Redevelopment Starts Here: Why the Market Matters May 30, 2018 1
Webinar Instructors Webinar Instructors Michael Taylor , President of Vita Nuova LLC, a national consultancy, leads the repositioning and disposition of complex sites including former nuclear sites, refineries, chemical facilities and sites with significant stigma due to off ‐ site contamination or other issues. Elaine Richardson has 20 years of experience in senior positions in firms servicing the real estate and environmental industries. She brings leadership and expertise to the position, ensuring that the best possible solutions are provided to clients as well as managing tough issues with stakeholders—public, press, government, and industry. Neil W. Pariser is a Senior Development Consultant with Vita Nuova, bringing decades of economic development experience to the Vita Nuova team. Mr. Pariser is the former Senior Vice President of the South Bronx Overall Economic Development Corporation (SoBRO). 2
Terms We Will Discuss Access Site Selection Impact of Time Location Shovel Ready Market Analysis Visibility Financial Psychographic Feasibility 3
Course Objectives: • Develop a basic understanding of real estate market analysis and how developers look at the market; • Understand market risks, and how environmental conditions affect real estate performance now and into the future; • Enhance decision ‐ making skills by learning how to attract developers and promote tough projects in high risk markets; and • Understand current trends. 4
Why is the real estate market important? • Market driven development has a strong likelihood of success. • Sustainable redevelopment ensures the long ‐ term protectiveness of the remedy. • Successful redevelopment provides the funding for ongoing O&M of the site and controls. • EPA states and tribes can support communities in attracting and evaluating appropriate redevelopment. 5
Where does Development Come From? • Local Investments • Local investment will drive local demand • Most sites are developed by local businesses or developers • Successful local economies are based on a balance of job creators: industry, academia, non ‐ profit…. • Corporate Investments • Mergers, acquisitions, consolidations drive new facilities • Infrastructure ‐ Driven Investments • Energy • Technology • Foreign Direct Investments 6
Energy Office Retail Types of Developers/Developments Types of Developers/Developments Residential Warehouse/Distribution 7 DRAFT – DO NOT CITE
Market Analysis and Feasibility • What are the characteristics that make the site attractive? • Who are the users that would be interested? • Are there constraints on development? • Is there a stigma with the site? • What price would the users pay? • How can a deal be done? 8
Driving Redevelopment • Is it really Location, location, location? Access Location Visibility 9
• Types of access • Characteristics • Local roads and • Proximity Access intersections • Quality/condition • Highways and interstates • Capacity • Passenger rail • Feasibility of • Freight rail improvements 10
Location • Neighborhood setting • Adjacent land uses • Sensitive receptors • Local setting • Population and trends • Political climate • Land use decision process Characteristics • 300,000 cars/day • Regional and State economy • Water access • Regulatory climate • Large metropolitan • Economic strategy and region clusters • Incentives and priorities 11
Characteristics to Look For Developments Developments • Road frontage Relying on Visibility Seeking Seclusion Visibility • Retail • Mission critical • Traffic counts • Hospitality • Power generation • Buffer areas • Commercial • Heavy industrial • Other vantage points 12
What Drives Demand? • Housing • # of households, age, income, interest rates, affordability, apartment rents, housing prices • Office • employment in industries with a high percentage of office workers (attorneys, accountants, engineers, insurance, etc.) • Warehouse • proximity to ports and transportation hubs • employment in industries that use warehouses • (wholesaling, trucking, distribution, assembly, etc.) • Retail • household income, age, gender, population, size and tastes/preferences 13
