C H A P TE R

Developers
and
TheirPartners

fully appreciatethe role of developersin shap- likely it is that the participants or individuals and
To.
I ing the buih environmenr,it is necessaryro
companieswill change along the way. Companies
understandrhe funcdon and motivationof the major
may lose key employees,or a merger may subsume
participants in rhe developmentprocess.Although
the originallendinginstiturion.
this chapter deals with the individual participants,
Becauscpressures
tend ro becomeintenseduring
the full complement of playersshould be seenas a
the middle stagesof the dwelopment process,inicial
team.Only then can the developerbmultipletoles be
contractsaloneareoften not enoughto ensurethat all
completelyunderstood.
team memberswill perform asagreed.There is no time
Developersultimately are responsiblefor the creto stop the developmentprocessfor a yearto engagein
ated siace and how it will function over the life of a
x l2v,'511i1-x1
leastnot without incurring greatfinanproject, but becausemany different skills are needed cial pain. Successfi.rl
dwelopers recognizethar the ultito developthe kind of spacesocietyneedslandwants,
materespon$ibiliryfor a project'ssuccess
in the conteirt
developersthemselvesusually do not provide all the
of an intense,dynamic processrequiresthe ability to
expertise.Rather, they select,motivate, arrd rnanage anticipate and respondto changc.
the team neededto get a job done.
Throughout the process,dwelopers not only conBy assuming ultimate responsibiliry developers tinue to verify that rhe overallproject is feasiblebur also
must make sure that team memberscommand the
checkto seerhat the dwelopment still makdssensefor
skills to do their part of the job and collectivelymeet
each individual panicipant, given changing situations.
developmentobjectives.Dgvelopment is a dy:ramic
If the project becomesa loser for anyindividual panicart that occursover a considerableperiod of timeipant, that panicipant may creirteproblemsfor dre rest
usually one ro severalyears.During that time, rhe
of the team.As you considerthe rolesof rhevariousparmany changeslikely to be madeto the original develticipants, try to keepthis challengingmanagementtask
oPment plan may require new skills and different
in mind so that you n seehow exciting (and someplayers.The longer the dwelopment takes,rhc rnore
times frightening) the developmentprocesscan be.

39

IN TRODUCTIbN

This chapterlooks at the rolesof rhe major playersin the developmenrprocess,anrongthem:

> Privatesectordevelopers;
> Public sectordevelopers;
> Public/pri.rrat.pannershipr;
> Archirects:
> Urban designers;
> Engineers;
> Land planners;
> Landscapearchitects;
) Contractors;
) Environmental consultants;
) Tiansportation consukaxts;
> Appraisers;
> Attorneys and accountants;
> Real esrateleasingagenrsand salesbrokers;
> Financialplayers;
> Property managers;
> Market r.r.*.h.r$
> Marketing and public relationsconsultants;
> Regulators;and
> Final users.

> Possiblya lohg-tern equity position (for which

the developermay or
contribure cash),
-"y.rro, gods are similar
in which casethe developert
to
thoseofpassiveinvestors(discussedlater);
> Personaland professionalsatisfactionin advanc_
ing a nev' conceptor improving the urban envi_
ronment; and
> Enhancedreputation,which createsfurure
oppornrnitiesfor development. e ,

I
I
i

,4,developer'pcommitment of time is usually rhe

l.rgrh of the developrnentperiod; which is increasing
in most jurisdictions. If developerschooseto rerain
ownership of.a completed'project, however, their
commitment extends untif the project is sold.
Although the equity interestsdiscussed
later may also
wish to minirnize the tirne of their involvement,
urjike dweloper3they are nor involved primarily in
selling their time. Other professionalson the devel_
opment reamareeither paid by the hour (job) or par_
ticipate in only a:portion of the derrelop-lrt process;
thus, they are lesssensitiveto th. o.r"r"ll length of the
developmentperiod.
After this detailed. description of the vanous
Privatedanelopersmay alsoprofit through rhe own_
rhembersof the developrnenrteam, the chapter and
ership of entities that sll seirricesto the development:
the ehtireintroductionconcludewith a d.iscussion
insurance
agencies,moftgage banking firmq, leasing
of
9ew.tr11dsin development.Alt[ough the eight-stage companies,managementcompanies, or even general
model first describedin Chapter I ls time ho.ror.d,
contracting firms. To the extent that these arrange_
majbf evolutionarychanges{re occurringwithin this
menrs are made at arm's length and representclearly
model. After seeinghow eachteam memberfim into
understoodagreemen$,darelopersaresimply compen_
the model, we conclude by looking at theseevolusatedfor performing additional functions. On the orher
changeqto the development-process.
hand, if compensationfor activitiesin which develop_
lionary
ershavean interestis abovestandard,any excessshould
be consideredan addition to the developrnenrfee.
PRIVATESECTORDEVELOPERS
Privatedevelopers'financido(posurearisesin rwo
Like most businesspeople,
different
wap, First, developersspendtime and money
developers
seekthe maximum possiblereturn while minimizing risk and the
before giriing assurancethat a prorect will be built
commitrirent.of their time and money. In develop- (i.e.,beforestagefive, formal commitment), and natu_
ment, the a.t.rrn consistsof severalcomponents:
rall.y, developersseekto minimize such expenditures.
Second,in addition to their orvn equiqr pojtion (both
> The developmentfee,which is.th. stateddir..,
contributtd capital and debt for which developers
compensadonfor deveiopingthe project;
are persondly liable), dwelopcrs might guarantee
> Profits on any saleto long-term invesrors(i.e.,
investorsor len&rs, or both, either a maximum pro.ysaleprice lessall costsneededto producea fully
ect cosr or a minimum occupancy le,/el. As primary
functioning project);
risk bearers,developersifinancial er(posuredependson

r
In
ton
hei
hoL

:hr
thi

lik,
clir

RE
ap
der
wit
an(
der
the
oP(
der
in
the

&

DEVETOPERS AND THEIR PARTNERS

noting that to.be fully effectivedevelopersmu$ also

possessclarity of vision. They must also be focused
dreamerswith rhe ability to convinceorhersthat they
can make their dreamsa redity.
To make the development happen, developers
rirusr be annoyingly persistent but not inflexible.
Inflexible developersoften find rhat their projects
may never be built. The best developersencounter
obstaclesalong the eight-stageroad and must maintain someflexibility and willingnessto b,econsensus
builders. Local authoritiesand'communiry groups
can have a powerful impact on a projecr, and developers increasinglyface de.signreview boards that
often requirealterationsin the appearance
of a building. Only by adopting a flexible stancervill developers secureall neededapprovals.Developerswho are
willing to altertheir original plansto accommodateat
leastsomeof the concernsvoiced by thosewho will
be direcdy affectedby a proposeddevelopmenrmosr
often find successat the end. Of course,too much
compromise can resulr ih an unfocused project
and/or financialfailure.
Tod"y'r dwelopershavearrivedat rheir life'swork
"merchant
In a
buitde/'arrangement,
the University
of Washington paid LorigAssociates
from
fairly diversesrartingpoints, as indicatedby the
a prenegotiated
fee to devetopNordheimCourt,a 2.8-acre
(1.1-hectare),
146-unitdormitory
comp[ex profiles of different developersfeatured throtrghour
housing460 students.DougJ. Scott/dougscott,com
this book. Some people know when they graduate
frorn collegeor businessschool ihat they wan! ro
becomea developerand immediatelybegin working
the amount of their direcr financialcommitment plus
for a deveiopmenrcompany in one capaciry or
the magnitude of any guaranteesthey make and the
another,learningas much as they can beforestriking
likelihood of the guaranrees'
being calledon.
out on their own. Somestudentsentergraduateschool
Some developerswork as "merchantbuilders."A
seekinga degreein realesgtedevelopment.For others,
client such asa rerailer,health careprovider, university,
f*-ily landholdingsprompr'them to nter the develREII ot public sectoragencyhiresa developerto see opment business.
In ottrercases,developersget staned
a projectrhroughfrom beginningto cornpledon.Such simply becausethey have invested in real estate.As
devrlopersareusuallyhired for a fee,like a consultanr, their interest in real estatedevelopmenr grows, they
with a bonuspaid at the end for successfirl
compledon start to participatedirecdy in the process.Often conand dmely delivery of the produrct.In dresecases, tr:actorsr
architects,and other parricipanrsdescribedin
developers
assumeno personalfinancialrisk Although
this chapter decide ro move up ro rhe lead role of the
the feesare nor small, they do not match what dweldeveloperin the process.
opers might earn when they operate as traditional
Dean Stratouly did not srarr out as a developer.
dwelopersand assumeconsiderablymore risk.
He becamean engineer becausehe did not know
Developers'personalqualitiesare a vital element what else to do and eventudly discoveredthat he
in the developmentprocess.Chapter I refe;red to
liked to take risks and liked ro make big deals.
rhe drive and creadvity that characterizedwelopers,
Becominga real estatedeveloperwas a natural fit.

41

+2

I NTRODUCTION

I
I wasa Navybrat, so whiteI wasbornin Boston,I grewup
in a whoteseriesof placesrangingfrom Bostonto San
Diego,Hawaiito Connecticut.
Attin atl.,it wasa fairlyunstabte chiLdhood,
but beingabteto dealwith suchinstabitity
is an importantcharacteristic
of a developer.
I wentto a Cathotic
boys'school
in Connecticut
during
the time of the VretnamWar.Comingfrom a famitywith a
mititary servicebackground,my futher wantedme to go
either to the NavalAcademy-hisfirst choice--orto West
Point-which woutdhavebeenmarginalty
acceptable-or
possibtythe Air ForceAcademy.
Theboys'schooladministratots thoughtI shoutdgo to a Cathoticcoltege,one of the
five schoolsthat everybodywent to-Notre Dante,Hoty
Cross,BostonCoLtege,
Viilanova,or Georgetown.
But they
wereatt-boys'schoots
and I wantedto be aroundblond
cheerleaders.
SoI apptiedto the University
of Southern
CaLiforniaas an anthropotogy
major.
My fatherwent berserk.As a compromise,
I endedup
goingto Worcester
Polytechnic,
whichwasan engineering
schoo[;Therewas no rhymeor reasonfor my goingthere
excepttnat I wasgoodat mathandscience
andreasonabte
at Engtishandit seemed
the path of leastresistance.
The
ideawasto get a job whenI got out. Nomore.No[ess.

RussellKatz started our as an idealisticarchitect

who yearned for more control over his projects.
Becoming a developer gave him this control and
allowed him to put into practicethe grcen building
techniquesthat he learnedin graduateschool.

