The Millennials, The Millennials, The Millennials

This article was originally published in March 2014. To read the full newsletter, click here.

The last four real estate conferences that I’ve attended have had a shared focus on the Millennials. Where they live, what they do for work, who they hang out with, how much they spend and which colors they like to wear (okay, kidding on the last point).

And if they are so important, it begs the questions of who, what or where are the Millennials? A largely forgotten but recently discovered native tribe? A hockey team from a small city in northern Canada? A Broadway-bound Neil Simon play?

We like to dig deep here at Pathfinder. No stone goes unturned in our quest for information. So I started right at the top.

Me: Honey, do you know what a Millennial is?

Mrs. Pathfinder: Seriously?

Me: Well, I’m doing some research on our investment demographics, and I would like to learn more about these people.

Mrs. Pathfinder: Isn’t it time for you to go on another business trip?

Okay, that didn’t go so well. So I decided to dig even deeper.

Webster online defines a Millennial as a person born in the 1980s or 1990s. Someone reaching young adulthood around the year 2000; a Generation Y’er. There are no precise dates when the generation starts and ends. Various commentators use birth years ranging from the early 1980s to about 2000. As of July 2012, there were approximately 73.7 million people in the U.S. between 18 and 34. That’s a lot of folks. Millennials are the social generation. They’re the founders of the social media movement – constantly connected to their social circles via online and mobile. They prefer to live in dense, diverse urban environments where social interaction is right outside their front doors.

A recent, in depth Nielsen Company study provided further interesting data and commentary. Millennials are more racially and ethnically diverse than any previous generation. In July 2013, the unemployment rate for young Millennials (20-24) was 13% and 8% for older Millennials (25-34), compared with 6% for baby boomers. Notwithstanding being hit the hardest by the recent recession, Millennials are optimistic and ambitious. While 69% don’t feel they currently earn enough to lead the kind of lifestyle they want, 88% think they’ll be able to earn enough in the future. Millennials are more likely than their older counterparts to indicate that they’re willing to spend more for goods and services from companies that have implemented programs to give back to society. Over 60% are also willing to pay more for a product if it’s good for the environment. The majority of Millennials prefer to live in the type of mixed-use communities found in urban centers where they live in close proximity to a mix of shopping, restaurants and offices and currently live in urban areas at a higher rate than any other generation.

This is the first time since the 1920s where the growth in U.S. cities outpaces growth outside of the cities. And, 40% say they would like to live in an urban area in the future. The “American Dream” is transitioning from the white picket fence in the suburbs to the heart of the city. The concept of “urban burbs” is becoming more popular in redevelopment as suburban communities make changes to create more urban environments with walkable downtown areas and everyday necessities within close reach. Two-thirds of Millennials are renters, and they’re more likely to live with roommates or family members than alone. Millennials account for 43% of current heads of household who intend to move within the next two years. With the onset of the recession, many of the Millennials who were formerly homeowners went back to renting. In 2011, 14% of Millennial homeowners went back to renting compared with 4% of the general homeowner population. So you can see why they might be an important group to understand for people who have things to sell or lease. Like us.

According to a recent Bloomberg article, Millennials have benefited the least from the economic recovery following the recession, as average incomes for this generation have fallen at twice the general adult population’s total drop and are likely to be on a path toward lower incomes for at least another decade. “Three and a half years after the worst recession since the Great Recession, the earnings and employment gap between those in the under-35 population and their parents and grandparents threatens to unravel the American dream of each generation doing better than the last. The nation’s younger workers have benefited least from an economic recovery that has been the most uneven in recent history.” So they have that going for them, although it doesn’t seem to stop them from paying $4.75 for a triple mocha frappa-something.

So you have lots of mobile people, who don’t make as much money as they used to, but want to make more. What does that mean from a real estate sales perspective? A March 2014 research piece from the National Association of Realtors provided some interesting demographic insights:

? Millennials comprise the largest share of home buyers at 31% and Millennials have the largest share of first-time buyers at 76%.

