Proforma: Feasibility Analysis
Function
Multi-year Cash Flow Projection
Multi-year Return Projections
Deal Structuring (Equity/Debt)
Tax treatment and Planning
Holding period analysis
Sensitivity Analysis
Portfolio Planning
Project Monitoring and Benchmarking
Developers want to know what performance fee they can get, generally they want about 15%.
development and disposition agreements
TOD is really a version of DDA because there is a partnership between the developer and transit organization
Discounted Cash Flow
IRR (internal rate of return)
discount rate = hurdle
NPV
Thursday, November 13, 2008
Tuesday, September 30, 2008
Class notes/September 30
Underwriting
Borrower Credit Worthiness
Borrower NOI
Asset Value
Credit is cheap and underwriters focus only on future asset values (in this case, real estate). The next level, the rating agents, should have looked and seen the standards falling and corrected them.
By amortizing fixed rate mortgage for $100,000, 5% anual rate
PMT formula = monthly rate!!!
1970s we started allocating adjustable rate mortgages
lenders didn't want to make a 5% interest rate commitment for 30 years. they stopped making loans and negotiated adjustable loans to borrowers. the risk is more evenly split between borrower and lenders in this model. ARMs are a little more complicated and there are a few more terms.
Life-time Cap: Maximum interest rate that the loan can take.
Periodic Cap/Adjustment limit: max annual or monthly cap the mortgage can adjust to (i.e. 1%)
Index: What the mortgage interest rate is keyed to (these are money market rates that are international) (e.g. federal funds rate (federal reserve rate charge + 3% from bank, nist stavke), 6 month treasury bill (most volatile), 11th district cost of funds, libor (rate quoted in london that is quickly becoming the international rate)
teaser rate: initial rate that is different than your qualifying rate
Amortization rate calculations differ in two ways:
First you need to forecast the interest rate
Recompute the monthly interest rate based on the annual balance in column D.
After finding the value of all of those payments over the life of the loan, (NPV(rate,the whole payment column)
NPV allows you to see which one is a better loan over its term http://www.investopedia.com/terms/p/presentvalue.asp.
The shortest loan you can afford is the best loan
The lowest rate is better
A bigger loan is better when asset values are rising but not preferable when asset values are falling.
If you don't have any money then lower down payment is best.
If you are income strained you go for the lowest monthly payment.
Risk adverse
If you are a homebuyer and you expect to make no other deductions, you can care less about interest rate but care more about rate (you can claim the interest on your taxes).
Affordable home buyer/developer-->biggest loan and lowest payment
Private debt is from
Public: mutual funds, public backed securities, etc. it is held by private companies, commercial mortgage backed securities,
Equity-private investors and REITs
debt- savings and loans, mortgage backed security.
Look at Chapter 7 in text
Borrower Credit Worthiness
Borrower NOI
Asset Value
Credit is cheap and underwriters focus only on future asset values (in this case, real estate). The next level, the rating agents, should have looked and seen the standards falling and corrected them.
By amortizing fixed rate mortgage for $100,000, 5% anual rate
PMT formula = monthly rate!!!
1970s we started allocating adjustable rate mortgages
lenders didn't want to make a 5% interest rate commitment for 30 years. they stopped making loans and negotiated adjustable loans to borrowers. the risk is more evenly split between borrower and lenders in this model. ARMs are a little more complicated and there are a few more terms.
Life-time Cap: Maximum interest rate that the loan can take.
Periodic Cap/Adjustment limit: max annual or monthly cap the mortgage can adjust to (i.e. 1%)
Index: What the mortgage interest rate is keyed to (these are money market rates that are international) (e.g. federal funds rate (federal reserve rate charge + 3% from bank, nist stavke), 6 month treasury bill (most volatile), 11th district cost of funds, libor (rate quoted in london that is quickly becoming the international rate)
teaser rate: initial rate that is different than your qualifying rate
Amortization rate calculations differ in two ways:
First you need to forecast the interest rate
Recompute the monthly interest rate based on the annual balance in column D.
After finding the value of all of those payments over the life of the loan, (NPV(rate,the whole payment column)
NPV allows you to see which one is a better loan over its term http://www.investopedia.com/terms/p/presentvalue.asp.
The shortest loan you can afford is the best loan
The lowest rate is better
A bigger loan is better when asset values are rising but not preferable when asset values are falling.
If you don't have any money then lower down payment is best.
If you are income strained you go for the lowest monthly payment.
Risk adverse
If you are a homebuyer and you expect to make no other deductions, you can care less about interest rate but care more about rate (you can claim the interest on your taxes).
Affordable home buyer/developer-->biggest loan and lowest payment
Private debt is from
Public: mutual funds, public backed securities, etc. it is held by private companies, commercial mortgage backed securities,
Equity-private investors and REITs
debt- savings and loans, mortgage backed security.
Look at Chapter 7 in text
Thursday, September 25, 2008
Chapter 13, Summary from Meg
Chapter 13
The Role of the Public Sector
- Any real estate development has the government playing a role
- The chapter examines the roles of governments as they affect the development process and the development industry as a regulator of private development and as a provider of needed public infrastructure and facilities.
The Public Sector as a Regulator
- Public and private interactions in any development increase in frequency as the proposed projects are subjected to criticism during the approval process leading to the stages of final permits
The Local Regulatory Process
- A comprehensive plan describes the desirable ways in which a community should develop over ten-twenty year time frame.
- Zoning ordinances are the most widely used form of land us regulation. They establish a variety of districts, depicted on maps, and spell out requirements and standards for permitted uses of land and buildings, the height and size of buildings, the size of lots and yards around buildings, the supply of parking spaces, the size and type of signs and fences, and other matters in each district.
- Subdivision regulations provide public control over subdivision land into lots for sale and development. They contain requirements and standards regarding the size and shape of lots, the design of construction of streets, water and sewer lines, and other public facilities, and other concerns such as protecting environmental features.
- Capital improvements programs are adopted by local governments to provide a construction schedule for planned infrastructure improvements, they also identity the expected sources of funds to pay for the improvements.
- A popular regulatory technique that goes beyond traditional planning and zoning is the use of requirements for adequate public facilities.
- Zoning changes may also require changes to the comprehensive plans
- Most public officials believe that involving their constituencies in these procedures will lead to wider consensus on new plans and regulations and therefore less opposition to implementing them.
- As a result, public officials use goal-setting exercises to describe future directions and qualities of growth based on projected trends and understanding of desired community qualities.
State Regulatory Actions
-Although state governments delegate most regulation of land use and development to local governments, states have always exercised some control over development.
-In growth management states, once a local plan has been reviewed or approved by a state agency and the community has adjusted its zoning and other regulations to the plan, development approvals and permits proceed in a traditional manner.
