I'm Back!

Urbanity Today is returning from a not-so-surprising break. Unless you have been living under a rock for the past year or two, you are aware that we've been going through a global economic crisis. Those who know me also know that the economy has taken a toll on me personally. With the economic conditions, there has been less going on in the world of development, and a bit less to talk about.

Now that the economy is officially in a recovery phase, there must be more to talk about, right? Well, not so fast. Yes, by official definitions, we're in recovery. The world of real estate, development, and urban planning, though, is still in intensive care. So, what's happening right now?

• Residential real estate's free-fall has stopped, and prices seem to stabilize. So, for those interested in buying a home, now's a great time - if your credit hasn't been crushed to pieces
• Commercial real estate is now the asset class that's having issues. Lots of properties are not just up for sale, but many are being sold at auction following foreclosure. One interesting sign of the times was a non-foreclosure auction of the Pontiac Silverdome, which sold for only $583,000.
• Urban planning is also in a lull. Many municipalities have tightened their spending, and developers are licking their wounds after many projects have been scrapped.

So, great time to come off a break, huh?

Actually, yes. If you recall, my purpose here is not just to talk about real estate development. I feel strongly that we need to develop more responsibly, and now's a great time to start the discussion again.

For developers who have managed to retain cash or access to funding, this is a unique opportunity. Central, urban properties that were previously too expensive to make sense for development are now, suddenly, much more accessible. Cost of construction is also much lower than in 2006, due to the available labor and materials supply. It's still possible to find redevelopment and infrastructure grants from state and federal sources that reduce the cost of infill development.

My hope is that more developers will see the opportunities with infill development, and will seek to be responsible by implementing mixed-use, walkable designs.

Outside the Big Box

One category of development that's frequently debated is big box retail. You know, the Costco's, Best Buys, and Home Depots of the world.

From a retail perspective, this is a profitable niche. Build a large (ok, huge!) store, pack it in with as much product as you can, limit service, and cut prices as much as possible. The store makes up in sales volume what it lacks in profit margin.

It's profitable for developers, as well. Profitable store, built for the long term, easy and cheap to build (they're usually pretty "bare boned"). For a developer, that's good business.

Here's where the debate comes in, though. Big box is not friendly to smart urban development. The stores themselves can often be an acre or more inside. With that much space, walkability is not really an option. Even in an urban environment, the perimiter is so large, you can walk a city block and still be outside the same store. Enough of these and you end up recreating the need for a car, which clogs the urban downtown, sending more people to suburbia, and so on...

Develop one of these in suburbia, though, and that 1-2 acre store turns into a several-acre site. Parking usually takes up at least double the space of the store. Then, there's loading dock access for multiple trucks, required landscaping, access roads, you get the picture. By definition, it's the complete opposite of smart development.

Lately, one more drawback has cropped up. The economic downturn hammered the retail sector, and there have been some bankruptcies and closures of big box retailers - Circuit City is one big example. With each store closure, one more big box is left vacant. That means acres of retail wasteland. No one else wants the stores right now, and until retail takes off again, the space will remain unused. Smaller stores have a much broader base of potential tenants, making them much easier to lease again. This also makes smaller retail stores a much smarter way to develop and grow an urban area.

Economic Justification for Development

In my last post, I commented about a few "mega developments", and how they all related to some aspect of "play", such as Las Vegas-style gambling or a mega amusement park for the ultra-rich. Apparently, these activities throw off a lot of cash for the owner, justifying the initial investment in the projects.

So, are there less luxurious justifications for significant developments?

Just so we're straight, every development is significant in some way, but I'm referring to landmark, sweeping, game-changing development.

All along, I've advocated some types of development that aren't your typical suburban development - projects that exist to satisfy some societal need, be it community, culture, health, environmental responsibility. (As a reminder, you can read more about that here.) However, to the investment community, these are not adequate justifications for developing real estate. Needless to say, the project will only be successful with the investment.

As I, or any other developer, work through the vision of a development, the financials are often forefront of the planning process. Unless I can answer the question of how an investor in a project can receive their money back with interest, the project will never get off the ground. In a circular way, this should explain why a Vegas-style casino may get funded, while a community-sensitive, well-planned mixed-use project may not.

