The document discusses trends in real estate driven by the millennial generation and how their preferences differ from previous generations. Some key points: - Millennials prefer urban areas with good transit and amenities over traditional suburbs. However, this urban lifestyle may be temporary as most millennials express a desire for single-family homes and families later in life. - Job and population growth is shifting to more affordable, lifestyle-focused cities that attract millennials rather than traditional large metro areas. - Real estate investors need to understand how millennial preferences for connectivity, collaboration, and transit will reshape the types of properties and locations that are successful, such as demand for industrial space to support e-commerce.

1. The Millennial Migration: Mandate or Myth? June, 2014
As we hit mid-June, we’re bouncing right back into the interest rate range of 2.6%-2.8% that has benchmarked our experience since January of this year. The last half of May was a brief aberration. But as we can see from the long term chart (right) any upward momentum has completely deteriorated on the MACD and we’re in a completely neutral environment – nothing pushing rates up or down. Forecast: there is no long term pressure in either direction capable of breaking us out of this very well-defined range. Pretty boring right now.
The biggest real estate trend of this decade – and for decades to come – will be the millennial generation. They are changing how real estate is designed, where it is located and what future functionality it must deliver. The Millennials range in age from 19 to 34. They are much different from past generations, but also consistent in the human propensities which have constrained all human behaviors for… well, millennia. Understanding what is different about Millennials enables real estate investors to anticipate a very different future reality. Understanding what is consistent about Millennials will avoid long-term assumptions founded upon short term statistics.
There’s a distinction between an economist and a futurist. An economist analyzes statistics and tells us where we are today. A futurist observes human behavior and anticipates where we’ll be tomorrow.”
That distinction has a particular application in real estate: the economist identifies trends but the futurist translates them into a cohesive and actionable story. Real estate opportunities are framed by both.

2. The Millennial Migration: Mandate or Myth? June, 2014
Institutional capital doesn’t readily focus such distinctions – they are intrinsically “economists” by nature. As such, they pursue conservative paths of investment: deploying capital within geographic markets and asset categories that have been statistically and historically confirmed. They are risk-averse.
Conversely, real estate entrepreneurs are risk-rewarded: they focus on the next “big” opportunity and fit the “futurist” profile. Since both need to work together to generate real estate value – bringing them together is a significant challenge. As a joint venture practitioner, I’m squarely in the middle, attempting to reconcile perspectives engaged from each side into common resolution.
A few stunning facts bring the Millennial demographic into sharp focus:
• They are the largest demographic ever in US history: their 87MM constituency dwarfs the 74MM baby- boomers.
• By 2025, Millennials will be over 50% of the US workforce – dominating workplace protocols and business strategies.
• Millennials are “bandwidth mavens”: they don’t talk; they text. They buy things with cell phones, not cash registers. The internet is their primary source of news, entertainment and social interaction.
• They are concentrated in specific US locations completely unique to their generation.
• The highest job growth rates in the United States directly correlate with Millennial population concentrations in “quality of life” US cities: employers are increasingly relocating to where Millennial employees are, not the other way around!
• The Millennials are the most educated generation in US history and carry the highest student loan debt ever recorded - averaging $26-29K per undergraduate - for a total of $1 trillion. This is more than the sum of all US credit card debt or auto debt!
• Because of this debt, Millennial choices in bearing children, buying homes, and choosing “permanent” lifestyle options are lagging 10-12 years behind the baby-boom generation.
As a real estate investor, if you are not acutely aware of these Millennial distinctions, you are NOT investing prudently or conservatively.

3. The Millennial Migration: Mandate or Myth? June, 2014
Let’s took a look at three maps that illustrate this precisely:
Momentum job Growth Markets 2009-2013
Baby Boomer Top Job Markets 1

4. The Millennial Migration: Mandate or Myth? June, 2014
Interestingly, Nashville and Denver have higher residential rental growth rates than New York or Chicago. The reason is evident in these maps. Job growth is now corollary to Millennial demographics instead of employer, capital or industry concentrations! The Millennials aren’t living in the cities their parents did. As such, real estate investors can find themselves paying high prices in conventional “core” cities based on obsolete “boomer” demand metrics – only to discover that these same cities are now experiencing increasing rent lethargy! The demographics of demand shifted; the conventional real estate mindset didn’t.
Aspirational Cities are the future of real estate profits. Entrepreneurs are already there: institutional capital less so. The distinctions between the “economist” and “futurist” mindsets remain, but are gradually changing.
What defines an Aspirational City? Five primary factors:
1. Collaborative: “Connected” Urban, Work & Social Environments integrating fluidly into technology-centered lifestyles.
2. Transit Savvy: Light Rail, easy access, short commutes and/or light traffic, no SMOG!
3. New Economy Focus: Media, Digital, Energy, Technology, Computer, Leisure and solution- provider industries.
4. Lifestyle Friendly: Sustainable planned spaces, diverse recreation, culture & social venues, outdoor-access oriented.
5. $-Quality Benefit: Less total personal income is spent on Housing, Transportation and Taxes.
The top 15 Millennial Aspirational Cities are currently: Austin, Denver, Houston, Oklahoma City, Raleigh, Nashville, Richmond, Washington DC, San Antonio, Minneapolis-St. Paul, Dallas, Seattle, Salt Lake City, Charlotte and Columbus.
What “mandates” are dictated by this different Millennial demographic? We’re already seeing it evidenced in an ongoing evolution of real estate capital deployment:
• Industrial is the new retail: logistics are now driven by consumer delivery metrics, not showroom proximities.
• Collaborative Connectives: bandwidth capacity and collaborative common areas will increasingly predominate over individual space allocations in office, retail and residential real estate designs.

