The Ground Floor

Perspective Change Attracts Tomorrow’s Homebuyers

This post was written for The Ground Floor by Marge Fahey, director of Media Relations at the Urban Land Institute.

Forget golf courses and granite countertops. Think vision and lifestyle. Capturing tomorrow's buyers will require selling a lifestyle and a sense of community that homebuyers will want to be a part of, according to a panel of industry experts at ULI's Developing Master Planned Communities conference.

Understand the buyer's psychology; find out what they want and create a package of benefits around the buyer, panelists advised. Amenities might include: a trail, a play area, a school, a wellness center, neighborhood retail, tennis courts, or soccer fields. By creating amenities the buyer wants, a commitment is created and the value and attractiveness of amenities equate to prices of housing.

One panelist noted that trails are a cost-effective amenity that add value as 79 percent of tomorrow's homebuyers want open space and trails, according to a survey. The National Sporting Goods Association estimates that 160 million people do activities related to trails and $730 billion is spent and generated as a result of outdoor activities.

Another panelist suggested that developers need to "get a handle and more control" of schools. "Quality schools -- the ultimate anxiety -- are the driver of where you choose to live." Stapleton in Denver was given as an example where the developer's (Forrest City) involvement and funding by Bill Gates created a school which has outperformed other schools in Denver.

And, panelists noted, "you are not selling a house, you are selling communities and lifestyle."

Big Boxes; Small Spaces

This post was written for The Ground Floor by Rob Goodspeed, an Information Intern at the Urban Land Institute.

The designer of the District of Columbia's new DCUSA development fit 540,000 square feet (50,168 sq m) of retail space, 1,024 parking spaces, and a dozen truck bays on barely 5 acres (2 ha) of land in one of the city's densest neighborhoods. It's a small wonder they achieved all that -- and ensured every edge of the project was lined with storefronts to boot.

John Bower of Philadelphia-based BLT Architects described to ULI Members how he tackled the challenge at a ULI Washington event last week. Two entrances from side streets provide access to the underground parking, and the biggest tenants -- Best Buy, Bed Bath and Beyond, and Target, are all located on the second story, accessible to pedestrians via a shared lobby.

This freed up space for the ground floor tenants and the loading dock, hidden discretely in the rear of the project. The challenge of bringing big box retailers, more accustomed to the ample space of suburbia, into dense urban neighborhoods is not unique to Washington D.C.

Global Demographics

This post was written for The Ground Floor by Rob Goodspeed, an Information Intern at the Urban Land Institute.

In Asia and Africa, one million people each week move to urban areas. The fastest growth rates will be in mid-sized cities, not global megacities. Despite infrastructure challenges and relatively low incomes, the sheer scale of ongoing urbanization around the world creates the potential for significant real estate investment.

Urbanization is one of several large trends identified by ULI’s report Global Demographics 2008: Shaping Real Estate’s Future, released last Thursday at an event at the National Press Club in Washington, D.C. The other trends are aging, migration, and tourism. This year’s report also takes a detailed look at trends in the Americas. A webcast of the event provides a snapshot of the world’s population projections during the next 20 years, and looks at the real estate implications.

The report addresses how aging is a worldwide phenomenon, and author M. Leanne Lachman pointed out "some developing countries will be old before they are rich." The United States and Europe will continue to age, requiring communities and facilities suited to the needs of the elderly. However, even China's working-age population is projected to peak in 2015.

Leanne Lachman spoke with us to discuss some of the trends idenitified in Global Demographics 2008. For example, rising affluence and business development are also transforming once exotic destinations into tourist hotspots, including Egypt, Vietnam, and Brazil. Despite growth in these markets, Europe remains a major tourist destination, containing seven of the top 10 tourist destinations and accounting for 47 percent of international visits.

Migration is also expected to remain a major trend driving population growth in some countries and providing construction labor throughout the world. Migrants generate housing and retail demand, and in 2007 sent $318 billion back to their home countries. This remittance of wealth supports real estate demand and purchases back home.

A Wake-Up Call for Land Use

This post was written for The Ground Floor by Trisha Riggs, the vice president of communications at the Urban Land Institute.

