Below is an exclusive interview between Mark Stapp and Carrie Rossenfeld of GlobeSt.com. It can be viewed in its entirety HERE.
The recession, coupled with a host of other factors, has created a demographic with shifting priorities—namely, the Millennials, Mark Stapp, executive director of the Master of Real Estate Development program at the W. P. Carey School of Business at Arizona State University, tells GlobeSt.com exclusively in this NAIOP Development ’14 preview. Stapp will be speaking on a demographics-session panel titled “The New World: The Influence of Social Trends, Workforce Issues and Population Growth on Development.” We spoke with him in advance of the conference to get a sense of what the session will cover and his thoughts on the different generations.
How are the composition and structure of where and how people live and work shifting?
Stapp: Although there are changes, I wouldn’t say there are necessarily wholesale changes. Growth and development patterns will remain pretty much the same as we know them—there’s not a wholesale movement to cities, and suburban growth is not going to stop happening. But there is growth in cities as the Millennial population emerges into the consumer segment of their life.
That is occurring at the same time that technology has created opportunities for disruptive business models, and that is occurring at the same time that we had this incredible disruption to the status quo because of the economic crisis or recession. So, you’ve got this large, 86-million-person segment of the population that has not been a part of the consumer economy until several years ago when the recession started, but they became adults at the same time that some profound things occurred that affected their psyche. They lived during some of the longest wars in history, and they were either participants or had relatives who participated in those wars. At the same time, their families were impacted by the economic crisis by losing jobs, having foreclosures on their homes or forced home sales, coupled with incredible amounts of student debt. This is the first population group to emerge into adulthood in the consumer segment of the population carrying incredible amounts of debt the day they start. All of these things combine to change your value systems, beliefs and the things you want in life.
We have emerged from a purely transactional economy—doing the deal, buying the thing, having it—to a mentality that is more around transformative experiential, and that mentality coupled with other things in your life causes you to question whether they really want all those things. What do I want out of life? I can’t get the job I wanted, and I’m in debt.
A psychographic alteration is occurring. Does it mean they won’t have kids and won’t want to own a house? No, but they have put it off. They will have fewer kids and want different things out of how their life patterns shift. They want walkability, access to cool local restaurants, they want something real and they want to be connected. They’ve grown up being connected. All of those things combine to create different spaces. We’re seeing the urbanization of our suburbs, multimodal population centers around various geographies and places. Development patterns are changing. We’ve moved from a transactional “build something, same product, new market” to development opportunities that are highly place based. They have to have contextual importance and connectivity, and that’s where the “local first” thing comes in.
How is the dynamic between younger and older generations changing as both are drawn to more urban, densified environments?
Stapp: It’s what I call the dumbbell population makeup. On one end, we have what used to be the dominant economic force—the Baby Boomers—and on the other end the Millennials, which are bigger than the Baby Boomers by almost 20 million. And the Baby Boomers are not homogeneous. I divide them into As, Bs and Cs. The As are closest to what our parents were; they’re most comfortable with the old mentality of what aging and retirement are. The Bs are a little bit closer to the radical generation, a little bit more dynamic, not quite ready to retire yet. And the Cs are closest to what our kids look and act like. They still have young kids or maybe they’re getting to the empty-nester stage. They’re doing things with their kids as a group. They listened to the same music growing up.
All of us are ultimately after the same thing: freedom, flexibility and less stress, but more engagement and more opportunities. The Baby Boomers—especially the Bs and Cs—want to remain highly engaged. They want to lock and leave. They’re tired of what we’ve been carrying around in our lives, and they want to get down to something simple. There are two separate populations wanting the same kinds of physical space, but here’s the difference: Millennials will emerge into longer-term engagement with the community. They will get old, and there will be no place to put them. This will drive demand for another type of development opportunity: Where do you put old folks who still want to be engaged? They’re not willing to give up, but they can’t live totally on their own.
What’s the takeaway from this shift for CRE professionals?
Stapp: The old models aren’t working so well. They’re confused, but they’re not willing to accept this completely. Another element is that white, Caucasian, middle America is no longer the driving economic force. We are becoming increasingly multicultural, multiethnic, multi-race, and all of those subtleties become important. The old model says, “I’m thing to find efficiency by repeating the same things over and over because that’s how I make money with less risk.” But that is too risky these days. You have to understand the characteristics of the local population in the place itself. Developers historically have left places with fixed engineered capital that doesn’t fit with what the population really wants. That mentality is no longer going to be an effective business strategy.
What specifically should we know about how development is influenced by these changes?
Stapp: They have to begin to use psychographic analysis to better identify amenities and relate to the target population. They’ve also got to learn to be creative. This is still not resolved. The capital markets absolutely don’t understand these things I’ve been talking about. Capital is the ultimate decision-maker, and we have to seek different kinds of capital sources to allow us to develop the kinds of projects we need. Crowdsourcing is the beginning of it. It will continue to foster changes they’ll have to deal with if they want to find opportunities for lending money more conventionally.