Public/Private Roles in Planning and Financing Infrastructure
-Providing infrastructure for community development is viewed as a primary government function. Many facility systems, such as roads and sewer lines must be closely related. Some public facilities and services such as school should be made available to all. Also, governments frequently expand infrastructure systems to support economic development in the community and the region.
Sources of Public and Capital Funds
-Local governments obtain capital for infrastructure improvements from their annual budgets, from the issuance of municipal bonds, and from state and federal funding programs.
- For long-term investments, governments depend on funds derived from obligation bonds or revenue bonds
Impact Fees and Exactions
- Impact fees are also known as systems development charges or development impact fees
- Impact fees are part of the developer contribution called “exactions”, that require developers to contribute to the provision of public facilities in their development.
- Sometimes exactions and fees are specified in regulations
- Other times exactions and fees are negotiated by jurisdictions with developers depending on their contribution
Legal Constraints, equity concerns, and administrative concerns… these are all basically judged on a case-by-case basis.
?s ask Meg
The Role of the Public Sector
- Any real estate development has the government playing a role
- The chapter examines the roles of governments as they affect the development process and the development industry as a regulator of private development and as a provider of needed public infrastructure and facilities.
The Public Sector as a Regulator
- Public and private interactions in any development increase in frequency as the proposed projects are subjected to criticism during the approval process leading to the stages of final permits
The Local Regulatory Process
- A comprehensive plan describes the desirable ways in which a community should develop over ten-twenty year time frame.
- Zoning ordinances are the most widely used form of land us regulation. They establish a variety of districts, depicted on maps, and spell out requirements and standards for permitted uses of land and buildings, the height and size of buildings, the size of lots and yards around buildings, the supply of parking spaces, the size and type of signs and fences, and other matters in each district.
- Subdivision regulations provide public control over subdivision land into lots for sale and development. They contain requirements and standards regarding the size and shape of lots, the design of construction of streets, water and sewer lines, and other public facilities, and other concerns such as protecting environmental features.
- Capital improvements programs are adopted by local governments to provide a construction schedule for planned infrastructure improvements, they also identity the expected sources of funds to pay for the improvements.
- A popular regulatory technique that goes beyond traditional planning and zoning is the use of requirements for adequate public facilities.
- Zoning changes may also require changes to the comprehensive plans
- Most public officials believe that involving their constituencies in these procedures will lead to wider consensus on new plans and regulations and therefore less opposition to implementing them.
- As a result, public officials use goal-setting exercises to describe future directions and qualities of growth based on projected trends and understanding of desired community qualities.
State Regulatory Actions
-Although state governments delegate most regulation of land use and development to local governments, states have always exercised some control over development.
-In growth management states, once a local plan has been reviewed or approved by a state agency and the community has adjusted its zoning and other regulations to the plan, development approvals and permits proceed in a traditional manner.
Public/Private Roles in Planning and Financing Infrastructure
-Providing infrastructure for community development is viewed as a primary government function. Many facility systems, such as roads and sewer lines must be closely related. Some public facilities and services such as school should be made available to all. Also, governments frequently expand infrastructure systems to support economic development in the community and the region.
Sources of Public and Capital Funds
-Local governments obtain capital for infrastructure improvements from their annual budgets, from the issuance of municipal bonds, and from state and federal funding programs.
- For long-term investments, governments depend on funds derived from obligation bonds or revenue bonds
Impact Fees and Exactions
- Impact fees are also known as systems development charges or development impact fees
- Impact fees are part of the developer contribution called “exactions”, that require developers to contribute to the provision of public facilities in their development.
- Sometimes exactions and fees are specified in regulations
- Other times exactions and fees are negotiated by jurisdictions with developers depending on their contribution
Legal Constraints, equity concerns, and administrative concerns… these are all basically judged on a case-by-case basis.
?s ask Meg
Tuesday, September 23, 2008
Notes September 23
Assume the value is whatever it costs us
Possibilities for a NOI that is too high:
Expenses are too high
Our rents aren't high enough
Our expenses are too high
Our density is too low
Okay, so there is a gap. How do we close it?
Try to close the gap:
Fine the supportable Mortgage
NOI/(Debt Coverage Ratio x Mortgage Constant)
Mortgage Constant: Yearly debt service for a dollar's worth of loan
Ellwood Tables: series of numbers that list all possibilities of interest rates and mortgage terms and mortgage constants.
Yearly Debt Service = (Loan x MC)
+ my affective loan to cost ratio is super low
_________________________________
don't do it, lady.
start fiddling around with the costs.
negotiate a lower land cost
negotiate a lower construction cost
raise the rent
raise density (remember that this increases construction cost)
2 things to remember
when does density help?
when you are building apartment buildings and your land cost is below 15-20$/sqft, density rarely helps (it is cheaper to buy more land than to make a denser building).
good designer/good architect can design higher densities, keep the cost under control, and make the density seem low a.k.a. elegant density). always remember your client or you will have a building and no tenants.
Check out what a lower interest rate would do and lower parking spaces--> it would lower the MC which would get you a bigger loan
that's not really realistic
so check out your expense rate since you are in control of this.
hold on to the land for a year or two and wait and see if the interest rates go down.
always use current cap rates--> no one can predict
relationship between cap rate and the rent (chapter 7 explains)
---------------------------------------------------------------------------------------
Financing
make payments for five years but the interest and the principle are geared to a 20 year period.
lenders like short terms and long amortization periods because the lender is protected from interest rate risk. adjustable rate mortgages are also good for banks.
difference between market value and outstanding value]
the bank will look at your past record when you go to get a loan, Fair Ison, TRW, rate your credit. above 600-->good credit.
Bank rates you on three things
Possibilities for a NOI that is too high:
Expenses are too high
Our rents aren't high enough
Our expenses are too high
Our density is too low
Okay, so there is a gap. How do we close it?
Try to close the gap:
Fine the supportable Mortgage
NOI/(Debt Coverage Ratio x Mortgage Constant)
Mortgage Constant: Yearly debt service for a dollar's worth of loan
Ellwood Tables: series of numbers that list all possibilities of interest rates and mortgage terms and mortgage constants.
Yearly Debt Service = (Loan x MC)
- Excel function: pmt (rate, term, -1)
- =pmt(.07, 30, -1) format cells to get the decimals
- to get monthly, divide rate by 12
- if you put the loan value instead of the minus one you get the...mc i think?
- DCR = (NOI/YDS)
- YDS=(Loan x MC)
- Loan = NOI/DCR *MC
+ my affective loan to cost ratio is super low
_________________________________
don't do it, lady.
start fiddling around with the costs.
negotiate a lower land cost
negotiate a lower construction cost
raise the rent
raise density (remember that this increases construction cost)
2 things to remember
when does density help?
when you are building apartment buildings and your land cost is below 15-20$/sqft, density rarely helps (it is cheaper to buy more land than to make a denser building).
good designer/good architect can design higher densities, keep the cost under control, and make the density seem low a.k.a. elegant density). always remember your client or you will have a building and no tenants.
