How Real Estate Developers Think. Peter Hendee Brown

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СКАЧАТЬ wants to hold out for a very high price, or who wants to work with a competitor. And for those who control urban property at any scale, private development is no longer as private as it once was since the public has started to directly engage developers and the governments that regulate them after having lost trust in both.

       Challenges of Developing in the Twenty-first Century

      Developers like the Mount Vernon Proprietors operated with extraordinary freedom because there were few neighbors at the time who would have objected to the development of agricultural land, but cities have changed through urbanization, population growth, and other trends and forces. Four key movements that started in the 1960s increased the public’s skepticism of both private- and public-sector development and construction activities and led to the rise of “public participation.” First, in 1961, an observant Greenwich Village housewife named Jane Jacobs wrote the classic Death and Life of Great American Cities. Jacobs’s book was the first significant critique of the Urban Renewal program and the failure of its modernist planning efforts. Death and Life marked the turning point in how Americans thought about building their cities, and it has remained a classic and a largely relevant urban planning and design text today. Second, other classics soon followed, including Rachel Carson’s Silent Spring (serialized in The New Yorker and published as a book in 1962), which was widely credited as causing the ban of the pesticide DDT and launching the environmental movement. Third, the mass demolition of blocks of older buildings in city centers by Urban Renewal’s “federal bulldozer” culminated in the destruction of New York City’s magnificent McKim, Mead, and White–designed Pennsylvania Station. Its replacement with what many considered to be a soulless, modernist monstrosity sparked the birth of the historic preservation movement.⁸

      The fourth movement began in 1978 with the passage of the popular ballot initiative Proposition 13 in California. “Prop 13” limited the California state government’s ability to increase property taxes in California, initiating a “taxpayer revolt” and ushering in the era of “no new taxes” throughout the United States. One effect of the antitax movement was that cities began to seek alternatives to using general-fund tax revenues for needed public infrastructure projects. The public-private partnership, or PPP project model, an alternative financing method introduced in the early 1980s, quickly proliferated around the United States and the world and has continued to dominate in the twenty-first century. These projects are legal and financial partnerships between private developers and governments—usually city governments—who offer to support a private project financially with public resources such as low-cost land, environmental cleanup grants, low-cost money in the form of tax-exempt debt, and future tax revenues (tax abatement and tax increment financing, or TIF). Policy makers hoped that the use of public resources to reduce the costs and risks for developers working in unproven urban areas would stimulate the market and “prime the pump” for future private development and reinvestment in the city that would not require subsidies. In exchange for these resources, the public would obtain benefits or amenities as a part of the project, ranging from streetscape and sidewalk improvements to public plazas, parks, green roofs, and parking facilities. Often, however, the public benefits seemed sparse or not very public and the subsidies were viewed as payments that lined the pockets of private developers while moving a large share of the risk onto the public partner. At the same time subsidies became a normal expectation from developers in many cities where elected officials wondered when the pump would finally run by itself.

      For all of these reasons, by the 1980s, public confidence in local government’s ability to fairly represent the public’s interests in its regulation of private real estate development was very low. Americans increasingly insisted on having a voice in projects and developments in urban areas that would affect them in the areas of property rights, social equity, and the environment. The public’s growing suspicion and distrust of government officials and the private developers they regulated led to ever-increasing scrutiny of development proposals, outright opposition to many, and a general fear of change as exemplified by the term NIMBY, which stands for “not in my backyard,” or, worse, BANANA, which means “build absolutely nothing anytime near anything.” In this atmosphere of distrust, by the twenty-first century, even traditional private development projects that received no public subsidy had effectively become “public-private” projects in character by the time they had wended their way through long, complex, uncertain, and often-fraught public review and approval or “entitlement” processes. Virtually every urban project required the developer to work with neighbors and the community in addition to the usual approval bodies such as planning, zoning, and heritage preservation commissions as well as the city council. Indeed, by the start of the twenty-first century, being a real estate developer had become more difficult than ever before, in large part because of the public’s fear of change and distrust of developers.

      By the 2000s and 2010s—and after more than a half-century of residential abandonment—cities had started to become attractive places for middle-class people to live again, as population growth had caused suburban sprawl and congestion while higher gas prices started to make longer commutes increasingly costly in both time and money. These negative push forces, in combination with the pull forces of improved public safety, access to arts and culture, and the rich sense of community that exists in urban areas, began to drive people back toward the core in search of a better quality of life. Demographics played a key role too, as both the baby boomers and their children, the millennials, began to prefer urban living over the suburban single-family homes they were raised in, and this continued to play an increasingly influential role in urban real estate development as the flight to the city took off.

      By the 2010s, the question had become how to address this growing demand for new development in cities if each project would be exposed to the kind of opposition that the developer Neil Ornoff had faced in Evanston. The answer lies in coming to a better understanding of developers.

       What Are Developers and What Do They Really Do?

      There is no one route into the real estate development business. It is not a legally recognized profession like architecture, engineering, or law, which requires specific academic degrees and work experience to obtain licensure. A handful of American universities have offered formal degree programs in real estate in the past and a number of new programs were created during the building boom of the 2000s but even so, relatively few developers are graduates of those programs. The developers profiled in this book who did attend college obtained degrees in everything from architecture, business, and law to art history, music, creative writing, and cooking. States do not license or regulate developers, although many developers are licensed real estate brokers or agents, some are licensed as contractors or homebuilders, and some do hold licenses to practice other professions such as law, architecture, and engineering. Many developers belong to and participate in industry trade organizations such as the Urban Land Institute; NAIOP, the Commercial Real Estate Development Association; and Lambda Alpha International, the honorary society for the advancement of land economics. The U.S. Bureau of Labor Statistics classifies developers as “land subdividers,” because they buy land and increase its value by subdividing it and building higher-density uses on it. There are many different kinds of developers, and they each specialize in different product types, work in different geographic areas and contexts and at different scales, and range in organizational size from solitary individuals to national and multinational corporations.

      The one thing all developers have in common, however, is that they make their money by buying a piece of land or a building or a complex of buildings and then increasing its value. They do this by investing in capital improvements such as renovations or the construction of new buildings, by improving operations, or both. If a developer is successful, rents or sale prices can be increased, the final value of the asset will be greater than the cost of acquisition and improvement, and the developer will realize the difference between costs and value as profit.

      Land developers, for example, buy suburban or rural land at agricultural prices and then obtain zoning approvals for a subdivision of new homes or an office or industrial СКАЧАТЬ