp posts and matching bike racks, to name a few items.  Just as important as anything, there was not one single creosote pole covered in power lines.  I beg anyone to go walk a dense urban area with generous sidewalks, large street trees and no power lines and you will be just as disappointed as I am with how we typically do it in San Antonio.

Later we spent time at the Navy Yards redevelopment (in a former industrial area) now known as the Capitol Riverfront.  What an amazing development!  It seems as if somebody dropped a dried up sponge, added water and an entire city popped up in the last several years.  The redevelopment includes the new Nationals Ballpark, home to the Washington Nationals major league baseball team.  This district continues to grow on its way to a total buildout of 37.5 million square feet with a total population of over 30,000+ residents. The neighborhood is approaching approximately 70% buildout already, and is on its way to over 14,000 residents in the next two years (currently at 10,000+ residents).  San Antonio could easily accommodate a large percentage of this development density in Phase III of Hemisfair, known as Tower Park if we had the courage to pursue it.

Rendering of Amazon’s Crystal City on the Potomac River in Washington DC

Amazon: relative to real estate development, it is ALL about talent. There is a clear mission to ensure employees feel welcome in this district. One really interesting point shared by the lead decision maker for the relocation was that the Request for Proposals (RFP) process taught them much about communities all over the country and resulted in many additional investments in those communities.  It included adding distribution centers, call centers and even a 5,000 employee commitment to Nashville.  I think San Antonio made a grave error not submitting some amount of information to the process.  In fact, I would argue that based upon this sharing, we really need to rethink how we “market” our city.  We should be continuously marketing to the best in class companies and sharing our story.  With regard to the blighted area in Crystal City where they will be locating, the main developer, JBG, focused on a vision for creating a neighborhood. One of the most important things they shared was that 20 feet out and 20 feet up matters.  Essentially, the sidewalks and landscape 20 feet from the building front and the first floor were super important.  I couldn’t agree more.  Another major factor was Virginia Tech partnered on the proposal sharing their vision for creating a tech talent pipeline.  That was the main catalyst for the final Amazon decision.  In fact, it has led to the naming of the campus area to be a global innovation district.

There was much discussion regarding “attainable housing”….a new and interesting name….remember affordable housing…then workforce housing…now attainable housing.   I suppose one way to solve a problem is to rename it and forget about the original problem. One idea talked about was “regionalism” should be applied as a concept.  I like that idea because it is an issue affecting everybody, not just endemic to certain geographic areas.  For example, the issues around affordability should be just as important to the City of Schertz as it is in San Antonio and all of the cities in our MSA should be deeply engaged.  Interestingly, there was a comment made that suggested single-family zoning is by nature exclusionary.  Certainly an interesting idea to consider.  San Antonio is already pushing our codes to allow for additional structures so people can add back houses and either have some rental income or possibly have the parents move in!  The only problem is the BANANAS, people who believe you should “Build Absolutely Nothing Anywhere….”. They have replaced the CAVE people “Citizens Against Virtually Everything.”  Much education of neighborhood groups to be done here if we are to see the types of density needed for a truly sustainable, transitable, and more walkable city.

Opportunity Zones got plenty of coverage.  We were reminded of the famous Jim Rouse quote “Doing Good by Doing Well”.  Let’s hope some folks do well by reinvesting in areas with a variety of challenges.  One anecdote that was shared interestingly, is that whenever anybody, institutions included, talk about social impact investing, they are not willing to sacrifice one basis point of return/yield.  The general theme here is the managers of those institutional funds will say we cannot solve the housing crisis on the backs of retired police officers and school teachers as they have already sacrificed enough. A new concept talked about was the idea of a municipality leasing infrastructure from private sector developers.  Stay tuned here….on the surface, I cannot imagine how this makes sense other than the private sector likely can deliver projects at a lower cost which may offset the higher capital costs.

As an emerging trend, U.S. real estate is still considered globally as the safest bet for steady yields.  We are literally awash in capital for value add core real estate.  Cities with higher education have the best prospects as well.  Weathering a downturn will be on a case by case basis…in other words not all cities will be affected the same.  Cities that have more back office will be hurt worse than cities with a strength in higher ed and higher skill jobs.

Following the principal of sharing, I toured a project that just before Certificate of Occupancy is converting a full third of the building to co-living space.  The closest comparable property type is student housing, although this product is geared towards single professionals.  The idea is convert the living room to a bedroom and the rooms all share one kitchen.  In some plans ,the restroom is shared and in 2/2 conversions there is a room with a private bath.  The big idea is to significantly transform the common areas into more living room space.  My instincts tell me these projects will perform better than WeWork, which is suffering its own problems as I write this.

Additional takeaways:

  •   Many companies are shrinking staffs and reducing travel
  •   Debt funds are lowering lending rates and being quite competitive
  •   Construction costs are rising faster than rents
  •   More yield compression is coming
  •   Big question mark for an obsolete product
  •   Shopping centers looking to increase entitlements in order to densify
  •   Multifamily will really need to pay attention to WalkScore
  •   Keep a close eye on foreclosures

All in all it was an insightful conference.  Hope to see you in Toronto, Canada in the Spring or San Francisco, California in the Fall of 2020.

David M. Adelman
AREA Real Estate, LLC

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