Pattern recognition is an important aspect of discovery. Whether you’re trying to decipher trends in nature, understand human behavior or predict outcomes of a commercial real estate investment, having the ability to recognize patterns is a critical element of understanding complex systems. The purpose of pattern recognition within the context of commercial real estate investment is simple: identifying and/or creating durable income streams of predictable growth, ideally with concomitant asset appreciation over time.
Analyzing San Francisco is an interesting and likely important exercise of pattern recognition. The importance lies in identifying growth/prosperity patterns in San Francisco that likely have direct application to Seattle in order to better predict high-growth opportunities in our market.
The similarities between San Francisco and Seattle
San Francisco is a very mature urban market with growth patterns that have many corollaries to Seattle. One can dissect a variety of similarities, some more obvious than others.
Some similarities between the two:
- West Coast gateway cities
- Geographic barriers to entry
- Stellar STEM-based job growth
- Excellent post-secondary schools
- Highly educated populace
- Lifestyle amenities proximate to urban core
These attributes — and I am sure readers can identify myriad more — are both easily identifiable and important. They only justify a comparison of the cities; they are not a conclusion. We need an analysis at a greater level of granularity in order to arrive at any actionable investment thesis.
What happens when you rotate San Francisco counterclockwise by 90 degrees
Take a map of the San Francisco Bay Area and rotate it 90 degrees counterclockwise. What do you find? First, you notice there are two relatively parallel freeways (U.S. 101 and Interstate 280), now oriented west-east. Second, these freeways connect a major urban center (San Francisco) to important tech-based job centers on the Peninsula (Palo Alto and San Jose, for example).
San Francisco, rotated
When you look at San Francisco this way, Seattle is not too dissimilar with respect to geographic orientation of job centers and their transit routes. This analysis illustrates some interesting similarities.
Important connections and conclusions
One of the first conclusions that you can draw about patterns in both cities is the movement of people. In San Francisco, high levels of growth are occurring in locations with proximity to traditional transit, as well as mass transit options:
- San Francisco off-ramps from:
- Interstate 80
- Interstate 280
- US Route 101
- Transbay BART Terminal
- San Francisco Ferry Terminal
- SoMa Caltrain Station
Interestingly, all six of these connection points are located within a relatively small radius of another. At or near each of these connection points are thriving neighborhoods – ones that less than a decade ago were not considered highly desirable.
Turning to Seattle, we find surprisingly similar transit connection points:
- Seattle off-ramps from:
- State Route 520
- Interstate 90
- Union Station
- King Street Station
- Seattle Ferry Terminal
- East Link light rail (by 2023)
Neighborhoods with high growth potential
This analysis makes clear that in San Francisco gateway neighborhoods with transit connections to Peninsula-based employment centers continue to reap locational benefits. Interestingly, all of these neighborhoods are South of San Francisco’s central business district (CBD).
It is highly likely that Seattle will experience a similar phenomenon. There is plenty of room for growth in Pioneer Square, SODO, the International District, Yesler Terrace, the Central District and all points in between. Validation of an investment thesis in these neighborhoods is merely a matter of connecting the dots.
The epicenter of all mass transit is located adjacent to all of the aforementioned neighborhoods. Soon the First Hill Streetcar and Broadway Extension will further connect these neighborhoods to important cultural and lifestyle amenities in more established neighborhoods. A lynchpin for the emergence of growth in these neighborhoods is connections points, and they are in our sights.
Bankable or just a theory?
The application of pattern recognition from growth in San Francisco to that in Seattle requires belief that transit connections are important and that tech-related and other STEM job growth will continue to lead our economy. I am willing to hang my hat — and my investment dollars — on both of these postulates.
What do you think about how comparisons of mature urban centers can lead to better investment decisions?