**Session No. 4**

**Course Title: Building Disaster Resilient Communities**

**Session Title: Resilience and the Land Development Process**

**Author: Steven P. French, Georgia Institute of Technology**

##### Time: 75 minutes

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**Objectives:**

1.  Understand that the vast majority of development is actually built
    by the private sector

2.  Understand how land markets operate

3.  Understand the basic steps in the land development process

4.  Be able to identify the various private sector participants in the
    development process, including land owners, developers, financiers
    and consumers

**Scope:**

This session introduces students to the land development process, the
major actors in the process and how the market functions to produce
communities. A basic understanding the private sector development
process will help students design programs that take advantage of market
forces to produce more disaster resilient communities. This session is
not meant to be a crash course in urban economics or real estate
analysis, but to sensitize students to the importance of understanding
private sector concerns when designing programs to create disaster
resistant communities.

**Readings:**

*Student and Instructor Readings*:

U.S. Conference of Mayors, et al. 1979. *The Private Development
Process: A*

*Guidebook for Local Governments*, Washington, DC: U.S. Department of
Housing

and Urban Development, pp. 1-34.

Mike E. Miles, Richard L Haney, Jr. and Gayle Berens. 1996. *Real Estate
Development: Principles and Process.* Washington, DC: Urban Land
Institute. pp. 3-30.

Maury Seldin "Concepts of Real Estate Analysis, Part 1 Development and
Market Analysis" in *Real Estate Analysis*, Maury Seldin and James H.
Boykin, eds. 1990. New York: Richard D. Irwin, Inc, pp. 1-17.

*Instructor Readings:*

Edward J. Kaiser, David R. Godschalk and F. Stuart Chapin, Jr. 1995.
*Urban land Use Planning*. Fourth Edition. Urbana: University of
Illinois Press, pp. 5-34.

Arthur O'Sullivan. 1993. *Urban Economics.* Boston: Irwin. Chapters 7-9.

Marion Clausen. 1971. *Suburban Land Conversion in the United States: An
Economic and Governmental Process.* Baltimore: Johns Hopkins Press. pp.
58-140.

# 

# General Requirements:

# The main body of the material will be presented in a lecture format supported by the PowerPoint slides included in Session4.ppt.

Objective 4.1 To understand the role of the private sector in creating
the built environment.

Requirements:

The content should be presented as lecture supported by slides.

SHow Session 4 -- Slide 1

Remarks:

I.  Both the **public and the private sectors play important roles** in
    creating communities, but the **private sector is the prime mover**
    in the development process.

SHow Session 4 -- Slide 2

A.  The **public sector establishes the framework** within which
    communities are built.

    1.  Through its **land use plans and regulatory framework** the
        public sector exerts limited control of **market-driven
        development process**.

> a\. The public sector attempts to **shape the amount and density** of
> development that is built and to guide it to appropriate locations.
>
> b\. The public sector also sets **minimum standards** for development
> to protect the health, safety and welfare of citizens

2.  **Public investment in infrastructure systems**, such as roads,
    water and sewer, and flood control, **make private development
    possible**.

3.  The public sector provides a forum in which citizens can address the
    adverse impacts of development proposals

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B.  **The** **homes, offices, shopping centers and manufacturing
    facilities that comprise urban development are mostly built by the
    private sector**.

    1.  Very **few buildings or projects are actually built by the
        public sector**.

    2.  The type and amount of development that is built is **determined
        by the private sector's response to market demand** for a
        specific type of product (e.g., housing, offices, stores, etc.).
        If there is insufficient demand, very little development will
        occur, regardless of the plans that may have been made by the
        public sector.

    3.  The private sector **supplies the majority of the capital**
        necessary to support development.

    4.  The private **sector bears risk of financial loss** if a project
        is unsuccessful.

> C. While the public sector often considers large areas, such as an
> entire jurisdiction in its planning and decision-making, **private
> sector decisions are primarily made on a project-by-project basis.**

II\. **Harnessing the power of the private sector is critical** if we
are to create disaster resilient communities.

# Objective 4.2 Understand how land markets operate

Requirements:

The content should be presented as lecture supported by slides.

