Today’s Commercial Real Estate is the NBA of the 1990's

The next NBA regular season is slated to begin on 12/22/2020. In the spirit of the holidays, I decided to have some fun with this post and discuss the similarities between the NBA in the 1990’s and today’s Commercial Real Estate market.

In basketball, there are 5 positions on the court: Point Guard, Shooting Guard, Small Forward, Power Forward, and Center. In commercial real estate, there are 5 main product types: Multifamily, Industrial, Office, Retail, and Hospitality.

This analogy gets even better. More below.

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• A mixed use development is a combination of residential and non-residential uses within either a single building or a bigger development that consists of multiple buildings.
• The future of CRE will be less focused on individual uses (like individual NBA positions) and will be much more mixed (like NBA positionless basketball today)
• Form-Based Zoning code is the next step in CRE’s evolutionary process because it creates more welcoming and pleasant spaces that incorporate multiple land uses.

Mixed-Use Commercial Real Estate

Below I summarized JD Esajian’s “Mixed Use Development Investing Explained” where he did a fantastic job explaining what mixed-use CRE is and their main benefits.

“The mid-2000s saw an eruption of mixed use developments sprout up across the country, as developers and investors sought new ways to blend urban-style living with walkable communities.

A mixed use development is a combination of residential and non-residential uses within either a single building or a bigger development that consists of multiple buildings. When done right, mixed use developments are designed to not only incorporate various types of real estate together, but complement them.

Here are their most important benefits:

• Greater Exposure To Customers — multiple uses can provide multiple streams of income
• Less Risk — diversifying potential tenants (commercial, residential, etc.) can lessen the overall risk
• Walkability & Transportation — tenants are becoming increasingly drawn to walkable communities, which could lead to high rental demand”

Back to our 1990’s NBA analogy

Today’s “Apartments over Retail” is the 1990’s Allen Iverson or Penny Hardaway.

Sure, they might be listed as point guards but they will definitely look to shoot when given the opportunity.

Sure, you can say your CRE building is a mixed use of apartments and retail but we all know the majority of income comes from the apartment units.

This is where CRE is today. Most spaces were built for individual uses similar to the pre-1990’s NBA where players specialized in one position. More and more properties are being built for mixed-use like the 1990’s NBA that saw more combo guards. The future of CRE will renovate old space and build new spaces that are truly mixed-use and that have a more balanced and diversified income stream.

This evolution in CRE is already underway and will become more apparent over time. Welcome “Form-Based Zoning Code”.

Introduction to Form-Based Zoning Code

I will provide a more detailed analysis of Form-Based Zoning Code in a future post.

For brevity, a simple definition for now will suffice. Taken from formbasedcodes.org, “A form-based code is a land development regulation that fosters predictable built results and a high-quality public realm by using physical form, rather than separation of uses, as the organizing principle for the code.”

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As more and more counties adopt modern Form-Based Codes, CRE’s will continue to evolve towards more walkable mixed-use spaces similar to how NBA players have evolved to become positionless today.