How to Be There First When the Next Hot Neighborhood Emerges

How do you get in on the ground floor when it comes to selling in the next hot neighborhood?

People with a flair for spotting trendy neighborhoods say it takes vision, courage, and a little luck to be first out of the gate. It also takes a willingness to look around—often in your city’s old and forgotten neighborhoods, because that’s where many new frontiers are to be found.

Writing new stories for old enclaves isn’t the work of just a few real estate pros with a zest for risk taking. It’s a rich field waiting to be mined, as cities reinvent themselves as urban showcases for trendy lifestyles.

“The movement to adopt a new lifestyle in revitalized neighborhoods is gaining momentum,” says Joseph Gullotto, sales associate with Ebby Halliday, REALTORS®, in Dallas. “You’ve got a whole set of buyers who want to stay close to the action, looking for interesting places to live.”

To get a jump on your competition, you need to have conviction and a knack for telling the area’s story, say practitioners who’ve been first on the scene.

“Nothing can happen unless you believe in the neighborhood and see it as a reservoir of long-term value,” says Cheryl Jones, sales associate with RE/MAX Results in St. Louis.

Five years ago Jones took a buyer to look at a house in Tower Grove, a few miles south of downtown St. Louis. Once a grand residential area, Tower Grove was struggling from a generation of absentee ownership. By 1990 only one in four units was owner occupied; the rest were either vacant or occupied by renters.

Jones had been living in the area for a few years and had seen glimmers of renewed interest. But viewing the neighborhood as a professional rather than as a resident, she says, made her see the houses in a new light. Tower Grove, she realized, was a neighborhood on the verge of rebirth.

That vision set her career on a new path. “Before, I was selling mostly in the suburbs, but once I saw what was happening, I wanted to focus on Tower Grove,” she says.

Jones’ conviction was so strong that when her broker wouldn’t support her strategy of seeking high-end prices, she quit and went to another office.

Creating neighborhood buzz

Sometimes, it takes one person’s passion to make a sea change—and for Tower Grove, passion came in the form of Susie Gudermuth, an old-house lover whose listing Jones showed that day five years ago.

Gudermuth’s single-minded devotion was restoring Tower Grove to its old splendor. In the early 1980s, she began buying, rehabbing, and selling or renting local 1900s-era houses. By the time Jones met her, Gudermuth had restored some 20 houses and was striving to push up values by pricing some houses well above the area market rate. Indeed, Jones first thought Gudermuth was kidding when she quoted one house price at $199,900. That was at least $100,000 above comparables.

“I told Susie she was crazy,” says Jones. “But once she told me everything she was doing, the price made sense to me. She literally takes the houses apart, replaces old framing, floors, and sometimes part of the superstructure, and carefully puts everything back together again. These houses are built to last another 100 years.”

Before Jones jumped aboard, Gudermuth hadn’t used a real estate professional, and traffic was slim. “I told Susie she was shooting herself in the foot, because she wasn’t establishing comparables” in the MLS, Jones says.

To get buyers and other real estate practitioners to come to the neighborhood and take the prices seriously, Jones held a splashy party with lots of food and drink. “We had to educate people about the systematic way Susie was reinvesting in the neighborhood,” she says.

Houses in the area now routinely sell for $300,000 to $500,000, and earlier this year, two houses sold for $600,000 and $750,000, respectively. Those prices are a far cry from where they were five years ago, when the typical price was closer to $100,000.

“There will always be complaints that the area is being gentrified, but the diversity remains really strong,” says Jones. “There’s a good balance of single-family houses and multifamily units, two-family houses interspersed with some four-family units. We just added an upper-income layer.”

Gullotto acted on a conviction similar to Jones’ when he agreed to list 18 new condos in a Dallas building that was previously low-income rental housing. The developer had bought the property on the hunch that with the right renovation and marketing, condo living could take root near downtown despite the area’s neglected infrastructure and the widespread absence of homeownership.

That was 1996. Now Gullotto’s name has become synonymous with high-end downtown condo living. The veteran practitioner is closing an average of 170 transactions a year, mostly by representing developers who’ve replaced obsolete rental housing and commercial buildings around the downtown perimeter with luxury condo and loft properties. Last year alone, he closed $42 million in transactions at an average sales price of $349,000.

“When I started in downtown, you couldn’t get other real estate practitioners to sell in the area or even look,” says Gullotto. “They thought it was a bad area and knew very little about selling condos. Now they’re all down here trying to get business.”

Won’t you be my neighbor?

In the old steel town of Pittsburgh, Janice DeCarlo of Howard Hanna Real Estate Services recalls the uphill battle of getting other practitioners to bring buyers into her own neighborhood of Friendship.

