How Real Estate Developers Think. Peter Hendee Brown

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СКАЧАТЬ approvals, they regrade the land and provide the sewer, water, storm water, power, and road infrastructure that will make the land developable. Then they sell the lots or building pads to a homebuilder or to a developer of office or industrial buildings. Land developers make money by selling the improved land for a price that is greater than the combined costs of buying the agricultural land, getting the approvals, and providing the infrastructure. The difference between these costs and the sales price is their profit.

      Many commercial office developers and production homebuilders are also land developers who plan for and develop office parks or communities of single-family homes or townhomes on the land they have improved. These developers can also speed up or slow down land development, infrastructure provision, and building production. This flexibility allows developers to match their rate of delivery with market demand and rates of product “absorption”—the speed at which they can sell or lease their buildings. With this incremental approach, these developers can also use anticipated income from the rental of completed offices or proceeds from the sale of completed homes to pay the costs of development related to those buildings or units without having to develop more land than needed at any one time.

      Most developers specialize in one of the four traditional rental real estate product types: commercial office space, warehouse and light industrial facilities, retail strip centers and malls, and multifamily housing or apartments. Some developers specialize in variations on these product types, from hotels, casinos, entertainment centers, and mega-malls to senior housing, student housing, and mixed-use development. Finally, some developers specialize in for-sale housing, which includes single-family homes, townhomes, condominiums, and cooperatives.

      Developers generally work in either the suburbs or urban areas. Suburban development is typically lower density and less risky in terms of the politics of the approval process. In the suburbs, land is more plentiful, uses are separated, interest group politics are weaker, and people and buildings are farther apart, as are any affected neighbors. At the same time, suburban cities have smaller staffs and less capacity to evaluate development projects. In larger cities, however, there are many more neighbors who are close by and vocal, there are large planning and development staffs, and there are interested politicians who must listen to their constituents as they evaluate proposed projects. And because urban land is scarce and more costly, density is important because it directly influences the value of land. Urban sites also come with more unique constraints from geography and geometry to complex zoning codes and unique local and neighborhood politics. Thus each project is uniquely fitted to its site, unlike a typical template-based suburban subdivision built on agricultural land by a national homebuilder that offers the same ten unit plans across the country. All developers—urban and suburban—innovate constantly at the margins but suburban developers are more able than urban developers to replicate their products. For these reasons, urban development is generally understood to be riskier, more uncertain, more time-consuming, and more costly, so developers who work in cities expect a higher profit margin than they might receive from a relatively simpler office park or subdivision of production homes in the far exurbs.

      Developers can be either private, for-profit companies or nonprofit organizations, such as the many community development corporations in the United States that provide affordable rental housing in urban areas. A private developer can be very large or very small, from a single individual with some capital and a good idea to large companies such as Hines Interests, Trammell Crow Company, or the Trump Organization, with many divisions and projects and hundreds or even thousands of employees.

      Entrepreneurial people who seek large profits and who have access to capital choose the real estate development business because it can be lucrative and the barriers to entry are low. Smaller and medium-sized private developers—firms of between one and twenty people who are led by one or two visionary and entrepreneurial individuals—undertake an enormous share of the development in cities. Unlike their larger corporate and institutional peers, who often labor under more bureaucratic organizational structures and have less of an equity stake in their projects, these people run efficient organizations and risk their own cash—and that of their investors—on their own creative visions. And while some people go into development during boom times with the hope of earning a quick profit and then getting back out, many others commit their careers to development. These people acknowledge that development can be both rewarding and difficult, that it is risky, and that, like anything else, becoming good at it requires practice. The context within which development occurs has changed since eighteenth-century Boston but developers still conceive and execute grand visions. Some go well beyond being mere “land subdividers,” and the most imaginative developers create the world we live in.

       City Builders and Creators of Culture

      Developers build our cities. Others, from architects, city planners, and elected officials to preservationists, environmentalists, other special interests, community members, and nearby neighbors, play a part in the private development process. Governments build major facilities, public streets, and parks and plazas, and they regulate growth and development through planning and zoning functions and the management of public participation processes. But throughout the history of the United States, where the great majority of land is privately owned, the buildings that make up American cities have been planned, designed, and built almost entirely by developers, using private capital, one project at a time. This incremental process of development—and all of the individual large and small projects that result from it—continues to give shape to cities today.⁹

      Developers create the buildings in which we spend much of our lives. We work in their office buildings and we shop at their retail centers, mega-malls, and lifestyle centers. Their light assembly, industrial, and distribution centers store the food we eat and the goods we buy, from furniture and electronics to clothes and appliances. When we travel we stay in hotels, eat at restaurants, and visit entertainment and cultural attractions built by developers. Finally, most Americans grow up living in single and multifamily rental properties and for-sale homes that were mass-produced by developers. The work of developers makes up a large share of what we call the “urban fabric” of the city, from the exterior façades of their buildings to the land in between. More important, developers influence our basic conceptions of home, work, and life, from the high-rise office buildings of the early twentieth century, the suburban tracts of the post–World War II era, and the regional malls of the 1960s and 1970s, to the more recent warehouse-to-loft conversions, high-rise condominiums, and luxury apartments of the city.

      All new real estate products begin as innovations to existing products. For example, from the downtown department store to the suburban strip center, regional mall, mega-mall, and entertainment center, each grew to become a reality that felt inevitable. But they each began as an untested incremental improvement on a former product. And for each one, a developer had a vision that became a real part of the world and of life for many people. In the next section, a Chicago developer named Gerald Fogelson will explain how vision and several other traits were central to his success in transforming an old railyard into a new urban community.

       Seeing What Can Be

      In 1988, Gerald Fogelson had a vision of his own. In place of the old, abandoned, sixty-nine-acre Central Station railroad yard on the south side of Chicago that he could see from his office window, Fogelson saw a new and vibrant residential community. He took his vision to Albert Ratner of the Cleveland-based national development company, Forest City, and Ratner agreed to partner with Fogelson on the acquisition and development of the Central Station property.¹⁰

      Fogelson also had tenacity. He first developed townhomes on the land and then other developers saw the promise of his vision and began to partner with him to develop more housing. By the end of the 2000s, the area was home to fourteen million square feet of new real estate and more than five thousand people called the area, now known as Central Station, their neighborhood. In 2014 Fogelson was eighty, the redevelopment of Central Station had been under way for nearly three decades but was still not complete, and he still worked СКАЧАТЬ