Smart Growth A Growing Real Estate Play Findings from forthcoming Smart Growth Capital Report US EPA

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Smart Growth - A Growing Real Estate
PlayFindings from forthcoming Smart Growth
Capital Report (US EPA)
NAMB, Commercial Alliance Commercial Investment
Real Estate Expo November 04, 2005 Miami, Florida
Prepared by Lee Sobel Real Estate Development
Finance Analyst US EPAs Smart Growth
Program Development, Community Environment
Division
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Overview

• Capital trends in smart growth as a real estate
  investment opportunity
• Development trends in smart growth as a real
  estate product

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What Is Smart Growth?
Source US EPA
Source Duany Plater-Zyberk
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A Growing Real Estate Niche

• 1983 1st demonstration project begins Seaside,
  FL
• 1998 visit a neighboring state.
• 2004 - 648 projects, codes and comprehensive
  plans in 42 states DC (also Canada (13), Europe
  (25), the Americas (3)).
• Source New Urban News, 2005, and The Town
  Papers TND Neighborhood website, 2005
• 2005 339 projects complete or under
  construction
• Source TND Neighborhoods, The Town Paper

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Twenty-two Completed Projects

• Acres 6,845
• Housing (by units) 18,314
• For-sale Rental
• Office, industrial retail (sf) 6,353,802

Mizner Park, Boca Raton, FL
Market Common, Arlington, VA
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Twenty-two Completed Projects

• Acres 6,845
• Housing (by units) 18,314
• For-sale Rental
• Office, industrial retail (sf) 6,353,802

Research conducted by the TND Fund in 1999,
estimates 1.2 billion invested cumulatively in
traditional neighborhood developments by the end
of 1997 and 2.1 billion by the end of 1998. New
urbanist projects attract investment, New Urban
News, Jan-Feb 1999.
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Seventy-three qualified projects with
construction activity during 1Q00 1Q04

• Acres 30,784

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Seventy-three qualified projects with
construction activity during 1Q00 1Q04

• Acres 30,784
• Housing (by units) 43,852
• For-sale 22,624
• Rental 11,335

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Seventy-three qualified projects with
construction activity during 1Q00 1Q04

• Acres 30,784
• Housing (by units) 43,852
• For-sale 22,624
• Rental 11,335
• Retail (sf) 6,395,153

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Seventy-three qualified projects with
construction activity during 1Q00 1Q04

• Acres 30,784
• Housing (by units) 43,852
• For-sale 22,624
• Rental 11,335
• Retail (sf) 6,395,153
• Office industrial (sf) 17,205,280

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Seventy-three qualified projects with
construction activity during 1Q00 1Q04

• Acres 30,784
• Housing (by units) 43,852
• For-sale 22,624
• Rental 11,335
• Retail (sf) 6,395,153
• Office industrial (sf) 17,205,280
• Total Est. Investment 9,113,131,862

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The seventy-three projects upon full build-out

• Acres 30,784
• Housing (by units) 95,701
• For-sale Rental
• Retail (sf) 23,046,592
• Office industrial (sf) 48,853,453

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Capital Investment

• Median land cost was 13 (excluding site work)
• Equity financing accounted for an average of 39
  of total development costs. Debt financing
  accounted for an average of 61 of the total
  development costs
• Sources of debt local, regional national
  banks, institutions, and government loan programs
• Who are the leading institutions for placing
  capital on active smart growth projects?
  Wachovia Bank (3), Wells Fargo (2), Bank of
  America, CalPERS, 23 other banks identified.

