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3.2.2 The book begins with the question, “What is a Developer?” It answers this question with a language of mastery and equipoise: the developer is a flexible visionary, a prepared improviser, is creative yet rigorous; a detail-oriented generalist who coordinates human “inputs.” 14 Developers build the very “fabric of our civilization,” yet are faced with complexity unknown thirty years ago, ranging from local politics to global competition, securitization, and new technologies. 15 The developer takes on the risks of real estate and reaps the rewards. Due to the inherent contingencies of real estate, a successful project—one yielding profits for the developer and lenders—can never be guaranteed. A good developer is one who can tilt the odds towards success. A record of success facilitates access to capital. A failed project does not really fail unless it hinders this access. 16 The text’s main purpose is to walk beginning developers through five major activities: 1) identifying fruitful development opportunities by reading local conditions and trends; 2) acting on opportutilt the odds Professional Real Estate Development: The ULI Guide to the Business 3rd ed. (Washington, D.C.: Urban Land Institute, 2012 [1992]), 404 pages, $99.95 Richard Peiser, Professor of Real Estate Development, Harvard Graduate School of Design; BA Yale University 1970, MBA Harvard Business School 1973, PhD Land Economy, University of Cambridge 1980 David Hamilton, Principal, Qroe Preservation Development LLC; BA Middlebury 1995; M.Arch Harvard Graduate School of Design 2000 Assigned at: Harvard Business School, UCLA Luskin School of Public Affairs Read by Alissa Anderson Peiser and Hamilton’s Professional Real Estate Development advises aspiring developers on building the reputations necessary for success. The first two chapters show how real estate development processes and organizations work. The following five chapters cover project types: subdivision, multifamily residential, office, industrial, and retail. The final chapter looks backward to provide a history of the industry, including recent crises, and looks forward to appraise current trends. build records with knowledge and creativity adapt to cycles provide products to tenants nities at the right time by synchronizing project schedules to real estate cycles; 3) raising capital by convincing banks and other lenders of the project’s soundness; 4) minimizing risk by lowering one’s personal financial stake in the project; and 5) completing the project efficiently—“within the window of time for which the market is favorable”—by managing it meticulously. 17 Peiser and Hamilton recommend the close replication of existing practices as a sound formula for success. Developers should cultivate, through market studies, a shrewd awareness of conditions and trends, as well as a well-defined set of customers. They should furthermore gain intimate familiarity with legal and financial mechanisms, which can affect a project’s speed. The authors laud creativity, defined as pragmatic and reactive rather than disruptive. Young developers need to proceed with special caution until they can build their records, and early deals “should not set a new precedent” or challenge political and financial norms. 18 Beginning with the first chapter, and throughout the text, the real estate cycle looms as a force animating development and demanding constant attention. Cycles register and coordinate forces diverse in scope and origin, including federal interest rates, large-scale employment and migration trends, and localized lags between supply and demand for space. 19 Following real estate researcher Glenn Mueller, the book describes a cycle as a composition in four parts: recovery, expansion, hypersupply, and recession. The developer improves and trades real estate products. The product type is like the architect’s building type, yet is not formal. Instead, it straddles use and ownership: single-family products, rental products, residential products, industrial products, and so on. Chapter 3 shows that while “raw” land is not a product, a subdivided parcel of land decidedly is. The architect becomes necessary only well into the product design process, following data collection and the generation of a detailed development concept. Here 152 153
Phase II–Expansion Rents Rise Rapidly toward New Construction Levels the architect functions primarily to control costs of construction and operation. Sometimes the architect has another key role. While successful products generating net profits are a major component of development work, they are not its ultimate aim: “It is the tenant that makes the property valuable, not the building itself.” 20 Chapters 4 to 7 provide extensive design guidelines for product types, detailing selected aspects: site, parking, exterior, interior, and “privacy and security.” Architects appear in these pages as specialists in attracting and maintaining the right type of tenant. High Rent Growth in Tight Markets New Construction Begins Demand / Supply Equilibrium Point Phase III–Hyppersupply Rent Growth Slows Supply Growth Higher than Demand Growth 3.2.3 actors: attorneys, bankers and investors, and government officials. 21 The final, unnamed category consists of citizens’ groups, homeowners’ associations, and community organizations. This group of non-professionals, sometimes referred to simply as “community,” has become an oppositional force in recent times [See HH: 1994, 1997]. A good developer, however, is able to partner with the community by learning its interests. 22 While communities tend to desire the status quo, developers want to replicate the popular, as found for example in market studies. 23 Development thus becomes the repeated reconciliation of community and market, mediated by culture. Creativity here takes on an additional purpose, beyond avoiding contingencies and deferring structural conditions: it is through creativity that development becomes an art. Principles of Corporate Finance Long-Term Occupancy Average Cost-Feasible New Construction 11th ed. (New York: McGraw-Hill Irwin 2014 [1980]), 976 pages, $305.67 Richard A. Brealey, Emeritus Professor of Finance, London Business School; MA in Philosophy, Politics, Economics Oxford Negative Rental Growth New Demand Excess Space Absorbed Low Rental Growth Below-Inflation and Negative Rental Growth Stewart C. Myers, Professor of Finance, MIT Sloan School of Management; BA Williams 1962; MBA Stanford 1964, Ph.D. 1967 Franklin Allen, Professor of Finance and Economics, UPenn Wharton; BA East Anglia 1977, MA Economics 1979; PhD Economics Oxford 1980 Assigned at: MIT Center for Real Estate, UPenn Wharton, Yale Economics Read by Manuel Shvartzberg Carrió Phase I–Recovery Source: Glenn Mueller, Legg Mason Real Estate, Baltimore, Maryland. Physical Real Estate Cycle Characteristics, Peiser, p. 16. get culture Phase IV–Recession Peiser and Hamilton divide the development world into three groups of actors: The first is “building professionals,” in turn subdivided into (a) surveyors, planners, engineers, architects, and designers; (b) specialized consultants, contractors, and tradespeople; (c) tenants and customers. The second group of “professionals” is comprised of legal and financial Brealey, Myers, and Allen’s Principles of Corporate Finance instructs managers in the use of financial theory to accumulate and retain wealth. Their book communicates general financial principles via examples, including real estate case studies that explain economic rents, hedging strategies, and the nature of financial crises. The book’s three initial sections define value and risk, show how to calculate them, and explain their use in investment decisions. Sections 4 through 8 discuss how to raise money through debt and equity. Describing the use of options to modulate risk and 154 155
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Preface The Art of Inequality: Arch
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Introduction What is inequality? Or
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