Rest assured, projects that promote Community, Culture, AND Commerce can be funded and built. It simply means I, and my other fellow developers, just need to be more diligent.

Mega Developments

One trend showing up in real estate development in "developing" countries is the "mega development". Some entity with a lot of money decides to build a massive series of buildings and infrastructure. Keep in mind that describing these developments as "recent" is a bit of a misnomer, since these projects take years to decades to complete...

Dubai - This small section of United Arab Emirates was the first out of the gates near as I can tell. Their solution to having nearly filled up all their coastline and beach land is to create coast. Palm Jumeirah, Palm Deira, The World, and other projects are being built on man-made islands. The process creates a significant amount of both buildable land and coastline. Some of this is being done with walk-ability and mass transit in mind, while other parts are more similar to the suburban-style islands off the coast of Miami. Check out Nakheel Development for more. Funds for this project are directly from the Dubai government.

Abu Dhabi - This larger portion of UAE holds nearly 10% of the world's oil reserve. This means they have access to a lot of funds. About $500 billion (with a "B") is being put into development in their coastal capital city, also called Abu Dhabi. (Start Spreading the News! Abu Dhabi, Abu Dhabi!) Ironically, the area being targeted is also about the size of Manhattan. The architecture looks to be superb, while the overall effect appears to me to have the feel of Orlando mixed with Beverly Hills (read: playground of the ultra-mega-rich). It even includes a Ferrari-themed amusement park. This project is also solely government-funded, and developed by Aldar Properties.

Macao - This is actually two islands off the coast of China, and the project is the development of reclaimed land known as the Cotai Strip. Besides being geographically distant from the other two areas, the "project" is a departure from the Middle East projects above in other ways as well. First, the feel of the project is much more Las Vegas than LA or Manhattan. Second, the project is being funded by private development funds from the Las Vegas Sands corporation and MGM Mirage, among others. Sheldon Adelson, of Las Vegas Sands fame, is leading this development effort which is ultimately supposed to produce as much revenue annually as the entire state of Nevada.

Some commonalities exist between these projects. First, two of the three depend largely on reclaimed land. Second, the complexities that exist are quite different from typical developments, and are related to scale and speed of development, as opposed to gaining public buy-in and raising funds.

From a developer's standpoint, these projects represent a dream come true. Put the pedal to the metal and get the job done. They also represent the ability to put forth a particular philosophy or methodology without a whole lot of opposition. Mind you, in these cases, it mostly has to do with play, but the freedom is there. When you think about it, maybe the idea of play contributes to the ease of funding. When "play" sells, the investor can justify the investment economically.

So, the challenge to the developer comes in finding ways to economically justify their development...

Development in a Down Economy

The economy has been a major topic of discussion on CNBC, on main street, and around the dinner table for quite some time. So, how has it affected commercial real estate and redevelopment?

As my nearly two-month pause from this blog indicates, the economic difficulties have dominated the discussion. I can't say anything about the economy that hasn't already been said. There are a lot of writers monitoring this very topic.

From my perspective, though, here's where everything stands. There are an awful lot of bargains in commercial real estate, just as there are in single-family homes. There is also an extreme lack of available money from banks and other lenders, so taking advantage of those bargains tends to be left to those who already have the money.

Development has not completely stopped, though single-family subdivisions are not cropping up like weeds as we saw a few years ago. Redevelopment has slowed dramatically, since many of the players are the small guys who are infinitely dependent on other peoples' money.

Yet, there are still some bright spots. There are loft projects going on that are selling units. There are new restaurant and entertainment venues either under construction or ready to open.

The economy will come back. Will development be different? More than likely. Will it include more redevelopment and smarter building? I certainly hope so. Will I do my part to make it happen? Of course!

Latest on the Economy

As you no doubt know by now, my work life hinges directly on the economy and the availability of financing for projects. You have probably read my post "Everybody Now... Pull!", and have a basic feel for what I believe it will take for the economy to turn around.

Sunday, President Obama made a comment that is dead wrong, and may prove to be detrimental, or even disastrous, to our country. I know many are very positive about Obama, and I don't begrudge those opinions. However, I hope you will see how this comment, and the sentiment behind it, is very damaging.

