Who knew that the profoundly basic function of walking would add so much value to developments and the lives of the people who live, work and play in them?
Chris Leinberger did, and he's been preaching that fact for years now. His message: Walkable urban places, or what he's dubbed walkUPs, are such a dominant preference among Americans today that demand won't be met for as long as a quarter century.
Not everybody agrees or appreciates the value walkUPs contribute to cities and regions. That hasn't stopped Leinberger, a professor at the George Washington University School of Business and chair of the Center for Real Estate and Urban Analysis in Washington, D.C., from pressing the case that walkUPs pay off for just about everybody touched by them.
WalkUP Trend Picks Up
WalkUPs are regionally significant walkable urban places in which there are job concentrations and civic concentrations and the wealth of the region is created, according to Leinberger. Just five years ago, when On Common Ground first connected with Leinberger on the concept of walkUPs, his research identified 45 of these places aver - aging 408 acres in Washington, D.C., and 27 averaging 374 acres in Atlanta.
Today, Leinberger has pegged almost 800 walkUPs in the country's 30 largest metro areas. “That represents 54 percent of our country's gross domestic product and 49 percent of the population," he says. “We're getting better at finding these, and they're growing. We're also finding that there's a shifting size of walkUPs in Wash - ington, D.C., where they're averaging about 300 acres per walkUP; in Atlanta, their size is pretty much the same as five years ago."
There's no perfect example of a walkUP, but there are examples many people will recognize. “In Atlanta, it would be Bucktown," explains Leinberger. “It would be Perimeter Center in the suburbs. In Washington, it would be DuPont Circle in the center city or downtown Bethesda in Maryland. In Chicago, it would be Lincoln Park or downtown Evanston in the suburbs. In Seattle, it would be South Lake Union, where Amazon HQ1 is, and Redmond, where Microsoft is."
Kim Briesemeister, principal at RMA in Pompano Beach, Fla., whose core business is urban revitalization, says researchers are starting to pay more attention to traffic counts, both auto and foot, to measure the impact of walkability. “There's a lot more emphasis on walkable urban places in terms of data," she says. “We do know that what we see when we take an urban space and cre - ate a combination of uses is that the sum of the whole is greater than the individual parts.
“Economically, what occurs is that as a use comes in that creates a walkable environment, other uses tend to fol - low it," adds Briesemeister. “Then there starts to be a spinoff effect that changes the value of real estate. The connection of these things — the walkability — is what drives the economics. As soon as an area gets defined in the walkable world and it's known these places are going to be connected, it changes the value of every property between them."
Leinberger's research bears that out. In 2014, he stated that average rents in all real estate in established walkUPs were 112 percent higher per square foot than for drivable, suburban real estate. That figure was for income-oriented real estate, and he's currently working on updating it while also adding for-sale real estate.
“That number has definitely gone up," he contends. “We did our first analysis in 2012, and these rents have been continually increasing. All of our demographic research shows there's significant pent-up demand for this that we won't satisfy for 20 to 25 years."
Though he doesn't use the term walkUPs, Arthur C. Nelson, a planning and real estate development professor at the University of Arizona in Tucson, does agree that walkable places transform values. “Absolutely they do," he says. “We're studying the economic development outcomes of transit-oriented developments, which are kind of the same and sort of in the same class. What we're finding is that if you don't combine transit station planning with planning for the properties around it, you'll have adverse economic consequences.
“The flip side is that when you do the planning right — when you connect transit to land uses — you have whopping economic returns," adds Nelson. “You have a population that goes up, jobs that go up, property values that go up, and you create what I call a viable ‘sub-hub' area."
What's Holding Up walkUPs?
The country can't meet the demand for walkUPs, according to Leinberger, because of the basic velocity of the building environment.
“In a good year, we add 2 percent to the inventory of real estate in the country," he explains. “We're not going to build 5 percent in one year — that's not going to happen. It's going to be a slow-moving trend in catching up to demand.
“Also, the home building industry in particular doesn't get it, or at least most of them don't," he adds. “I know this because I'm a developer. I've built 14 projects, and I normally joint venture with vertical developers. I do the horizontal, meaning I bring the land, and they do the building. It's hard to find people who get it."
Leinberger says he and others recently did what he calls an “urbanizing suburban project" outside Philadelphia. “We were dealing with Toll Brothers, and their suburban division didn't get what we wanted to do. But their urban division got it. Drivable suburban development has its own formulas for things like zoning, marketing and management. That's apples and oranges compared to a high-density, mixed-use walkable urban place. It's a fundamentally different construction type."
It is indeed different, agrees Robert Puentes, CEO of the Eno Center for Transportation in Washington, D.C., but Puentes' experience is that both types of development remain in demand. “There's a big demand for sure for walkable places," he says. “In my personal experience from serving on my local planning commission, these are the proposals we get from developers. But there's also demand for traditional, suburban-style development. I don't know if one is more prevalent than the other, but the country still seems to be growing in lots of different ways. I do know that one is more sustainable than the other, and that's urban, higher-density development."
