The Changing Landscape of Urban Development Dr. Eric Anthony Johnson - - PowerPoint PPT Presentation
The Changing Landscape of Urban Development Dr. Eric Anthony Johnson University of Delaware November 6, 2014 To be successful today, cities have to develop their own unique formula that addresses the four dimensions of urban success:
University of Delaware November 6, 2014
The purpose of today’s presentation is to discuss the
In doing so, we will discuss the following:
Context of the urban development today An emerging development strategy using a housing
Questions and Answers
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Approximately 83 percent of America’s population resides either
in a metropolitan area or its surrounding suburbs, according to US census and labor statistics.
Strong demographic and economic trends also are contributing to a “new urbanism” that is changing how Americans want to live and work — both in our cities and their surrounding inner ring suburbs.
A combination of lifestyle and economic factors, as well as
heightened environmental consciousness, are all contributing to this New Urbanism direction.
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New Urbanism is a movement that promotes the development of
communities — both in urban areas and their surrounding inner ring suburbs — where people can live, work and play.
Easy access to a range of housing, retail, cultural and employment
principles of neighborhood design, many of which are reminiscent of the small towns of the past, and add a few new twists for residents that appreciate amenity-rich living for today.
Pedestrian-friendly design elements encourage walking and a greater
use of bicycles, rollerblades, and scooters. Proximity to public transportation, such as light rail stations, can provide commuters with
potentially reducing energy costs and conserving energy resources.
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Comeback of Urban Real Estate Development: From Suburbs to Infill
Some core city developments help bring new vitality to underused areas near
the urban core that previously may have been in decline.
This approach enables potential residents and new residents to make better use
conserve energy, and reduce costly dependence on personal transportation.
Closer proximity to the city’s amenities provides lifestyle advantages preferred
by Baby Boomers and Echo Boomers alike. Host cities benefit from improved land use when people are brought back to
The increased city tax base helps provide funding for urban investments such
as improvements to the public transportation infrastructure. As urban reinvestment progresses, demand for housing in these areas could rise, potentially increasing the value of multifamily developments located nearby.
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United Airlines Quicken Loans Walgreens Comcast Cable These companies according to the Harvard Business Review (May,
2010) are getting a jump on the major cultural and demographic shift away from the suburban sprawl.
The change is imminent, and businesses that don’t understand and
plan for it may suffer in the long run, especially in attracting talent.
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As urban development history repeats itself, the urban core is becoming the
locale for increased real estate investment and rehabilitation, job creation, entrepreneurship and innovation, private investment and economic growth.
Some communities will be able to capture the opportunity while others will
struggle.
There is no one shoe fits all solution. Cities must continue to reinvent themselves
if they are to survive in a rapidly changing global society.
As Harvard urban economist Ed Glaeser points out in his book Triumph of the
City, not every once prosperous city can achieve or be restored to economic strength.
But some cities can be saved if their efforts are aligned to do so and begin to
redevelop their urban development playbook which emphasizes creativity in the use of local tools and limited Federal support.
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Limited Resources (Local, State and Federal) Many communities are working off outdated playbooks Political Fragmentation (Give me what I want now) Competition (Every community is trying to figure it out) Not much patience for planning around a comprehensive vision
(Do something now)
Growing social and economic inequality Adjusting to the changing context of redevelopment and job creation (Things
are not what they use to be)
Measuring economic impact and making good investment decisions that drive
both financial ROI and SROI for the community and the private sector
Collaboration, Collaboration, Collaboration
Resource Context: What Development Programs No Longer Exist?
Urban Renewal General Revenue Sharing HUD Section 235 & 236 Urban Action Grants War on Poverty Programs (exception Head Start) Funding for CDC’s HODAG grants Empowerment Zones HUD HOPE Six Program Renewal Communities Tax Credit Program Congressional pork spending frozen New Markets Tax Credit Program on watch (No appropriation beyond
2014)
Declining capital funds to Public Housing Authorities KEY IMPORTANT NOTE:
Community development block grant program (under increased pressure with annual
cuts to the program). Funded at $4.5 billion in 2000 and now funded at $3.5billion to be shared with all communities across America.