Check out what a lower interest rate would do and lower parking spaces--> it would lower the MC which would get you a bigger loan
that's not really realistic
so check out your expense rate since you are in control of this.
hold on to the land for a year or two and wait and see if the interest rates go down.
always use current cap rates--> no one can predict
relationship between cap rate and the rent (chapter 7 explains)
---------------------------------------------------------------------------------------
Financing
- Two types of loans
- Mortgage loan
- compound
- long term
- 2 types
- non-recourse: if you as the owner fail to pay, they can take back your property
- recourse loans: the bank can take back any of your assets, up to the value of the loan (happens when market is risky)
- 30 year mortgage: fixed rate level payment fully amortized loan
- fixed rate: rate doesn't change
- level payment: the payment doesn't change
- fully amortized: at the end of the amortization period, you've paid back the entire loan
- adjustable or variable rate mortgage
- variable payment: monthly goes up and down
- fully amortized
- Adjustable rate or Variable payment, negative amortization loan
- at the end of the loan you can owe money on the loan
- never get these, ever.
- Simple interest rate balloon loan
- you pay along the way
- you pay the premium and forgone interest at the end
- Interest only balloon payment
- reverse annuity mortgage (RAM)
- the bank takes out a mortgage on your house
- you get a monthly payment from the bank
- at the end of the period your bank owns your house
make payments for five years but the interest and the principle are geared to a 20 year period.
lenders like short terms and long amortization periods because the lender is protected from interest rate risk. adjustable rate mortgages are also good for banks.
difference between market value and outstanding value]
the bank will look at your past record when you go to get a loan, Fair Ison, TRW, rate your credit. above 600-->good credit.
Bank rates you on three things
- credit score
- property
- commission an appraisal
- ability to repay the loan
- income
- tenants paying the rent
- DCR= NOI/YDS
- you want it to be greater than 1.1
- Loans to value Ratio: 80%
- house costs 100,000
- %80,000
- Qualifying ratio
- YDS:Income
- only for owner occupied
- should not be more than 22-33%
- Gross
- without taxes
- Net
- with taxes
- fees for the lender to initiate the loan (1-2% of the loan)
- points: prepayment to cover the risk of a higher rate in the mortgage backed security spread process (rate difference between the primary adn secondary market)
- bank sells you a loan at 6% but fanny mae is only taking loans at 7% or higher.
- Conventional/Conforming Mortgages: traditionally up to 400,000
- Jumbo Mortgages: 400,000+, held in bank portfolios, .5-1% increase in mortgage
- Prepayment penalties
- lump sum paid when you get out early
- residential prepayed penalties were outlawed in the 80s
- still can do it for commercial
- Participating loan
- for commercial properties
- the lender gets a share of the cash flow
- borrower gets lower interest rate
- can finance more of the project
Monday, September 22, 2008
From Traditional to Reformed..." (Matt)
This article is on the different types of land use regulations in the United States.
Major question: Do regulations help or hurt local development patterns?
Answer: It depends on what you care about? Density? Affordable housing? Open space? Business? Simply put, different land use regulations have different outcomes....
One outlook: "To the jurisdictions that use them, of course, regulations allow residents to reduce competition for public services, balance the budget, and protect valued open space, therby raising property values and wealth for property owners."
zoning history...comes out of public health concerns; still favored because separate land uses seem to stabilize property values
Zoning: exclusionary land use used in Northeast; separate land uses seem to stabilize prop. values
Comprehensive Planning: Western cities; mitigate conflicts between different land uses
Containment: Portland and Nashville; state law requires containment (keeping development in certain approved areas)
Infrastructure Regulation: highest in West; impact fees placed on developers who put increased demand on local infrastructure
Growth Control: permit caps on construction; SHORTAGES in housing --> not very popular politically
Affordable Housing: affordable housing incentives very popular in West
Types of Regulation by Order and Family
Traditional:
-Middle America (zoning; restrictive densities)
-High Density (New York City Metro Region in New York state)
Exclusion
-Basic Exclusion
-Exclusion with restriciton
-Extreme Exclusion
Wild Wild Texas
-Houston (little zoning)
-Dallas/San Antonio (zoning)
Reform
-Containment
-Containment-Lite
-Growth Management
-Growth Control
Conclusions:
*Densities in metro areas with Tradtional land-use regimes are falling much faster than anywere else.
*Center city is desirable in Texas and Reform areas, but seen as neighborhoods of last resort in areas with exclusionary and traditional planning.
*Housing prices = highest in Growth Control/Exclusionary areas
Major question: Do regulations help or hurt local development patterns?
Answer: It depends on what you care about? Density? Affordable housing? Open space? Business? Simply put, different land use regulations have different outcomes....
One outlook: "To the jurisdictions that use them, of course, regulations allow residents to reduce competition for public services, balance the budget, and protect valued open space, therby raising property values and wealth for property owners."
zoning history...comes out of public health concerns; still favored because separate land uses seem to stabilize property values
Zoning: exclusionary land use used in Northeast; separate land uses seem to stabilize prop. values
Comprehensive Planning: Western cities; mitigate conflicts between different land uses
Containment: Portland and Nashville; state law requires containment (keeping development in certain approved areas)
Infrastructure Regulation: highest in West; impact fees placed on developers who put increased demand on local infrastructure
Growth Control: permit caps on construction; SHORTAGES in housing --> not very popular politically
Affordable Housing: affordable housing incentives very popular in West
Types of Regulation by Order and Family
Traditional:
-Middle America (zoning; restrictive densities)
-High Density (New York City Metro Region in New York state)
Exclusion
-Basic Exclusion
-Exclusion with restriciton
-Extreme Exclusion
Wild Wild Texas
-Houston (little zoning)
-Dallas/San Antonio (zoning)
Reform
-Containment
-Containment-Lite
-Growth Management
-Growth Control
Conclusions:
*Densities in metro areas with Tradtional land-use regimes are falling much faster than anywere else.
*Center city is desirable in Texas and Reform areas, but seen as neighborhoods of last resort in areas with exclusionary and traditional planning.
*Housing prices = highest in Growth Control/Exclusionary areas
Sunday, September 21, 2008
Chapter 12- Stage Two: Refinement of the Idea
Objectives of Stage Two:
The developer's idea must either evolve into a particular project design associated with a specific piece of land or be abandoned before extensive resources are committed to the concept.
Primary steps are:
After making an assessment of the site you enter stage three: deciding to go for it or get out.
---------------------
A More Detailed Scanning of The Environment: Competitors and Governments
Need to understand local politics but remember they will continue to change
Choosing the Site:
Just be knowledgeable of the market and the area or use more technical ways.
Financial Feasibility
?s ask rachel
The developer's idea must either evolve into a particular project design associated with a specific piece of land or be abandoned before extensive resources are committed to the concept.
