The Economic Benefits of Walkability

By: Brandon Wilhite

Starting with the Federal-Aid Highway Act of 1956, the way cities were developed in the United States began changing. Although it was never the intent of the legislation, new highways funded by federal and state funds incentivized development away from city centers and into the suburbs in quantities never before seen in American history. New highways, originally intended to provide mobility for US military resources, made suburban areas more accessible, and thus more attractive to the masses. Suburban development thrived, and with it, the American car culture, necessitated by the new commuting patterns of workers who worked in the city centers and lived in the suburbs. Suburban development patterns of single-use developments and neighborhoods (i.e. residential subdivisions, retail shopping centers, and suburban office parks) further exasperated America’s dependency on automobiles. Within a generation, walking between destinations as part of a daily routine became a thing of the past for large populations of American citizens.

walkability commercial real estate

Recent trends are indicating that preferences are changing across both demographics and generations. Growth in Vehicle Miles Traveled (VMT) per capita is slowing according to most studies and some studies actually show the number shrinking considerably. The recent rise of on-demand transportation services such as Uber and Lyft are starting to make some rethink the idea of car ownership all together in some parts of the country. This trend will likely increase with the rise of autonomous cars, thereby reducing the cost of those services.

Generations from Millennials to retiring Baby Boomers are increasingly showing a preference for living in walkable communities. Both retailers and employers, both wanting to be close and convenient to their customers and employees, are following suit and showing a preference towards mixed-use walkable neighborhoods. Intuitively, it would make sense that as demand for walkable neighborhoods increased, so to would property values in those neighborhoods. The data backs up that intuition: A recent study conducted by Real Capital Analytics and WalkScore found that between 2005 and 2015:

  • Prices for properties located in Central Business Districts (CBDs) have risen 125%
  • Prices for suburban properties that are also considered highly walkable increased 43%
  • Prices in less walkable, car-dependent suburban locations increased only 21%-22%

The benefits of walkability don’t end there. Workers and residents in walkable areas typically have lower transportation costs. When combining housing costs and transportation costs, residents living in cities typically viewed as having high costs of living such as New York City, San Francisco and Washington DC actually spend a lower percentage of their income than residents in cities typically considered to be more affordable such as Houston, Atlanta and Dallas. Additionally, residents enjoy significant health benefits from living in walkable communities such as lower instances of obesity and diabetes.

Because of these benefits, walkable communities are no longer limited to urban city centers. Public officials of suburban cities also recognize walkable and livable communities are a key to economic competitiveness. As a result, many new suburban developments are developed adjacent to commuter rail and offer mixed-use “live-work-play” environments.

Metropolitan Capital Advisors has assisted our clients in financing projects ranging from mixed-use high-rise redevelopments in CBDs to ground-up mixed-use developments in suburban locations.

The author, Brandon Wilhite, is a Senior Director in the Dallas office of Metropolitan Capital Advisors. Please contact Brandon Wilhite at or visit the Metropolitan Capital Advisors website at

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Brexit – Immediate Effect on Commercial Real Estate?

— By Sunny Sajnani

In late June 2016, a historic referendum was voted on approving the British withdrawal from the European Union (EU).  The immediate reaction was a short-lived dive in world stock markets, which immediately rebounded a week later.  Investors of all assets classes have come to realization that Brexit will result in a long-term transition for the UK, rather than an immediate change.  So what does all this mean for commercial real estate in the United States?  Why does the UK decision to distance themselves from other European nations affect us?

brexit commercial real estate


Bexit is likely to have a short-term positive effect on commercial real estate in the United States, especially in large gateway cities and in the office market.  “We’re probably going to see more foreign capital push into the safe haven that is the United States.  The greatest effect will probably be in the office markets of U.S. cities that are points of entry for international travelers,” said Suzanne Mulvee, director of research at CoStar, a commercial real estate analytics company.

The longer-term effects of the vote and Britain’s actual withdrawal from the EU are less clear.  “Brexit is one more in a series of shocks to the global economy that will have uneven implications for the U.S.,” said Christian Redfearn, professor of real estate at the University of Southern California. “An exit from the EU could signal the beginning of the end of the EU experiment and a lot of uncertainty about one of the major drivers for the world economy.”

Gerard Mildner, director of the Center for Real Estate at Portland State University, said Brexit will probably have little immediate impact on the U.S. economy or commercial real estate markets, but could be part of a larger shift in the nature of the global economy.  “The risk is that other countries will copy Britain and impose trade barriers.  The most exposed U.S. sectors will be export businesses (e.g., aerospace, agriculture, technology), port-related industrial property and the financial industry.”

Interest Rates

US Treasury rates have tanked since the Brexit vote.  The 10-year US Treasury rate has fallen from 1.74% on June 23, 2016, to 1.37% on July 5, 2016—a reduction of 37 bps in 2 weeks.  Also note, when the energy market was at its low at the beginning of the year, the 10-year treasury rate was 2.24%.  A drop in rates comes as investors flee to the safety of the 10-year treasury note that serves as the benchmark for mortgage interest rates, creating a “Brexit benefit” for lenders and borrowers.  For purposes of new financings, this is a huge benefit for borrowers that are locking in long-term rates especially compared to the price of capital only 6 months ago.