Site Selection Criteria Discount Discount Retail Convenience Fitness grocery (dollar) Fast food Urgent care gasoline and store center store variety store convenience Preferred Preferred Land size 1.0+ Acre 1.5 ‐ 2.5 Acres 1 1.5 Acres – Shopping 2.5 4 acres – 1.0+ Acre Retail Plaza Plaza Building 18,000 – 56,000+ sf 3,000 10,000 3,500 4,000 – 5,000 7,000 square feet 22,000 combined building, Parking 8 spaces per 4 5 spaces ‐ 15 spaces per 4 spaces per 85 spaces per service & 1,000 sf per 1,000 sf 1,000 sf 1,000 sf requirement 1,000 sf parking 25,000+ Population 35,000+ 5,000+ within 20,000+ 30,000+ 75,000+ within 5 miles 15,000 within within 3 miles required 1 mile within 3 miles within 2 miles within 3 miles skewed 1.5 miles female 25,000+ 4,500+ 20,000+ 40,000+ 20,000+ 20,000+ 20,000+ Traffic count vehicles / day vehicles / day vehicles / day vehicles / day vehicles / day vehicles / day vehicles / day Typical 10 years 5 years 10 years 10 years initial lease 14
Corporate Site Selection • What drives the process? • Time • All site selection projects are under limited time schedules • Budgets • Companies have a definitive budget they must meet • Business objectives • Regulatory climate • Tax structure • Operating Environment • Access to markets • Workforce needs 15
Corporate Site Selection What can communities do? • Cooperate regionally • Companies are looking for multiple options within a region Gary, IN • This may cross city, county or even state boundaries • Sites are not competing against each other until the final stage • You need to be in the game to compete 16
Corporate Site Selection • What can communities do? • Make information publicly available • State and regional websites • Information must be clear and easy to find • Existing markets, industries, type of operations, economic clusters • Labor pool, training programs, higher education • Quality of life, housing, communities, schools • Available properties • Regional property databases are extremely helpful • Prepare the Sites • “Shovel Ready” sites have fewer risks • Saves substantial time 17
Community Input • Setting Expectations • Community engagement and planning processes must be based on fact • Envisioning unrealistic developments creates unrealistic expectations • Developers shy away from communities with set expectations • The Community Planning Process • Builds ownership in the future redevelopment • Generates support for future use • Gives developers confidence in the approval process • Market ‐ based planning processes give developers comfort that their investment will be worth the effort 18
The Real E state Cycle • The numbers don’t always tell Recovery Peak the story “We are in a long cycle, not in • Different developers; different cycle boom/bust. The key to the next few preferences years is to expand horizons, • In hot markets, contaminated sites market by market, property type by are more attractive, but developers property don’t always have time to focus on type.” the details of contaminated sites Trough Downturn • During the downturn, developers have more time, but money is tough to come by 19
Understanding the Market Analysis Process • Geographic Focus • Property types • National trends • Office • Major urban markets • Industrial /Warehouse • Related suburbs • Retail • Market Data Reports • Other Commercial • Vacancy rates • Multi ‐ family • Rental rates • Single family • Market activity, absorption • Construction activity • Outlook 20
Market Data • Census data • Occupancy and vacancy rates • Property sale and leasing trends • Retail leakage analysis 21
Demographics Driving Distribution Warehouse Development Ideal warehouse labor: low income, high school graduate, between 18 ‐ 46, access to public 22 transportation Source: Northpoint Development
Demographics and Psychographic Groups New Beginnings Young Influentials • Under 35, $29,000 Income • Under 35, $47,000 Income • Just starting out on career path, • Balancing work and leisure singles or young families • Buy high end computers, go to • Rent movies, play games on internet, health clubs, eat at nice live in apartments, white collar or restaurants, professional jobs service jobs Grey Power Suburban Sprawl • 25 to 44, $50,000 Income • Over 65, $49,000 Income • Own homes, pursue the • Home owning suburbanites who are American Dream aging in place, not moving to retirement communities • Jog on treadmill at home, order home delivery, blue collar Jobs • Go to museums, own vacation homes, watch television Home Sweet Home • 25 - 44, $65,000 Income • Upscale income, small families, comfortable life • Buy TV sets, have pets, go to movies, eat fast food, have white collar jobs 23 Examples from Claritas.com
Supply & Demand • Vacancy rates • Interest rates/availability of financing • Age and quality of existing stock • Construction costs • Land costs 24
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