P U B I I C SE C T ORD E V E L OP E R S
Increasingly,the public sectororches,oro l"rg.-r."1.
property dwelopment projects,in essence
functioning
as a dweloper. But public sectordwelopersmust be
distinguishedfrom private sectordevelopers.They are
motivated by economicdevelopmentgoalsor altruistic
ends,suchas neighborhoodrevitalizationor the need
to createhousingfor certainincome levels.The active
pursuit and planning of developrnentby the public
sector has spawneda new breed of dweloper who
could be referredto asa "public enffepreneur."
The term 'public enuepreneur" is reservedfor
those public development professiondswho plan,

I,Vhen
I gnduated,I wentto workin the nuctearpowei
ptantbusiness
and endedup with the companythat had
devetopedtrhree
MiteIstand.I waswith themuntil.1980and
madea nicesatarysettingnuctearpowerptants.
It wasactuatlyverygoodtrainingfor beinga devetoper.
because
the powerptantprojecbwereverylargewith complicatedengineeringand constructionprocesses,
difficutt
you did
unionissues,andmultitayered
financing.Everything
hadto be reviewedby variousgroups,so tr had to learnto
makepresentations.
Likerealestatedevetopment.
it hadthe
etements
of socialcontroversy,
economicrisk,andlong-term
designandptanningprocesses.'
After about five or six yearswhen I travetednonsrop,
ThreeMi[eIslanderuptedand the companywasboughtby
anothergroup.Therewereatl sortsof changes
occurring
and
I decidedto moveon. I wastivingin Chicago
at the.time
and wantedto moveto either the EastCoastor the West
Coast.I ca[ed a friendin SanFrancisco
whowasleavingfor
Tokyofor sevenl week, and he offeredme his apartment.
Afterthat I wentto visit a girl in Bostonthat I wasdating,
andI endedup manyingherandstayingin Boston.
continuedon page226

design,and financiallystructurethe large*caleprojecrs

of suchimpcrtance to the community that the governrrent nof only sharesin their costbut alsoma.}'assume
much of the risk. Public entrepreneurs,with accessto
both public and private resourcesand using properly
structuredffansactions,canhelp makeprojectshappen
at minimum cost to the city while stimulating additional private investment. Urrlike private developers,
public entrepreneursare usually salaried employees.
For three reasons, their compensation is generally
higher chanthat of other planning professionals.
First,
they havedevelopeda panicular set oftechnical, analytical, and communication skills that are in scarce
supply in the public sector.Second,they have the oersonaliry to make things happen in the public secror.
Third, .h.y
highly valuableto their cities.
"t
The public sectorworks with dwelopersin many
ways. In Adanta, the Metropolitan Atlahta Rapid
Thansit Authority (MARTA) has acted more like an
entrepreneurin promoting dwelopment around rail
J

,:itilr".

DEVELOPTRS AND THEIR PARTNERS

I'm 38 now [January2007]. WhenI was growingup, I

atwaysLikedbuildingsand I had a high levetof sensitivity
to the environment.
I firstwanteC
to be an artist.I tikedto
paintanddraw.ThenI gotinto architecture.
I wentto archrtectureschoclat the Universityof Virginiafor my qndergraduatedegree.It wasa nice program-quite tibenl.arts
based,so I coutdtake lots of differentclasses
andnot focus
solelyon architecturebecauseit neverfutty hetdmy attention. I didn't think it coveredeverlrthing.It atwaysseemed
to stcp short of the futt pictureof who actuatlyusesthe
buitdings
and,beyondthat, the impactthat they have.
WhenI got out of architecture
schoot,I wentto fiurope
for someyears.FirstI workedfor the Guggenheim
Museum
because
I wasthinkingaboutgoingbackinto the arts.Then
I workedfor HansHolteinin Vienna,Austria,doingsome
prettSrinterestingaichitecturalwork. I workedwith Coop
Himmetb(t)au
also.Someof it wasprettyavant-garde
work
at the timein Vienna.
I camebackto the Stateswith a goodenoughr6sum6
to
get into somegoodschools.I endedup at yate,whichI
loved-it wasa greatschoolfor me, OnceagainI coutd
cross-poltinate
ideaswith studentsfromotherdepadments
andcreateindependent
studies
to getinto otherdisciptines.
I got veryinvotvedwith theater,devetoping
playsandsets.
Wedeveloped
a wholeptaythat endedup beingput on at
the dramaschool.Weactual.ty
startedthe ptaywith the set.
Wemadethe set first; then the writerwiotethe pl.ayandwe
coltaborated.
Thenwe broughtin directorsand actorsand
went backand forth over the procesj.I met sornefriends
therewhoalsohadthe samebasicinterestin the environmentthat wasnot reattybeingcuttivatedor satisfiedat atl
throughthe curricutum.
Oneclasswe took at Yatewasan eyeopenet..
It wasan
elective,and there were studentsthere from the forestry
schoot.whichwasa lot moreadvanced
in ternrsofthinking
aboutenvironmental
issuesthan the architectural
schoo[.
Thiswasin the eartyto mid-1990s.
I think it wasan awak.
eningtime for a lot of peopte.Wegot a lot of iniormation
aboutthe environmental
impactof buitdings.
At the sametime throughoutarchitecture
schooLI was
thinhng aboutwhatI tikedandwhatI didn,ttikeaboutthe
practiceof architecture.For me it atwaysseemedlike too
muchof a marginalized
profession
withoutenoughpowerto
realizea vision.I was,from eartyon, intirestedfir how to
get myselfinto a positionwhereI coutdmakedecisions
that
wouldbecomebasedon r,'rhat
I thoughtneeded
to be rlone
insteadof tryingto finda clientor find somebody
whoactuatty hadthe resources
to do ttrings.

I [earned
that, for me,academia
wasan importantenvironment
to growin. 5o muchofthe knowtedge
I gotwasfrom
the retationships
I developed
with otherstudents,
in termsof
learning
wheretheycamefrom,whattheywantedto do,the
thingstheywere.ioohng
int6,andthethingsthat weshared.
Thatkindof heldtruethroughYaleandinto myfirstjob
workingwith a greatguy namedTurnerBrooksin Vermont
for a few years.At the time it wasinterestingbecause
a
Lot of.the peoplewho wereinto environmental
studies
considered
him to be a greenarchitect.He didn't reatly
knowwhatthat meant-he'djust buitdreatl.y
smartbuil.dings that werewetl insulatedand we[[ situatedand orientedandso forth. Heused[oca[material.It's funnyhow
sometimespeople,just becausethey are trying to do
somethingwith good quatity,are actuatlydoing good
things.inwaysthey don'tevenknow.
I'm quiteinvotvednowwith the UVAschoolof architecture. I'm on the boardthat advisesthe dean,with other
developers
and architects.and
landscape
architects.
It's a
reallyinterestinggroup,and one of the things we tatk
aboutis howdevetopment
that is runfromthe MBAsideis
reatlydifferentfromthe devetopment
that is run fromthe
architecture
side.
Fromthe MBAside,you'relookingmoreat the case
studiesand financiats.
YoLt're
relyinga lot moreon what's
beendonebeforein orderto justifuwhatyou jntendto do.
If you are comingfromthe architecture
side.I think you
seepotentialin a broader
spectrum.
That'sbeena big vatue
for me.I feetthat the wortdwoutdbe a betterplaeeif there
weremoredesigners
who knewthat devetopment.would
be
a goodopportunityinsteadof the perceived
distrustand
animositybetweenthe fietds,
Afterworkingas an architecton a numberof projects,I
decidedit wastimeto getinto development
andtearnhow
to do whatI keptthinkingI wantedto do.5o I returnecl
to
Washington
whereI hadgrownup eventhoughI hadn't
beentherefor probabty
i5 or 16 years.I madethe decision
partly because
it was whereI had grownup, and I had
somecontactsin construction,real estate[aw,and developmentthat I knewI coul.dretyon. I had beentivingin
NewYorkand wasfamiliarwith Boston,whereI had retativeswhoaredevetopers.
I knewwhatthe realestateproperttrrpriceswerein atl three cities.
I couldn'tbelievewhatcoutdbe donein Washingtonthis was 1998.l4,iththe sameamountof moneythat it
vroutdtaketo buya two-bedroom
apartment
in Brookl.yn,
I
coutdget a 36-unitaparlment
buitdingin Washington,
next
continuedon nextpage

itE-

43

I N T ROD UC T'I ON

sPe(
oPn
to a Metrostation.So the scateswergjarringtydifferent.I
decidedto movequicktyand boughta 36-unitapartrnent
buitdingin Takoma,
0.C.,rightnextto the Metrostationfor
40O-something-thousand
doil.als.My experiencewas in
designwork,but I quicktyreatizedhow complicated
it was
goingto be to just figureout howto makea devetopment
projectwork.
I was pleasedto get that buitding.It wasin terrible
condition,but the structurewasgood.Thepl.umbing
ano
etectricalwere,by and large,okay.Therewasn,ta lot of
designto do. I couLdreattyjust focuson the budgetand
on workingin the District,I spenta Lotof timefocusedon
the tenantretationship,
andtenantrights,and ownership
rights. Rent control is a highty complicatedfietd unto
itsetf. I atso concentrated
on financing,managingthe
apartments,
and rentingthemout.
It took about sjx to nine monthsto get it att put
together.I metwith the tenantsa Lot.It hasto be a cotlaborativeprocess.
I apptieda lot of my phiLosophies
about
environment
to it. Wantingto be a goodcontributor
ro my
environment
for mejs a great,simpl.e
phiLosophy
thar you
canapptyto manythings.Theerrvironmbnt
means
to methe
localenvironment.
the physicat
context,whichis lvhatwe
tatk abouta lot in architecture
schoot,'yetcontexthasto
inctudepeoplg the socialstructure,the community,
and
alsoof coursethe ecotogyTbothLocal.
you
andexpanoed.
haveto [ookat the architectural
contextasan environment,
the sociatcontextas an environment,
and the ecotogical
contextas an environment.
Andyou haveto giveatt those
thingsthe samerespect.

stations.In 1998, MARTA issueda requesrfor proposals(RFP) for denseresidentialand office mixeduse development of a 47-acre (l9-hectare) site
around the Lindbergh Station in Buckhead. The
agencychosea proposal from Carter Associares,an
Adanta-basedfull-servicecommercialrealestatefirm.
The aggressivcplan calls for 4.8 million squarefeet
(446,100 square.meters)
of retail, office,hotel, and
residential uses.Lindbergh CiV Center exemplifies
the advantagesof working with the public sctorasa
sffong parrner.The city governmentarrd the transit
agcncr/were "codevelopers"
of the project in that they
have financial interestsin its successand ia success

Thegoalwasto workwith the tenantsto comeup with

a ptanby whichthey coutdstitt havetheir lowerrentsprotectedby rent contro[,and atlowmeto improvethe buitding. Likemanybuildingsin Washington,
D.C.,at that timq
it wasderelict.But because
of the low rentsthat werebeing
paid,it woutdhavetakensomebody
to write a checkevery
month and essentiattymakea charitabtecontribufionto
makethe buitdingdecent.It wasan upside-down
deal-not
a heatthyproject.
I did the generalcontractingwork mysetf,which was
quite a burden.It was quite an interbstingand difficutt
process,
but it workedand'I boughtanotherbuildingnear
DupontCircteunderthe samekind of circumstances.
This
wasa lot easiet actualty,becauseit wasa smallerbuiLding
andit waspretg muchvacantwhen,Igotit. in the end,I
got myselfa goodbusinessgoing.
I hired a managerto start taking over the day-tb-day
responsibilities.
In the beginning,
I handtedaLlthe renting
andcommunication
for atl the maintenance
andeverything
else.ThenI startedgettingpeoptein placeto takecareof
that for me.
WhenI startedlookingfor a new project,I found an
emptypieceof landctoseto the first apartment
buitdingin
Takoma,
D.C.ThereI decided
to do a reaLly
significantproject that woutdsatisfoatt the intereststhat I had.Andthat
is the Etevation314 project,whichis a greenbuildingnext
to the entranceto the Metrostation.It hasa big impacton
its physical
envirollmen!
andthe communigthere,andjt is'
a goodenvironmental
citizen.

puD
deve
but

rrrL

Ponc
publ
L
a prl
parrr
Scho
excha
schoc
vate a

Pubii,
finan<
Schoc
used:

continud on page249

dependsin part on their zoning and permitting decisionsand infrastructure_investments.

