New markets
Pinpointing the Next Hot Spot

Learn where to look and what to look for to find the next emerging market and help your clients get in on the ground floor of the boom.

BY PATRICIA STAHL

Many savvy homebuyers are eager to get into the next up-and-coming neighborhood that holds the promise of spiking property values. These are the emerging areas of a community that are seeing rapid growth, redevelopment, revitalization, or changing demographics. These are the areas that are on the cusp of popularity, but have not quite attained the tony status of some well-established communities. These are the new “hot spots.”

Although most homebuyers have a general idea of where they would like to live, many buyers and investors will still turn to you—the real estate professional—to give them guidance on great places to invest and new areas that are about to experience a boom. Knowing how to pinpoint the next hot spot in your market may help you cash in on a growing market and provide expert guidance to your clients and customers.

Where to Look

Look to the inner city, says Louis Colombo, Ph.D., a research associate professor in urban planning at Virginia Tech in Blacksburg, Va. He notes that from Brooklyn to Albuquerque, inner-city neighborhoods are enjoying a renaissance inspired by New Urbanism, a movement to create and revive walkable, diverse, mixed-use communities with quality architecture and a traditional neighborhood structure. In the vanguard of this movement is the growing number of empty nesters, who no longer have to base their housing decisions on the needs of their children, and the “creative class”—people who work in the economy of information and knowledge rather than manufacturing.

“People who embody creative values and a freer lifestyle want to live in diverse, mixed-use communities,” Colombo says. “This is a key tenet of New Urbanism.”
Walkability is another factor to consider in neighborhood revitalization. When Robert Charles Lesser & Co., the largest independent real estate consulting firm in the country, surveyed residents in six metropolitan areas, most recently in 2002, the company found that one-third of the respondents want to live in pedestrian-oriented communities.

Strong, pent-up demand for pedestrian-friendly urban communities and a limited supply of such areas are why housing prices in downtown and near-in areas are rising so quickly, according to Christopher Leinberger, a land use strategist and partner in Arcadia Land Co. a leading New Urbanist development firm in Albuquerque that is spearheading the rejuvenation of downtown Albuquerque as a mixed-use community. Price increases for downtown and near-in housing have been two to three times greater than the average increase in most metropolitan areas for the past five years, Leinberger says.

Look to areas that are adjacent to newly revitalized communities—they could be next, suggests broker Marcia Miller of Open Options Real Estate Ltd. in Brooklyn, N.Y.

Leinberger concurs. “As the core of activity spreads, land values in the adjacent area will begin to move upward,” he says. “A new project may locate a block or so from the edge of what the market defines to be an acceptable location, but by its very development, that definition could expand to include the new project.”

Signs of Change

Real estate professionals who work in changing neighborhoods should make it a point to know as much as about the history, politics, and the dynamics of the area, believes Jose Acevedo, broker-owner of Landmark Heritage Realty in Chicago’s Humboldt Park. Only then can they successfully arm themselves with the necessary tools to target the market and provide useful information to their clients and customers.

Following are some of the indicators to look for within a community that may be evolving and appreciating in value, according to experts. Read the additional resources page to find out where you can track down some of this information.

• Examine land use patterns in the community : Are properties being purchased for rehab and quick turnaround? Are rental units going condo? Are poor-quality homes being razed for new development? These are all indicators that a community is on the upswing.
  
  
• Investigate trends in bank lending : A surge in loan requests and increasing loan amounts signal new interest in a burgeoning area. An increase in foreclosures can signal a downswing in a community.
  
  
• Be aware of changing demographics: Compare the income, age, education, and size of household of the buyers and the sellers in an area over a six-month period or so to detect patterns of change. Higher income and educational levels, and smaller households are characteristics of a positive change.Find out what’s going on in the local public schools: Look for curriculum changes that respond to a new student population. For example, when the first wave of young, upscale urban pioneers settled in Chicago’s long-neglected Wicker Park neighborhood, they wanted to send their kids to the local public schools, but the schools had substandard reading and math scores, dropout rates, and resources. Parents persuaded the public school system to set up an accelerated academic program within one of the local elementary schools and to staff it with quality teachers.
  
  
• Pay attention to physical changes: Watch for new construction and renovation of older buildings. Infrastructure improvements to streets, sewers, parks, and transportation facilities signal the arrival of new residents who are demanding improvements in public services. In the commercial district, look for more restaurants, shopping, and entertainment options and less industry. Factories might be converted to live-work lofts. Talk to people, attend neighborhood meetings, and read the community newspaper to find out what’s going on.
  
  
• Look for old neighborhoods with new names : Sometimes homebuyers shy away from an up-and-coming neighborhood because it has a reputation as a high-crime area. Real estate practitioners and developers overcome this bias by giving an area a new name—perhaps one that capitalizes on the cachet of a nearby community.
  
  
• Look for spikes in real estate prices : Track home sale prices and rents in the area for a period of time and compare them to prices from one, three, and five years ago. Once the prices have spiked, the area may not be as affordable but you may still be able to find some deals. If you notice a noticeable increase in sales prices within the last year or less, you may be seeing a new hot spot emerging.
  
  
  If you know how to read the signs of change and are willing to work with community stakeholders in a positive role, you can help clients make profitable real estate purchases and sales in up-and-coming communities.
  
  
  Case Study: Humboldt Park, Chicago
  Case Study: The Roads, Miami
  Case Study: Frederick County, Maryland
  Case Study: Windsor Terrace, Brooklyn
  Case Study: Downtown Albuquerque
  Additional Resources