Remarks:

I. **The value of land is set in the real estate market**.

> A. Think of all the residents of the community **competing to get the
> best location** to meet their needs.
>
> B. These **residents all bid to get the best location.**

C.  As a result of this competition the **best property will command the
    highest price**.

> **INTERACTIVE QUESTION -- Other things being equal would you be
> willing to pay more to live near campus? WHy?**
>
> **Do you think other students would also be willing to pay more? if
> so, what will happen to the price of housing near campus?**
>
> SHow Session 4 -- Slide 3
>
> D. Economists think of **each piece of land as having a bundle of
> attributes that determine its value** (Seldin, 1990).

1.  Important attributes include:

-   **Proximity to other uses**;

-   **Proximity to transportation**;

-   **Neighborhood characteristics**, including schools, parks and
    housing quality;

-   Local **tax rates**;

-   **Aesthetic qualities**, including views, vegetation and land form;

-   and, of course, its **exposure to natural hazards**.

    1.  Consumers compete to get the most space in the best location
        that they can afford.

> E. Landowners compete with each other to attract tenants or buyers for
> their property.

1\. Landowners attempt to get as much return as possible from their
property.

> 2\. This return may be in the form or rent or the sale price of the
> land.
>
> 3\. There is a limit to the price the landowner can charge because
> buyers can always purchase another piece of land from another
> landowner.
>
> 4\. However, not all land is the same. Some land has better views, or
> is closer to downtown or has lower taxes.
>
> 5\. All of these factors will affect the price of land as well as its
> location.
>
> F. This competitive process among buyers and among landowners results
> in the **price of land** (developed and undeveloped).

II\. As described by Sullivan (1993) **access to other uses has long
been considered the single most important factor in determining the
value of a piece of urban land**.

> A. Typically, land that is close to the most developed parts of a
> community (e.g., downtown) will command the highest price.
>
> B. Access can also be provided by transportation systems. Land that is
> on major transportation arteries is generally more valuable than land
> that is not.
>
> 1\. Proximity to transportation (e.g., highways, major streets or rail
> systems) makes it easier to get to other uses in the area.
>
> 2\. The ease of access and visibility to passing traffic are
> especially important for retail commercial uses.

III\. There are often **distinct markets for different types of land**.

A.  We often think of **four major property types**:

> 1\. Residential,
>
> 2\. Commercial,
>
> 3\. Office, and
>
> 4\. Industrial.

B.  Typically, a community will contain less commercial and office
    property, which is worth more than the other property types and will
    be concentrated in distinct locations.

> 1\. Office and commercial areas are where most of a city's economic
> activity is located.
>
> 2\. Firms and businesses are willing and able to pay more to locate in
> these areas than residential users.
>
> C. **Land values change over time** in response to changes in
> development patterns and improvements in transportation infrastructure
> (e.g., a piece of farm land on the edge of the city may become more
> valuable as suburban development approaches and as better access is
> provided by new roads and highways.)
>
> D. **Natural hazards can be an important factor in determining the
> value** **of a piece of land**. But, if the site is located in an
> especially desirable location, it may be economically feasible to
> spend significant amounts of money to mitigate the hazard and make the
> project possible.
>
> 1\. Natural hazards are one of several factors that determine the
> value of a piece of land in development.

a.  For example, if hazards require developers to invest in measures to
    reduce the risk of loss, such as elevating buildings in floodplains,
    they will reduce their offering price for raw land for their
    projects.

b.  If households are required to purchase insurance against hazards,
    such as the national requirement to purchase flood insurance for new
    homes in floodplains that are financed with home mortgages, the
    offering price for a home should be reduced to reflect the present
    value of the stream of required annual insurance premiums.

> 2\. If the other factors are strong enough, it will be difficult to
> prevent the development of hazard-prone land.

IV. Land goes through a sequence of stages as it becomes developed urban
    land. At each of these points there are opportunities to reduce the
    risks posed by hazards. This is accomplished by influencing the
    decisions of various entities whose actions result in the movement
    of land from one stage to another.

SHow Session 4 -- Slide 4

A. Urban land can be viewed as moving through a sequence of states from
rural use to urban development and use and eventual abandonment or
redevelopment.