Primary steps are:
- legal and physical feasibility
- acquiring a site
- crucial
- 10-30% of proj's tot cost
- location is the key to realizable rent
- issue between tying up the site early with uncertainty but a greater margin for profit or taking time, increasing costs and exposing financial interest in the land
- be sure to involve the public and get them on your side
- marketing
- financial tasks
- management functions
After making an assessment of the site you enter stage three: deciding to go for it or get out.
---------------------
A More Detailed Scanning of The Environment: Competitors and Governments
Need to understand local politics but remember they will continue to change
- make friends with local officials/politicians/general public
- learn about competitors
- keep up to date
- People can make urban growth happen!
- book uses LA as an exciting example of what human beings are capable of
- People congregate to pursue economic opportunities that are less avialable at lower social and physical densities.
- Concentric Zone Theory
- Cities grow in concentric rings
- sort of outdated due to transportation innovations
- Axial Theory
- dev among transportation routes
- provides access
- commuting time rather than distance that dries location
- Sector Theory
- waves of development move outward from the central city
- looks like a pie
- agglomeration influences business location
- involves careful analysis of growth over time
- e.g. Atlanta
- edge cities are a "often a worthwhile investment"
- land availability
- more opp for density
Choosing the Site:
Just be knowledgeable of the market and the area or use more technical ways.
- GIS
- Forecast where development will occur
- Gravity Models
- spatial interaction models help predict
- population movement
- traffic flow
- store patronage
- shopping center revenue
- establish the buildable sqft
- environmental obstructions
- flood planes
- soil type
- hazardous waste
- some places require an archeological survey--just FYI
- Prices/dwelling unit are much more clustered than prices/SQFT of site area
- check out current zoning
- look for possibility of future changes
- subdivision regs
- specify the quality of infrastructure
- ideally specifies the quality and not the material used
- Figure out if you need any environmental changes
- gradient, runoff, drainage, etc.
- Get building footprint from architect
- determines whether or not the building and the parking can be placed on the site
- must coordinate with the environmental stuff (obvi)
- usually executed with the architect
- land value relies more on the land's visibility and proximity to customers and services than on its inherent productivity.
Financial Feasibility
- Do a back of the envelope analysis only with better info (basics)
- focus on how much start up capital is necessary
- figure out where it will come from
- option and purchase agreements should contain contingency clauses and specify that protective warranties wil be included in the deed
- ensure that the seller provided all possible guarantees to the title's quality
- constructive notice to public
- have release clauses and/or
- possible in a seller financed mortgage
- allows a borrower or developer to obtain a first lien on a portion of the land by paying a portion of the seller's financing note.
- subordination clauses in the option or purchase agreement
- a promise to move from a first lien position to a second lien position under specified circumstances.
- must be written into any option agreement so that they are subsequently included in the seller's financing.
- help to ensure that project is acceptable to the community
- informally present to city officials
- do good market research
?s ask rachel
Chapter 11- Market Research: A tool for generating ideas.
The first few pages of this chapter are definitions so here it goes:
Due diligence: research conducted before buying a real estate property
Entitlements: research completed to understand the most desirable zoning and deelopment conditions to seek
Programming: research conducted to determine the sequence, product mix, and amenities
Project positioning: research that informs the market niche for the project
Sales: research to determine the most efficient marketing and sales programs
To begin, market researchers examine both the macro (political structure, demographics, sociocultural attitudes, etc.) and micro (suppliers, consumers, competitors) market levels.
Summary of marketing concepts relevant to the development process:
Market research should determine how to address the following:
Product Positioning
Purpose of market study:
Ten Crit Questions that Market Research Must Answer
fuck i just realized this is chapter 11 which i think meg did already so im going to stop there.
?s ask Rachel
Due diligence: research conducted before buying a real estate property
Entitlements: research completed to understand the most desirable zoning and deelopment conditions to seek
Programming: research conducted to determine the sequence, product mix, and amenities
Project positioning: research that informs the market niche for the project
Sales: research to determine the most efficient marketing and sales programs
To begin, market researchers examine both the macro (political structure, demographics, sociocultural attitudes, etc.) and micro (suppliers, consumers, competitors) market levels.
Summary of marketing concepts relevant to the development process:
- marketing is a social and managerial process
- wgroups get weat they want and need by exchanging products of value with each other
- marketing occurs because humas have needs
- products can sometimes satisfy these
- Products can be obtained in several ways
- most people acquire goods by exchange so we specialize in one thing
- Market size depends on the amount of need or want and their ability to pay for those needs/wants
- a marketer is someone looking for one or more prospects who might engage in a exchange of values
- Marketing management: perhaps the most intuitive of the bunch, marketing management is the process of planning and executing the conception, pricing, promotion and distribution of goods, services, and ideas to create exchanges with target groups that satisfy customer's and organization's goals.
- sellers send goods or services produced by industry
- sellers communicate to the market
- sellers receive information from buyers
- sellers receive money from buyers
Market research should determine how to address the following:
Product Positioning
- figuring out who is the product going to be most interesting to and targetting those people
- style, quality of finishes
- buyer's preferences
- part of the primary real estate offering
- e.g. spacious entry ways, health club, VIP parking
- the amount and placement of different sizes and types of the product
- e.g. percent distribution of unit sizes and types
- Components of a pricing model
- how fast demand will absorb the product.
Purpose of market study:
- determine the size of the market
- come up with conclusions on financial inputs such as projected absorption rates, product mix, and price points.
- determine the target market for marketing strategy
- useful info for other stakeholders
- gets the info you need to secure a loan
Ten Crit Questions that Market Research Must Answer
- What are the types of trends in this type of development?
- important because market research cannot determine future trends--it takes your own observations or that of a trend setter like Rachel Zoe or Urban Eye's Melena Ryzik.
- The book suggests that you look at trends over time and actually try to predict the future yourself. Some of us are better at that than others. Know thyself.
- if you aren't good at this or you are but you don't trust your judgement, there are techniques!
- interview stakeholders and leaders in the industry, read periodicals, write down key messages from each source and make a spreadsheet of the info.
- Planners are pretty rad at this component because we are constantly in the know about all population trends and we are typically pretty hip.
- What is the current market?
- profile current buyers and tenants to reveal potential customers
- find out who they are and something about their lives
- demographics/statistics are good right about now
- you can find these on the census but you should know that because you went to census camp.
- What is the depth of this market?
- find out what the potential size is
- The book has nothing to offer in terms of technique about this except to let you know that it is "quite a challenge."
- What are the market's perceived values?
- Demographics
- statistical data
- questioning potential clients
- psychographics
- sweet vocab word meaning the study of psychological profiles of potential buyers
- What opportunities and challenges does the current market profile create?
