Douglas Poutasse thinks a lot of real estate companies are missing the boat. The chief investment strategist for Boston-based AEW Capital Management says that a much-overlooked source for shaping investment decisions is the US Census, and he claims that AEW has made lucrative decisions for its clients based on some of the data contained in the once-per-decade national head count. Particularly, the latest census reveals that the previous count contained a gross under-projection of how much the population would grow, and current numbers reveal that CBDs serve as home to many more citizens than expected. The implications for the multifamily market–and by extension to multifamily investors–are clear. Poutasse, a 10-year veteran of AEW, explained to in detail why latching onto the census is so vital, and how AEW has made the updated numbers work for its pension fund and institutional investment client base. You really see the US Census as a prime opportunity for real estate investors?

Poutasse: Absolutely. We’ve been working for 10 years on the previous census and its projections. Once every 10 years we get the opportunity to readjust all of our thinking because projections can be overstated or understated. It’s very important to make this readjustment as soon as possible to account for the most accurate market scenarios. But if the economy is slowing, how much can a more accurate population count really matter?

Poutasse: It helps us to focus on the secular trend of the discussion, and it’s only one part of the dynamic. Of course, the cyclical forces of the market are also a primary dynamic. But in other parts of the cycle, trends can get missed, and the revitalization of urban America is a trend that is being missed. Can you give me examples?

Poutasse: For one, there’s the fact that New York City alone grew 9.4% in the 1990s, not only outperforming its actual growth in the ’80s but also substantially outperforming projections through 2000. In fact, New York and the immediate environs grew faster than the median US city. This is a trend that people didn’t get at all. These undercounted people are predominantly immigrants, by the way. What about other first-tier cities around the country?

Poutasse: Well, New York had the largest undercount by far–564,000. The next biggest was Chicago at 200,000, but that’s only 2.5% of its population. What about LA? The immigrant numbers must have been substantial there.

Poutasse: Actually, the census bureau is much better at estimating the influx and growth in that market, so there was no undercount. So what’s all of this mean for the real estate industry?

Poutasse: One of the reasons rents have grown so fast is because there are more people than we thought they were–the 6% in New York, for instance. When you run that down to the neighborhood level, it means more customers for retail and residential. That’s number one. Number two is that those undercounted people are not evenly distributed around the MSA, but they’re concentrated in certain areas. So we’ve underestimated the demand for real estate that serves the immigrant population. It must have some implications for the office sector as well as the retail and multifamily markets.

Poutasse: It does and it doesn’t. It certainly means there is labor force enough–even before the corporate cutbacks–to fill all the jobs in these cities. But the industry is generally pretty good at measuring office demand. The 6% additional population actually has more impact on building jobs than tenant jobs. The undercount must have major impact on the affordable housing sector.

Poutasse: This undercount is all demand in the system, so there’s a lot of extra stress put on supply. We push our clients to provide urban-infill, moderate-income housing. We don’t push affordable as much as moderate income because affordable is so much harder to deliver profitably. You said you push your clients to consider moderate-income housing. Can you expand on this?

Poutasse: They need to pay more attention to urban America. They need to focus on areas that may have been developed once long ago but may need redevelopment and maintenance. Pension capital has paid too much attention to investing in areas that only create sprawl. As immigrant growth continues, more attention will have to go toward urban development–not suburban or ex-urban. Have you always recommended this path to your clients, or are you stepping up the campaign based on the latest census?

Poutasse: We’re definitely stepping it up. We’ve been focused on this for a few years now and we made it a conscious part of our strategy, but the latest numbers are certainly reinforcing the direction we’ve taken. And have they bought into it?

Poutasse: Surprisingly quickly, given the fact that pension funds don’t historically change gears very well. But we have three separate clients who are actively investing in urban infill. To what dollar amount?

Poutasse: On a gross property basis between a half-billion and a billion dollars in 2000.

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