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Geographic region of projects

• South 33
• Southwest 15
• Midwest 12
• Northeast 8
• Northwest 5
• Total 73
• Coverage 24 States
• Most Active Florida (9), California (9), Ohio
  (5),
• Texas (5), Colorado (4), Maryland (4)

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Products by category

• Large Land/Greenfield Projects
• Acreage Range 200 to 8,000
• For Sale Housing Range 100 to 1,000 units
• Single family units From 80,000 to 1
  million
• Average price 350,000
• Rental units 0 to 300 (average range)
• 2 Bdrm Average 800 - 2,000/mo
• Retail/Commercial (sf) 20,000 - 1,000,000

Celebration, FL Developer Walt Disney Land Co
Stapleton, CO Developer Forest City Enterprise
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Products by category

• Infill Development Project
• Acreage Range 15 to 250
• For Sale Housing Range 0 to 850
• Single Family Units From 200,000 to 900,000
• Average Price 300,000
• Rental Units 0 to 4,000
• 2 Bdrm Average 2,500/mo
• Retail/Commercial 2,000 to 1,000,000

Haile Village, FL Lender Sun Trust Bank
Hercules Waterfront District, Developer Bixby
Company
Bellmont Bay, VA Equity Private Firm
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Products by category

• Redevelopment/Re-Use Projects
• Acreage Range 15 to 1,500
• For Sale Housing Range 23 to 2,000 units
• Single family units From 200,000 to 700,000
• Average price 600,000
• Rental units 0 to 1,600 (average range)
• 2 Bdrm Average 1,500/mo
• Retail/Commercial (sf) 300,000 - 700,000

Santana Row, CA Federal Realty
CityPlace, FL, Palladium Co
Mizner Park, FL Equity TIAA
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Office industrial recap

• 22 completed projects
• 6,353,802sf (all commercial)
• 73 projects under construction
• 7,205,280sf
• Upon full build-out
• 48,853,453
• 125 projects in pipeline
• 44,581,000sf (all commercial)

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A growing product type

• 125 additional projects completed significant
  planning or under construction after 1Q2004
• Acreage 34,447
• For Sale Rental (units) 78,892
• Retail, Office Industrial (sf) 44,581,000

Courtesy New Urban News
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Smart Growth as a product type

• Real estate development
• Old and new locations
• Includes existing real estate products, but
  organized differently
• Calibrated to the community
• A new market choice

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Smart Growth as a product type
Village Town City

• Real estate development
• Old and new locations
• Includes existing real estate products, but
  organized differently
• Calibrated to the community
• A new market choice

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Smart Growth as a product type
Village Town City

• Real estate development
• Old and new locations
• Includes existing real estate products, but
  organized differently
• Calibrated to the community
• A new market choice

New Village New Town New City
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Smart Growth as a product type

• Real estate development
• Old and new locations
• Includes existing real estate products, but
  organized differently
• Calibrated to the community
• A new market choice

Carlyle, Arlington, VA Source US EPA
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Smart Growth as a product type

• Real estate development
• Old and new locations
• Includes existing real estate products, but
  organized differently
• Calibrated to the community
• A new market choice

Aldea, Santa Fe, NM Source US EPA
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Smart Growth as a product type

• Real estate development
• Old and new locations
• Includes existing real estate products, but
  organized differently
• Calibrated to the community
• Responds to changing demographics and new market
  choices

Santana Row, San Jose, CA Federal Realty Trust
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Direction of Development is Changing

• Conventional Wisdom
• One size fits all
• The edge and beyond

Illustration Dan Zack
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Direction of Development is Changing

• New Ideas
• Some edge, some first-tier suburbs, and some
  existing centers
• Transit Oriented Development (TOD)

Illustration Duany Plater-Zyberk
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Success on the Zoning Front

• Conventional Wisdom
• Euclidean, single-use zoning
• New Ideas
• Mid 80s - Traditional Neighborhood Development
  (TND) Ordinances
• Early 90s - TND zoning codes
• Mid 90s - Transect codes
• Early 21st C. - Form-Based Codes (FBC)
• (eg, SmartCode, offered by Municipal Code Corp.,
  Jacksonville, FL, www.municode.com)
• Trends
• Parallel zoning codes becoming city/countywide
• Possible substitution of Euclidian for FBC
  (existing centers most logical)