- figuring out how to reconcile people's wants and aversions (NIMBYism)
- SWOT anal
- study all people affected by project to be sure you will have public support
- How do you determine and gain an understanding of your target market?
- narrow the target market
- use one of these:
- focus groups
- surveys
- What are market positions, development programs, price points, absorption, and lessons learned for competitive projects? Who are their buyers?
- look for info about competing projects and their marketing materials and their sales centers
- websites
- brochures
- sales kits
- sales center (after you have well thought out questions)
- third party reviews
- What are the market positions, development programs, price points, absorption, and lessons learned for competitive projects? Who are their buyers?
fuck i just realized this is chapter 11 which i think meg did already so im going to stop there.
?s ask Rachel
Chapter 10- Stage One: The Idea Process
This chapter is kind of a joke. I'm just saying that so if you ever need to prioritize which chapters to re-read, it is now clear this isn't one of them. I will do my best to summarize it precisely so there will be absolutely no need to return to it ever again.
Different Motivations Behind Ideas
http://www.phillyethics.net/about_us.php
?s ask Rachel
Different Motivations Behind Ideas
- Site looking for a use
- Entrepreneurial (from the imagination)
- Developed site needs redevelopment
- New use for existing building
- Use looking for a site
- BEPF
- estimate the willingness to pay of the conceptual target user or income/sqft
- multiply leasable sqft by revenue/sqft
- minus NOEs
- multiply by 10-12 (the inerse of an 8-10 % cap rate)
- BEPF weeds out the feasible ideas from the millions of not feasible ideas
- A successful looking BEPF doesn't equal a go on the project.
- Strategic Planning
- Formulate goals
- determine course of action
- think about the desired organization of the company for each project
- Techniques for generating ideas
- Brainstorming
- write down every idea
- defer judgment
- look for combinations of ideas
- Nominal Group Process
- used for establishing priority among ideas
- write ideas down in silence
- facilitator lists ideas
- members write up a confidential vote
- preferred projects emerge
- Delphi Method
- gather informed opinions on a research question
- looking for a consistent set of answers
- compare expert answers and formulate smaller more specific questions for them.
- good for complex questions
- Environmental Scanning
- systematic way for developers to monitor local, regional, national and global environments and the implications of changes in these environments
- e.g. what if the whole housing market crashes?
- Focus Groups
- for modifying proposed projects for a specific group of consumers
- allows free flow of thoughts
- 8-12 ppl for 2 hours
- moderator must be well informed in order to ask provocative questions
- be careful that you don't have the "wrong" people participating
- Surveys
- assess customer satisfaction
- assess willingness to pay
- Words of Warning and Sign Posts
- Test Marketing a New Idea
- do projects in small phases to test market at each phase
- Using Research to Make Decisions
- development ideas do not need to be well researched to be successful
- ...but it is probably more likely they will be (successful) if you do some research.
- Risk Control During Stage One of the Real Estate Development Process
- Know yourself (strengths/weaknesses)
- this way you know what you can take on and what you can't
- Know your image
- this way you can be more manipulative
- Know your team
- Coordinate
- talk to your team of both soft cost ppl and hard cost ppl
- know what's up in the real estate world
- Behave Ethically
http://www.phillyethics.net/about_us.php
?s ask Rachel
Thursday, September 18, 2008
Pencil Out Model
Answering three questions:
-------------------------------------------------------------------
- How much cash do I have?
- How much of a mortgage can I obtain?
- What's it going to be worth in the market place?
- Unit Type
- Parcel Size
- Density (comes from current or perspective zoning ordinance)
- Parking spaces per Unit (zoning ordinance will tell you--generally one to two per unit)
- Average Unit Size: (go online and see the exchanges online Institute of Real Estate Management, Buildings Owners and Managers Association). (2 bedroom 850-1300, 1 bedroom 600-800, (in residential world it is units per acre, in commercial FAR)
- Common Area Percentage: 5-15%
- Land Cost/SQFT
- Construction Cost/SQFT (find in exchange reports or in a cost estimating manual RS Meads and be sure to look at the local cost multiplier at the back of the book)
- http://www.meanscostworks.com/
- Parking Cost/Space: 2,000 for gravel, 5,000/normal outdoor parking space; structured--20-25,000. The zoning of the site, and the market study will determine what you deliver. 400-450 sqft/space.
- Soft Costs as % of Construction Costs: payments to architects, engineers, contingencies/services that produce the project. This is a percentage that is typically 25-35% of hard costs.
- Required Debt-Coverage Ratio:
- annual interest rate
- 30 year fixed rate
- underwrite it with debt service coverage ratio which is equal to [(rents-expenses)/yearly debt service]--> the bank will make you a loan such that the yearly debt service is 80% or less of your rents-expenses = debt service coverage ratio
- you want to barrow as much as possible
- lenders competing for your business
- lenders want the most coverage they can get
- DSC is not negotiable (you have to look around with other lenders)
- therefore, DSC's come from lenders
- Interest Rate (%):
- Term (years):
- Cap Rate: Rate at which the real estate market converts current income into future value.
- Appraisers know this shit, or you can go online, but make sure the site knows whats up.
- A building's cap rate is (NOI/transaction price)
- as a developer you want small cap rates
- correlates closely with interest rates
- Stabilized Vacancy Rate
- frictional vacancy rate : 1-2%
- systemic vacancy rate: 0-10%
- find these online
- appraisers
- brokerage agencies
- Prudential Fox Roach for Philly
- Expense Ratio
- Rents-Expenses
- 25-40% of your rents typically
- market price
- ask the interweb for answers
- formula's are on hand out on blackboard
- Assume value = Cost
- SOP and divide it by cap rate to get price (5.7 million in his example)
-------------------------------------------------------------------
Thursday, September 11, 2008
Good development: One in which the market value is greater than the total development cost.
(Rents- Expenses)/Capitalization Rate > Land + Hard Costs + Soft Costs
Capitalization Rate: The conversion number to predict future income. You can get it from an appraiser or the internet. Low cap rates are good, high, bad.
As a developer you want to control the right side of the equation (costs). You can work with your architect to keep material costs down. Maximize rent by doing market research to understand what people are willing to pay for (location, design, features/amenities). Try to get cheap land. Duh.
Triple net rent option. (http://www.wisegeek.com/what-is-a-triple-net-lease.htm)
Generally, if you are producing good development and adding value to a location, you are adding value to the community (though some people are/can be worse off).
Land developer: goes through the zoning and subdivision process, readies lots, and sometimes puts in infrastructure.
Land speculator
Real Estate Investment Trust: Owner is not really a developer, owns a portfolio of developments, bundles a bunch of similar products and operate them (Green Street Properties?). They want to maximize their "Funds For Operation" (FFO) growth and having property appreciation. This increases their stock. They can start to develop their own buildings and they do sometimes when they are unable to find lucrative properties. Theoretically know how to get and keep good tenants.