Direct Entitlement Grants (CDBG, HOME)
CDBG (to be split among entitlement cities, urban counties and state CD
programs)
CDBG Section 108 Loan Program (Part of CDBG). Must pledge future CDBG
funding as collateral for economic development projects
Shift Public Housing to a Voucher system
COMPETITIVE PROGRAMS
EB5 Visa Immigration (Must meet jobs test) Limited Competitive Grants through federal agencies (Transportation, USDA and EDA) for
community planning Grants such as Promise & Strong community grants
LOCAL DEVELOPMENT TOOLS (Based on Local Implementation and
Creativity)
TIF (Tax Increment Financing) Special Improvement Districts
America's cities are economic powerhouses. "In the next 15 years, the 259 large U.S.
cities are expected to generate more than 10% of global GDP growth," writes the McKinsey Global Institute.
However, economic restructuring has taken a toll on many communities in
America.
Many places search for a recipe for prosperity, seeking to understand what
appropriate action can be taken and what investments will yield consistent economic growth and development.
These concerns are heighten by cultural, demographic and social and economic
inequality trends which suggests furthering economic vitality in cities will be challenging.
Communities have to make due with less The opportunity lies in an emerging emphasis on the core city as a place to invest,
live work and play
Traditional Emerging (Shared Value)
Developers decide for public
agencies what’s best
Public agencies give up valuable
assets and resources and receive little if any in return for doing so.
Revenue generation for the public
agency is not a priority.
Social ROI is a secondary thought
in the development process.
Public agencies decide before
engagement of private partners what the development goals are and how to best utilize limited resources.
Public agencies retain valuable
assets and receive benefit for doing so.
Revenue generation for the
public agency is a priority.
Social ROI is at the forefront of
the development process
Why a New Approach? Mission and Sustainability, the case of Public Housing
Public housing authorities are facing a constrained fiscal environment. The central question facing PHA’s in confronting this reality is how to do so while
pursuing four mutually conflicting goals:
1.
Housing and providing services to the neediest
2.
Achieving diversity of income mix
3.
Attracting private capital and complementary partners
4.
Generating new forms of revenue beyond HUD support
14
$1 $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Capital Fund
$2 $3 $6 $5 $4 Billions
Operating Fund
Administration Request Industry Request Operating Fund Appropriation $1 $0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 $2 $3 $4 $5 $6 Billions Administration Request Industry Request Capital Fund Appropriation Public Housing capital repair needs are in excess
$0 $1 $2 $3 $4 $5 $6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Billions PIH Capital Fund PIH Operating Fund Graph does not include $4billion in 2009 to Cap Fund through ARRA
$2 $0 $4 $6 $8 $10 $18 $16 $14 $12 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Billions PBRA TBRA
Graph does not include $2billion in 2009 to PBRA through ARRA PBRA OCAF ~4% per year
HUD
FUNDING SEQUESTRATION AN ONGOING CLIFFHANGER
The PHA has traditionally been dependent on federal funding sources that are declining due to government-wide automatic spending cuts.
PHA Sites Across the Portfolio
Services Commitments Traditional emphasis on unit production over sustainability has not proven sufficient to fund long-term service needs at the project level. For PHA’s Resource Trending Downward +Millions
1993-2013 $121 Million in Federal Hope Six Funds Creating Subsidized Housing Units With Nominal Residual Revenue 2013 and Beyond. Non-Funded Programs Hope Six Program Choice Neighborhood Discretionary Grants
?
Current Model: A Tug of War of Limited Resources
Real Estate Projects Limited if any Net Cash Flow to Support Sustainability
Capital Assets Non Revenue Generating Projects Funding expiring 2018 & program income
18
PHA
HUD
FUNDING (Capital/Operating) Continuous Cuts Over Time
Reduced Funding to Maintain Existing Portfolio Voucher Issuing/Contract Administration Agency
Examining potential funding options available, only commercial funding maybe viable because of its demand-led sustainability and scale
20
Government funding
1
stability
Grant funding Public donations Commercial funding
2
scale
2
stability
1
scale
1
stability
1
scale
3
stability
4
scale
The current funding model has been stable over many years, but recent changes are disrupting it, reducing the CHA’s ability to rely
revenues to support itself and its mission. The scale of these flows is also expected to decline in absolute terms. Grants from non-profit sources, such as foundations, fluctuate according to donor needs and may not be sufficient to support the CHA’s affordable housing mission. Scale is also limited and not likely to ever be a long-term support to the CHA. Public donations tend to spike with disasters, but can also be somewhat regular, as with church-goers providing weekly
there is not sufficient scale or stability to substitute for the government funds that are being lost. Revenues generated from a commercially viable asset will fluctuate with the economy, but
growth to meet market demand. Under this approach, the CHA’s commercially valuable assets become economic engines for the agency that are generating value by providing a commercially viable service.
