3 2011 | Greed versus Greatness; The Apartment Developer's DilemmaPosted by: Ross Blaising on Jul 13, 2011 13:32 Tagged in: Development |  |
It may be difficult to hear, but for most of the industry, the corporate structure and career path that created us are outdated and flawed. While each of us brings our unique experiences, insights and prejudices to the table, one common factor is that as a community, we continue to create uglier and less responsive buildings, simply because the land entitlements are in place and we are able to raise the necessary capital to execute the project. For our purposes, ‘less responsive’ means less comprehensively usable and adaptable for current and future uses. It does not necessarily mean less aesthetically pleasing or energy efficient (although that may also be the case). There are a plethora of examples of ’non-responsive’ developments.
For instance how many times have you passed a new apartment complex with 8,000 – 15,000 square feet of retail space and not a single retail tenant? Looking at the building and neighborhood you say to yourself ‘Retail makes no sense here. Why in the world did the developer build this?’ Or perhaps the location is decent for retail uses however the space does not work because the ingress and egress is awkward, or the parking segregation was not well executed. As you examine it, you immediately know that a sophisticated retailer will never lease the space. If someone ever does lease or purchase the building, it will simply be the beginning of a perpetual cycle of failing short-term neighborhood retailers, causing heartache for the tenant and for the building’s Owner, an equally undesirable cycle of chasing rent payments, evicting tenants, decreasing rents, and added Tenant Improvement concessions. How many times have we seen potentially good projects fail for the wrong reasons? How many times have you seen developers steal defeat from the jaws of victory?
Of course if we were to ask the developer about this abomination, he’d tell us about the ridiculous zoning category that was necessary to get the density required to justify the land price. He would bemusedly explain that he knew that the retail would never work, told the City or County repeatedly, but in the end it was easier to just build the retail space because he found a way to make the project profitable despite the retail loss. Then, with a little laugh he even let you in on a little secret: the retail couldn’t have worked anyway because his bonehead development manager only made the space fifty-five feet deep because he didn’t really understand the critical dimensions of the retail typology anyway. Don’t worry; he’ll get it right next time.
So the developer earned his fee, received a portion of the promoted interest in the deal and bought a new Ferrari. The equity partners in New York made their profits, the bank was paid back, the asset was sold to an insurance conglomerate in Connecticut, and everyone is waiting for him to do it again. But this is not the way to do business. And if it were just this one bad project maybe it would be okay, but there are ten or twenty more developers in every major market just like him. So his 10,000 square feet of unusable space is actually 100,000+ square feet…per year. And this problem is not limited to the mixed-use typology.
Like pebbles thrown into a pond, the results of poor development wash through and hinder our entire development process. Neighborhood Associations see the vacancy and say ‘These developers don’t know what they are doing. There is already plenty of space out there to be rented.’ Municipal leaders kowtow to their constituents in hopes of re-election. Brokers put together un-ideal assemblages. Investors pressure us to build ‘something’ or we lose the access to capital. As the economic pendulum readies to swing in a positive direction, we must do something to change the real problems in our profession. We need to have the courage to not build the wrong projects. The alternative is to accept more disjointed cities and uglier daily commutes.
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