The Non-Profit developer: Typically rental housing to people that make less than 60% of the AMI. What a NPD is trying to do is create high quality rental housing that would rent at market rates or higher (really good housing) and then take that surplus to discount the rent (perhaps equity?).
debt = mortgage
equity = investment (the difference between market value and outstanding debt)
Lender simply wants to know if you can repay the loan (must show rental plan)
Equity Investor: wants to get investment back with interest which comes in two forms; periodic cash flows and appreciation.
Broker: Works on commission so they care about the quality of your project regarding how it will fare getting people into the building.
Government: functions as a regulator (give you the permissions to build the way you want).
They want the property to add to property values and have minimal social and environmental costs.
*most real estate is owned by REITs, Universities, individuals and investors.
Assessment is property tax; appraisal is the market rate.
(Rents- Expenses)/Capitalization Rate > Land + Hard Costs + Soft Costs
Capitalization Rate: The conversion number to predict future income. You can get it from an appraiser or the internet. Low cap rates are good, high, bad.
As a developer you want to control the right side of the equation (costs). You can work with your architect to keep material costs down. Maximize rent by doing market research to understand what people are willing to pay for (location, design, features/amenities). Try to get cheap land. Duh.
Triple net rent option. (http://www.wisegeek.com/what-is-a-triple-net-lease.htm)
Generally, if you are producing good development and adding value to a location, you are adding value to the community (though some people are/can be worse off).
Land developer: goes through the zoning and subdivision process, readies lots, and sometimes puts in infrastructure.
Land speculator
Real Estate Investment Trust: Owner is not really a developer, owns a portfolio of developments, bundles a bunch of similar products and operate them (Green Street Properties?). They want to maximize their "Funds For Operation" (FFO) growth and having property appreciation. This increases their stock. They can start to develop their own buildings and they do sometimes when they are unable to find lucrative properties. Theoretically know how to get and keep good tenants.
The Non-Profit developer: Typically rental housing to people that make less than 60% of the AMI. What a NPD is trying to do is create high quality rental housing that would rent at market rates or higher (really good housing) and then take that surplus to discount the rent (perhaps equity?).
debt = mortgage
equity = investment (the difference between market value and outstanding debt)
Lender simply wants to know if you can repay the loan (must show rental plan)
Equity Investor: wants to get investment back with interest which comes in two forms; periodic cash flows and appreciation.
Broker: Works on commission so they care about the quality of your project regarding how it will fare getting people into the building.
Government: functions as a regulator (give you the permissions to build the way you want).
They want the property to add to property values and have minimal social and environmental costs.
*most real estate is owned by REITs, Universities, individuals and investors.
Assessment is property tax; appraisal is the market rate.
Tuesday, September 9, 2008
Class notes/September 9
Topics
Risks
Rewards
Good Development
Participants
Process
Tangent--Fannie Mae and Freddy Mac Buy Out
Together Fannie Mae and Freddy Mac who are in control of 1.4 trillion dollars. They buy mortgages from banks and sell the bonds to other investors. They provide liquidity to the mortgage market for single family homes. Your local bank makes a commitment to originate a mortgage loan at certain rates and then Fannie Mae (Federal National Mortgage Association 1938) and Freddie Mac (Federal Home Loan Mortgage Corporation 1970). When Fannie Mae was started in the 1940s most people lived in the east but the movement was happening west and banks couldn't operate across states. There was a geographic
Buy the mortgages from banks, chop them up and convert them into bonds and securities and sells it to an investor. The key to the FM and FRMac is that the government will back these mortgages. The system works well as long as a small number of people are defaulting (less than one percent, actually) but now 3,4,5% are defaulting. Shit.
If you went for a mortgage and FM and FRMac defaulted, no one could get a mortgage because no one would ever buy the bonds again. Asians are the second largest, pension funds are first. That's our parent's retirement.
Quasi governmental (a minority of their board is named by the president of the congress, the are oversaught by the congress, the office of federal enterprise regulates them) but the rest is private. GSE (Government Sponsored Enterprise).
------------------------------
The world needs (?) risky expensive things like shopping centers.
Fie types of risks:
1. Development risk
2. Interest rate risk
3. Market risk
4. Construction risk
5. Tenant risk
Rewards
Work for a fee
Cash Flows (rents-expenses-debts service= hopefully a positive number)
Appreciation (increased value on land - capital gains tax)
Tax Shelter (if you have other forms of income, real estate investments become your tax shelter, before paying taxes you get to deduct your mortgage payments?) principally for non-profits.
Cash out at Take out (http://carolinahomerates.com/mortgage-refinance/)--> when you go take out your loan you build it for less than you take out. You use the income from your tenants to pay off that loan.
Good Development
Development that adds a lot of financial value to a location over a long period (five or more years). The benefactors of this statement are not specific--just someone/some group.
Simple equation: Market Value > Total Development Costs (TDC)
We hire people to figure out the market values (appraisers who use a method called comparables). Without an appraiser, how do you come up with market value? Come up with a projection of all future cash flows which includes rent, operating costs, debt service, on a yearly bases which equals the net operating income (NOI-->indicates commercial property). Discounted net operating income. So, you do a ten year forecast and discount it.
Participants
Process
Risks
Rewards
Good Development
Participants
Process
Tangent--Fannie Mae and Freddy Mac Buy Out
Together Fannie Mae and Freddy Mac who are in control of 1.4 trillion dollars. They buy mortgages from banks and sell the bonds to other investors. They provide liquidity to the mortgage market for single family homes. Your local bank makes a commitment to originate a mortgage loan at certain rates and then Fannie Mae (Federal National Mortgage Association 1938) and Freddie Mac (Federal Home Loan Mortgage Corporation 1970). When Fannie Mae was started in the 1940s most people lived in the east but the movement was happening west and banks couldn't operate across states. There was a geographic
Buy the mortgages from banks, chop them up and convert them into bonds and securities and sells it to an investor. The key to the FM and FRMac is that the government will back these mortgages. The system works well as long as a small number of people are defaulting (less than one percent, actually) but now 3,4,5% are defaulting. Shit.
If you went for a mortgage and FM and FRMac defaulted, no one could get a mortgage because no one would ever buy the bonds again. Asians are the second largest, pension funds are first. That's our parent's retirement.
Quasi governmental (a minority of their board is named by the president of the congress, the are oversaught by the congress, the office of federal enterprise regulates them) but the rest is private. GSE (Government Sponsored Enterprise).
------------------------------
The world needs (?) risky expensive things like shopping centers.
Fie types of risks:
1. Development risk
2. Interest rate risk
3. Market risk
4. Construction risk
5. Tenant risk
Rewards
Work for a fee
Cash Flows (rents-expenses-debts service= hopefully a positive number)
Appreciation (increased value on land - capital gains tax)
Tax Shelter (if you have other forms of income, real estate investments become your tax shelter, before paying taxes you get to deduct your mortgage payments?) principally for non-profits.