PUBLIC/PRIVATE
PARTNERSHI P5
A public/privatepartnershipis one in which a private developerworks with public authorities and
public rEsourcesto develop a project that has both
public aid private components. Becauseof the
shrinking supply of land in major metropolitan
areas and the increased regulptions and required
public input, public/private partnershipsare becoming a visible force in development,Some firms now

A pubLic
p
Fou[gerMary[and,
newinfi[
existings

D E V E L O , P E R S A N D T H E I R P A R T N E RS

specializelargely in public/private partnershipdeveloPments.

A public/private developeris not rhe .sameas a
public developeror entrepreneur.The publiclpiivate
developeris a privare developer.working for profit
but teamingup with a public partner in exchangefor
accessto public resourcesand assetsand providing
the public partnerwith a new developmenror a componenr of a new development that can serve the
publicgood.
LCOR Realry basedin Berwyn, Pennsylvani4is
a private developerthat specializesin public/private
partnerships.LCOR developedthe JamesF. Oyster
School/FIenry
AdamsHousein'Washington;D.C. In
exc\angefor building a brand new public elementary
school,LCOR was granted the righi to build a privareaparrmentbuilding on parr of the school'sproperry, In a partnershipwith the District of Columbia
Public Schools, LCOR employed a public/private
financing srructure to help make the new Oyster
Schoolpossibleand to rcalizrthe value of an underu56d3s5s1-the schoolt excessland, In this arrange-

ment, both public communiry and privare market

demandswere'satisfiedby a simple public/private
partnership.

ARCHITECTS

Architects are centtal to the development process

from the perrp".ii'treof aesthedcs,
physicalsaferyand
communiry acceptance,yet the role of the architect
in a project is not alwaysfirlly.understoodor appreciated.The naiv.erriewof an architectis someonewho
simply draws the developert or his own ideas and
then prodircesa set of specificationsusedfor obtaining construction bids and guiding the construction
process.ln fact,architectsoffer a menu of services
to
developersand, like other players,may work as oursideprofessionals
or asin-house,salariedmembersof
the developmenttearn (althoughit is more and more
unusualfor developersto rerainan architecton staff).
The reladonshipberweenarchitectand developer
usuallyfollows orreof nvo models.The design-awardbuiU conrractbreaks tlre project into two distinct
phases,with the architect completing the design
phase before the developersubmits the project for
contracrors'bids.The'sther alternative,thefast-naek
approach, involves the contractor during the early
stagesof design. The contractor's early input can
suggestways to save on costs (value engineering),
making the project more economicd and efficient ro
construct. ,Fast-track construction is really more
about reducing dme to completion, however,than
about savingmoney.
'With
developmenrbecomingincreasinglycomplicated,architectsarenow involvedin the deyelopment
processmuch earlier than in the past. fuchitects
acqirireextensiveexperiencewith the regulatoryand
physicalconstraintsplacedon developmenrand are a
valuableassetin communicatingwith other consultants as well as coordinating designs.Architects can
alsohelp guidea developerin selectinga sitefor a specified useor developalternativeconceprsfor a site and
A puhl.ic/private
partnership.
amongthe petergonCompanies,
head
the land useteam to bring a conceprto fruition.
Foutger-Pratt,ArgoI nvestmentCompany,
andttontgomerv6unty,
Maryland,
Architects can also be instrumental in helping a
revitatized
downtown
Sltverjprins#th ihe additionof
newinfitl buil.dings
andparHnggapgesaDd-'ihe
developer secure planning and zoning approvals,
rehabititation
of
exrstingstructures.
R.C.KreiderStufio+,fic
working with community groupsto undersrandtheir
L--

45

I NTRODUCTION

nee& and prefbrencesfor proposed projects, and

incorporating some of their suggestionswirhour
desuoyingthe integriry of the proposedproject. Renderings of projects can be instrumental in winning
public approval for the high-densiryand mixed-use
pro;ects that are becoming increasingly cornmon.
Moreover, it may be that
have a morc
"tchite.tt
favorablepublic.i-"g. (whetheror nor earned)than
developersand thus may be effectivein dealingwith
the public and public sectoragencies.
Beyond assistance
in basicplanning and comnrunity reladons,an architecturalfirm can provide the
developerwith severalbasic services:programming
(surveyingusersto determinetheir needs),predesign
services(schematics)and final design, design development, preparationof construction contract documents, assistancewith bidding or negotiations,
administration of agreementsberweenthe developer
and the builder or conrracror,representingthe dweloper on site, and overall project administration and
management.The schematicdesignis a diagramthat
relatesthe spacero the building's functions and is
then transformedinto at leasta preliminary idea of
what the building will look like. The final designis a
refined renderingof the building's facadeaswell as a
preliminary delineationof at leastthe inajor components of the interior space.
During design development, more players are
brought in to refine the interior spaceand structural
components. In addition, exact space allocations
must be made for the heating, venrilerion, and airconditioning (H\rAC) sysrem, elevators,interior
stairwells,plumbing,columnsize,and soon. As these
refinementsare incoqporatedinto the architect'srenderings, the building begins to assume its final
design.The schematicphaseand rhe designdevelopment phaserequire much iteration, with the developer heavily involved.alongthe way.
The next plraseof the architect'sinvolvement is
6ften assemblingthe consrructionpackage,including
the packagethat is sent ro conrracrorsto solicit bids.
The packageincludesthe rulesfor bidding,standaid
forms for detailing the components of the bid,
detailedspecificationsfor identifying all componints
of the bid, and detailedworking drawings.The archi-

tect, alirng witl the developer, then usually reyieivs

the bids and selectsthe best-qualified(or the iowestcost qudified) contractorfor the job.
The architect's contractual relationship in the
developmentprocessis with the developerand not
with the builder/contractor. Likewise, rhe contractor's relationshipis with'the dweloper. In their separate agreementswith the developer,they acknowledge
each other's roles and the roles of other parties and
agreeto allow orher pardesto fulfill their roles.
Once construction.begins,the architect is usually
responsiblefor monitoring-but not supervising--the work site, depending on the agreeinenrthe developer haswith the architect,The architect is expected
to inspectthe site periodicallyto determinewhether
contract documents are being adequatelyfollowed.
-fhe dweloper alsorelieson the architect to confirm
that predeterminedphasesduring consrruction have
been satisfactorilycompleted.The approvalinvolves
a certificateof completionnecessary
for dicbursement
of the contractor'sfee.The architect'sapprovd is usually required for eachconstfuction loan drawn fronr
the constructionlender.
Althcrugharchitectsmay continue monitoring the
project during const$rcriorb-thedqjree of supervision
variesasa result of tirne consuainrs(the need to be on
site.at panicular times), Architects are also imporrant
in closingthetoan-a'dre projectmoresfrom construction to permanent financing. They must attest to
cbmpliance with plans and specifications and bear
legalliabiliry for the plans and specificationsfor some
number of years(the"termvariesby state).Architects
arelicensedunder hedth and safetylawsand must pass
an examination administeredby the National Council
of ArchitecnrnJ RegistrationBoards(NCARB), which
has promulgated standards and criteria adopted by
licensing boards as their standard for admission to
licensing enaminations.Registratbn takes about eight
to ten yeafs-five to sevenye,arsof srudy at a uniyersiqvand three yearsasa paid intern in an architectural
or relatedpractice.
An architect can be paid in severalways.A standard contract provided by the American Institute of
fuchitects (AIA) provides the basis for defining the
reladonshipbet'weendweloper and architect. Many

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DEVELOPERS AND THEIR PARTNERS

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developershire architectsinitially on an houdy basis

until the project is better definedand the scopeof scrvicesclear.\7hen the developerand architect esrablish that they will continue working together, they
often negotiarea contractwherebyan architect'sfeeis
a percentageof the construction cost. Typically, the
fee rangesfrom 3 to 7 percent, altho,ughit can be a-s
limle as 2 percent and as much as l0 percent. One
disadvantageof the fee approach may be that the
architecthas lessincentive to operatcost-efficiently
on behalf of the owner. More important, someprojectsmight be complicatedto designbut easyto build
or vice versa.Further, what consdrutesconstruction
cosrsmust be carefrrllydelineated.
An architect can also be compensatedundei
the te;ms of a fxed-price'or xipulated-surn contrect,
which outlines the servicesexpectedof the architect.
The stiputated sum generally includes the architectt
direct personnelexpenses,other direct expenses(such
assalariesand benefits),other direct expenses
chargeable to the project (such as consultant services),
indircr expensesor overhead,and profit. If, at the
requestof the developer,the architect performs any
additionalduties,he bils the dweloper for additional
compensation.A design/buildfirm would typically be
paid in this way. An archirecr is (unlessotherwise
specified)entitled to reimbursementfor suchocpenses
astelephonecalls,travel,photocopl.ing,and soon. An
architecturalfirm can dso be hired for a stipulated
sum per unit thar is basedon the number of square
feet or apartmentunits.
For cenain projeca, dwelopersshould not under, esrimatethe need to make full use of an arperienced
architect.Whar wor&sin New york may nor work in
Dallas,'and a good architect undersrandsthat. An
architect may also increasethe functioird efficiency of
a building. Foi serviceproviders such as hotels and
health carefacilitieS,efficienry is critical, and architecus
can enhanceor undermine the work environment
for employecs.On the other han4 itmay nor.becosrefficienr or necessaryto l$e a world-classarchitect to
designa duplex on a simple site in a town where the
dweloperhasalreadybuilt 100 similar homes.
The level of communiry involvement
rypically
associatedwith any development has increasedso

47

much that developersneedto standreadyto consider

altering their ideas-conceptually and visually.In the
caseof somedesignfearures,the developerc:rn,compromise with the review board; in the caseof other
items, compromisemay be inappropriate.The archi=
tect can help explain and differentiate berweendesign
features.A good architect can be a grear assetro a
developer in the midst of a srenuous approval
process.'Therefore,it is essentialthat the developer
and the architectfeel comfortableworking rogether,
that they understandeachothert positionsand concepts, and that they communicatewirh each other
throughout every step of the developmentprocess.
Developersshould investigate candidate irchitects as thoroughly as possible.They should look at
finished buildings (not just unbuilt plans), tdk to
clients of the candidatearchitects,ask around, and
interview prospectiyearchitectsthoroughly to ascertain their level of understandingof the different servicestheywill provide.
An architect is a key player in the development
proccssand uitimately is responsiblefor much of the
mark a developerleaveson sociery.A building si"nds
in a ciry or rown for a long time. Peoplewalk past it,
drive past ir, use it, and love it or hate it for years.
Many cities are known and distinguished by their
architeciure,which often provides the charm that
drawsvisirors.'Develdpers
haye to think about how
their buildings fit with what alreadyexistsand how
peoplewill seeand usetheir buildingsren, 20,30, or
100 yearsinto the future.