The comment in question was not included in the pre-prepared transcript (available here), but I heard it in the replay on NPR yesterday morning. Obama said that the US government is the only entity that can get us out of this crisis. Just like a dutiful CEO, affirming a company's products or services as the best way to go, Obama is selling the federal government's ability to do the job.

Here's where he's wrong. It's not that I feel the government of Switzerland or Morocco should step in. Rather, he is forgetting about the entity that is the United States of America. You and I are not part of the government, except when we step into the ballot box or write a congressperson. We are part of the entity that is our great country. We consumers, businesspeople, investors, and citizens need to step out in faith. We need to be willing to spend sensibly, not clutch our white-knuckled fists around our wallets for fear of what the economy will do to us.

What happens when we rely on the federal government? We give up freedom, control over our lives and money, and we "pass the buck". Once upon a time, people in our country used to act out of personal responsibility and integrity. Now, we cry out to our government, saying, "Save us! Save us from this mess we got ourselves into!"

Let's all step out and do the right thing.

La La Land

I spent quite a bit of time in southern California over the last couple of weekends. The area is king of suburban sprawl. I know of nowhere else that you can drive almost 90 miles north to south or over 150 miles east to west and not leave suburbia. Oh, and you can run into a traffic jam any time during the day or night at random.

How did this happen? I'm not entirely sure, though I know residents there are deeply, DEEPLY ingrained in the car culture. What's more, I have heard stories that either oil companies or automotive manufacturers paid off Los Angeles city officials decades ago to shelf plans to build transit for the city. However, I can't substantiate those stories. All I know is that the effects have been dramatic.

There are some bright spots, though. Venice, San Diego's Gaslamp Quarter, parts of Pasadena, and some other areas, are pockets of urban-style character. LA's rail system is improving, particularly to and from downtown. There's plenty more to do, but it's a start.

Everybody, now... Pull!

Yes, I know I normally write about urban development, but I am digressing today to talk about something that's very important to all right now.

Everyone knows by now how difficult the current economy is. We’ve all heard this may be the worst economic crisis since the Great Depression. We hear economic data and statistics being passed around on a daily basis, and listen to economists, politicians and businesspeople talk about our current state.

It’s time we end the economic crisis, folks. Yes, I said, “We”. We, the People, caused the crisis, and We, the People, need to end it. But wait! How did we cause the crisis? We, in the Southwest, California, and Florida, felt it was ok to pay too much for single-family homes. We, all over the nation, felt it was ok to borrow from this new-found value in homes we already owned, using loans that had dangerously-rising interest rates. We then panicked with skyrocketing gas prices.

Now, we’re continuing the crisis. Look around you: Home values are much more reasonable. Most of the risky loans have been foreclosed upon or are in the process of being modified. Gas prices not only returned to sane levels, but are now less than half what they were at the peak. Yet, the recession still exists.

The reason we are still in this boat is because people are afraid – people as individuals and people running companies. We hear about people being laid off from work, losing their homes, declaring bankruptcy, or being unable to purchase necessities. We also hear of companies collapsing, being purchased by other companies, or undertaking major cost-cutting to stay alive. We also hear many media reports of dire statistics and predictions.

On the other hand, there are many people who are holding on to their savings, whose careers are on the upswing, or are at least in the same state they were three years ago. The unemployment rate is still in the single digits, meaning more than nine of every ten people you meet or know still have their jobs, and will likely be just fine. There are also companies that have large stockpiles of cash for various reasons, or are hiring, or have greater profitability than ever.

Now What?

There is something we can all do: Spend money. I am not the foremost expert in economics, but I have learned enough to know that when money is spent, the economy grows, and when money is not spent, the economy shrinks.

Of course, the spending should be sensible, and proportionate to each person's ability. If you have been saving money to replace your refrigerator, and are holding out in case something goes wrong, replace the fridge. If you’ve been waiting for the right time to remodel the house, now’s the time. Take your family, significant other, or friend out to lunch or dinner. Donate to your preferred charity – many non-profits are struggling right now, too.

If you own or run a business, now is the time to expand. Start that new marketing campaign. Hire for that new position you’ve been contemplating. Expand your facility, or move to a new one. For businesses that have the means, expanding during down times usually means they will be better-poised to take advantage on an improving market. Henry Ford’s actions during the Great Depression are a fantastic example of this strategy. Businesses with cash on hand can also do great good by donating to charities right now.