Cash out at Take out (http://carolinahomerates.com/mortgage-refinance/)--> when you go take out your loan you build it for less than you take out. You use the income from your tenants to pay off that loan.
Good Development
Development that adds a lot of financial value to a location over a long period (five or more years). The benefactors of this statement are not specific--just someone/some group.
Simple equation: Market Value > Total Development Costs (TDC)
We hire people to figure out the market values (appraisers who use a method called comparables). Without an appraiser, how do you come up with market value? Come up with a projection of all future cash flows which includes rent, operating costs, debt service, on a yearly bases which equals the net operating income (NOI-->indicates commercial property). Discounted net operating income. So, you do a ten year forecast and discount it.
Participants
Process
Friday, September 5, 2008
Leadership in a New Era By Arthur C. Nelson
Nelson's article reports a series of projections on population age, size and housing preference and implications thereby. He projects that by 2025 there will be a dramatic shift in the number of people over 65 and the housing preferences, need for access to facilities, and a crisis in the suburbs. He points out that right now there is an under supply of compact/mixed use/pedestrian and transit orientation development. The major causes:
Binding regulatory constraints (such as zoning)
Lending policies that favor conventional development and limit the supply of alternatives to sprawl.
What Nelson does particularly well, is predict the issues that will face the suburbs during this shift to urban living. He points out that homes in the suburbs will become less desirable and this can cause a number of things to happen. The people living in these houses, who expected their homes to be increasingly valuable assets, will actually end up with depreciating assets when they are ready to sell and move closer to the amenities they need. It will also leave older people in poorly maintained suburban homes on large lots. Some younger folks will experience their mortgages becoming more costly than the value of their home and will choose to default as a result.
Another scenario is that, as these homes become cheaper and city living becomes more expensive, the homes in the suburbs will be subdivided putting added stress on the infrastructure of suburban schools and amenities.
He points out that a major problem to reducing the outcomes he foresees is the fact that most zoning controls in the uter suburbs inhibit renewal and this facilitate decline.
Some projections:
between 2000 and 2025 37 million new residents, accounting for 55% of the nation's overall growth, will live in metropolitan areas. The outer suburbs will grow by about 25 million, equal to about 2/3 projected growth.
He describes two templates for this growth:
Central Cities and First Tier Suburbs
"Being in the center of their metropolitan regions, central cities and first-tier suburbs are poised to absorb a large share of growth over the next 20 years. I estimate that central counties in metropolitan areas larger than one million residents in 2000 (which are reasonable proxy for central cities and their first-tier suburbs) will grow by at least 12 million between 2000 and 2025, absorbing about 20% of the nation's overall growth."
Thereby planners must capitalize on infill and redevelopment opportunities. They must engage stakeholders in working out general land use parameters. He uses Arlington, Virginia as a successful case study of transit oriented development.
He shares an intersting point of view on downtowns, explaining that it won't be all about them because there are different nodes at transit stops, but they are a niche and planners can help position the "to attract a share of the future population."
Outer Suburbs
Nelson stresses the importance of redevelopment opportunities in suburbs. He attributes this to his projection that metro areas with one million in pop will grow to have twenty five million. Planners must give these suburbs realistic projections of land use needs so they can plan for these future populations. They must answer these questions:
Land zoned for large lots--is this a reality?
Can the community sustain itself fiscally with large lot zones and weakening demand for them?
Can they assess housing demand in outer suburban communities realistically?
Planners must provide the leadership neccesary to encourage creative housing solutions (e.g. accessory dwelling units and inclusionary zoning--esp affordable housing).
Suburban communities have some opportunities such as heir land bases--planners can use this to create a niche market attractive to those who value open space.
Commercial spaces in the suburbs are usually owned by one person, and these spaces are usually redeveloped or converted within twenty years and low rise office building in sixty, the opportunity to convert these buildings will probably arise. Planners should seize this opportunity to make these spaces take on more intensive use.
He summarizes his suggestions saying, "The challenge for planners in the outer suburbs is to organize land uses and infrastructure investments to meet the curreent development pressures while preparing for future sown cycles and shifts in market demand. There may be little time to waste."
Barriers
Planners should question whether land uses should be separated at all.
Innovations such as form based codes and conceptualized pre-platting permit a high quality built environment that anticipates change.
Communities should consider using financial incentives and consesions to encourage redevelopmet they want in the long term, but whose rates of return would be insufficient to attract investors. Tax abatement, fee waivers, tax-increment financing, below-market financing, and other techniques could be considered, all of which have low to moderate risks for government.
When reviewing development proposals requiring land use decisions, communities should consider how easily the proposed development might be converted to serve other uses once the intended use is no longer viable.
Institutional Challenges
Homeownership is favored over renting.
The property tax system penalizes land improvements and encourages speculation leading to inefficient land use patters. As a solution, Nelson suggest that land should be taxed based on its highest market value resulting in lower speculation and more compact development. This would also give planning a more powerful role.
Regional and metropolitan governance systems should be modernized. Decision making should be regional (I think that's what he is saying).
Overall, this is an important and well written article.
Binding regulatory constraints (such as zoning)
Lending policies that favor conventional development and limit the supply of alternatives to sprawl.
What Nelson does particularly well, is predict the issues that will face the suburbs during this shift to urban living. He points out that homes in the suburbs will become less desirable and this can cause a number of things to happen. The people living in these houses, who expected their homes to be increasingly valuable assets, will actually end up with depreciating assets when they are ready to sell and move closer to the amenities they need. It will also leave older people in poorly maintained suburban homes on large lots. Some younger folks will experience their mortgages becoming more costly than the value of their home and will choose to default as a result.
Another scenario is that, as these homes become cheaper and city living becomes more expensive, the homes in the suburbs will be subdivided putting added stress on the infrastructure of suburban schools and amenities.
He points out that a major problem to reducing the outcomes he foresees is the fact that most zoning controls in the uter suburbs inhibit renewal and this facilitate decline.
Some projections:
between 2000 and 2025 37 million new residents, accounting for 55% of the nation's overall growth, will live in metropolitan areas. The outer suburbs will grow by about 25 million, equal to about 2/3 projected growth.
He describes two templates for this growth:
Central Cities and First Tier Suburbs
"Being in the center of their metropolitan regions, central cities and first-tier suburbs are poised to absorb a large share of growth over the next 20 years. I estimate that central counties in metropolitan areas larger than one million residents in 2000 (which are reasonable proxy for central cities and their first-tier suburbs) will grow by at least 12 million between 2000 and 2025, absorbing about 20% of the nation's overall growth."
Thereby planners must capitalize on infill and redevelopment opportunities. They must engage stakeholders in working out general land use parameters. He uses Arlington, Virginia as a successful case study of transit oriented development.
