Earth Day: How “Walkability” Affects Your Bank’s Collateral Value

Commercial Real Estate and Earth Day

On this Earth Day, we are happy to report that doing right by the Earth can also help your borrowers and shareholders. When you underwrite your next loan on a commercial property, it might make sense to understand the property’s “walkability” or ability to walk from the property to nearby amenities such as public transportation, markets, parks and shops. The easier it is to get from your collateral the more likely that property will appreciate in a good market and hold its value in a down market. This goes for office, retail and multifamily.

 

Research done by Real Capital Analytics breaks down properties into four categories:   Highly Walkable Central Business District, Highly Walkable Suburban, Somewhat Walkable Suburban and Car Dependent Suburban. These categories were based on a “Walk Score” which is a numerical valuation between 0 and 100. The more amenities you can walk to, the higher the score. The score looks at population density and road metrics such as block length and number of intersections. Real Capital Analytics then looked at 15 years of price data and produced an index for each of the four sections. The data can be seen below:

 

Earth Day Banks

 

What they found was that highly walkable markets performed well. In the last downturn for example, Highly Walkable Suburban fell only 34% to its lowest point while Car Dependent Suburban dropped 46%. In a market of rising prices, such as current prices compared to 2010, Somewhat Walkable Suburban did the worst, rising only 57%, while Highly Walkable Central Business District rose 120%. It is also interesting to note that from the peak back in 2007/2008, Highly Walkable Central Business District is up 39% (the most), while Car Dependent Suburban is still 7% below its peak and Somewhat Walkable Suburban is down 11%.

 

The walkability of a property is particularly germane for properties with loans that have more than a 75% loan-to-value. By making a judgment on the property’s walkability, you might be able to better understand the stability and value of the property.