1.  Rural/nonurban intensity use

> a\. At this stage of the land transition process, land is used
> primarily for rural residential and resource production purposes, such
> as agriculture, timber, or mineral extraction.
>
> b\. No demand exists for use of the land in more intensive, urban
> uses.
>
> c\. Economic and rural residential use values predominate as a basis
> for land-use decisions.

2.  Urban/development interest

> a\. Land enters a state of urban/development interest when someone
> becomes aware of its potential for more intensive use. However, at
> this point, a particular use for a particular market has yet to be
> identified.
>
> b\. This typically begins to occur as urban areas expand outward into
> what previously were areas used for resource-based industries.
>
> c\. But, it also can occur in response to public investments, such as
> construction of a new highway or highway interchange.
>
> d\. It can also occur in response to construction of a large nearby
> private or public facility, such as a large industrial plant or a
> prison.
>
> e\. When land enters this state, economic values predominate as a
> basis for decision making about the land.
>
> f\. Land uses may begin to change from rural resource use to idle use
> as owners avoid investment in resource production and long-term leases
> that may limit their ability to sell the land at short notice.

3.  Consideration for development

> a\. Here land comes under active scrutiny for potential development to
> meet an identified market demand.
>
> b\. However, this market demand is not necessarily immediate. Land may
> be acquired and added to the inventory of raw land held by a
> development company for eventual development.
>
> c\. At some point during this stage of the land transition process,
> landowners will begin lobbying for the extension of essential public
> services, such as water and sewerage, which are needed for development
> to occur.
>
> d\. As the point at which development is likely to occur (that is, as
> the land "ripens" for development, as real estate agents would say),
> landowners or prospective developers will begin investigating
> regulatory changes that are needed before development can occur. This
> may involve rezoning the land from a low-intensity to a higher
> intensity classification. This will not be done too early, however,
> since it could lead to higher property taxes and thus higher costs in
> holding the land.
>
> e\. Throughout this state in the land transition process economic
> values dominate decision making about land.

4.  Site development

> a\. At the site development stage, land has been acquired by a
> development company, which has identified a market for a particular
> development product (e.g., houses, apartments, shopping center) on the
> site.
>
> b\. The site development process involves a whole series of steps,
> discussed later, that convert the land from its raw, undeveloped
> state, to a finished product that can be acquired and used by a
> household or other consumer.
>
> c\. Economic values continue to dominate decision making about land
> use and development.

5.  Urban use

> a\. The site is actively used for an urban use or activity
> (residential, retail/wholesale, office, industrial, public facility,
> etc.).
>
> b\. Use values replace economic values as the basis for decisions
> about the property, but economic values continue to be a
> consideration, since return on investment is important to most owners,
> including households who use property as a residence.

6.  Site redevelopment/abandonment

> a\. At this stage of the process, the original basis for urban use of
> the property is no longer valid and owners begin thinking of other
> uses, or they may abandon the property if they foresee no future use
> and wish to avoid tax burdens.
>
> b\. This may occur as a result of a natural disaster that destroys
> many of the buildings and amenities in an area that made it attractive
> for residential or business uses.
>
> c\. It may also occur in response to public programs, such as public
> efforts to relocate urban uses from hazardous to less hazardous
> locations.
>
> d\. At this stage of the land transition process, both economic and
> non-economic values may play a role in decision making about property.
>
> B. The transition from one state to another involves a series of
> decision agents. If disaster resilient communities are to be created,
> it is important to influence the decisions made by these decision
> agents so that disaster resilience is enhanced.

1\. Key decision agents at each stage of the land transition process
include the following.

a.  Rural/lower intensity use

> i\. Rural landowners and resource production companies (e.g. forestry
> interests)

b.  Urban/development interest

> i\. Rural landowners and resource production companies.
>
> ii\. Real estate agents.
>
> iii\. Land speculators.

c.  Consideration for development project.

> i\. Real estate agents.
>
> ii\. Land speculators.
>
> iii\. Land developers.
>
> iv\. Commercial developers.
>
> v\. Homebuilders.

d.  Site development.

> i\. Land developers, commercial developers, and homebuilders.
>
> ii\. Architects and engineers.
>
> iii\. General contractors and specialty contractors.
>
> iv\. Real estate agents.
>
> v\. Financiers.

e.  Urban use.