These drastic rate decreases don’t benefit everyone.  Brexit drastically affects Defeasance Costs and Yield Maintenance for borrowers that are trying to unwind and payoff CMBS debt (and other permanent mortgage products).  The cost to defease a CMBS loan has become substantially more expensive due to the decline in treasury yield.  Since most CMBS loans being defeased now are maturing within a couple of years, the cost is more correlated with short-term yields.  As yields rise, the cost to defease is cheaper; however, as they drop, the cost increases.  As an example, the yield on the 2-year note has dropped from 91 basis points at the beginning of June to 58 basis points at the beginning of July.  Thus, many borrowers are being surprised at the jump in the cost over the past couple weeks.

The Principals and Senior Directors at MCA are preparing for surge of financing requests to lock in long term rates given the current environment.  Please reach out to us if you have questions on how your deal will place in today’s credit markets.

The author, Sunny Sajnani, is a Senior Director in the Dallas office of Metropolitan Capital Advisors. Please contact Sunny Sajnani at or visit the Metropolitan Capital Advisors website at

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Hotels: What Inning Are We In?

By: Justin Laub

I recently returned from the Urban Land Institute’s national conference on hotels and resorts. The last time ULI held this event was in 2008. Amongst the attendees, there were conflicting opinions as to whether the hotel industry had a few good years left to run or whether the industry was on shaky ground and headed for a downturn. It was interesting that the event was the first one since February 2008, which – as most would recognize – was the bottom of the 9th inning of the last real estate boom in the US. The Great Recession soon followed, with both the real estate markets and the global economy falling off the cliff. Was this year’s ULI hotel conference the canary in the coal mine signaling the peak of our current cycle, or is it a sign that the market is finally back on solid footing?

what inning is it in CMBS CRE

The prevailing concerns regarding hotels mirror much of the rest of the commercial real estate industry: i) today’s pricing is above the previous cycle’s peak in most major markets, ii) there is a fairly significant pipeline of new supply in addition to what has been built over the past couple of years, iii) revenue growth has slowed from its torrid pace over the past few years, and iv) political and economic uncertainty in the US. These concerns have already manifested themselves in the market. The sales brokers at the ULI conference acknowledged that hotel pricing has come down and that for certain assets, namely full-service resorts, the sales market has almost completely dried up. On the capital markets side, CMBS lenders have dialed back their leverage on hotels, and banks and debt funds have done the same on ground-up development projects.

So what is there to be optimistic about in the current market? For starters, the trends in the capital markets noted above are likely a positive for the industry in both the near and long term. Debt fuels commercial real estate and the pullback in the lending markets is more precautionary than reactive. Contrary to the market environment during the real estate bubble 10 years ago, lenders today are showing restraint in the wake of softening performance in the hotel and broader commercial real estate markets. Secondly, while revenue growth in the hotel sector has slowed, RevPAR still grew at a healthy 3.3% YoY in June 2016, according to Smith Travel Research. Thirdly, when averaged over the past 10 years, new supply is still relatively conservative. Fourthly, consumer spending and corporate expenditures, both of which drive the hotel market, remain healthy. Retail spending was up 2.00% YoY (0.30% MoM) as of May 2016, summer travel is expected to reach an all-time high in the US this year, and corporate expenditures in 2016 are expected to stay on pace with 2015 expenditures.

As a financier, it is my job to understand these broader market themes and how they affect my clients’ deals. The uncertainty and mixed feelings in the market right now certainly make capital raising for hotels a more challenging proposition, but by no means have the capital markets turned their back on the sector. The current market demands more creativity than in the past few years. More focus is being put on the sponsor, the market, the investment thesis, the capital structure and the like. When you can paint the right picture though, deals are just as financeable in today’s market as before. My $25 million ground-up hotel project that closed this month – for which I arranged the senior construction loan – is evidence of that. Not only was it an attractive bank loan, but it was also non-recourse. I thought that was particularly ironic in light of the consensus opinion amongst the capital markets panel at the ULI conference that non-recourse hotel construction loans are unavailable in the current market.

So, what inning are we in? Well, it depends on who you ask and how you interpret the market data. The correct answer is probably more nuanced, which is that it’s the 8th inning in some markets with extremely rich pricing and huge supply pipelines and the 5th inning in other markets with pent up demand and only moderate new supply over the past 8 years. The consensus sentiment in the capital markets right now is one of caution; however, it does not mean that all capital providers are of the same opinion about the hotel market’s durability. Some capital providers have pulled back, but many others are still out there looking to place money and generate yield. The data and the trends in the market right now are mixed. More than ever in the past few years, it takes a thorough marketing effort and a well-articulated investment thesis to find the right capital partners for hotel projects.

For strategic advice on your next hotel project, you can reach Justin Laub, Senior Director, at Or visit the Metropolitan Capital Advisors website at

The author, Justin Laub, is a Senior Director in the Dallas office of Metropolitan Capital Advisors.

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