5. The Millennial Migration: Mandate or Myth? June, 2014
• Demographic Value-shifts: The best returns will shift to “lifestyle” cities that attract Millennials – and the employers who are seeking competitive advantage in attracting highly educated “knowledge worker” employees by being in those locations.
• Transit Proximity: A new emphasis on “lifestyle” casts gas prices and commute times as negatives. Office, retail and residential real estate will increasingly emphasize transit-oriented considerations in framing occupancy choices.
Let’s now turn from mandate to myth. While it’s true that 81% of Millennials are moving to or prefer more urban locations, assuming that this is a permanent lifestyle shift sustaining urban residential real estate demand for decades to come may be unfounded. It is an age-driven demographic, perhaps with only 5-7 years remaining before it wanes. In fact, U.S. urban-core annual rent growth peaked in 2011 over 6%. It has now diminished to an average of only 1.8% annually. As of the first quarter of 2014, suburban rent growth now exceeds urban rent growth. The urban Millennial lifestyle myth is already fading.
Here’s why. The Millennials are still human in their attributes and motivations – they are not aliens. A Case Survey in 2011 confirmed that fully 74% of Millennials identified single-family residential product as their optimal lifestyle choice. A Pew Research study identified the largest consensus (52%) among Millennials focused on a singular priority: being a “good parent”. An American Community Survey in 2011 demonstrated the relationship between education and birth-age: the higher the education, the later the decision to have kids. College birth rates peak in the late 20’s and early 30’s. Millennials are the most educated demographic in the US today. As a result of the Millennials’ need to address student debt payments in priority over saving for a residential down payment, their residential purchases will be realized far later than their parent’s generation.
Of course, the Millennial biological clock isn’t any different than their parents’ was. Yet, the comparative economic realities facing each are significantly different. The Millennial job market is more transitional – they “jump jobs” more frequently. Their financial stability rests on a more precarious margin of diminished savings. As such, Millennial single family home and baby-options are going to be further postponed. We will see them living in urban-lifestyle locations well into their thirties. No other generation has done so. But to assume this will be “permanent” is contrary to their stated aspirational preferences – and human biology.

6. The Millennial Migration: Mandate or Myth? June, 2014
The next two charts show that the Millennial “bubble” is rapidly reaching a 30-year old median “bubble” when their well-educated biological baby-clocks begin to go off and a non-metro lifestyle choice becomes predominant.
As a “futurist” there is reason to suspect a resurrection of the suburban single-family residential lifestyle. Many however, won’t be able to afford that choice in their 30’s - if at all. Those choices and statistics currently anticipate Millenials reaching a later realization of their economic stability and family desires. The urban- lifestyle of the Millennials is not so much “myth” as it is a transition.

7. The Millennial Migration: Mandate or Myth? June, 2014
In non-residential assets, the following Millennial real estate impacts are foreseeable as well:
• Increasing demand for urban-infill industrial space to support “next-day delivery” logistics consequent to the Millennial’s “on-line” purchase preferences.
• Gigabyte connectivity infrastructure must now be built into every office and residential product type – before 2025 it will become an industry-standard prerequisite of occupancy.
• The decline of physical “campus” education environments as Millennial financial constraints and internet savvy embrace “virtual” education alternatives to the cost, transportation and security challenges increasingly associated with conventional campus attendance.
• Retail environments that emphasize community experience over product proximity – just as cruise passengers spend more time in the common areas than in their staterooms, retail environments will increasingly serve as community “hubs” offering the connective common experiences desired by “collaborative” Millennials. Experience drives purpose.
Statistical analysis enjoys an objective precision. Human behavior does not. But in blending both perspectives - the exacting “economist “and the creative “futurist” – real estate investors will uncover their best future opportunities. The Millennials are just the latest – and largest – ship to chart a course through our industry’s changing waters. But their displacement will both disrupt and confirm the course of today’s real estate conventions in ways never before seen!
Michael White is a national expert in real estate equity joint venture and entity-level capitalization, structured finance, development financing and complex multi-tier financing strategies. Experienced in both portfolio and fund executions, his professional acumen extends across multi-family, office, medical office, industrial, student housing, hotel, retail, and life-science assets profiles offering 30 years of real estate finance experience to clients on both coasts.