Rising gas prices and demographic shifts have created a "wake-up call" for the land use industry that demand for more compact walkable development is going to come sooner rather than later. So said the experts at ULI's recent Developing Master-Planned Communities conference. It seems clear from the panelists that the days of far-flung sprawl are coming to an end, as consumers grow weary of the cost of commuting; and as a rising number of echo boomers and empty-nester baby boomers seek convenience and proximity to work and recreation in their housing choices.

With about 90 percent of development in America still segregated and car-dependent, a lot has to change to fill this demand. But the developers who make the quickest switch from the old ways to the new will be the ones that survive in the years ahead, panelists said. "You can either keep fight the change or ride the wave to success," a panelist noted. He urged attendees to "think about their legacies," noting that a legacy is not the development of "disposable" shopping centers or condos. "If you do it right, the communities you build will never stop evolving, leading to more opportunities for you and others."

How to meet this demand? Opportunities exist with shopping mall sites, suburban strips, grayfields and brownfields, older commercial sites and "heartless" suburban communities. "The long-term market realities are changing, consumer behavior is changing. We are at a turning point in how communities are developed," observed one panelist.

It all sounds very promising -- change for the good of the built and natural environment. Bring it on!            

Water Impact Fees: A Wave of the Future?

California state lawmakers are considering legislation that would require developers to pay fees to offset any increase in water use caused by their projects, The San Diego Union-Tribune reported. While such impact fees have been imposed to pay for school enrollment generated by development, this new impact fee measure sponsored by California Assemblyman Paul Krekorian (D-Burbank) proves the shifting attitude toward water

Under the measure, developers who cannot prove that their projects would produce no net gain in water use must pay a fee not to exceed 1 percent of the cost of a house, with the funds going toward conservation and environmental efforts.

The bill is facing tough opposition with the ailing housing industry posting further downward trends.

Teaching Sustainability

Many organizations are joining in larger events to educate the public on sustainable living practices. Recently, the World Science Festival, held May 28--June 1, in New York City, had a panel called "Future Cities: Sustainable, Radical Designs."

Topics discussed include how cities must change radically to achieve long-term sustainability. Energy, food and water sources, transportation systems and basic infrastructure, must all adapt to emerging pressures from climate change, dwindling resources and growing urban populations.

Panelists of the program laid out radical blueprints and innovative solutions as they imagine housing, feeding, transporting, and sustaining city dwellers of the not too distant future.

An article, "Climate Concerns Today Shape the Cities of Tomorrow," written by Ned Potter for ABCNews, described that the future cities of New York and Los Angeles are very different cities than they are today.

"The asphalt jungle of the 20th century is a distant memory. The city of the future, say people, who work on it, will be green, both literally and figuratively," he said. He further describes that although older building remain, many of the roofs are now forests. "Towers are vertically arranged farms -- right there in the middle of the city -- with crops growing on sun-bleached terraces," he wrote.

Panelists described future cities will incorporate greenery into every possible spot in a city. To further educate people, environmental groups such as Sustainable Table is headed large events sush as the Bonnaroo Music Festival in Manchester, Tennessee.

Diane Hatz, founder/director of Sustainable Table, will bring festival goers an urgent message: "Eat locally grown, sustainably raised foods to help save the environment."  According to the organization, 2008 is emerging as the year of ethical eating. Local food is becoming an important part of the consumer food market as consumers want to know more about their food -- where it was grown, what ingredients it contains, how it was packaged, and the footprint its production left on the earth.

Many architects and urban planners are trying to reinforce the idea of urban farming and green buildings to reduce vehicle miles traveled (VMT) as part of cities becoming more sustainable. "By purchasing sustainable, local foods in-season, you eliminate the environmental damage caused by shipping foods thousands of miles, your food dollar goes directly to the farmer, and your family will be able to enjoy the health benefits of eating fresh, unprocessed fruits and vegetables," said Hatz.

