How Real Estate Developers Think

How Real Estate Developers Think: Design, Profits, and Community

Peter Hendee Brown
Copyright Date: 2015
Pages: 352
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  • Book Info
    How Real Estate Developers Think
    Book Description:

    Cities are always changing: streets, infrastructure, public spaces, and buildings are constantly being built, improved, demolished, and replaced. But even when a new project is designed to improve a community, neighborhood residents often find themselves at odds with the real estate developer who proposes it. Savvy developers are willing to work with residents to allay their concerns and gain public support, but at the same time, a real estate development is a business venture financed by private investors who take significant risks. InHow Real Estate Developers Think, Peter Hendee Brown explains the interests, motives, and actions of real estate developers, using case studies to show how the basic principles of development remain the same everywhere even as practices vary based on climate, local culture, and geography. An understanding of what developers do and why they do it will help community members, elected officials, and others participate more productively in the development process in their own communities.

    Based on interviews with over a hundred people involved in the real estate development business in Chicago, Miami, Portland (Oregon), and the Twin Cities of Minneapolis and St. Paul,How Real Estate Developers Thinkconsiders developers from three different perspectives. Brown profiles the careers of individual developers to illustrate the character of the entrepreneur, considers the roles played by innovation, design, marketing, and sales in the production of real estate, and examines the risks and rewards that motivate developers as people. Ultimately,How Real Estate Developers Thinkportrays developers as creative visionaries who are able to imagine future possibilities for our cities and communities and shows that understanding them will lead to better outcomes for neighbors, communities, and cities.

    eISBN: 978-0-8122-9126-1
    Subjects: Business, Sociology

Table of Contents

  1. Front Matter
    (pp. [i]-[vi])
  2. Table of Contents
    (pp. [vii]-[viii])
  3. Prologue: A Brick Wall in Evanston
    (pp. 1-16)

    In 2002 a Chicago developer named Neil Ornoff hired the architect David Haymes and his firm, Pappageorge Haymes, to design a twenty-unit residential project on a corner site at 525 Kedzie Street, in Evanston, Illinois, a northern suburb of Chicago. “The alderman—the city councilman—was really fearful of the people who lived in the adjacent building and were concerned about losing views they had across the vacant parcel, so he asked the developer to work with them,” recalled Haymes. “We designed a beautiful building,” but the design required a small portion of the building to be a little bit...

  4. chapter 1 Developer as Visionary
    (pp. 17-37)

    In 1625 the Reverend William Blackstone, one of New England’s first European settlers, bought a large piece of land in Boston with three hills and pure springs, where he built a small cottage. The area soon began to attract other settlers and Blackstone, a recluse, decamped for Rhode Island in 1630. For the next century and a half, the area, called “Tri-mount” because of its three hills, remained a pastoral grazing common with only a few estates, pastures, and orchards.²

    In 1795, a group of wealthy businessmen created a private company called Mount Vernon Proprietors for the purpose of developing...

  5. Chapter 2 Deal Makers
    (pp. 38-60)

    Rather than working for other people and earning a salary in an established business that makes a marginal profit, real estate developers seek to create and sell entirely new products in the hopes of earning a much larger entrepreneurial profit. They do this by purchasing property, construction services, and professional services—the project costs—and combining them together into a new product that can be sold for a price that is greater than the sum of those costs. The difference between the total cost and the price is the entrepreneurial profit.

    This is not as simple as it sounds. Not...

  6. chapter 3 The Real Estate Development Process
    (pp. 61-93)

    Real estate means different things to different people. To most of us it means the physical homes we live in and the office buildings where we go to work. To city planners, real estate development is a way to mesh the economic goals of private developers and their investors with a city’s larger economic and social goals, from business growth to job creation and housing production. Planners may influence the geographic direction of development, for example, by encouraging ground-floor retail in buildings that will be built on commercial corridors or by encouraging higher-density and mixed-use development around transit stations. For...

  7. chapter 4 Developers and Their Architects
    (pp. 94-118)

    The sociologist Robert Gutman spent forty years studying, writing about, and consulting to architects and he found that a powerful image survives within the profession of the architect as “a free, independent practitioner, operating on his own and cultivating personal relationships with an understanding client.” The source of this image is “a romanticized view of an architect-patron relationship that is supposed to have prevailed prior to the 19th century.” What is most interesting is that this image survives, despite the fact that most architects do not practice that way and never have. The trend over the past half-century has been...

  8. chapter 5 Good Design
    (pp. 119-158)

    The previous chapter showed how successful developers and their architects think about and collaborate on the design of real estate projects. The common thread is the developer’s approach—a strong vision, leadership, and attention to detail. Ed McNamara’s story in that chapter exemplifies this approach and also offers an example of one developer’s idea of good design: a building that not only offers a good affordable housing option but one that will be cost-effective to own, operate, and maintain over the long run. But how do other developers define good design? Do developers in different parts of the country look...

  9. chapter 6 Selling Real Estate
    (pp. 159-188)

    In the past several chapters we have considered how developers work with their design teams to give form and shape to real estate development projects. We have looked at how architects, planners, and the general public—the buyers—each experience buildings differently and how, for the developer, a good design is one that accounts for both project economics and the tastes and demands of the marketplace. We have also seen how a good design, from the developer’s perspective, is one that is attractive to a lot of people. This is because the developer knows that to succeed he must make...

  10. chapter 7 Market Cycles, Leverage, and Timing
    (pp. 189-217)

    Real estate development is a game of large numbers, and timing plays a huge role in profitability. It takes years to develop a project and get it to market but market cycles are relatively short, tastes change over time, products evolve, and competitors are constantly increasing supply, so everything is fluid. For these reasons, development is less a business of marginal gains and losses and more one of bold plans and potentially huge swings between profit and loss. Development uses other people’s money to create leverage and enhance returns to investors so it is also a game of cash-flow management...

  11. chapter 8 Profits, Values, and a Sense of Purpose
    (pp. 218-248)

    One day in 2005, a loan officer in the Midwest took a call from a broker about a proposal for a twenty-five- to thirty-story high-rise condo tower on South Padre Island, off the Gulf Coast of Texas. The broker was pushing the deal hard but the loan officer was uneasy. The financing request was very aggressive, but what really gave the loan officer pause was that the development team seemed to lack relevant experience either working together or working on this type and size of project. The bank passed on the deal but the developer was able to secure financing...

  12. chapter 9 The Creation of Place and Culture
    (pp. 249-277)

    By now you have come to realize that any discussion of entrepreneurs, businesspeople, and real estate developers is riven with paradoxes. As we saw in the last chapter, developers must focus on a core purpose beyond profits6 if they are to avoid the “profit-seeking paradox.” And while many developers are driven first by money, as they accumulate it their motivations shift and evolve. Once successful, they begin to define themselves through their personal interests in everything from art, architecture, and urban design to planning, sustainability, and dignified housing for lowincome people. As they integrate these interests into their work and...

  13. chapter 10 Developers and the Community
    (pp. 278-300)

    I started this book with David Haymes’s story from Evanston in the 2000s and followed with the story of Beacon Hill in Boston from two hundred years earlier. Comparing these two stories side-by-side illustrates how community members think about two types of developments in two different historical periods. We are comfortable and often even unaware of old developments that long ago blended into the community. But we are less comfortable with proposals for new projects that may change our community in ways that we cannot easily envision or appreciate.

    We usually lack the expertise, time, and capacity as individuals and...

  14. Notes
    (pp. 301-308)
  15. Index
    (pp. 309-322)
  16. Acknowledgments
    (pp. 323-328)