URBANDESIGNERS
In addition to architects,developersof largeprojects
often employ an urban designer.Urban designers
developdesignplansfor dwelopment and redevelopment projecrs.They seekto coordinatethe individual
buildings with public spaces,the spacesin between
the buildings, the larger neigiborhood, the ciry and
the regional culture. Urban designerscreatemaster
plans, strategicpians, detailedsite plans, or visions.
Often, working closely with neighborhood groups
and other interestedparties,urban designersproduce
the plan and detailed drawings of key development

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f8

IN TRODUCTION

for a site, a city, or another area. Through this

process,a shared vision arises,usually,making the
approval processgo more smoodrly becauseof rhe
intensiveinitial work the developerhas alreadydone.
The urban designeris often very impormnt in
presentingvisrralrepresentationsof the development
to governrnentauthoritiesand communiry groupsto
win their approval.A talented designercan quickly
moye the developerthrough the approval process.
Many urban designersoriginally trained asarchitects,
although they can alsobe landscapearchirectsor ciry
plannerswho choseto specializein visual design.

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Severaldifferent kinds of engineersplay important
Narrow
roles in the developmentprocess.Specifically,engistreets
linedwithtreesandsidewatks
areintended
to
encourage
the residents
of Issaquah
Hightands-a
2,300-acre neersarecritical to physicalsafery and their failure to
(931-hectare)
master-ptanned
community
on the outskirts
of
delivera safeproduct can havelife-threateningconseSeattle,
Washington-to
watkmore.
PortBlakety
Communities
quences. Several types of engineerswith specific
expertise--structural,mechanical,electrical, civilelernentsthat guide future growth in a neighborhood are requiredto ensurethat the designcan accommoor a specialdistrict buch as a waterfront or a mairerdate the required physical systems. Structural
plannedcommuniry
engineersusudly work with the architect,particularly
A large-scdeproject suchasthe redevelopmentof
during the initial designphase,to ensurethat plans
the Anacostiawaterfronr in'W'ashington,D.C., often
are structurally sound and that mechanicalsystems
requiresmultiple teamsof urban deiigners.The Anawill adequatelyservgthe prgject' Structural engineers
costia\traterfrontCorporarionis targeting900 acres can assistin idendfying cost-savirrgmeasuresrhar
(364 hecrares)-of more,rhan 3,800 acres(1,538
sirnultaneously
satisfystructuraldesignand consrrucheitares)-along rhe eighcmileJong (12.9-kilonrcrer) tion requirements.They are also responsiblefor proAnacostia waterfrorrt for directed redevelopment. ducing drawingsfor the construction contractor that
This underusedand misusedneighborhoodhaslong
explainthe suuctural s]rstemin detail, especiallyconbeen ignored and used as a dumping ground. But
necdons and the sizing of the structural elements.
before any real dgvelopment could begin, a long
Mechanical engineers usually design necessary
was
required
to developthe Anacostia'Water, HVAC, plumbing, life safery,and other mechanical
.process
front Initiative FrameworkPlan,which is intendedto
systems:Electrical engineersdesign electrical power
guide developmenrand improvernents.The various
and disuibution systems, including lighdng, cirmultidisciplinary urban design teams provided the
cuitry and backup power supplies.
visionsand stepsfor developmenrin the redevelopEngineersare generallyengagedby the architect
meht area.
and maintain close relationshipswith the architecIn recent years especially,urban designershave
tural staff as the project unfolds. In more complex
becomeknown for holding charretteswirh neighbor.
developments,engineersmight also fi.rnctionas conhood groups.These charrettesare usually multiplestruction menagers,supplementingthe architect in
day (four or five) workshops in which interested supervisingconstruction.Architects often hire engipartiescollaborateto achievean agreed-uponscheme neersasthe main desrgnsubcontractor;the success
of

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D E V E L O P E R S A N D T H E I R P A R T N ER S

the design phasedependson a good working relationship betweenthe architect and engineers.Typically, as head of the design ream, the archirecr is
,responsiblefor the work of the engineers.Often, they
are included in the architect'sbrrdget.
Engineersrnust be licensedby the sta]e where
they operate,and plans qrnnot be approved unless
they aresignedby a professionalengineer.Like archi,tects,engineersare licensedunder health and safety
laws and bear legalliability for their plans and specifications for some number of yearg.The duration of
liability correspondsto the natureof the trnde4aking
and the time for recognizingdefects.EffeCtiveproject
coordination is necessaryto prevenr problems; it
relieson .o-rrrurri.ation and intense plaqning and
coordination early in the process.Experienceddwelopers facilitate meetings with all architectural and
engineeringproject personnelto define the scopeof
the project and communication channelsand to discusseachdisciplinet goalsand objectivesin depth.'
Many rypesof engineerscan work on a project.
Civil engineersmay be conrracted with for their
expertisein land development,particularly for the
design and construction of such infrastrucrure as
streers,and watei sewer,gas, electricity, telephone,
cable,and srorm drainagesystems.They must ensure
that all civil systemsmeet the health,'safety,and welfare requirementsof the stptewhere the project will
be located.
Structural engineersassistthe architectin designing the building's structural integrity. They work
closely wirh soils engineersto determine the most
appropriatefoundation sysremand produce a get of
drawings for the generalcontractor explaining that
systemin derail. Soilsengineersor geotechnicalengineersare responsiblefor determining the soil's bearing capaciry the required depth offootings, various
typesof loads,the level of the groundwatertable, the
presenceof any toxic rhaterials,and relatedircms. A
geotechnical investigation,is espeeially important
when developmentis proposedfor a new site. Soils
engineerscan help transforma sitewith poor soil inro
a developablesite by advisingthe construction engineer on the use of fill and soil replacernent.Most
geotechnical engineers perform a range of tests,

includingsoil borings,seismictests,percolationresrs,
and compaction tests. Georechnical engineersare
particularly imponant in assessing
whether the past
usesof a site haveincluded hazardousmaterials.
Environmentalengineeismay alsobe,neededfor
a proposeddwelopment, particularly if an existing
structureon the.site-whether scheduledfor renovation or demolition--contains any asbestosor ocher
hazardoussubstances.In redevelopment,environmental engineerscheck for various rypq of mold.
Incleasingly, all participants in the process are
focused on not allowing mold to establish itself
during construction
As a subcontractor,the engineert fee scheduleis
usually included .in the architectt budget; it ranges'
from 4 to 7 percent of rhe overall architecturalfee.
' Engineersshould be licensedby the stateand should
be members of a professiond engineering society
such as the National Societi' of ProfessionalEngineers (NSPE), the American Socieryof Mechanical
Engineers(ASME), or the American Socieryof Heating, Refrigerating,and Air-conditioning Engineers
(ASTTRAE).

LAND PLANNERS
For the land dwelopment phaseof a project and for
larger building projects, a land planner is often
needed to help develop rhe master plan, which
locatessite improvementsaccordingto rheir physical
propertiesand maximizesthe usesthat will bringlhe
highest value. A land planner builds on the wofks
done by a surveyor, who determines a propercy's
physical and legal characteristics-existing easements, rights-of-way,and dedicationson the sireand preparesa site map plotdng thesecharacteristics.
This site map rweals how much of the site is buildable and, in coordination wirh town zoning and
building codes, establishesthe maximum possible
square footage for the proiecr. Surveyorsgenerally
prepare two t'?es of surveys:a boundary survey,
which determinesthe bor-'.ndaries
of rhe site by exarnining easementsand other legal rights, and a construction survey,which plots the location of relevant
infrastructure-water, sewers,electriciry. gas lines,

49

IN T RODUCTION

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Betmar
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andhousingbuitton the siteof a failedenctosed
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and roads-to assist,inplanning connectionsto utility services.

A land planner works closelywith the developer
to determine the suitability of the site for the proposed dwelopment and makes alternative recommendations if necessaryworking with input from
. engineers, marketing ionsultants, architects, and
other team members.The land planner worls with
the developerto emphasizeth important elementsof
the site, from natural featuresto the programmedor
marketing thernesthat the developerwishesto stress.
A part of the land planning processis testingthe site
capacity,for the amount and rype of usesenvisioned
by.hu developer.
The land plamrer dealswith the sitet limimtions
and possibilities.On the one hand, nanrral,environmental' and legislativelimitations define acceptabie
usesand densitiesof developmenton the site. On the
other, developers have certain expectations for the
creation of a viable developmenton the site. Balanc-

ing the constraintswith .the potential is key to the

challengesthe land planner faces.
The master plan prepared by the land planner
takesinto considerationthe potentid natural amenities of the site (such as tfees, water features,and
rolling hills) and the potential csnstraints (foodplains, wedands, and steep inclines, for example).
The planner is usudly responsiblefor determining
traffic patterns and overall circuladon, allocating
open space,iocating on-site usesand amenities,and
so on. In bringing togetherthe various issrresrelated
to site development,the land planner must alsoconsider the impacr.sof all land planning decisionson
cost and schedule.
Often the land plannerworls with the developerto
create "themes' for the overall site dwelopment. An
emphasison creating a special senseof place, ofren
enhanced by the architecnre and landscapedesign,
gido the land planner in determining the highestand
best use for areaswithin the site. This vision of the

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D T V E L O P . E R S A N D T H E I R P A R T NER S