> i\. Households.
>
> ii\. Businesses occupying retail, office, and industrial sites and
> buildings.
>
> iii\. Property management companies.
>
> iv\. Real estate agents.
>
> v\. Mortgage lenders.

f.  Site redevelopment/abandonment.

> i\. Households, businesses, property management companies.
>
> ii\. Real estate agents.
>
> iii\. Mortgage lenders.
>
> iv\. Architects and engineers.
>
> v\. Redevelopment companies.
>
> vi\. General and specialty contractors.
>
> C. Both economic and non-economic decision models are employed in
> making decisions that move land through the land transition process.

1\. Economic models include both investment and profit and loss models.

2.  Non-economic decision models take into account non-monetrary factors
    that affect decisions about land.

> 3\. Economic models.
>
> a\. Investment models take into account both current returns to land
> (operating revenues less operating costs) and potential future returns
> (future selling price less selling costs), with returns discounted to
> the present. (This analysis process is discussed more fully in Session
> 14.)
>
> i\. Current returns to land are relatively unimportant when land is in
> the stages of the land transition process we term urban interest and
> active consideration for development, and redevelopment/abandonment.
>
> ii\. Current returns to land are relatively important when land is in
> the stages of land transition process we term rural use, development,
> and urban use.
>
> b\. Profit and loss models focus on current returns to land and are
> discussed in more detail later in this session.

4\. Non-economic models reflect the fact that decisions about land often
hinge on other factors. These include:

> a\. Sentimental values.
>
> i\. For example, land that has been in someone's family for
> generations has value on that basis, even though one cannot translate
> sentimental attachments into an economic return.
>
> ii\. Some landowners will maintain ownership of property far beyond
> the point that it makes economic sense because of the "sentimental
> returns" they receive from ownership.
>
> b\. Associational values.
>
> i\. For example, land may be valued because of friendships and other
> associations with people who live nearby.
>
> ii\. Owners may be unwilling to move or sell their land when these
> values are strong.
>
> c\. Normative/moral values.
>
> i\. For example, land may be used in certain ways because owners
> believe it is the right or moral thing to do.
>
> ii\. In some circumstances, owners may donate their land to non-profit
> land trusts because they want to conserve the natural values of the
> property.
>
> D. In working to build disaster resilient communities it is important
> to keep in mind the economic and non-economic factors that affect
> decisions as land moves through the land transition process.
> **Proposals are more likely to be successful when they affect both
> economic and non-economic decision factors** and they may founder when
> they ignore either of these factors.

INTERACTIVE QUESTIONS - CAn you think of any piece of land in our town
that should be kept out of development for aesthetic or sentimental
reasons?

Let's say you are the owner of that property, would you sell it to a
developer for \$100,000? for \$1 million? For \$100 million?

## 

# Objective 4.3 Understand the basic steps in the land development process

Requirements:

The content should be presented as lecture supported by slides.

Remarks:

## 

## I. **Real estate development is a process that increases the intensity of use on a particular piece of property**, either from raw land to urban or from a less intense urban use to a more intense use (redevelopment). 

## []{.mark}

## A. Miles, Haney and Berens (1996) identify an eight-step process of real estate development.

SHow Session 4 -- Slide 5

## 1. Developers are continuously assessing the market and looking for opportunities. Based on this assessment they develop **initial development ideas** about what types of development are needed in the community.

## 2. These **ideas are refined** by reviewing available sites, considering market trends, talking with prospective tenants and reviewing the success of similar projects.

## 3. Before undertaking a project a developer will **conduct a market analysis** to determine if there is sufficient demand for a particular type development in a given location. 

## 

## a. This study will compare the estimate value of the project to its expected cost. (Session 14 provides more detail on the way a developer evaluates the economic feasibility of a project.)

## b. The developer creates a **pro forma** that summarizes the costs and revenues associated with the project. 

## 4. If the project is expected to be profitable **the developer begins negotiation with the landowner.**

## 

## 5. If the negotiations are successful the developer makes a **formal commitment** to the project.

## 

## 1. The developer enters into a contract to buy the land. 

## 2. He or she will enter into other contracts with a wide array of specialized firms to design the buildings and site improvements and construct the project.