Images by Fenno Hoffman, Seth Harry, Geoffery
Ferrell, and Dhiru Thadani
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Public Process Aids Approval

• Conventional Wisdom
• Exclusive process
• Back-room deals
• Last minute surprises
• New Ideas
• Transparent public process
• Charrettes (3 to 5 days)
• Visual Preference tools
• Builds trust
• Trends
• Charrettes (5 to 7 days long...as intended)
• NIMBY to YIMBY

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Housing Complete neighborhoods Instead of
Communities

• Conventional Wisdom
• Housing subdivisions segregated by price points
• Separate all uses
• New Ideas
• Neighborhoods with mixed price points, PLUS
  rentals, live-works, and other uses
• Locating uses together
• Trends
• Follow the demographics 24/7 and 18/7 cities and
  towns, Creative Class Empty Nesters moving
  where the action is.
• Developers honing skills, applying lessons
  learned, more comps justify better projects

Courtesy Duany Plater-Zyberk
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Housing A Better Cookie Out There

• Conventional Wisdom
• Few builders per project
• Several standard models to choose from
• New Ideas
• Architecture and builder guilds
• Pattern books
• Live-work/Flex housing
• Grow-homes/Lifespan-homes
• Trends
• Older neighborhoods and districts creating their
  own pattern books to address redevelopment
• Visitability

Urban Design Associates the City of Norfolk, VA
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Useable Open Space adds value

• Conventional Wisdom
• Remainder land
• Buffer space
• New Ideas
• Useable mews, closes, courtyards, squares and
  plazas enhance housing and commercial centers
• Trends
• Working lands
• Green water management practices incorporated

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Useable Open Space and Water Management in
Practice
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Affordable Housing A Creative Laggard

• Conventional Wisdom
• Housing projects
• For the poor
• Tested Ideas
• HOPE VI
• Inclusionary Housing
• Ancillary units
• Land trusts
• Trends
• Demise of HOPE VI?
• More ancillary units
• Issue grows as problem expands to working families

Before and after, Elm Haven, New Haven, CT
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Retail is Responding...

• Conventional Wisdom
• Only shopping centers, malls, big boxes, and
  lifestyle centers
• Plenty of parking in the front
• New Ideas
• Main streets, town centers, shopping districts
• Parking also on street, in rear, or structured
• Additional uses above
• Trends
• Underserved/New Markets
• Urban format models

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and Getting More Creative
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Office Industrial Projects in Smart Growth
Developments

• Abacoa (Jupiter, Florida) is one of the first new
  urbanist traditional neighborhood developments.
  It includes a 70-acre industrial park with
  streets and blocks that integrate with the
  surrounding neighborhoods.
• Stapleton (Denver, Colorado) includes the Denver
  Bio-Science Center, a 200-acre BioScience
  Business Park.
• Orenco Station (Portland, Oregon) contains an
  industrial park with a street network that
  integrates with the surrounding residential
  blocks.
• Midway Commerce District (Midway, KY) is a new
  urbanist, industrial project that extends the
  existing grid of an old railroad town.
• Stanton Springs (Atlanta, Georgia) is a 1,200
  acre technology park that includes a town center
  with retail and housing.

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The Public Supports Re-using Existing Architecture

• Conventional Wisdom
• Paint, carpet, re-tenant
• Substitute new use for old
• Seek lesser tenant
• New Ideas
• Greyfields to Goldfields (Retail)
• Trends
• Greyfields to Goldfields, expanded (other sites
  considered office parks, hospitals, etc.)

