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Commercial Real Estate

CRE Opinion: What Defines a Coastal City?

Coastal cities are often associated with stability, density, and larger individual asset opportunities—characteristics that the Dallas-Fort Worth market strongly exhibits.

Michael Dardick of Granite Properties.

Most of us know that when the phrase “coastal cities” is utilized in real estate, it is referring to Boston, New York, and Washington on the East Coast, and San Francisco and Los Angeles on the West Coast. And, while these are all cities on the coast, so are Philadelphia, Miami, San Diego, etc. So, maybe it is intended to mean “large cities” on the coast? Well, Boston and San Francisco have respective metropolitan statistical areas that are ranked number 10 and 11 in the country in population. These two cities are ranked significantly behind other cities on the coast, Philadelphia and Miami—as well as Dallas and Houston, which are ranked by population size as four and five in the country, behind only New York, LA, and Chicago. So, it can’t be size alone that makes these five cities coastal cities.

What gives? These five coastal cities are not the only cities on the coast—and not even the biggest cities on the coast or in the country.

This is the part where many of you are wondering, so what’s the point, Dardick? Well, as we all know, a coastal city is often used as short hand for “institutional grade” city, which means lots of dough flowing there and high prices!  So, there’s the first clue to why the distinction of a coastal city matters.

I certainly believe that part of the allure of these coastal cities to foreign investors is that before they are investors, they often are foreign travelers or attend college in the U.S. and therefore may have a greater familiarity with New York, Boston, Washington D.C., San Francisco, and Los Angeles as U.S. destinations. However, in the long run as investors, it must be more than a “known” place that is easier to get to from overseas. As that old Wendy’s commercial use to say, “Where’s the beef?”

Well, I think the “beef” to what defines a coastal city is that foreign investors believe these cities are more stable with significant barriers to entry, and therefore safer investments, and have larger scale. I believe that Dallas has submarkets that are starting to have the real characteristics of coastal cities—stability, density, and larger individual asset opportunities. For sure, the urban part of Uptown, Preston Center, and the “CBD” of Legacy are getting close to the place where land is scarce, expensive, and oftentimes, one must knock down an existing asset to build new. Also, each of the submarkets is on the way to real vertical density, and as a result, walkabilitywith mixed uses. This is what happens before existing real estate values can actually become higher than replacement cost and stay there—key components of investing, stability, and safety. As a result, the individual asset sizes have become substantially larger.

So, while clearly Dallas is not a coastal city, it sure feels like this cycle we have moved a long way toward a long term, institutional grade market—I’m just saying.

Michael Dardick is president and CEO of Granite Properties.