“I had some people who stopped working with their salesperson and started working with me, because I was one of the few people who knew the area,” she says.

When DeCarlo moved into Friendship 17 years ago, the area already had good housing stock and an interesting history. It was developed by steel magnates Joseph Winebiddle and John Penn in the late 1800s. What it didn’t have was many owner occupants.

“My husband and I acted entirely on emotion when we saw the area,” says DeCarlo, who was then a stay-at-home mom. “We bought an old turn-of-the-century Victorian with stained glass windows and beautiful woodwork. It needed a lot of work. But like all the houses there, it was very affordable.”

The real estate was so cheap, in fact, that investors would snap up houses and convert them to two- to four- unit apartments, says DeCarlo. Maintenance was minimal, and owner occupancy had become a rarity.

DeCarlo believed so deeply that better days were ahead for Friendship that 11 years ago, she pursued a career in real estate just to make that happen.

She went after first-time buyers, and her first sale was to her sister. “My marketing strategy was to make every buyer I worked with my neighbor,” she says.

DeCarlo wasn’t working alone. Friendship has an active neighborhood association, which helped bring financial assistance to buyers in the area. For example, two county bond programs made it possible for qualifying first-time buyers to get acquisition-rehab and below-market interest-rate loans.

Interest in the area began to pick up about six years ago, and now prices are showing strong appreciation. In 1996 the average sales price was $80,000. Today some houses are selling for more than $200,000. “Those prices are a milestone for Friendship,” she says.

The domino effect

Gullatto, too, has seen steady appreciation in the Dallas neighborhood where he markets condo conversions.

For their first project, Gullotto and the developer priced units at $95 a square foot, a level that was considered outrageous at the time. “It was unheard-of,” says Gullotto. “The project was between Turtle Creek and Uptown, where there were a lot of drugs and low-income housing.”

But the quick sale of all 18 units made it clear they were tapping an unmet demand. Area condos now routinely sell for $300 a square foot. “Every time we did a project, we’d increase the price $5–$10 a square foot,” he says.

Gullotto does extensive Web-based marketing to reach his target group of empty nesters and professionals. Each of his major projects gets a Web site that showcases the attraction of in-town living and provides photo galleries and video tours of the common areas and units. Once Gullotto attracted residents to the area, commercial development followed. Now the area is home to some of the city’s hottest restaurants.

In St. Louis, Jones points to the revitalization of the commercial district called South Grand and of Tower Grove Park, a large park with walking paths and gazebos. “South Grand is thriving again,” says Jones. “Property values are going up, and it’s attracting new businesses.”

And there’s been similar renewal along Penn Avenue, the main commercial corridor of Friendship. “It all came together because people were thinking along similar lines, that this area was a gem in the rough,” says DeCarlo. “But it takes people to take the first steps.”

9 steps to a turnaround

Here are some ways to lead a neighborhood renaissance.

1. Find the neighborhoods with the cool houses, whatever their condition. Don’t be put off by the years of disrepair. If the houses are well built and have interesting architectural details, the buyers will be there once it’s clear that reinvestment throughout the area is well under way.
2. Get familiar with the neighborhood association, if there is one. A group of motivated homeowners is a necessary precondition to a neighborhood turnaround, because they can help set neighborhood standards.
3. Identify whether a neighborhood development organization operates in the area. These organizations, which are mission rather than profit driven, can seed a turnaround through the strategic acquisition and rehab of dilapidated properties, making nearby properties more valuable.
4. Investigate zoning and the preparedness of the neighborhood association to protect neighborhood interests. An active association can head off proposals that could alter the character of the neighborhood for the worse—or it can spearhead changes for the better.
5. Identify helpful mortgage and other assistance programs. Are public loans or grants available for the rehab of dilapidated housing or nearby commercial buildings? Such programs are often targeted to neighborhoods that meet certain income and owner-occupancy criteria, and can make financing available if conventional lenders are cool to an area.
6. Build interest among your colleagues. Hold a splashy broker open house to signal the neighborhood’s arrival. Grabbing your colleagues’ attention gives you a chance to tell them about an area’s fundamental change.
7. Telegraph value by setting bold prices. Prices must reflect the underlying strength of the area, which in some cases could mean pricing some renovated properties above what the market seems to suggest.
8. Match your marketing technique to your buyers. High-end professionals and empty nesters are big buyers of houses where the emphasis is on intricate architectural detail and convenient, in-city living. That may make Web-based marketing a good choice, because you can showcase both online to these typically Internet-savvy groups.
9. Be a part of the neighborhood yourself. No one knows a neighborhood better than the people who live there. By buying into the neighborhood and staying involved through the neighborhood association, you position yourself as the area’s No. 1 booster and its expert on pricing and marketing trends.