“People ask me all the time, what markets do I like? I’m like, none. But I like a lot of submarkets… And the reason I like the submarkets is because you could be in a market like Chicago, which is struggling overall, but they have some terrific submarkets."
In the world of real estate investing, where precision and foresight are everything, the ability to identify tomorrow's high-performing neighborhoods today is a competitive edge. But what if there were a data-driven signal—hidden in plain sight—that could predict gentrification with surprising accuracy?
Most of you reading this are old enough to have seen - if not lived in - neighborhoods that changed significantly. Whether for better or for worse, you understand how quickly local quality of life and property values can reset, usually as amenities, schools, retail or just density can reshape both quality of life and property values. In fact many real estate people have an evolved intuition for neighborhoods. We can tune in to how a neighborhood feels and think critically about value. Would a new hotel do well here? A new multifamily project? A boutique office building? These are the questions that drive strategic investment decisions—and the answers often lie in understanding local trends.
Investors faced with lots of opportunities could enjoy an edge if they could broadly tap into neighborhood trends. ‘Tapped in’ is hard to be however; it’s hyper-local, and any idiosyncratic bet on a submarket improving and gentrifying carries a lot of uncertainty. That may explain the tendency of most firms to rank investment markets at the MSA level. However, for those of us investing asset by asset, we’d all sleep better if we felt confident the neighborhood we just bet on - not just the MSA - was about to improve. Thankfully with advancements in data and analysis, that’s getting easier to do.
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