How Real Estate Developers Think. Peter Hendee Brown

done interesting or important projects; on independent developers of all sizes rather than larger corporate developers; and on developers who worked primarily in urban areas and particularly in city centers. This approach led to a group of developers with diverse backgrounds and portfolios and who operated at different scales, ranging from very small to very large. Many of these developers had experience with several product types but most of them also developed condominiums during the 2000s because cheap and plentiful financing was available for for-sale housing so everyone was doing it. All are career developers who have completed numerous projects, are experienced, and have been generally successful over time. And while most have experienced losses at some point in their careers, when the housing bubble burst in the late 2000s they all stayed in the development business and were hard at work getting new projects off the ground by the end of the decade. By the early 2010s many were back in business developing apartments, senior housing facilities, condos, and other types of products. Importantly, while many of these developers are considered to be “good developers” by their peers and elected officials, city staff, architects, and some members of the community, none are without detractors. Few developers have completed a single project that has satisfied everyone, and criticism has come from various places: the local architectural critic, the district council member, nearby residents of a certain building, the neighboring property owner, or a disappointed buyer. Developers create buildings that change communities, and they construct products that may not meet everyone’s standards, so success in one realm does not mean that they are beloved by everybody. Political and community opposition, negative media coverage, harsh architectural criticism, financial difficulties, and lawsuits are part of doing business for all developers, even the “good” ones.

       Why It Matters: There Will Be More Development—and More Potential for Conflict

      During the first decade of the twenty-first century, an unprecedented amount of money—what the real estate economist Anthony Downs called a “Niagara of capital”—flowed into the U.S. real estate market, fueling the overproduction of for-sale housing that led to the bursting of the housing bubble in 2008.⁴ That bubble was caused by developers, homebuilders, banks, and all of the people who bought and sold homes hoping to make a huge profit from what appeared to be rapid and never-ending appreciation in home values. Three years later, by 2011, America was still recovering from a protracted recession, investors were still sitting on the sidelines, banks were still not making loans, and many developers were struggling to initiate projects in the face of scarce capital and a dead market. Glum developers, architects, contractors, lenders, and many other industry professionals said things like “we will never see a boom like that again,” “we will not see any high-leverage deals again for a long time,” and “we have seen the end of urban redevelopment as we know it.” But despite their dire predictions, by 2014 we were seeing all of those things again as the new boom in apartments that roared to life in 2012 was still going strong.

      Real estate boom-and-bust cycles play havoc with people’s confidence and emotions in the short run but they obscure important long-term trends. Three major forces have historically driven and will continue to drive new development in the United States over the long term. First, there is a constant need to replace aged building stock. Second, we must house a continuously growing population—projected to increase by 86 million, from 314 million to 400 million, between 2012 and 2050. Third, a constantly changing demand for new product types reflects shifting demographics and tastes—from “lifestyle” retail centers in the suburbs and luxury apartments in the city to senior housing everywhere to accommodate the huge and growing segment of the population that is sixty-five and over. But in addition to these three drivers, the beginning of the twenty-first century ushered in a fourth—“the flight to the city.”⁵

      By the 2010s it had become clear that a massive demographic rearrangement of American cities, what Alan Ehrenhalt called “the great inversion,” was under way.⁶ For the first time in history, new immigrants were moving straight to immigrant communities in the suburbs rather than to their traditional enclaves in city centers. At the same time, unlike previous generations, young middle-class millennials—people born between 1981 and 2000—chose not to move back to the suburbs where they were raised but to move to urban centers instead. Also, unlike previous generations, many of the baby boomer parents of those millennials—people born between 1946 and 1964—chose to abandon their empty suburban nests, follow their children, and move to the city too. These boomers, their children, and other people with the financial means had discovered something important: City living is good for you. In Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier, Edward Glaeser cites numerous studies that show that people who live in cities experience a higher quality of life than those who live in suburbs and rural areas.⁷

      These four major trends will ensure that development continues in our communities for the foreseeable future—we simply cannot put our heads in the sand, stop the clock, or pull up the drawbridge. We live in a society with a market economy and in a democracy that values personal rights, including property rights. A real estate development is a business venture financed by private investors and lenders who take serious risks with the objective of earning significant profits. Developers are therefore reluctant to let community members have much influence over costs, design, marketability, and profits when they have no financial stake in the project. On the other hand, development affects everything from home values and views to the use and enjoyment of public streets so members of the community feel they should play a stronger role in shaping projects. The underlying source of conflict is that a real estate development is a private enterprise that is acted out on a very public stage. A primary purpose of this book is to help community members understand how they can maximize their influence on that private enterprise by seeing the project from the developer’s perspective.

       Selling Dreams and Building Communities

      I used to work for a developer named Bob Lux who would say, “We don’t sell real estate, we sell dreams.” What he meant was that it is often easier to sell an idea—by appealing to people’s inner idea or image of themselves—than it is to sell an actual piece of real estate. Sales agents know that it is often easier to sell a home before it has been built than after, and the reason is because reality is rarely as good as our dreams. In our dreams, we do not see marred paint, dented appliances, or poorly located light switches nor do we see low ceilings, small rooms, and even smaller windows. But when we walk through an actual home, these and countless other flaws become apparent, even in the best-designed and highest-quality projects. Unlike mass-produced products such as automobiles, buildings are custom-built every time with human hands so it is much more difficult to ensure a consistently high level of quality. Even if one could it would not matter because nothing is perfect except dreams, so that is what developers try to create when they first begin to envision new projects. As they refine and adapt their vision, they must bring everyone else along with them—local politicians, city planners, architects, neighbors, lenders, investors, sales agents, tenants, and potential buyers—and make it their vision too.

      If developers succeed in getting those visions built and sold, they may live to see them transformed by time and use from speculative projects into accepted or even beloved parts of a neighborhood or community. But we seem to have forgotten that developers have always played a central role in the creation of home and community, as underscored by Andrés Duany’s comment at the beginning of this prologue. People are often wary of “developers” when they are starting a new project, but over the years completed projects blend into and create the fabric of neighborhoods. Indeed, developers have always built our cities, using private capital, and if you look around any city, most of what you see was once a developer’s vision. So a second purpose of this book is to place that short, stressful period—community review, city approval, and construction—into a broader context that recognizes the positive impacts that developers and their projects can have on our communities.

       Blueprint for the Book

      Each chapter of the book begins with an outline of ideas related to development and is followed by stories of developers, their careers, and their projects that illustrate those ideas. This approach provides a theoretical framework through which to view developers