High Cost Office Markets Revealed by CBRE

Los Angeles-based CB Richard Ellis Group, Inc. (CBRE) Research’s semi-annual Global Market Rents survey tracking the world most expensive and fastest growing office markets, revealed that London’s West End once again held the world’s most expensive office market. Moscow climbed to second place. Tokyo’s Inner Central Five Wards, Mumbai’s Nariman Point, and Tokyo’s Outer Central Five Wards rounded out the top five most expensive markets.

Among the most expensive markets, Singapore and Dubai were newcomers to the top 10. Singapore ranked ninth with an occupancy cost of $139.31 (occupancy cost in US$/square feet/annum), while Dubai debuted at number 10 with an occupancy cost of $128.49. With a near-doubling of occupancy costs, Moscow rose four places to second at $232.37. Midtown Manhattan was still the priciest market in North America, at $103.43, and ranked number 13 worldwide.

The report tracks world markets with the highest as well as fastest-growing occupancy costs for the 12 months ending March 31, 2008.

Ho Chi Minh City had the fastest-growing occupancy costs during this period, up 94 percent. Moscow was not far behind at 93 percent, followed by Singapore at 86 percent. Overall, Europe, the Middle East and Africa dominated the list of markets with the fastest growing occupancy costs, accounting for five of the top 10 and 19 of the top 50 markets. Worldwide, 88 percent of the 173 office markets monitored posted higher occupancy costs.

Top Ten Most Expensive Markets
(In US$ per square foot per annum)

1. London (West End), England
2. Moscow, Russia
3. Tokyo (Inner Central), Japan
4. Mumbai, India
5. Tokyo (Outer Central), Japan
6. London (City), England
7. New Delhi, India
8. Paris, France
9. Singapore
10. Dubai, United Arab Emirates

Hybrid Hype

Car makers across the world are taking initiatives to design hydrid cars for all class segments. Danish designer Henrik Fisker created the Karma sports sedan using Irvine, Calif.-based Quantum Fuel Systems Technologies Worldwide, Inc.’s "Q-Drive" -- a fully electronic-powered system with zero-emissions, no compromise in power, and achieves a shocking 100 miles per gallon.

The Q-Drive is a hybrid propulsion system configured with a small gasoline engine used solely to power an electric generator that charges the lithium-ion battery pack. The advanced propulsion system can take the Karma from 0 to 60 mph in 5.8 seconds, reaching speeds in excess of 125 mph -- an exciting proposition for all of us gear heads.

In addition to supplying the Q-Drive, the Fisker Karma will incorporate Asola's solar roof, produced a German-based solar module manufacturer. The photovoltaic technology assists in energy management in the vehicle. Fisker expects to deliver 100 of the luxury hybrids by the end of 2009 with full production commencing in 2010.

Not only will you see hybrids on city streets but also in the backcountry. The self-described carbon-neutral ecotour Natural Habitat Adventures based in Boulder, Colo., unveiled the first hybrid safari vehicle.

The four-wheel-drive hybrid Toyota Highlander was retrofitted for optimal off-the-beaten-path wildlife viewing, the Hybrid Safari One includes such custom features as beefier suspension, a new roof with sliding canvas top and specialized flip-up photography windows.

Hybrid Safari One accommodates only four guests and is only projecting to get eye-brow raising 25 miles per gallon on safari -- more than double the mileage of a typical safari truck of the same size, the company said. 

Meanwhile, drivers must have some way of charging their cars. DONG Energy of Denmark and Palo Alto, Calif.-based Project Better Place will establish an electric car network in the Scandinavian nation with about 20,000 recharging stations using wind power. The Danish recharging stations will use power from DONG Energy's wind turbines. Most people will plug their cars in to charge overnight, at a time when wind turbines are spinning but demand for power is low.

Working together through the initiative, Better Place Denmark, the companies are planning to build the US$42.3 million project with a start date in 2011. Through a partnership between Project Better Place and Renault-Nissan Alliance, Renault will provide Better Place Denmark with the electric vehicles. Nissan, through its joint venture with NEC of Japan, created an advanced lithium-ion battery pack that meets the requirements of the electric vehicle and will be mass-produced.