## 6. Actual **construction of the project** begins.

## 

## 7. When the **construction is completed** the project is usually opened with a formal ceremony.

## 8. When construction is complete, the developer will either lease or sell the project to the ultimate consumers - households or firms. He or she may also sell it to an investment group who will own the project as a long-term investment.

> a\. After the project is completed and occupied, the **project must be
> managed** either by the original developer or by its subsequent
> owners.

## b. As the project ages it must be maintained, remodeled and possibly redeveloped**,** eventually.

> B. It is important to recognize that the developer **generally uses
> borrowed funds** to finance a project.
>
> 1\. To get funding the developer must be able to **demonstrate to
> financiers that the specific development will be profitable**.
>
> a\. He or she will use the pro forma developed in Step 3 above to
> convince a lender to provide the funds necessary for the land purchase
> and the construction of the project.
>
> b\. Funding may come from banks, insurance companies or pension funds
> or even stock-like real estate investment trusts (REITs).
>
> 2\. Since the developer is using borrowed funds, time is of the
> essence. The **interest costs** associated with significant delays can
> be the difference between a profitable project and an unprofitable
> one.
>
> 3\. Many developers attempt to minimize the risk to their own finances
> by creating a separate development company for each project.
>
> a\. This way if the project is unsuccessful only that company's assets
> are at risk. The developer is not personally responsible for the
> losses.

II\. Most development projects will also require one or more types of
the following public sector approvals. **(**The function of these public
sector regulatory mechanisms will be covered in more detail in Session
6. The permits and approvals themselves will be discussed more
thoroughly in Session 13.)

> A. **Zoning** that controls the particular use and density desired;
>
> B. **Subdivision** which allows a single land parcel into a number of
> smaller individual lots that can be sold to different owners;
>
> C. **Grading or land disturbance permits** that assure that site
> improvements are made in accordance with adopted standards; and
>
> D. **Building permits** that assure that the buildings are constructed
> according to adopted code requirements.

III\. Once the project has the necessary permits and approvals, the
actual construction can begin.

A.  During the construction phase the developer must **deal with design
    changes** and other unexpected occurrences.

> B. The developer must **manage the design and construction
> professionals**.

C. The developer must **pay the various contractors** who improve the
site and build the structures and avoid cost overruns.

D. The developer must **keep the project** on schedule.

E. Large projects be constructed in separate phases. One phase will be
completed and sold before the next one is started.

# Objective 4.4 Be able to identify the various private sector participants in the development process, including landowners, developers, financiers, designers and consumers.

Requirements:

The content should be presented as lecture

Remarks:

**I. Developers** assemble the talents and resources needed to get a
project designed, approved, financed and built (Miles, Haney and Berens,
1996).

> A. Developers are the individuals or firms who actually bear the risk
> involved in converting land to urban uses.
>
> 1\. If the project is successful in the marketplace, they are rewarded
> with significant profits; however, if the project is not successful,
> the developer will suffer the economic losses.
>
> B. There are a number of other important participants in the
> development process. Various strategies for creating disaster
> resistant communities may be aimed at any one of these groups.
>
> 1\. Most land exists in relatively large parcels held by
> **landowners** that are engaged in farming, forestry or other
> non-urban uses. Landowners supply the raw land to that supports the
> development process.
>
> 2\. Developers usually use borrowed money to acquire land, install the
> necessary infrastructure and site improvements and construct the
> buildings that make up the development. **Financiers** are the banks,
> insurance companies and pension funds that provide developers with the
> capital to acquire land, prepare the site and build the buildings in a
> project.
>
> 3\. **Designers** are the architects, planners, landscape architects
> and civil engineers who actually design the project. They use their
> professional skills to create the project that the developer has
> envisioned. They play a key role in designing disaster resistant
> communities because they have often had training in how to identify
> and adjust the development to potential natural hazards.
>
> 4\. **Consumers** are the households and firms that buy or lease the
> finished development product. Natural hazards are only one factor in
> their consideration of where to locate. Public education can, however,
> make them more aware of the types and location of hazards in their
> community. If consumers demand disaster resistant communities, the
> private sector will produce them.

Supplemental Considerations

None

Course Developer References

See Instructor Readings.