How Real Estate Developers Think
THE CITY IN THE TWENTY-FIRST CENTURY
Eugenie L. Birch and Susan M. Wachter, Series Editors
How Real Estate Developers Think
Design, Profits, and Community
Peter Hendee Brown
UNIVERSITY OF PENNSYLVANIA PRESS
PHILADELPHIA
Copyright © 2015 University of Pennsylvania Press
All rights reserved. Except for brief quotations used for purposes of review or scholarly citation, none of this book may be reproduced in any form by any means without written permission from the publisher.
Published by
University of Pennsylvania Press
Philadelphia, Pennsylvania 19104-4112
Printed in the United States of America
on acid-free paper
10 9 8 7 6 5 4 3 2 1
Library of Congress Cataloging-in-Publication Data
Brown, Peter Hendee, author.
How real estate developers think : design, profits, and community / Peter Hendee Brown.
pages cm — (The city in the twenty-first century)
ISBN 978-0-8122-4705-3
1. Real estate development—United States. 2. City planning—United States. I. Title. II. Series: City in the twenty-first century book series.
HD255.B758 2015
333.73′150973—dc23
2014040780
For Annaand for our children,Magnus and Astrid
Contents
Prologue: A Brick Wall in Evanston
Chapter 1. Developer as Visionary
Chapter 3. The Real Estate Development Process
Chapter 4. Developers and Their Architects
Chapter 6. Selling Real Estate
Chapter 7. Market Cycles, Leverage, and Timing
Chapter 8. Profits, Values, and a Sense of Purpose
Chapter 9. The Creation of Place and Culture
Chapter 10. Developers and the Community
Prologue
A Brick Wall in Evanston
We used to call them our town founders and we honored them by erecting their statues in our town squares. Today we just call them “developers.”
—Andrés Duany, Miami architect and planner1
The Costs of Opposition
In 2002 a Chicago developer named Neil Ornoff hired the architect David Haymes and his firm, Pappageorge Haymes, to design a twenty-unit residential project on a corner site at 525 Kedzie Street, in Evanston, Illinois, a northern suburb of Chicago. “The alderman—the city councilman—was really fearful of the people who lived in the adjacent building and were concerned about losing views they had across the vacant parcel, so he asked the developer to work with them,” recalled Haymes. “We designed a beautiful building,” but the design required a small portion of the building to be a little bit taller than what the height limits in the code allowed. The site plan also required the developer to seek relief on a parking rule that required a twenty-foot setback from the street to the building face to allow for on-street parking for the property, even though all of the parking for the building was going to be accommodated onsite, within the building, and concealed from view. These were routine and modest variance requests but, as Haymes recalls, “The neighbors simply said no, we are going to oppose the project.”2
So Haymes went back to the drawing board and redesigned the façade on the side of the building that faced the neighbors, adding articulation and setbacks that made the building look better from the neighboring property but increased project costs. This time the neighbors said, “No, that is a very nice design, but we are still going to oppose it.” So the developer said, “That’s it—we will build it ‘as-of-right,’” which means per the letter of the code and without any variances. Haymes redesigned the building, eliminating the small portion that was to be taller and changing the site plan to accommodate the required twenty-foot setback. He stripped off all of the articulation and setbacks on the side facing the neighboring building because there wasn’t room and the developer no longer felt the need to incur the costs required to curry favor with the neighbors. “We gave them an unadorned brick wall facing their building because we had to push our own building so far back on the property.” In the end, it took the developer and his team more than two years to obtain the approvals required to build a small, twenty-unit condominium project and by then it was late to market. The project opened in 2007, just as the housing bubble burst. The condominium units failed to sell out at pro forma prices so the developer was unable to fully repay the construction loan. The bank foreclosed on the property and sold it to another developer, who converted it to apartments.
In addition to providing architectural design services to developers, David Haymes and his partner have done some small development projects themselves and Haymes is also the head of his own community organization, so he has seen development from those viewpoints too. “There are still some in my community group who harbor those really harsh feelings about developers; they just don’t want change. They don’t trust developers because anything a developer does is going to be a change, and so they hammer any developer who comes in. Fortunately,” says Haymes, “over time, my community group has become more sensitive and understanding of what development is. We have also come to understand that we are better off having a say than not being involved at all, because if you take the attitude that you don’t want to talk to somebody then you are going to have to live with the consequences.”
Haymes sympathizes with how the public views developers but at the same time he finds that the whole process is far too distrustful to be productive. When Haymes presents at a public meeting, his job is to support his client by positively representing the project, but Haymes says he almost always fully backs and believes