? Millennials are most likely among generations to look online for information about the home buying process as a first step in the process. So don’t wear your gold sport jacket with the emblem on it for these folks.

? More than half of Millennial and Gen X buyers used a mobile device during their home search. Among those who did, 26% of Gen Y and 22% of Gen X found the home they ultimately purchased via a mobile device (I wonder if Qualcomm is entitled to a commission on those sales?).

? Nearly all (97%) of Millennials financed their home acquisitions.

What are our takeaways?

First, from a seller’s perspective, your presentation and marketing materials had better be as technologically savvy as the online Apple? store. Second, the residences you are selling should be equally in tune with modern technology (we suspect that rumors of a nonfunctioning WiFi system would spread faster through cyberspace than Ellen DeGeneres’ tweet at the Oscars). Third, you’d better figure out a way to get your buyers financing. This remains a challenging ordeal, especially for attached product (condominiums and townhomes), given the extremely tight restrictions on purchasing those mortgages imposed by the Federal agencies during the downturn. Any bankers out there willing to make (and actually keep on balance sheet?) a loan? Fourth, you need to build/own more than a building – you need to build a community.

But the story doesn’t end there. Although they are the most likely home buyers, Millennials are buying at a pace far below their predecessor generations. Which means that a large share of this large population segment are now or will soon be renters or boomerangers (i.e., young adults that move back home after college, or in some cases, long after college). So what are they looking for in their rental communities? We found some interesting comments published in a recent article in the National Multifamily Executive magazine.

“Walkable communities are incredibly important,” says Scott Ziegler, founding principal at Ziegler Cooper Architects, especially with the Gen Y desire to live in urban communities. “You need to make walkable spaces more meaningful.” He suggests building communities where necessities are close to the tenant’s fingertips – not just close to public transportation. Renters expect amenities that are within walking distance to shopping, food and leisure.

Further, with a boom in biking, it’s smart to have cycling options available for renters, including biking racks and shops. Ziegler noted that they are putting bike maintenance shops in most of their communities. We’ve also seen proximity to Zip Car locations (and similar companies which lease cars by the hour through a credit card processing system) as an important amenity.

A recent article in the Arizona Republic noted that Millennials have demonstrated much less interest in a suburban lifestyle. Infill projects, proximity to mass transit and good design are sweet spots for Millennials. And CBS News’ Money Watch recently noted that a number of cities have seen increased economic activity in the real estate sector led by this generation, particularly Austin, Seattle and Portland. Pathfinder is active in all of these markets.

We tend to get pretty granular with our research here at Pathfinder. I’ve been known to obsess about esoteric real estate subjects like paint colors and water faucets. So I decided to really sharpen my focus here and spoke with ten Millennials, ranging from 18 to 33 years old. Here are some interesting quotes from those conversations:

“I want to move to the city after I graduate.”

“The common area features and community activities within a building are more important to me than the amenities inside.”

“Security is an important feature. So is a decent gym. But a super WiFi system is much more important to me than both of those features.”

“The ‘burbs. Probably a place to go after I have kids. But I wouldn’t want to stay there too long.”

“I want to have my work life, my home life and my social life intertwined. I want to be able to walk to restaurants, bars and theatres. I want a place where I can walk my dog. My social life is more important to me than proximity to public transportation.”

“A good beer pong game with friends is more important than two weeks off of my first month’s rent. But I’ll take the free rent if you throw it in.”

It’s a brave new world. Consumer tastes and trends change rapidly. The bus is flying down the road nowadays. It’s WiFi enabled and you can order specialty coffee drinks on your smartphone while you ride. Are you hip enough to ride along?

Lorne Polger is a Senior Managing Director of Pathfinder Partners, LLC. Prior to co-founding Pathfinder in 2006, Lorne was a partner with a leading San Diego law firm, where he headed the Real Estate, Land Use, and Environmental Law group. He can be reached at [email protected].