A MARKET AND ECONOMIC CONTEXT FOR THINKING ABOUT SUBURBAN SPRAWL - - PowerPoint PPT Presentation

A MARKET AND ECONOMIC CONTEXT FOR THINKING ABOUT SUBURBAN SPRAWL REPAIR

CONGRESS FOR THE NEW URBANISM 19 CONGRESS FOR THE NEW URBANISM 19

Adam Ducker | aducker@rclco.com | June 3, 2011

TWO QUESTIONS TO CONSIDER IF WE ARE GOING FROM SPRAWL TO COMPLETE COMMUNITY

Does the market want it? Who is going to pay for it?

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THE BAD NEWS – WE ARE NOT REALLY GETTING

• DENSER. . . YET

100%

New Residential Building Permits Issued

United States of America; 1980 to 2010 Source: U.S. Census Bureau 70% 80% 90% % 40% 50% 60% 10% 20% 30% 0% 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1 Unit 2 to 4 Units 5 + Units

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1 Unit 2 to 4 Units 5 + Units

AND EVEN GEN Y CONSUMER STILL LARGELY INTERESTED IN SINGLE-FAMILY HOUSING

F ll 2007

Gen Y Stated Product Type Preference

United States of America Source: RCLCO Survey 2007; ULI/Lachman Survey 2010; NAR Consumer Preference Study 2011

Fall 2007 “Home Type Likely to Choose” Summer 2010 “Anticipated Housing in 2015” March 2011 “Home Type Preference” Apartment/Condo 12% 25% 15% Rowhouse/ Rowhouse/ Townhome 12% 6% 6% Single-Family 70% 64% 74% Single-Family 70% 64% 74% Other 5% 5% n/a

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• BUT. . . LOT SIZES ARE GETTING SMALLER

1/2

Median Lot Size of New Housing Delivered

United States of America; 1999 to 209 Source: American Housing Survey 4/9 1/3 2/5 Acres 1/4 2/7 1/5 1999 2001 2003 2005 2007 2009

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New Construction (4 Yrs) Owner Occupied Renter Occupied

AND CONSUMER PREFERENCE REALLY IS EVOLVING TOWARD SMALLER HOMES

3,000

Preferred Home Size

United States of America; 1994 to 2010 Source: Trulia-Harris Interactive Survey; July 2010 2 000 2,500 1,500 2,000 500 1,000

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• BUT. . . “URBAN LITE,” OR REPAIRED SUBURBS

ARE THEIR MOST PREFERRED DESTINATION

Rural

Desired Residential Context in Next Move; Gen Y Renters

United States of America Source: RCLCO Survey; 2007

Suburban 14

Not Moving

Urban 45

Move within Current Metro

Close-In (Urban Lite) 41

M t

(Urban-Lite) Where They Will M

Move to Another Metro

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Will Move

EMERGING 1/3, 1/3, 1/3 MARKET SEGMENTATION

I consider myself: I would choose to live:

2010 2007 2011

I would choose to live:

2004

I would choose to live: (18-39 Yr Old)

33% City Person 32% City 31% City 17% City

(18 39 Yr Old)

35% 21% Suburbanite Small Town 43% 15% Close-in Suburb Farther Out 42% 11% Suburban Small 36% 18% Close-in Suburb Farther Out 21% 11% Person "Country" Person 15% 9% Out Suburb Rural Comm. 11% 14% Town Rural Area 18% 28% Suburb Rural Community

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Source: RCLCO Consumer Research, Fall 2007, ULI/Lachman Associates Survey, Summer 2010, 2011 National Community Preference Survey, National Association of Realtors, March 2011 , 2004 National Community Preference Survey, National Association of Realtors, October 2004

LET’S NOT KID OURSELVES, CONSUMERS ARE STILL MOVITVATE BY PRICE AND SIZE

0% 10% 20% 30% 40% 50% 60% 70% 80%

Key Housing Market Decision Factors (Top 3 Factors)

United States of America Source: ULI/Lachman Associates Survey, Summer 2010 0% 10% 20% 30% 40% 50% 60% 70% 80% Purchase price/mo. rent Interior space/sq. ft. Interior design/layout Building/home security Parking availability Building/prop. amenities Green features/sustainability Age of home/building

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BUT, WALKABLE IS NOW THE MOST IMPORTANT COMMUNITY FEATURE TO GEN Y

Key Housing Market Decision Factors

United States of America Source: ULI/Lachman Associates Survey, Summer 2010

55% 55% 52% 71% 55% 48% 29% 45% 52% 45% 45% 29% Green Walkable Near Transit Wellness Learning N /Li i d R l I /Vi l R l

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No/Limited Role Important/Vital Role

Source: RCLCO Consumer Research, Fall 2007

TRADE-OFF QUESTIONS

Suburban

Interest in Walkable Neighborhoods

United States of America Source: Surface Transport Policy Project Survey 2003

Home VIEWPOINT PERCENT RESPONDENTS WHO AGREED Would like to walk more than they do 55% Ideal Home, Farther Would like to walk more than they do 55% Would like to run errands on foot, walk to stores 63% Less SF, Higher Finish Walking is too inconvenient and things are too far away 61% Presence of sidewalks and other places to walk and exercise are important in deciding where to live 79%

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WALKSCORE.COM IS NOW ACTUALLY A WALL STREET UNDERWRITING TOOL

Suburban Home Ideal Home, Farther Less SF, Higher Finish

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NEW CUSTOMER WILL TRADE LOT SIZE AND HOME FACTORS TO BE NEAR SHOPPING

Key Housing Market Trade-Off Priorities

United States of America Source: RCLCO Consumer Research 2007

71 G

Suburban

51 71 55 52 49 47 62 46 Gen Y Gen X

Home

47 46 43 42

Ideal Home, Farther Less SF, Higher Finish

Urban Setting Smaller lot/walk to work Smaller lot/walk to shopping Less than ideal home, closer to shopping Less than ideal home closer to work

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FOR BETTER OR FOR WORSE, WALL STREET STANDS IN THE MIDDLE OF THE TRANFORMATION

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AND WALL STREET MEASURES “RESIDUAL LAND VALUE”

Existing Stabilized Asset has a Discernible Value To Use the Bank’s Money to Control and Redevelop the Asset, the Underlying Land Value has to For this example: $10M the Underlying Land Value has to Prove to be more than $10M

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RESIDUAL LAND VALUE - CONCEPTUAL

Residual Financing Profits Land Value Capitalized Value of What Gets B ilt Construction Financing Parking Built Site Costs Marketing

Costs Revenues

Entitlements Site Costs

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RESIDUAL LAND VALUE – HYPOTHETICAL (IDEAL)

Residual Financing $2M Profits $3M Land Value = $16M . . .Higher Capitalized Value - $50M Construction $20M Financing $2M g than the $10M for the existing Cost to Deliver= Parking $5m Site Costs $1M asset Mrkt’ing $1M e e $34M

Costs Revenues

Entitlements $2M Site Costs $1M

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IN REALITY, PROJECTS OFTEN LOOK LIKE THIS

Feasibility Potential for Premium Pricing Financing Profits Feasibility Gap Parking Capitalized g Construction Value of What Gets Built Entitlements Site Costs

Revenues Costs

Land Entitlements

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THERE ARE TWO FACTORS WITHIN OUR CONTROL FOR THIS AUDIENCE TO FOCUSING ON

How real is it? How can we prove it? Can Wall St underwrite it? Potential for Premium Pricing Financing Profits Parking We need to figure out how to build it more cheaply Capitalized g Construction Value of What Gets Built Entitlements Site Costs

Revenues Costs

Land Entitlements

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