developerand land planner setsthe framework for the

plant materials,landscape.forms,
and strategicuseof
placement of buildings, infrastructurewithin the site,
light and shadeasdefinedby the designedyet natural
site features (such as special enuies or focal points
environment. They design roadwayn,walkways, ourwithin the site, landscapeamenities,and private and
door lighting, outdoor seating,water fearures,railings,
sharedpublic spaces),
and other amenities.
signs,grares,retainingwalls, bus shelters,picnic shelSome of the land planner'sexpertiseand conuiters, outdoor waiting areas,outdoor play areas,arid
.
bution to the developmcnrcan overlapwith thoseof
bicycle and walking uails. landscape designcan often
the urban designer,which were identified earlier, be usedto createa senseof place,allowing tenantsand .
and/or qhe landscapearchitecl which are identified
residentsto feel a senseof privacy wirhin small site
below. Land plannersare often housed in landscape areas,and landscapeforms can be used to soften the
architectureofifices,or landscapearchitectsarefound
<iveralldwelopment. Architecnrre can create boundin land planning 6rms, so it is not alwayspossibleto
ariesnecessaryto define difi[erentuseareasin a tightly
draw a clearline berween*reir responsibilideson the
packedsite,and landscapedesigncan humanizethose
developmentrearn.
boundaries,maintainingthem but making them softer
The main professionalsocieryfor land plannersis
and more in scalewith the peoplewho use.the site.
the American PlanningAssociation(APA), which has
Landscapearchitectswork with developersto creare
no licensingrequirementsbut offersits memberscernot just specificdevelopmentsitesbut alsotransitions
tificarion through the American Institute of Certificd
bennreen
adjacentland uses.Moreover,the demandson
Planners(AICP).
a site'sappearancehavensver beengreater.Developers
arespendingmore moneythan everon the living environment surroundingtJreirstatic products.In recent
LANDSCAPE
A R C H IT E C T S
years,the quality of our environment has becomea
Landscapearihiteca bring to a developmenrrirm a
major concern,.and,asa result,peoplearemore aware
specialized
setofskills that onceuere often overlooked of the qualiry of their "natural"surroundings
but now play a greater role in the planning process.
Above all, it is impoitant to realizethar landscape
Landscape architecture encompassesthe analysis, architectshelp createplacesthat capturethe imagina-.
design,planning,management,and stewardshipof the
tion of the public. Examplesinclude NewYork City's
natural and built environment. Landscapearchitects Central Park,immediately recognizable
by its bridges
arelesponsibleboth for siteplanning in the contextof
and landscaperor entire communitiessuch as prairie
the existingenvironmentand for creatinga senseof
Crossing,a conservationdevelopmentin Grayslake,
placeby enhancingthe natural environmentto comIllinois, vrhich is known for protecting more than
plementthe built environmenr
nvo-thirds of its site frorn developmentwhile also
In todaysdevelopmentmarker,rnostcommunities protecting the most valuable native vegetation
and
and potential buyersor tenantsareconcernedwith the
other environmentalassers.
elementsof the landscapethat help define the characLandscapearchitects develop entire greenways
ter of their development.In seekingro createa distincand park systemsthat help defineand humanizefuge
tive image for their prorec6, dwelopers often rely on
urban area^s
suchasOlmsted's"Emerald Necklace"in
the landscapedesign as much as theF do rhe architecand around Boston (seethe Museum Towers case
tute to help define the specialnanue or theme of the
study for more discussionabout the parklandthat the
project, especiallyin residendal'andmixed-usedevel- developerdonated
to rhe city on thar prolect).
opmenr projects,where the landscapedesignc"" h.lp
landscape architects can also provide consirlting
unite and defineareasfor the varioususes.
servicesfor wastewatermanagement,wedandsmitigalendscape architectsproduce the masrerplans for
tion, the preservadonof wildlife habitats,ecosysrem
all landscapingand hard surfaces.They crcatethe landmanagemenr,xeriscaping and irri$ation, susrainable
scape environmenr ahtor'rghselection and siting of
site design,and land reclamation.In addition, land- r

51

IN TRODUCTION.

scapearchitccrs'can conrribute to a development,s

bottom line by extrapolatingsite amenitiesfrom what
could be environmentalproblem areas.
fu the general public becomesmore concerned
with sustainableenvironmenrs,the landscapearchitect is called upon ro implement plans that uselocal
vegetation and require less maintenarrce, irrigation,
and control. Some enlighteneddevelopersand their
clients undersrandthat a "wilder" landscapecan also
provide a havenfor beneficiaibirds and insects,and
the landscapearchitect is therefore challenged to
developplans that accommodatethe architecrureof
the planned project and are sustainableand sustaining. ,sustainablesite design helps ensure the longterm health of a proJectby keepingdown the cosr of
landscapemaintenanceand making it financiallyfeasible for owners or managersto maintain landscape
featuresin good condition. Potential userswill be
turned offby dead or dying plants.
Increasingly,landscapearchitectsare drawn into
tle environmental debate as developersface more
stringent environmental rules and stronger public
opposition to development. Landscapearchitects,
working with urban designers,are often needed'to
designenvironmentallysensitiveor sustainabledevelopment schemesto be prsentedto regulators,zoning
officids, and con:munity groups. Accordingly, developers musr rely on the expertiseof land stewardSto
help them managethe delicate environment-both
natural and political.
The American Society of LandscapeArchitects
(ASLA) is a national professionalsocieryppresenting
the landscapearchitectureprofessionin the United
States.Forty-nine stateslicenselandscapearchitects.

A gencrd contractor (GC) typically executesa

contract with the'dwelopei to build the project
accordingto the plansand specificationsdevelopedby
the architectand engineer(or sometimesaccordingto
the plans drawn up by the would-be homeowner who
ordersa housebuilt) for a fixed price within a serrime
frame. General contracors then divide the contract
among different subcontractorsr.' perform different
tasks: excavation,pouring and finishing concrere,
rough carpentry installationof mechanical,electrical,
and plumbing sysrems,finish carJrentryand so on.
General conmactorsschedule subcontracrors'work
and monitor quality to ensue that subconrractors'
performancesatisfiesthe generd contractor'sobligations to the dweloper. Typically, the GC's conract is
executedwith the developer,and subcontracrors'contracts are executedwith the general contractor, who
pays the subconmactorsas their work is completed.
Many variationsof thesecontractud arrangemenrs
are
possibleand appropriatein certainsituations.
Gener.alcontractorsare often chosen througb a
selectivebidding processin w.hichthe developerasks
a number of contractingfirms to submit proposalsor
general stdtements of qualifications rhat include
descriptionsof past projects,referencesfrom clients
and li:nders,rdsumsof key employees,and, possibly,
verificadon that the company is bondable (that.ari
insurancecompanywill srandbehind the contractor's
contractualobligations).
In the open bidding process,a developersendsout
a notice requestingbids and statemenrsof qualifications. Becausethe bidding processis very rime consuming for contracrors, meny are reluctant to
participate in open bids unlessthey think they have a
reasonable
chanceofbeing selected;thus, this process
'an
does not always artract
adequate number of
CO N T R A C T OR S
responses:Conseouendy,it is not uncommon for a
Coirtractors are builders and managersof builders
developerto negotiatee contract with a singleconuacwho turn ideas on paper into bnduring physical tor with whom the developerhashad prior experience.
forms: houses, apartment buildings, .warehouses,
Besidesdre obvious motivation of money, both
stores,offices,and public buildings. Our highly spegeneral contractors and subconrractorswork for a
cidized society often takes for granted constructed variety ofnonpecuniary reasons:ro gain exnerience,
spaceand its providers,yet without builders, eachof
to enhancetheir reputations,to be their own boss,
us would facea sinrple choice:build our shelterourand to perform physical work they enjoy. The conselvesor do without.
tractor (or subcontractor)submitting the lowest bid

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o fs

EN
Env
{ner
ronl
COni

DEVELOPERS AND THEIR PARTNERS

is not alwaysthe best choice;the best player for the

developmenttearnmay haveother critical attriburcs,
such as more experienceor greater reliability. The'
iovrercarryingcostsimplied in a shorterconstruction
period carl compensatefor a higher consuuction,bid:
In some cases,developersexperiencedin building
sen'e as their own general contractors and enter
directlyinto contractswith subcontractors.
Contractors'feesare basedon the size,difficulry,
and risk involved in the project.A contractormay be
expectedto chargea fee equivalentto 5 percent of
total hard costs--in addition to project overheadand
on-site supervision costs.The conttactot obviously
calculatesthe tirne and talent required to complete
the project as a basisfor a fixed or percentagefee.
Often the construction lender requiresthat the conrractorguaranteea maximum,cost.
General contractorsmay do some of the acual
work in their coinpaniesbut typicallysubcontractout
for qualthe actualburlding.Thry then areresponsible
iry control and timelinessof completion through their
contract with the developer.Subcontractorsperiodically bill the generalcontractor for work completed to
date.The generalcontractorwithholds a portion of the
billed amount to ensurfind performanceby *re subcontractors.Generalconffactorsperiodicallyassemble
,rll t\e subcontractors'payment requestsand submit
the..t)'dongwith a t questfoil portion of the general
contractor'sfee,to the developer.
Subcontractorsvary dramaticallyacrossfunctions
and developments.On a large project, the HVAC
contractor is likely a large,well-capitalizedcompany
with severalengineerson staff On the other hand,
the stonemasonon a duplex developmentprobablv
worksout of the trunk of his car.
AssociatedBuilders and Contractors (ABC) and
fusociated Gcneral Contractors (AGC) are iust two
of severaltrade associationsfor contractors.

environmentalregulationsgrow more complex, developersneed help in navigatingthe regulatory maznand'

deciding whether a site'senvironmental issuesare too
complicatedand costlyto makeland purchaseor develof whether_adeveloper
opment wonhwhile. Regardless
consultant,develenvironmental
choosesto engagean
opers musl conduct tw<l basictypes of environmentd
reviewsduring the life of a project: one to analyzethe
project'seconomic,social,and culnual impacts on the
,*rourrdirrg built environment, and the second to
mitigadetermine,in conjunctionwith soilsengineers,
on
site.
detected
tion for any hazardorsmaterids
If, for exsrnple,a developerthinks a site might
contain legally defined wetlands, he can engagean
environmentalconsultantto perform an assessment'
delineateany wetlands,and confirm the jurisdiction
(federal or state) under which the wetlands are regulated. Similarll',an environmentalsite review can
determine the presenceof hazardbusmaterials and
indicate the cost and feasibiliry of removing them.
An environmental review may even extend to testing for toxic wastes or as a possible first step to
researchingprevious uses to determine the likely
presenceof toxic materids.
Environmental consultants can help developers
identify the regulatory approvalsneededfor a proposedproject or the rypesof permits requiredas a
condition of apptoval.The National Environmental
PolicyAct of 1969 gaveeachmunicipaliry the right
to createits own environmentallavts,so regulations
vary widely from place ro place. Environmental
consultants'canalso PrePareenvironmentalimpact
statements(EISs) or rePorm(EIRs) often required
by zoning. They can provide advice on stormwater
management,wildlife management,urban forestry'
solid wastedisposal-in short' all the environmental matters that communities incfeasingly regulate.

N CONSULTANTS
TRANSPORTATIO
ENVIRON M ENTALCONSULTANTS
Environmenml consultants(closelyrelatedto environmental engineers,discussedprwiously) perform environmental site reviewsthat in some statesafe critical
consideradonsin a dwelopert decisionto build. As

fu with environmental consultants, the role of transportation consultants is expanding. Few issuesgenerate as much controversy during the approval,Process
as traffic and transportation. Transportation consultants can provide needed expertise and assessimpor-

53

IN TRODUCTION

Atlar
resP
gta

whic
road
and t
coun

dardr

dardr

(DR
have
tion
a rev
useo

servir
the I

Porta
and I
I
T

ence
and r
ers oi

the re
a jur i

L*irill'i'.

space

rf,i;t'1.
,,.i::-...

porra

certai
ride

incen
vice i
lV

oPm(
activ(
Featuring
347units and 20,000squarefeet (1,860squaremeters)of retaiIspace,De[MarStationalsoservesas a transitstop,with the
LosAngetesCountyMetropotitan
TransitAgency's
GotdLinetight-raiL
train runningthroughthe middleof.the project.Conrado
Lopez

tant issues such as how many cars and trucks wili

enter and leave the site at various times of the day,
what the capaciry is of existing roads, highways, and
intersections,and how the existing srreerswill accommodate new levels of traffic. The federal Clean Air
Act Amendment'of 1990. instituted trafific conrrol
measuresas a straregyfor reducing air pollution emissions from cars,trucks, and buses.Moreover, enforce-.
ment of the Clean Air Act and provisions for

reducingtravelby employees
haveincreased
the need
for greatercomplianceby employersand madeadditional demandson transporrationconsulrants,Communitieshaveadoptedsuch traffic conrrol measures
ashigh-occupancy
vehicle(HOV) lanes,ride,sharing
programs,expandedpublic transporrarionprograms,
and expandedpedesrrianand biryclefacilities.
The federalgovernmenrwithheld billions of dollars of federal transporrarionaid from the ciry of

tra-ffic
tion ,

invesr
impa,
find I

B
for r
parki
relate
i nbo
-"

o
t

share
'

t.

