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? 1 Congress for the New Urbanism
THE BAD NEWS – WE ARE NOT REALLY GETTING DENSER. . . YET New Residential Building Permits Issued United States of America; 1980 to 2010 Source: U.S. Census Bureau 100% % 90% 80% 70% 60% 50% 40% 30% 20% 10% 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 1 Unit 2 to 4 Units 2 to 4 Units 5 + Units 5 + Units 2 Congress for the New Urbanism
AND EVEN GEN Y CONSUMER STILL LARGELY INTERESTED IN SINGLE-FAMILY HOUSING Gen Y Stated Product Type Preference United States of America Source: RCLCO Survey 2007; ULI/Lachman Survey 2010; NAR Consumer Preference Study 2011 F ll 2007 Fall 2007 Summer 2010 March 2011 “Home Type Likely “Anticipated “Home Type to Choose” Housing in 2015” Preference” Apartment/Condo 12% 25% 15% Rowhouse/ Rowhouse/ 12% 6% 6% Townhome Single-Family Single-Family 70% 70% 64% 64% 74% 74% Other 5% 5% n/a 3 Congress for the New Urbanism
BUT. . . LOT SIZES ARE GETTING SMALLER Median Lot Size of New Housing Delivered United States of America; 1999 to 209 Source: American Housing Survey 1/2 4/9 2/5 Acres 1/3 2/7 1/4 1/5 1999 2001 2003 2005 2007 2009 New Construction (4 Yrs) Owner Occupied Renter Occupied 4 Congress for the New Urbanism
AND CONSUMER PREFERENCE REALLY IS EVOLVING TOWARD SMALLER HOMES Preferred Home Size United States of America; 1994 to 2010 Source: Trulia-Harris Interactive Survey; July 2010 3,000 2,500 2 000 2,000 1,500 1,000 500 0 5 Congress for the New Urbanism
BUT. . . “URBAN LITE,” OR REPAIRED SUBURBS ARE THEIR MOST PREFERRED DESTINATION Desired Residential Context in Next Move; Gen Y Renters United States of America Source: RCLCO Survey; 2007 Rural Suburban Not Moving 14 Urban Move within 45 Current Metro 41 Close-In (Urban Lite) (Urban-Lite) M Move to t Another Metro Where They Will M Will Move 6 Congress for the New Urbanism
EMERGING 1/3, 1/3, 1/3 MARKET SEGMENTATION 2010 2011 2007 2004 I would choose to live: I would choose to live: I would choose to live: I consider myself: (18-39 Yr Old) (18 39 Yr Old) City 31% City Person 33% City 17% City 32% Close-in Close-in Suburban 42% Suburbanite 35% 36% 43% Suburb Suburb Farther Small Small Town Farther Out 11% 11% 21% 21% 18% 18% Out Out 15% 15% Town Person Suburb Suburb "Country" Rural Rural Rural Area 14% 11% 28% 9% Person Community Comm. 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 Congress for the New Urbanism
LET’S NOT KID OURSELVES, CONSUMERS ARE STILL MOVITVATE BY PRICE AND SIZE Key Housing Market Decision Factors (Top 3 Factors) United States of America Source: ULI/Lachman Associates Survey, Summer 2010 0% 0% 10% 10% 20% 20% 30% 30% 40% 40% 50% 50% 60% 60% 70% 70% 80% 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 Congress for the New Urbanism
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 71% 55% 55% 55% 52% 52% 48% 45% 45% 45% 29% 29% Green Walkable Near Transit Wellness Learning N /Li No/Limited Role i d R l I Important/Vital Role /Vi l R l Source: RCLCO Consumer Research, Fall 2007 Congress for the New Urbanism
TRADE-OFF QUESTIONS Interest in Walkable Neighborhoods United States of America Source: Surface Transport Policy Project Survey 2003 Suburban PERCENT RESPONDENTS VIEWPOINT WHO AGREED Home Would like to walk more than they do Would like to walk more than they do 55% 55% Ideal Home, Farther Would like to run errands on foot, walk to stores 63% Walking is too inconvenient and things are too far away 61% Less SF, Higher Finish Presence of sidewalks and other places to walk and 79% exercise are important in deciding where to live Congress for the New Urbanism
WALKSCORE.COM IS NOW ACTUALLY A WALL STREET UNDERWRITING TOOL Suburban Home Ideal Home, Farther Less SF, Higher Finish Congress for the New Urbanism
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 71 G Gen Y Suburban 62 Gen X 55 52 51 49 47 47 46 46 43 42 Home Ideal Home, Farther Urban Setting Smaller lot/walk to Smaller lot/walk to Less than ideal Less than ideal Less SF, Higher Finish work shopping home, closer to home closer to work shopping Congress for the New Urbanism
FOR BETTER OR FOR WORSE, WALL STREET STANDS IN THE MIDDLE OF THE TRANFORMATION 13 Congress for the New Urbanism
AND WALL STREET MEASURES “RESIDUAL LAND VALUE” Existing Stabilized Asset To Use the Bank’s Money to has a Discernible Value Control and Redevelop the Asset, the Underlying Land Value has to the Underlying Land Value has to For this example: $10M Prove to be more than $10M 14 Congress for the New Urbanism
RESIDUAL LAND VALUE - CONCEPTUAL Residual Land Value Profits Financing Financing Capitalized Value of Construction What Gets B ilt Built Parking Marketing Site Costs Site Costs Entitlements Revenues Costs 15 Congress for the New Urbanism
RESIDUAL LAND VALUE – HYPOTHETICAL (IDEAL) Residual Land Value = $16M Profits $3M . . .Higher g Financing $2M Financing $2M than the Capitalized $10M for Value - Construction the Cost to $50M $20M existing Deliver= e e asset $34M Parking $5m Mrkt’ing $1M Site Costs $1M Site Costs $1M Entitlements $2M Revenues Costs 16 Congress for the New Urbanism
IN REALITY, PROJECTS OFTEN LOOK LIKE THIS Feasibility Feasibility Profits Gap Financing Potential for Parking Premium Pricing g Construction Capitalized Value of What Gets Built Site Costs Entitlements Entitlements Land Revenues Costs 17 Congress for the New Urbanism
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? Profits We need to figure out how Financing to build it more Potential for Parking cheaply Premium Pricing g Construction Capitalized Value of What Gets Built Site Costs Entitlements Entitlements Land Revenues Costs 18 Congress for the New Urbanism
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