4
High
3
Moderate
2
Average
1
Low Non-existent
Key
Unless changes to the current model occur, PHA ability to meet its mission will be seriously challenged The time is now to evolve the model to make PHA’s and its subsidiaries financially, socially, and environmentally sustainable without the use of Federal Urban Development funding.
The concept of shared value can be defined as policies and
company while simultaneously advancing the economic and social conditions in the communities in which it operates.
Shared value creation focuses on identifying and expanding the
connections between societal and economic progress.”
This approach should be embedded in organizations and
partnerships working on urban development projects to make both a profit while at the same time addressing societal issues.
The two should not be mutually exclusive.
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One of the most important driving forces behind generating new revenue is to take
control of the pre-development process and be in stronger position to make financially sound decisions rather than be wholly dependent on a developer for such decisions.
The framework below can serve as a guide for urban development decisions:
The most advantageous ownership, if any The type and amount of capital and or non capital investment if applicable Whether the development supports the overall mission of the organization The most effective position for the private sector to take regarding financing, design,
development, construction and management
The projected return on equity investment The general level of risk for any investment that the organization participates in The level of responsibility to finance, design, develop, construct, own and operate the
development
Whether the development should be developed in phases The approximate schedule required to finance, design, and construct the project.
Shared Value Approach: Key real assets offers the PHA best chance for long-term sustainability, using its own assets to support its mission
The basic strategy is to Development Entity as the lead development entity seeking a co-development partner aligned with the concept of “Shared Value” approach to real estate development. Key: Development partner with flexibility on IRR and overall profitability margins. Development set up described below
Utilize land as leverage in developing commercially attractive mixed use products to generate sustainability and housing development
Collect fees for development, construction management, property management and client services
Use resulting income to fund both ongoing housing development as well as capital improvements (from repairs to new construction) to maintain its housing mission to the people of the community
On selected non-legacy assets emphasis shall be on SROI focus
Dispositions shall focus on units and or upfront fees in exchange for price negotiation
24
Framework for Direct Development to Maximize Revenue Generation
Development Entity
Direct Development Project Key Asset Development Advisory Services Market Analysis/Commercial Retail Support/Legal Aligned Co-Development Partner (s)
25
Project Revenues
Service
%Dev. Fee/NCF
Land Lease/JV Payments To PHA
Affordable Housing Project(s)
Supporting PHA Mission Through Mixed-Use, Inclusive Development on key real estate site: Assessing Development Model Potential
122 workforce units (33% of the rental units, 21% overall).
Townhouses
50
units
Apts/Condos/Lofts
572
units
Retail
24,000
sq ft
Commercial
174,000
sq ft
239
Total
333
Total
239
Market
211
Market Affordable
122
Affordable For sale For lease
50
Total Total For sale For lease
6k
Total
18k
Total For sale For lease Total
174k
Total For sale For lease
In the financial results section, we show the differences that result from Section 9 units versus 80% AMI units
Operating Support PHA/Development Entity
Project Revenues
$215
Construction and Operating Costs
$161
Debt Service
$53
Retiring Debt Development / const. management fee
$16
Support for affordable housing project(s) citywide Support for ongoing capital projects
30% of AMI SROI Focus Net Cash Flow
$14
Less Less
Equals
Property management fee
$4
Services fee
$2
Land payments to CHA
$33
Profit share (cross subsidy)
$2
Using the proposed direct development model, PHA and Dev. Entity can generate revenues from five distinct sources (in grey boxes) (millions 2013 USD)
Illustrative purposes to convey potential of legacy asset strategy. 1 2 3 4 5
Income Expenses Project Profit PHA Income PHA $ Use
Key
If there is a development partner involved, then the development fee and profit share will likely be split with that entity as well
While all communities are not the same, they all are operating in a
constrained environment.
Whether Republican or Democratic Administration, the days of
substantial support from the Federal Government for urban development is gone…….
Some may not have the fiscal resources to support local development
initiatives, but may have valuable land assets within the core city that if fully leveraged can assist them with reframing the way they approach redevelopment and resource generation in support of addressing social and economic growth and development.
To achieve appropriate revenue generation, partnering with a private
developer that will emphasize profit maximization is at odds with an
Those communities that look to or utilize outdated
It’s just that simple……..
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