ParKl

DEVELOPERS AND THEIR PARTNERS

Atlanta in 1998 becauseof chronic air pollution. In

response,the governorof Georgiacreatedthe Georgia Regional Tlansportation Authoriry (GRTA),
which has broad powers to approve or vero mosr
road and other transportarionprojects and to build
and operatemass-transir
sysremsin 13 metropolitan
countiesthat do nor meet federalair pollution standards ("nonarrainment" under Clean Air Act standarc{s).In addition, developmentsof regionalimpact
(DRIs), which are large-scaledwelopments likely to
have efFectsoutside the local government jurisdicdon where they are located,are required.to undergo
a review by GRIA. GRIA can approve or deny the
useof stareand federalfunds to createtransportation
servicesand accessthat may be requiredasa iesult of
the DRI. Thus, develgpersneed to work with transportadon consultants to assesspotential problems
and levelsoftrrffic.
Tiansportationconsultantsmay havewide experience in severalspecialties,including parking, tramc,
and other transportation-relatedissues,and developers often call on them to put togetherplans to meet
the requirementsof localjurisdictions.For example,if
a jurisdiction hasset a c{rpon the number of parking
spacesthat can be built for a developmenr, a transportation consultantcan help the developerestablish
certain programs ro accornmodate office tenantsride sharing, parking incentives for car pools, fare
incentivesfor useof mass.transit, and shuttle bus service betareenthe project and uansit facilities.
Most cities require uaffic impact studiesfor clevelopmenc over a minimum sizr. Conimunities now
activelyassess
whether or not the potential increasein
traffic is worth the jobs that maybe created.Tiarxponation consultantscan condtrct uaffic impact s$dies to
investigatesuchissues.In addition, ,h"y * explainthe
impact of proposedgovernmenter<actions
and possibly
find bemerwaysro satisfypublic objecdvas.
Becauseparking is one of the significant factors.
for real estate developmentsand cities in general,
parlrrngconsuhanrscan provide an array of parkingrelatedservices,from planning circulation for parktng garagesro designing access-roads to developing
sharedpalking plans for mixcd-useprojeca.t Vith
parking often an expensivepart of a developmenr

project, parking consultants can help evaluatetle

cost-effectiveness
of surfaceparking versusa parking
structure.They can alsoassess
the location of ingress
and egresspoints and the cost of parking. For tenants, few issuesare as irnportant as how much parking is availableand how closeit is to the building. A
parking consultantmay be a transportation,consultant with expeftisein parking or a specialistwho deals
with no other transportationissues.Further, a parking consultant may be neede-dearly in the design
.processso *rat the architectcan incorporateparking
recommendadonsin the overalldesign.
In choosingany kind oftransportationconsultant,
developersmust first be carefirl to clearly define the
ploject and then selecta eonsultantwith knowledgeof
the required specialty, A uansporation consultant
could be paid according to severalarrangements:a
lump-sum fee,costsplus a fixed fee,salarycostsdmes
a multiplier, tirne and materials,or a percentageof
consrructioncostsfor the parking strucrure.

APPRAISER,S
Appraisersproduce an estimateof a properryt value
basedon standardizedv.duationmethodologies.That
is, they estimatethe market value of properry and
rypically prepare a formal document called an
appraisal.Appraiserscan be part of multiple stagesof
the dwelopment process-before, during, and after
projectcompletion.Appraisersale responsibleprimarily for valuadon of a project. Thus, they may be necessary when a dweloper transfers ownership, seels
financing and credit, resolvesrax matters, and establishesjust compensadonin condernnarionproceedings.The appraisalreport rypically sntes the properry's
market value and offers supporting evidence.Three
methodologies are generally used to complete an
appraisal: the incomeapproach,the marbet approach,
and the costapproach(a more detailed look at these
approaches
can be found in the financesection).
Appraisersalso complete market srudies, marketability studies,and feasibility srudies.For example,
before a dwelopmint is initiated, appra-isers
c:rn analyzrrhe market for a particular project rype and help a
developerassessa porenrial project's marketabiliry.

55

IN TRODUCTION

Appraiserscan also provide a broad range of seruces

from investment analysisto testifying inlawsuis.
Like any professionalwho works with a developer,
the appraisermusr be selectedwith care.The S&L
debacleof the 1980swasblamedin part on appraisers'infated valuationsof properties.Sincethen, federal law has mandated that appraisersworking on
projectsfor federallyinsured institutions be licensed
or certified by the state, thereby providing tighter
statecontrol overappraisers.
The Appraisal Qualifications Board of the
Appraisal Foundation has establishedfour recommendedlevelsof educadonand experience
for appraisers: 1) licensed real property appraiserscan value
complor residentialprojects (of one to four units)
worth lessthan $250,000and noncompleirresidential
projects (of one to four units) with a ffansactionvalue
of less than $1 million; 2) certified residential real
property appraiserscan value any residentialproject of
one to four units without regardto valueor complexity; 3) certified generalappraiserscan value any residential or commercial property of any sizr; and 4)
appraisertraineesmust work under the direct supervision of a licensedor certified appraiser.The required
levels of education and experiencevary accordingly.
'The national Appraisal Institgte also awardssevird designations:1) MAl-experienced in valuation
and evduation of all typesof properry and permitted
to advisecliens on residentialand commercial real
estate.investment decisions;2) SRPA---experienced
in the valuation of all rypesof property; 3) SREA-experiencedin real estatevaluation and analysisand
permitted to adviseclients on investmentdecisions;
and 4) SRA and RM-residential appraisal.

A T T O R N EY S
A N D A C C OU N T A N T S
Becauseof complex legal interactions bewveenbuyers
arid sellers,le.ndersand borrowers,contractorsand subcontractors,landlords,and users,lawyersand accountants areimporant playersin the dwelopment process.
Often different types of attorneysare required for different faces of reai estate dwelopment. Thxes,land
use,leases,and construction contracs require different
legalspecialtiesor subspecialties.
Anorneln somtimes

!:i,.
i:

serve as the dwelopert chief liaisc'n with regulaton,

and zoning aftornqzs who know a particular zoning.
jwisdiction very well can take the lead in obtainins
approvalsfor the project.Abo-vealt, attorneysareessential for producing parmenhip agreements,contracb for
acquiring properr/; and loan documens, all without
which developmentcurnot proceed.
The great development lawyer is usually not the
great litigator. Given the intense time pressureof the
developmentprocess,the greatdevelopmentaftomey
is the ori'ewho anticipatesproblems and then structures legal documentetion to minimize the necessity
of resolvingdifferencesin court. Lawyersare generally paid by the hour, althoughfixed pricesfor certain
transactionsare not uncommon.
The greatdwelopment accountanrnou,comesin
two forms.Thc developcrstill needsto havebills paid
accurately,and, a^s
we will seein stagesix, paying construction invoicesis not a simple task. Furthet new
investmentparticipantsin the processhave extensive
reporting requirements. For example, real estate
investment trusts must report to the Securitiesand
Exchange
Commission (SEC), and pension funds
.
must repoft to the Department of Labor. The growing cornplexityof,rulesincreases
rlre need for i group
of skilled accountantsand lawvers.

oPera
real e
sPace
unlea
tenan

B
m ent
Prosp
benel
cal fe
proje
mnt
in-hc
must
agent
with

FlNr
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A nrr

oPer
perio
can b
ventu
ventu
a PoI
the <

REALESTATEIEASING AGENTS
AND SATESBROKERS

rgmat
devel

Real estatesalesbrokersand leasingagenrsare hired

to act in the nameof the developerin leasingand selling space to prospectivetenanrs or buyers. Their
function, particularly in leasinglarge industrial and
commercial spaces,is to carry out one of the most
complex financid negotiations in the developmenr
process.lrasing agentssecuretenants and negotiate
leaseswhile keepingin mind the developer'spersonal
goals with re$pect to rates of return and tenants'
credimror*riness. Brokers must .balance the various
users'individual needsagairrstthe dwelopert financial
model. Clearly, leasingrequiresmore than quoting
the number of squarefeet at a price per squarefoot.
leasing involvessettingthe long-termprice per square
fbot and specifyingwho bearsthe responsibiliryfor

Jc
maxi
from
possi
(l

netf

COVEI

and e
Partr
(in tl
their
caSe
eithe
size <
as w(
whic

tt
I

,..'$
-.

.
One of the most important aspectsoi
operating-costs.
real estateleasingis fiaing a particular tena.ntinto a
spacethat fits its needswhile keeping the remainiqg
unleasedspacein contiguousblocksthat will fit other
tenants'needs.
Brokers and leasing'agentsare the key impleluenters of the marketing plan. They canvass
prospects;show the product'sfeature$,funcdons, and
benefits;negotiatethe transaction;and provide critical feedbackto the developerfor usein modifying the
project. Developersmust decideearlyin the developrnent processwh'etherleasingis to be carried our by
in-house staff or outside professionals.De'relopers
must find the right agentfor the job and struciuredre
agentt compensationto dign the agent'smotivations
with the developer'sobjectives.

F I N A N C I A LP L A Y E R S
J o i n tV e n t u r ePa rtn e rs

I
I

Any individual or institution that providesthe developer with equity funding during the development
period in return for a shareof dwelopmeni profits
can be calleda joint ventureparrner.(The rerm "joint
venturepartner" is not a preciselegalterm.) The joint
venture partnert equity contribution often bridges
a portion of the gap betweenthe project'scost and
the debt financing availablefor consuuction. The
remainder of the gap, if any, musr be filled by the
developertequity.
Jcint venture partners attempt to achieve the
maximum ownership interest and share of returns
from the developmentwhile making the minimum
possiblefinancial exposure.The joint venrureparmer
"helps" the developerprovide the capitd neededto
covei the difference berweenthe projectt total cost
and availabledebt financing.The risk to joint venrure
partnersis a fi.rnctionof the sizeof their contribution
(in the caseof no persond liability) or of the sizeof
their contribution plus the amount of debt (in the
case of personal liabiliry for debt financing).2 In
either case,partnersare usually concernedwith the
sizeof their obligations(especiallyif the projccr fails)
aswell a^s
the developer'stalent and financialsuength,
which reduceproject risk. Depending on the site of