By now, you’re asking, “What about the Government?” Everything the government is doing, from the $17 billion US automaker bailout to the $700 billion mortgage bailout, is meant to either encourage more spending (and lending, which enables companies to spend) or stop the bleeding for companies because the spending has stopped. So, follow the Government’s lead: Start spending money – rationally, of course.

Even a little bit of increased spending by each of us will result in more jobs, more raises, improved economic numbers, and an overall sense of optimism in the market, creating a “virtuous cycle”. We can break out of this economic slump, folks, if we all pull… Now!

What Happened to the American Dream?

These days, I hear everywhere about how the American Dream has become the "American Nightmare". Now, we're all familiar with this tough economy, and what has happened with home prices and adjustable rate loans. The result is that many Americans who once owned homes are now enslaved by their homes, assuming they've been able to keep them.

I've realized that the American Dream has shifted over time, though. It hasn't always been the goal of owning one's own home. Let's take a look at the Dream over the years:

1492 - Christopher Columbus sets sail across the Atlantic searching for a new trade route to India.

1607 - The Virginia Company landed at Jamestown, with the charter of finding gold, settling the area, and locating a water route to China

1620 - The Pilgrims landed at Plymouth Rock in search of religious freedom

1776 - The Declaration of Independence was written and signed, signaling the birth of the United States of America, and becoming a catalyst in the war for American freedom.

1848 - Gold was discovered in Coloma, California, sparking a gold rush in which prospectors sought great riches.

1861 - The US Civil War began, in large part over the issue of freedom for those who were then being held as slaves.

1880-1910 - Many waves of immigrants came to the United States in and around this period in order to find greater economic opportunity, often escaping tragic circumstances like political oppression and famine.

You're probably seeing a trend here. Freedom and opportunity. Those were the original American dreams. People believed the grass was greener on the other side of the ocean - and in many cases, it was.

1929 - The stock market crash that led to the Great Depression left people scrambling to the banks demanding their money.

1945 - World War II ended. Soldiers coming home from war needed places to live and settle down with new brides. Along came homebuilders who, glad to oblige, built up tracts of land with inexpensive cookie-cutter homes. Suddenly, this became the new version of the American Dream - to own one's own home.

Somewhere between the stock market crash in 1929 and the end of World War II, there was a dramatic shift. No longer were Americans to be risk-takers, pursuing opportunity and freedom. Americans now sought safety and security and control. Yet, for those experiencing the "American Nightmare", those goals are beyond reach. Even worse, our ever-expanding governments, and every other American's shift toward safety and security, continue to close paths to opportunity and freedom.

Take back the original American Dream. Continue to fight for your freedom, and continue to pursue economic opportunities like your forefathers did.

A Better Place

I read about a company today called Better Place whose goal is to promote electric transportation through a network of cars, charging stations, and battery replacement sites (think "mechanic's garages"), all powered by renewable energy. Assuming their business plan works, it promises to be good for those not wanting to breathe in smog.

I'd like to see another addition to their business plan: merge this concept with the Zipcar concept of car sharing, in which you only have to pay for the car when you use it.

These two businesses don't really accomplish the goal of getting us out of gridlock or promoting community, but at least they're steps toward better ends...

Cars

Yes, I stole the title from a successful Disney movie. I don't expect them to knock on my door with a lawsuit anytime soon...

How should cars enter in to the urban lifestyle today and in the future?

With so many cars already on the road, they're a habit we're not likely to give up easily. Cars have given us a sense of independence and freedom we didn't have before, and we love that. We don't have to depend on anyone when we want to get somewhere.

But if any of you read Stephen Covey's 7 Habits of Highly Effective People, our most effective state is when we've moved beyond dependence and independence to interdependence. So, how does that work with cars? I suppose carpooling is one option. That sounds somewhat like interdependence. But we've seen how many actually carpool - frequently, the car pool lanes are the only ones where traffic can actually move. In fact, in suburbia, it's hard to get around without a car. That's not independence - that's dependence.

My opinion? Minimize car use. I'm not saying we should outlaw cars; rather, we should mold our world over time into one in which cars really aren't that necessary. If rail, buses, shuttles, and walking are a viable option, people may actually use them. What a world!