Harnessing the Sun

The U.S. Department of Energy (DOE) will invest up to $13.7 million over three fiscal years (2008 – 2010) in 11 university-led projects focusing on developing advanced solar photovoltaic (PV) technology manufacturing processes and products. Combined with a minimum university and industry cost share of 20 percent, up to $17.4 million will be invested in these projects.

University projects have the potential to significantly reduce the cost of electricity produced by PV from current levels of $0.18-$0.23 per Kilowatt hour (kWh) to $0.05-$0.10 per kWh by 2015 -- a price that is competitive in markets nationwide, the DOE said. President Bush’s Solar America Initiative aims to make solar energy cost-competitive with conventional forms of electricity by 2015.

Each participating university will work with an industry partner to ensure the projects retain a commercialization focus and that results are quickly transitioned into market-ready products and processes.

A View from the Top: A CEO's Perspective on Real Estate Today

This post was written by The Ground Floor contributor and ULI director of media relations, Marge Fahey.

The credit crunch is a double-edged sword that is causing its share of problems for the real estate market, but also creating opportunities, noted a panel of real estate leaders at ULI's recent fall meeting.

"Credit is the elephant in the room," said Jeremy Newsum, group chief executive of Grosvenor in London.

The panelists were questioned by Diana Olick, a real estate reporter with CNBC’s Washington, D.C. bureau, who asked, "Why didn’t we see this coming?"

"The market is out of balance," said Stephen Furnary, chairman and chief executive officer, ING Clarion in New York City. "It's important to see where the credit market issue surfaced; it started in the sub-prime market." Furnary observed this was caused by greed, new technology, uncertainty, and risk.

"Housing and land values are down and that will clear the market," Furnary said. "There are opportunities for real estate investors to buy through the debt market, opportunities globally, and opportunities for institutional money."

Growth in the West: Arizona Takes The Lead

This post was written by The Ground Floor contributor and ULI director of media relations, Marge Fahey.

Arizona is the fastest growing state in the nation. Its current population of 6.2 million is projected to increase to 12 million by 2035. The U.S. population of 300 million will increase by 2.8 million per year; of which one in 14 will reside in Arizona.

This rapid growth will have consequences for Arizona and the West as a whole, according to a panel of industry experts assembled at ULI's fall meeting.

Phoenix will absorb 70 percent of the growth, while Tucson and the surrounding areas will add 15 percent. The Phoenix-Tucson area will merge into one large megapolitan area. This additional growth will consume 30,000 acres per year and 1,000 square miles over the next 30 years. Tucson has to grow in the state trust lands and has major water constraints; a population of 1 million is expected to grow by 20,000 people per year.

Bubbling Up

The good news, Newsweek business columnist Dan Gross told attendees at today's ULI/Stan Ross Real Estate Trends Conference, is that bubbles have been good for the economy in the past, and can be good in the future. The bad? They are unpredictable and their timing is hazy.

Gross, author of Pop! Why Bubbles are Great for the Economy, walked attendees through the reasons why he believes that bubbles have historically benefitted the U.S. economy. In particular, he explained, the physical and mental infrastructure that is created during a bubble phase doesn't automatically disappear when a bubble pops, but rather lays the foundation for new business models that couldn't even be imagined during the height of the bubble. For example, he noted that when the telegraph was invented in the 19th century, people started running lines all across the U.S. It wasn't until after the industry went bust that someone came up with the idea to use the telegraph lines to start doing money transfers across great distances. Thus, Western Union was born. If it weren't for the dot com bust at the beginning of this century, we wouldn't have the necessary infrastructure for the rise of Google and Web 2.0.

Is Gentrification Good?

Does gentrification hurt poor residents by forcing them out of their neighborhoods?

The tantalizing answer found by most researchers who study the question is no.

In fact, research suggests low-income residents of gentrifying neighborhoods benefit from the influx of higher-income neighbors through greater political clout, enhanced municipal services, new businesses, and safer streets. Such findings are enough to convince writers like Richard Cravatts, who claims gentrification to be good for “the poor and everyone else” in a recent article for the American Thinker. Dismissing opposition to a controversial Columbia University plan to expand into West Harlem, he concludes such a plan should be embraced by the community since it will bring economic activity to the neighborhood.