DEVELOPERS
AND THEIR PARTNERS 5 7

the development, potential joint venture partners

range from wealthy local individuals to large funds
run by the major investmentb:rnla.
Construction Lenders
Construction lend.ers(frequentlycommercialbanks)
areresponsiblefor debt financing during project construction and for seeingthat the developercompletes
the project'within budget and accordingto plans
and specificationslaid out.by the architect.In short,
constructionlenderslend the money to build a developmenr. Under the terms of the constructionloan,
construction lenders generallycertify the degrgeof
completion before each payment or diaw, that is,
amounts the developer"draws" from the loan commitment to pay periodic project expenses.
Constructionlendersfacethe risk that construition
costswill exceedthe amount of the constructionloan
that they have agreedto provide, requiring the developer to coverthe difference.If the developeris unable
or unwilling to cover the -difference,construction
lendersusuallyhave the option of foreclosingon the
propertyor extendingthe sizeofthe construcdonloan
beyond the size ,p..ifi"d in the original loan documents. Such an e:<tension
createsthe possibility of a
long-termloan position,somethingbanksrry to avoid,
astheir sourcesof fundsareprimarily short term. Constrtrction lendersweigh the risk of theseundesirable
outcomesagainstthe expectedreturn (in interestand
loan origination fees) to be earned by lending the
funds. (The financing secdon provides considerable
detailon how the developmentlendingprocessworks.)
Permanent Lenders
Permanent lenders finance the completed project
through a long-terrn mortgageby taking over financing from the construction lender.Permanentfinancing usuallyhasfixed interestrates,and, although the
loan is typically amortized over20 to 30 years,the
term of the loan is often limited to ten years..Thesize
of the permanentloan is determinedby the value of
the properry and the iash'flow that the property geireratesto pa7 debt service.
Like other players on the dwelopment tearn,
lendersmay alsohavdnonpecuniarymorivesfor par-

IN T RODUCTION

GERALD D. HINES
Owner ,Hines I nt er e s ts
Houston, Texas
Born in 7925 in Gary,Indiana,GeraldHineslearnedat a
time it was the tattest buitding, at 50 stories,west of the
youngagethat he did not wantto fottowin his father/sfootMississippiRiver). 0riginattyintended to serve as regional
stepsas an emptoyeeof U.S.Steet.Duringthe summersof
officesfor ShettOitCompany,
it wasquicktyrequisitioned
ior its
WorldWarIi whitestitt in high schoot,Hinesgot the onty
wortd headquarten.After the successfu[completionof One
tastehe neededof manua[labor.Determined
to receivea uni.
ShettPtaza,it becameapparentthat Hines'sintent wasto
versitydegree,Hines's.ptans
for matriculation
werepostponed targetthe highendof the marketwhlteincorporating
innova_
by notice of his enlistmentin the Army.After servingas a
tive structuraland othercost-savingmethodsinto the designs.
lieutenantin the combatengineers
for the iemainderof the
Ridingthe tremendous
waveof success
of OneSheil.pl.aza.
war,Hinesreturnedto Indiana,wherehe earneda gachelorof
Hineswas energized
to undertakeanotherbotd project.For
Sciencedegree in mechanicaIengineeringfrom purdue this buitding,PennzoilPtace,he broughtin acclaimed
archiUniversityin 1948.After Purdue,Hinesmovedto Houston, tect PhitipJohnsonof Johnson/Burgee
Architecti.Hinesrec_
wherehe would go on to begin his careeras one of the
ognizedthe rewardin thoughtfuttyp[anninga projectand
nation'smostprominentdevetopers.
continuedthe trend of avant-garde
designfor the corporate
StaAingas a mechanical
systemsdesignerprovidedan
headguarters
of the Pennzoil
Company
in Houston.Thebuitd,,I just got
easytransitioninto the devetopment
business.
to
ing. consistingof two trapezoidaltowersonty ten feet (3
knowbuitdingsverywett.ThenI thoughtI woutdtiketo buitd
meters)apart, has 4s-degreeangtedroofsand an al.t-gLass
them," Hinesremarks.
The Houst0nrealestatemarket,then
facade.It hasbeendescribed
6s "one of the mostarchitecbattooning
with oit money,providedan ldealenvironment
for
turatlyinfluential.buitdingscoRstructed
in the UnitedStates
developers.Hines erected his first buitding in 1952-a
duringthe 1970sand 1980s."Morethan satisfulngthe chair
straightfonvard
combinationof officeand warehouse
soace. of the Pennzoit
Company's
requestfor "a buitdingwith charAfter comptetingseveralmore projectsconsistingof office
acterthat woutdstandout fromthe undecorated
glassboxes
andwarehouse
space,he beganhis careerin earnestin L957, aroundtown," PennzoilPtacgdevetoped
originattyfor $50
As the sixties cameto a ctose,Hines'sfirm-Geral.dD.
mil.l.ion,
eventuatty
wassotdfor morethan $200 miil.ion.The
HinesInterests-had gjrowntq a staff of 35 emptoyees
with
profitsreapedby this satedemonstrate
handsome
the forenearty100compLeted
projectsunderits bett.Bythe endof that
sightandquatiSof productGeraldHineschooses
to offerthe
decade
Hinesbeganofficedevetopment
alonga stretchofI-6L0
marketcompared
with the commonptace,
hastil.ybuitt strucknownas the WestLoopwith the 22-storyPostOakTowerin
turesofferedby his competltors.
1970.In the sameyear,the first phaseof the 420,000-squareToHines,designing
an architecturatty
diStinctivebuitding
foot (39,000-square-meter)
.Houston
Gal.teria
shoppingcenter nakes perfect businesssense.Fle strongtybel.ievesthat
opened.Thisprojectprovedto be a watershed
for Hines,s
career "buitdingsof quatity. . . attract better tenants,command
and becamethe springboardfor future ambitiousprojects. higherrents,andretaintheirvatuedespitethe upsanddowns
Modetedafter Mitan's19th-centuryGal.teria
Vittorio Emanuete, of the realestatemarket."Viewedas a patronof gooddesign
famousfor its high-endshopsandetegantdesign,the Houston in architectural
ciictes,Hineseschews
simptybudgetary
conGa[eria3ttractedmanyupscate
tenantsandprovedto be a runsiderationswhendEvetopinga site. Obvioustythe object of a
awaysuccess.
Thepoputarityof the designand its manyretaiL business
is to.turn a profit,but ttineg's.calcutus
for do.ingso
and dining optiortsled Hinesto deveLop
severalmoreparcets mayinctudeoptingfor a stighttymoreexpensive
materialor
nearthe Gatteriaoverthe next27 years.
systems
if they"lviitenhanceovera[lqualitlrand the eventuat
Not wastinganytime, Hineshit the markagainwith the
resalevalueof the product "A welt-designed
buitding,"he
devetopmerlt
of OneShettPlazain 1971,hisfirst high-risevensays,"is the ffrst to fitl up-the mainobjective,after ail.-and
ture in downtownHouston.Forthis proFct, he commissioned the last to get vacated."
BruceGrahamof Shdmore,0wings& Merritt;the preeminent
Despitethe success
of his signaturecorporatetowersthat
gorpontearchitecturefirm in the coun'try,
to designthe buitdgracethe skytinesof citiesacrossthe country,Hinesprefers
ing. The buitdinghas severalnotabteattributes:an Itatian
to erect buitding clustersthat make a ptace.A project in
travertinemarbteocterior,wind-bracingcotumnsat eight
whichfiinestakesspecialprideis the DiagonaL
Mardeveloppoints,gMng it its undutating
facade,and its height(at the
mentin Barcetcna,
Spain.Acquired
in 1996as an undesjrabte

GeraLd
Transcr
distict

projec

0pmen
with a

ventio
perous
acqurs
aspect
rI
ticipa

in ser

devel,
are m
tion.
winn,

devel,
cunih
fit th,
Br
can b

;i&--

D E V E LOP E R SA N D TH E IR P A R TN ERS
According
to PeterRummett,
a fettowdevetoper,
GbraidHines
positionof how
knowshowto put himsetffin the consumer's
a projectwitt be bxperienced.'Itis for this.reason
Hinesconsistentlyturns out poputarlysuccessfuldevelopments.
He
seeks
in hisbuitdings
to improve
energyefficiency
anddrives
innovation
in that sectorofthe business
as we[[.Since1992,
his company
has beena partnerin the U.S.Environmental
program.
Protection
Agency's
ENERGY
STAR
Emphasizing
is best perthe theorythat devetopment
formedby [oca[firms,Hineshasgenerated
a corporate
structrrrethat placesdecisionmakingin the handsof [oca[offices.
As hii companyhas grdwn,it has expanded
out of the
Houstonareainto 39 metropotitan
areas.69 cities,and 12
foreigncountriesemptoying
a total of 2,900people.Trusting
bottom-upmanagement
has atlowedHinesto decentralize
in [oca[
his organization,
tappingthe wealthof knowtedge
markets
who
andgivinghim a furtheredgeoverco-mpetitors
favora cenriatized
He encourages
styteof management.
a
highLeveL
of communication
alongeverystepof the developof ideasas we[[
mentprocess
to ensurea dynamic
exchange
provide
as
a systemof checksand batancesfor executing
agreed-upondecisions.Currently,under thjs mdnagement
structure,his is one of the largestreal estatecompanies
in
the world,with controlof an estimated
bittion
in
assets.
$14
functionin real
Hineshasproved
that formcancomptement
GerolrlHines Interests'sdevelopmentof the 64-stoirymixeci-use
estate
without
His
devetopment
fiscal
abandon.
companyhas
Transcofower onrl ihe 2.5 million-squore-foot
(232,34O-squaregrown
giantwithfrom
a
operation
to
an
international
one,man
neter) GaLleiocreoteda completeLynew saburbah-stylebusiness
quatity
out
mainstays
and
innovative
distnrtoutsiLltH;tr:ston's
losing
sight
of
the
of
Cowtitown,
design.
Thecompany's
103ENERGY
3b3awards,
inctuding
STAR
project,HinestLrrnedaroundthe 84-acre(34-hectare)devel.pioduct
Labelawards.
for
Hines
strives
for
in
speak the kindof
opment jnto a thrivjng $600 miltion mixed-usecommunity
projects.
his
eaih of
In 2002,,tlines
wasawarded
the Uu J.C.'
with a 35-acre114-hectare)publ.icpark and the largestconNichorsPrizefor Visionaries
in UrbariDevelopment.
He asked
vention center in Spainabjacentto the compLex.This prosthat ihe$100,000
fromtheaward
anda matched
amount
bepuf
pe ro us ma ke ov"r ex em pUf iesHines ' s ey e f or opp o r t u n e
towardthe fundingof the ULIGeratd
D. HinesStudentUrban
acqu isitio ns,
evenin t he t r ic k y jnt er nat jonaIar ena.
Design
Competition,
across
whichchattengei
the counstudents
A ''11 ' ': 'ril t he engineerin Hinesc ons ider se v e r y
planning.
try tc 6ngage
in quatityurbandesign
Heteaves
and
a
.' stri,I ,)f hir.1 :11 ,;, , ;and
of highstandards
futuredevetopers.
1' ; wor k st o pr oduc et he hiqhes tr e s u [ t .
[egacy
for the nation's

ticip:r1i11g
rn rr project. Some lendershave an interest
rn scrving,1r.r
lrictrlar sdcial needs (for example, the

commercial banks, S8{l^s,insurance companies, pen-

t't ti

l,ong-tcrrrr equiry investors may or may not be

sion Funds, foreign investors, REITs, and private

cievelopme
nr oi low-income housing), while others
investors/joint venture partners. Different lenders
l f(' r r ( ) r C, ri ' lr t i i. ' (l fo i n n o v i tti Ved e s i g ' a n d C OnS tTU C - .havc cl i Fferentareas of speci al i zati on, di fferent
tron. r\lnrLrsrUveryoneenjoys arr affiliarion with a.
rgquirements fbr returns, and different degrees of
r'.r ,
r , j I l,i t' l ' s :1 f(' l ro . c x c e D ti o n .StrccessFrrl u,i l l i ngrrc.s-.
ro acceprri sk.
ri . \ , [ ' 1, r
rrr rl te i r tc a m i l c n d c r rv l to .sneo. npcLong-Term E qui ty Investors
i 'l l r r r f \ ir r lr
, rn d p rc F e rc n c efo
s r ri s k a rrd r etri rn
r'r,.