Financing for walkUPs is also unique. “You have to finance them differently, and that takes education," asserts Leinberger. “Lenders tend to be set up in silos. If you want to do entry-level, for-sale housing, go to your local bank's loan office, and that lender has done hundreds of construction loans. They get that. If you start talking about very expensive underground parking, retail on the ground floor, and condos above that use reinforced concrete, you blow every circuit they have. They say, ‘Go someplace else.'"
Many lenders do struggle to see the early value in walkable developments, says Briesemeister. “Early on in an area's transformation, that's where the struggle for financing will come in," she explains. “Lenders want to know the area is tried and true. But it's not. They have to take a leap of faith. That's where tax increment financing districts can come in, where you're able to fit together the lender, the developer, and a redevelopment agency, who all put in funding to reduce the risk. Plus, that shows the government is there, and that makes a different to lenders, too."
Lenders who don't get it are missing opportunities, asserts Leinberger, who says he can prove that walkUPs improve the financial futures of those within them. “We find there are 40 to 100 percent valuation premiums," he says.
Moreover, the cost of building the infrastructure for walkUPs on a per-square-foot basis when compared to the economic activity that's created is also much cheaper than the cost to build the transit, sewers, roads, and other infrastructure needed for drivable suburban places, he asserts. “It costs anywhere from 10 to 20 times more on a supportable square foot to build drivable suburban infrastructure," argues Leinberger.
Puentes agrees. “With concentrated development, as opposed to having it spread out, economically that development is more efficient in terms of infrastructure, travel costs — almost anything you can measure," he asserts. “The challenge is whether it's affordable. It can be and often is. But in many cities, there's concern that without the right policy mechanisms, the economic benefits are accruing to those who can afford them and not all segments of the population."
HQ Decisions Back This Up
If lenders aren't yet confident with the data, corporations must be because they're more frequently deciding to locate new headquarters in walkUPs. “Bethesda is a great, high-density, walkable urban place," notes Leinberger. “It's where Marriott is building its worldwide headquarters. In fact, all companies are building their headquarters in these walkable places."
The recent announcement from Amazon that it was pulling its headquarters from New York City but leaving its sister headquarters in Crystal City, Va., made perfect sense to Leinberger. “New York's governor and New York City's mayor were using 20th century financial incentives to attract Amazon — simply money but no workforce training and no infrastructure. I don't think cash for jobs makes any sense at all. It was as backward-looking as possible. Amazon didn't want that, but it took it because it was offered so much money, and the citizens got angry that the wealthiest company in the world was being given these cash incentives.
“Compare that to Crystal City, which promised to invest in workforce training and infrastructure that includes taking a freeway and turning it into a walkable boulevard, adding a transit line to the airport, and building workforce housing," says Leinberger. “Crystal City is investing in itself to be a better walkable place. When Amazon put out its RFP for its new headquarters, it was essentially looking for a walkUP."
Private Money May Push Transit
Not only is financing for walkUPs not where it could be today, but financing for transit — which Leinberger says is a critical feature in walkUPs — is also scarce. Transit agencies across the board are experiencing financial challenges, says Puentes, so they're focusing on their core mission and less on expansion.
Nelson, however, isn't convinced that new transit needs to be built or that its lack of construction is a major factor in the slow growth of walkUPs. “Another market that's maybe even deeper than that for walkUPs is the sub-hub," he says.
A perfect example is Shirlington in Arlington County, Va., which isn't located on any transit line. “It was an area of derelict buildings on something like 50 acres," explains Nelson. “The county decided to build a brand, spanking new downtown. It's a mixed-use development that's completely auto-dependent. It's been 20 years since it was built, and Shirlington now houses thousands of people. It has become its own suburban area.
“These areas exist by the thousands or tens of thousands across the United States, and it doesn't take much money to assemble the land and add the sewer and water," contends Nelson. “You also have hundreds, actually thousands, of transit stations that already exist. We don't need to add new ones. What's lacking is the need for land-use planning and a moderate investment in water and sewer to facilitate development. That can be paid for through special investment districts. Everybody knows how that's done, and that's cheap."
It's possible both Leinberger and Nelson are correct. Some private corporations, however, aren't waiting for the debate to be resolved. They're stepping in to facilitate transit expansion.
In 2011, Bay Area Rapid Transit (BART) in California partnered with Jones Lang LaSalle and Barings (formerly known as Cornerstone Real Estate Advisors) on the creation of the West Dublin/Pleasanton station, according to spokesperson James Allison.
The total financial contribution from private development has been about $30 million, which helped build the station, two parking garages, and pedestrian bridges. Since then, 319 market-rate apartments and a 3,300-square-foot BART/City of Pleasanton police facility have been built, with a hotel or office building possible on the remaining undeveloped parcel.
More recently in 2017, the new Boston Landing station stop on the commuter rail line between Boston and Worcester opened, and its estimated $20-million cost was funded by sneaker-maker New Balance. The company also agreed to pay to maintain the stop for a decade, according WCBV News.
Puentes notes a few more examples of potential public-private transit investments to facilitate development, though the public details are murky, so it's not clear who's providing how much funding. “It's hard to say whether we're seeing a smattering of examples or whether this is a trend," he says. “I do hope it's a trend. It's not an altruism where private companies are funding transit; it makes their projects more successful."