Unfortunately, the research he cites tells a more nuanced story. Although the revitalization of many urban neighborhoods is a positive trend, it is not without downsides. Furthermore, eminent domain, which Columbia has threatened to use to acquire property for their plan should owners refuse to sell, has an entirely different history.

Three on Thursday

Since we never quite got around to our usual "Two on Tuesday" feature, here are three interesting tidbits we've culled from the blizzard of press releases that the National Association of Home Builders has sent out concurrent with their International Builders Show. (NAHB has not yet put these releases up on their site, so we apologize for the lack of links.)

• The Home of the Future. What will the average home be like in 2015? According to NAHB experts, it will be a 2,330-square-foot, two-story home with 2.5 to 3.5 bathrooms and 4 bedrooms. It will include a one-story entry foyer and family room, the living room will vanish or become parlor/retreat/library, exterior walls will be vinyl or fiber cement siding or brick, it will have a front porch and patio, a fiber optic network, and both a shower stall and tub in master bathroom.


• Condominiums remain an active, viable segment of the housing market. While developers agree that the market needs some time to burn off excess inventory, in the long term, condominium starts will likely account for about 30 percent of the overall multifamily starts. In the meantime, short supply and increased demand have driven rents up for rental multifamily properties. In another release, NAHB reports that those people who do choose to buy condos, do so because of their lifestyle -- and they don't usually consider other housing types.


• Green is becoming affordable to consumers. Several NAHB members discussed how they made green features available and affordable to consumers (including one house where the monthly electric bill runs a whopping $15). Among the features are passive solar design techniques, including overhangs to control the hot summer sun; native landscaping that does not require additional watering; low-flow faucets; dual-flush toilets; decorative compact fluorescent lighting; structural insulated panel walls; and the latest heating and air conditioning systems.

Keep an eye on NAHB's press room for the full text of these items -- chances are they'll post the full releases when they've recovered from their time in Orlando.

Resurgent Germany shines in Emerging Trends

Paris and London may keep their top spots as Europe’s favourite property prospects in the Emerging Trends in Real Estate Europe 2007 report, but Germany is this year’s real story.

The country represents close to 30% of the Eurozone’s economy but it is the first time that any cities from Germany have had a showing in the top ten rankings.

Munich and Hamburg have most clearly demonstrated the country’s renaissance with Munich jumping thirteen places to fourth place while Hamburg moved up five places to ninth in the risk-adjusted rankings.

Two on Tuesday

This week's edition of Two on Tuesday looks at two interesting reads -- a city of the future, and a New York resident waging a battle against light pollution.

From the Malaysian news site, The Star Online (via ArchNewsNow), comes the story of a proposed "cyber-city" near Shah Alam, called i-City. The proposed development, inspired by similar ventures in Belgium; Westminster, U.K.; and Taipei, Taiwan, features a city-wide wireless broadband network, smart parking lots, and high-tech residential security and services, among other things.

Closer to home, The New York Times (free registration required) brings us the story of Susan Harder, who has made it her mission to rid New York City of light pollution, by making government officials and developers think more closely about what lighting they are using, and how the lighting interacts with neighboring buildings, billboards, and projects.

Make No Little Plans

My favorite annual issue of The New York Times Magazine came out this weekend---"The Year in Ideas," in which the editors of the magazine enumerate the trends and concepts that defined the year. Included in this year's list is Big Urbanism, or the idea that "cities are once again planning with grandiosity." According to the article, after years wary conservatism among planners, developers, and designers, large scale signature urban projects are back in vogue. Several multi-billion dollar redevelopment projects are discussed, including Forest City's Atlantic Yards project in Brooklyn, the Frank Gehry Grand Avenue Project in Los Angeles, and a bold plan to revitalize downtown Yonkers. Interesting, the article argues that those behind these projects believe that Jane Jacobs spontaneity can be designed into Robert Moses scale. What do you think? Is this possible?

Other 2006 "ideas" relating to real estate and land use: The Aerotropolis, Energy-Harvesting Floors, The Humane Flophouse, and Smart Elevators.