Lifestyle Centers?!

I just read an article in a business magazine discussing a recent trend in retail development called lifestyle centers. These are the "anti-mall" collections of stores, restaurants, and community-oriented spaces. They may be oriented toward luxury retailers, or geared toward unique, boutique-style shops. The goal, though, is to make sure they suit the "demographic" around them, or the people they hope to attract.

This does sound like a step in the right direction, because it should be able to build the community feeling. In some cases, this is true, and to that degree, they've done a little bit of good.

On the other hand, I think they're just a new style of mall. The developers are still segregating uses from each other. There's no residential, and often no office space to enable the space to truly be a lifestyle space. It's actually just a technique to squeeze more profit from retail real estate development.

The other issue with these centers is that the developer is doing more to homogenize the space and the people who frequent the center. There's over 6.5 billion people in the world, and the last thing we need is for all of them to become clones.

The best developments I've seen have been urban developments that have been put together over time by different people. They attract a broad mix of residents and visitors, and don't force them all to have the same behaviors.

We need to let people be individuals, and respect that individualism, not shape their lifestyle with "lifestyle centers".

Material World

I decided to deviate from my normal topics, because I'm watching a TV program on Ferrari's Maranello, Italy, factory. They're producing a car that retails from about $260k that's a fast, luxurious work of art. All of this at a time when many are worried about losing their car or house, or even their next meal.

All this has me conflicted. On the one hand, it is the lack of consumer and business purchases that is sustaining our current economic woes. Yes, you heard right. It's not the lack or excess of government intervention or regulation. It really has little to do with Bush or Obama or anyone else in politics. It's that people and companies, out of fear or excessive caution, are not spending money on things and services..

In addition, we all enjoy many of the things that make our lives comfortable or interesting. We love beautiful things, things that make tasks easier, and things that entertain us.

On the other hand, our dependence on material goods can be scary. Many of the things we buy make us lazy or prideful. (I'm guilty, too.) I mean, a dishwasher is functionally great, but it also either gives us more time to watch TV or work too hard. We can analyze every material thing like this.

So, where's the balance? I think it's in our frame of mind. Does the material item help us do good (or is at least neutral), or does it get you in trouble in some way? That means that the balance may be different for each of us.

So, maybe the recession is good, causing us to rely less on material goods. I tend to think not, though. Our recession is running on fear, and based on economic decisions, whereas peoples' choices to change their material lifestyles need to come from informed choices based on moral, ethical, or spiritual decisions. That kind of moderate change will reduce the wild market fluctuations we get when people and companies act based on fear and exuberance.

Roseville, CA

Roseville, CA (on Wikipedia) is my hometown, and as a result, I have watched its growth closely. For about 20 years, it has engaged in a large amount of sprawl, and its population has grown dramatically.

In recent years, city government and others prominent in the city have undergone a number of revitalization efforts, including Atlantic Street, the HOT (Historic Old Town) district, the Vernon Corridor, and most recently, the Riverside corridor. They've also encouraged mixed-use projects like the West Plan, also known as WestPark.

While I applaud that effort, I also have a few pieces of constructive criticism. First, the plans they have are isolated. Most of the revitalization efforts are in older, historic areas, and are limited in scope. My fear is that the HOT district and Downtown areas like Vernon and Riverside will become novelties, as many historic old town areas have. The city should consider sweeping overhauls to its development policies for the entire city, shifting from suburban sprawl to higher-density urbanized areas.

Second, their efforts at mixed-use have been somewhat half-hearted. The WestPark project has mixed-use components such as a walkable central commercial district, with the idea of "cutting" the suburban residential development with some retail/commercial uses. While that is a viable concept, and while I understand that sometimes it's important to shift subtlely in order to progress from one standard to another, the current result is that most of the residential neighborhoods and schools have been built, but no other uses have been started.

Lastly, I'm concerned that the changes that are being made are being overly legislated. Often times, economic development and urban redevelopment need to have some "funkiness" to work, and when every little item is predetermined, it's too perfect.

My advice to Roseville:

• Start looking at the entire city as a slate for urban renewal
• Go all the way - commit to true mixed-use development in as many areas as possible
• Don't overthink the process - it's better to get most of it right than to try for perfection and have the whole thing die in the process.