He shares an intersting point of view on downtowns, explaining that it won't be all about them because there are different nodes at transit stops, but they are a niche and planners can help position the "to attract a share of the future population."
Outer Suburbs
Nelson stresses the importance of redevelopment opportunities in suburbs. He attributes this to his projection that metro areas with one million in pop will grow to have twenty five million. Planners must give these suburbs realistic projections of land use needs so they can plan for these future populations. They must answer these questions:
Land zoned for large lots--is this a reality?
Can the community sustain itself fiscally with large lot zones and weakening demand for them?
Can they assess housing demand in outer suburban communities realistically?
Planners must provide the leadership neccesary to encourage creative housing solutions (e.g. accessory dwelling units and inclusionary zoning--esp affordable housing).
Suburban communities have some opportunities such as heir land bases--planners can use this to create a niche market attractive to those who value open space.
Commercial spaces in the suburbs are usually owned by one person, and these spaces are usually redeveloped or converted within twenty years and low rise office building in sixty, the opportunity to convert these buildings will probably arise. Planners should seize this opportunity to make these spaces take on more intensive use.
He summarizes his suggestions saying, "The challenge for planners in the outer suburbs is to organize land uses and infrastructure investments to meet the curreent development pressures while preparing for future sown cycles and shifts in market demand. There may be little time to waste."
Barriers
Planners should question whether land uses should be separated at all.
Innovations such as form based codes and conceptualized pre-platting permit a high quality built environment that anticipates change.
Communities should consider using financial incentives and consesions to encourage redevelopmet they want in the long term, but whose rates of return would be insufficient to attract investors. Tax abatement, fee waivers, tax-increment financing, below-market financing, and other techniques could be considered, all of which have low to moderate risks for government.
When reviewing development proposals requiring land use decisions, communities should consider how easily the proposed development might be converted to serve other uses once the intended use is no longer viable.
Institutional Challenges
Homeownership is favored over renting.
The property tax system penalizes land improvements and encourages speculation leading to inefficient land use patters. As a solution, Nelson suggest that land should be taxed based on its highest market value resulting in lower speculation and more compact development. This would also give planning a more powerful role.
Regional and metropolitan governance systems should be modernized. Decision making should be regional (I think that's what he is saying).
Overall, this is an important and well written article.
Who Plans America? Planneres or Developers? By Richard Peiser
The thesis of this article is that planners and developers, while assumably opposed, actually have the same goals and should work together to achieve them.
He first explains that many planners of the 60s and 70s (progress planners) were interested in joining planning because of the glamour of creating the cities of tomorrow. He then claims, though there is no reference, that many planners abandoned the profession in the 80s and 90s for development positions under the belief that developers have more control over the built environment. He concludes that since then, the planning profession is confused in it's role, and a polarizing relationship/battle between developers and planners blossomed.
After a lot of theorizing of how planners and developers see each other, he actually makes a few good points of the nexuses why and where planners and developers can work together to be mutually beneficial. These are as follows:
1. The need for balanced local budgets and urban infrastructure due to fiscal crisis.
2. The tipping point at which planners can no longer charge impact fees without the developers leaving the area.
3. Increasing democratization of the development process calls for some sort of mediator (ie planners)
4. Development rights are eroding and developers need city official allies/trust.
5. traffic and environmental concerns are causing a backlash on development and causing no-growth movements.
6. Neither the planner or developer can do anything alone.
He seems to think the major problem planners have with working with developers and vice versa is the planner's inability to understand the developer's risk. He points out the power for planners, something we all probably knew already, or should know--the fact that planner's can streamline the development process thereby reducing cost and risk for the developer.
While he seems to keep riding the point that planners and developers can work together, as that it is his thesis, his 'Are There Limits to Cooperation?' section is less than encouraging. He quotes Fainstein (Susan), who, "questions the leeway that planners have in the development process. The answer is: some, if they can avoid being co-opted." Peiser adds that the essential way to minimize this outcome is to increase the public's interest and participation in the decision making process. Great. Thanks for the nugget of...hope?
Peiser leaves us with some tips for both developers and planners:
Planners
1. Understand the development process and its risks
2. Understand that developers generally want to be proud of their work
3. Developers must be profitable to stay in business
4. Planners should make the developer's profit requirements work FOR them. Incentive programs work better than extractions.
5. Most things that cities want done cannot happen without developers.
6. Developers need to rely on planners for sound advice on the approvals process
7. Developers need to rely on planners increasingly to mediate conflicts before they reach the courts.
8. Developers are intermediaries.
Developers
I'm just going to summarize his advice here to say that developers should trust planner's advice and that planners can help them if they show clearly that htey have the public's interest at heart.
He first explains that many planners of the 60s and 70s (progress planners) were interested in joining planning because of the glamour of creating the cities of tomorrow. He then claims, though there is no reference, that many planners abandoned the profession in the 80s and 90s for development positions under the belief that developers have more control over the built environment. He concludes that since then, the planning profession is confused in it's role, and a polarizing relationship/battle between developers and planners blossomed.
After a lot of theorizing of how planners and developers see each other, he actually makes a few good points of the nexuses why and where planners and developers can work together to be mutually beneficial. These are as follows:
1. The need for balanced local budgets and urban infrastructure due to fiscal crisis.
2. The tipping point at which planners can no longer charge impact fees without the developers leaving the area.
3. Increasing democratization of the development process calls for some sort of mediator (ie planners)
4. Development rights are eroding and developers need city official allies/trust.
5. traffic and environmental concerns are causing a backlash on development and causing no-growth movements.
6. Neither the planner or developer can do anything alone.
He seems to think the major problem planners have with working with developers and vice versa is the planner's inability to understand the developer's risk. He points out the power for planners, something we all probably knew already, or should know--the fact that planner's can streamline the development process thereby reducing cost and risk for the developer.
While he seems to keep riding the point that planners and developers can work together, as that it is his thesis, his 'Are There Limits to Cooperation?' section is less than encouraging. He quotes Fainstein (Susan), who, "questions the leeway that planners have in the development process. The answer is: some, if they can avoid being co-opted." Peiser adds that the essential way to minimize this outcome is to increase the public's interest and participation in the decision making process. Great. Thanks for the nugget of...hope?
Peiser leaves us with some tips for both developers and planners:
Planners
1. Understand the development process and its risks
2. Understand that developers generally want to be proud of their work
3. Developers must be profitable to stay in business
4. Planners should make the developer's profit requirements work FOR them. Incentive programs work better than extractions.
5. Most things that cities want done cannot happen without developers.
6. Developers need to rely on planners for sound advice on the approvals process
7. Developers need to rely on planners increasingly to mediate conflicts before they reach the courts.
8. Developers are intermediaries.
Developers
I'm just going to summarize his advice here to say that developers should trust planner's advice and that planners can help them if they show clearly that htey have the public's interest at heart.
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