Sources Codina Realty, Dacra Realty, Duany
Plater-Zyberk
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State Governments are Responding to Demand

• Conventional Wisdom
• Lack of communication between departments
• Little statewide planning efforts
• New Ideas
• Integrated regional planning (Envision Utah,
  Chicago 2020, Blueprint Denver, Reality Check DC
  Metro)
• Executive initiatives
• Executive-level positions
• Merging transportation and land use departments
• Trends
• SWAT Teams
• Fix It First
• Cool Cities initiatives

• Smart Growth at the Executive Level
• Mississippi Recovery, Renewal Rebuild
  Commission
• Illinois Balanced Growth Cabinet
• Maine SG Coordinating Committee
• Maryland SG Subcabinet
• Massachusetts Commonwealth Development
  Coordinating Council
• Michigan Land Use Leadership Council
• New Jersey SG Policy Council
• Pennsylvania Interagency Land Use Team
• New Mexico - Our Community Task Force
• Regional Great Lakes Sustainable Land Use
  Commission

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Transit An Economic Boon

• Conventional Wisdom
• Park Rides all transit heads downtown
• New Ideas
• Transit Oriented Development Dallas, Denver, Los
  Angeles, San Antonio, San Diego, Minneapolis,
  Salt Lake City, Hudson-Bergen Line (Hudson
  County, NJ)
• Trends
• TOD Corridors a collection of nodes is as
  important as the Downtown Houston, Kendall
  (Miami, FL), Plano (Dallas, TX)
• Street Cars! Charlotte, Memphis, Tamps,
  Portland, Tacoma, Winston-Salem

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Financing - Tough but not as tough as before

• Conventional Wisdom
• What is it? Will it lease up? What is the exit
  strategy?
• High equity contribution required
• Risk underwritten with high cost of capital
• New Ideas
• Comparables exist risk reduction
• Developers now doing third or fourth projects
• Lots of capital to place
• Growing market preference
• Growing reliance on developer track record
• Trends
• Institutional smart growth funds

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Challenges Remain

• State and Federal laws and policies still do not
  create a level playing field
• Old zoning codes are an obstacle to infill and
  other smart growth development
• Some places do not yet recognize the
  environmental, fiscal, and tenanting benefits
  associated with various density allocations.
• Post-streamline initiatives can be hampered by
  lack of bureaucracy outreach
• Most development is generally not an easy process
  - Costs, time, public participation, public
  support, environmental concerns
• Concern for affordable housing is growing

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Development responds to the market

• Conventional Wisdom
• What is it?
• Illegal
• Alternative terms used
• New Ideas
• Coalitions, regional networks, non-profit
  acceptance (NAR, ICSC, NAHB, NAIOP, ULI)
• Municipalities want this development
• Trends
• The brand and the messages continue to grow and
  improve
• Developers seek smart growth endorsements for
  their projects
• Smart growth is a growing viable real estate
  niche
• LEED-ND

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Thank You Realtor Association of Greater Miami
the Beaches

• Lee S. Sobel
• Real Estate Development Finance Analyst
• US Environmental Protection Agency
• Development, Community Environment Division
• 202.566.2851
• Sobel.Lee_at_epa.gov
• www.epa.gov/smartgrowth
• www.smartgrowth.org

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Introduction to Smart Growth The 10 SG Principles
1. Make development decisions predictable, fair
and cost-effective 2. Create a range of housing
opportunities and choices 3. Provide a variety
of transportation options 4. Strengthen existing
communities and direct development towards
them 5. Preserve natural beauty, parks,
farmland, and environmentally critical areas 6.
Create complete neighborhoods where daily needs
are close at hand 7. Create a safe, inviting
environment for walking 8. Foster distinctive
communities with a strong sense of place 9. Make
efficient use of public investment in
infrastructure, schools and services 10.
Encourage citizen and stakeholder participation
in development decisions. Source Smart Growth
America, www.smartgrowthamerica.org
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Acknowledgement for Images and Renderings

• Thadani, Dhiru
• Duany Platter-Zyberk
• Seth Harry Associates
• Ferrell Madden Associates
• Fenno Hoffman
• City of Norfolk, VA
• Urban Design Associates
• Greenberg, Ellen

• Klinkenberg, Kevin
• Little Diversified Architectural Consulting
• Dacra Realty
• New Urban News
• Preston, Russell