) \ . . , , . \ elo i) i1 e llt.

I lor h eon. t ir i c ti o n a n d p e rm a n e n r fi n a nci ng

ca t t be S er r r r ( . iif io m a v a ri e ryo f s o u rc e s i,n c l udi ng

involved during the construction period. They might

either contract to purchase the completed property

59

I NT RODUCTION

beforeconsrrucrionbegins(basingthe price on preconstmcdon'estirnaresof value) o, i.r.,r.rt after the

prgect is complete,l.In the first case,rhe conrractis
usuailysignedbeforcrhe point of commirmenc-*rhe
time iminediately preceding the beginning of construcdon. 'il{hateverthe tirne of investrnent,the price
is often not payableuntil completion; therefore,the
funds are often not availableto the developer.A purchasecommitment beforeconsftuctionmay,however,
substitutefor or supplemenrthe permanenrloan com.
mitment asa takeourfor the constructibnlender..
Long.term equiry investors are often passive
investorsduring the developmentperiod and do not
sharedevelopmentrisls. On completionof the project, investorswant the maximum possibleoperating
returns (sonretimesguaranteedby the developerfbr
an initial period of one or more yeirs) for rhe least
possibleprice.Thesererurnsnormallyarelower than
thoseaccruingto investorswho parricipatedduring
the developmentperiod, becausethe latter assurne
more risk; that is, they bearrhe uncertainties
of the
developmenrprocess.

P ROPE R T Y
M AN A C E R S
Ptop.rcy managersaie rypically employed fi.rll time
when the developmentis closeto openingand rhen
during the projectt life as an active facility. properrl.
rrianagersprovide valuable duties*direct oversight,
maintenance,
and coirtrolof theproperryand constanr.
contact with and managementof tenants*and they
are responsible
as intermediaries
benveentenanmand
the developer/owner.Smart developersrecruit properry maners for insight during the designstage,par..
ticularly if they are building a managernentintensive
projectsuchasa hotel. housingprojecrfor seniors,or
healthcarefaciliry.The ongoingsuccess
of theseprojecb dependslargely on how well they are managed,
and poor designmav irnpedegood managernenr.
A
properly.designed,properly run dwelopment under
the managementof'a gooCproperry managerc:ln save
the owner a treatdeal of money.
One of the biggest decisions regarding propery
manement is whetfier to provide in-house management servicesor ro conrractwith an ou,tsideproperty

manegementfirm. This decisionis often bas,.c1

on severalfactors:locationof the project,sizeof tlc devclopment firm, availabiliryof trainedin-house1.,...rr,,,,n.1,
and the dweloper'sdesireto be involvedin rhc project,s
day-to-dayoperations.Conpensationis rypicailyapercentageof grclssrwenue-often 2 to 5 percent-but
canalsobe a fixedalnounr.Commissionsfor le:uing;urc
usuallyseparate
fiom the managementagreenrcnr.
A good source for loceting a properfy rnanagement firm is the localchapteAofthe Instirureof Real
Estate"Management
(IREM); which is part of rhe
National Associationof Realtors@.
\,

MARKETRESEARCHERS

ke tt r
l 'h c:
l l r r ci
publ
te rs,
Po sl
and
nten

(
rr r-r"'r h l
o f c'
ICCO

frmi
projr
!'

pr oD
A major part of the upfront wor( that affects the go/no
go development decision is a market study. Market
researcherscan tell a developer whether or not sufficient demand existsfor the proposed projecr, who the
competition .is,whom the produpt'might appe,il ro,
how quickly it will leaseor seli, and so on. Irr general,
the develope4,uses the market researcher'srvork to
determine the revenue assunlptionsfor the.c,-ononric
analysisof the proposed project. (SeeChapters 17 and
l8 for a more extensivclook ar market studics.)
A market consultanr'sfee is usually detenninecl by
the scopeof the worl. -Ihe c<-,nsultanr
r.r,hol]r.cll.rres
an cxrcnsi venrarket r,l tort i s most oftcrr .,,,.,,,..,., sated on a lurpp-sun-rl,"rsisas determineclb', ,r tontract. If a quick, prel,lrinary report is rcqtrir.eci,
rhe
developerm y pey thc, sn5ul1anton an hourlv basis.

t he {
of t l
t\ i rrc

I
It',111
i'. i: .

lr'ir
tl i r I
vi r l c
il: rI

Ri (
i

i ri ,)(i
li'r'':
illll)l

MARKETINGAND PUBLIC
RELATIONS
CONSULTANTS
'Without

the right kind of projectpromotir)11,

s1,s11
the bestprojectcan flounder.Accordingly,thc dcvel.
opmentteamoften needsmarkedngand public rt'lations personnelto help designa marketingsrrarcgy
for the product.
Marketing and public relationsmay begin long
before ground is broken and continue through rhe
building of the project and after project completion.
Often developmenrscannot be started until they are
5A tc 75 percentpreleased
or presold,so a gooclnrar-

5uD (l
i l i )i )l

nrit s
l) r , r jr
t ()t 5 ,
\ . 1 i ('
f L ' 9 1 ()

fi rr ) g (
to o
l tl su l

L
confl
\, t'l I-

D E V E LOP E R SA N D TH E IR P A R TN ERS
keting cor.r,-iultant
can be invaluable to a developer.
The markering strategistmay work with the broker to

erarernund.aneprojects rhat manage to meet all codes

and other regulations but lack inspiration. (See

6nd and sign on tenants or to presell unirs. Good

Chapter 13 for .more detailed information on the

public rela.tionsin the form of news releases,newslet-

public sector as regulator.)

ters. neighborhood parties,and mailings can generate

If socrety'sneedsare tb be met through the private

and can even help diffirse opposition to the develop-

sector'sdeveloprnent process,nrle makers and regulamn

musr learn how to protect the public interest without

mel)t clunng rhe permttlng process.

Once developers know what they want from the

erecring roadblocks to well-designed, creative projeca

that respond to market needs.The development process

public relations firm, they should generatea short list

has become so complex and'cosdy that the only way to

enhance the quality of the finished product is for the

positive attitudes toward a project before it is started

of candidate firms based on referrds or colleagues'

recommendations. The market consultant rhoul.l b.
Familiar with the appropriate market and the type of
project the developer proposes. Prospective firms are
probably listed in local businessjournds. In addition,
rhe firnrt principals and employeesmay be members
of the Public Relations Society of America and the
American Ma rketing Association.
Payment can take the form of a fixcd fee or an
hourly rate for a short-term project. For large projects, however,many developersfind it usefrrlto estab.
lish a long-term relationship with a firm by keeping

dweloper to view and ffeat the public sector as an active

participant on the development team. Our perspectiye
in this text is that the public sector (as represented by
the various reguladng bodies).is always the developer's
partner. Tr1'to avoid a had marriage.

F I NA L US E RS
A descriptioqr o'f participants in the development
processwould be incomplete without mentioning the

the 6rm on rerainer and relying on the firm to provide marketing and media relations during all phases
o f t he pr ojec t .

REG U T AT OR S
Public regtrlationof the developmenrprocessshould
produce a fair and efficient s)'srem for allocating land
usesand spur high-qualiry development. Developers
must comply r.vitli local zoning requirements and
subdivision regulations and must often obtain
approvalslocrillv.for site plans and special use permits-all belble development can begin. Once a
projr:ct is rrndelway, a.host of regularionsand regulators c()mc into play to ensuresafeconstructionand a
saf'ebuilding. Additional regulators abound at the
regional, state, and national levels. Their firnctions
rangc Fronrenvironmental and consumer protection
ro oversight of' financial inrermediaries, morrgag-i n s t r r r m enr r . , r r rlde n d i n g p ra (-ti c e s ,
ir r pr ; i. , t ic t ,r lrcv a ri o u sru l . s a n d re g u l a d o n soften
conFlict. Ilathcr rhan produ. rng more harmonic'us,
, . 1c s iJ qr rr ,. r, ,,i
i c rts s, rrc h ,.rl i c i e ss o m e fi rn esgen'vt' 11

Manyof the first residentsof Witd SageCohousing

in Boulder,
Cotorado,played an active rote in the devetopmentof this
34-unit mixed-income
cohousinqcommunitv.Wonderlond
Hills
Developnent

61

;2

,
I NTRODUCTION

final usersof the space:rhe direct consumersof the

finishedproduct. Developersanticipateusers'needs
when articulating the original project concept. The
market study further elaborareson the idea and
guides developersin developing products that fit
their intended market(s).Ultimately, the final users
determine t}re successof the project by acceptingor
rejecting rhe finished product as it is deliveredto the
marketplace.
Usersoften contractfor spacebeforeconstruction
begins (preleasing).By working with the developer's
marketing representarive,final usersc-anmake sure
that the finishedproduct rrieerstheir needsand, in
doing so, becomeactiveparticipantsin the.developrnent process.

E V O L U T I O N A RC
Y H A N GE SIN T H E
DE V E L O PME NP
T R OC E S S
Dwelopers are ultimately the responsibleparties
when it comesto managingthe creadonof our built
environment. They tend to be driven, innovative
people who work with an extensiveteam of professionalsto complcrea complexand dynamicprocess.
This processis best describedby the eighr-srage
model laid out in Chapter 1. The model showsthe
time-honoredrelationships
that continueto be fundamentd in real estate decision making today. This
process,along wirh an understandingof the history
current situation, and projectedtrendsin demographics and land use, ma.kesup the essentidframework
neededto consider1) whether or not a dwelopment
is feasible,2) horv best to createa dwelopment, and
3) how to managethe job.
Evolutionary changes require adjustments and
additions to the traditional, time-honoredeight-stage
model.
Availability of Data
Good developers
havealwaysreliedon a greardealof
backgroundinformation gleaned.overa lifetime of
conversation,otrservation,and reading"-tr.*.1.,ters, newspapers,academicjournals, and the like.
Data are fundamenralto sophisticatedplayersin the
.marketplace.
Turning data into useful information

can make money for a developer.At rhe very least,

assimilationof such historical anC currn:nrpublic
information can help developersavoid lerge losses.
Throughout the discussionof. the cighr-stage
model, we will refer to a host of tradidonal infLrmation sources.\Vhat is new is t}re extent ,ind <lclivcrv
capaciryof the information availabletoday. ltchnology now allowsvastda.abases
to be easilyaccessible
t<r
the dwelopmenr cornmunity ol er the Inrernet.As we
work through the detailsof the eight-stagemodel in
the remaining chapters,we will refer to companies
suchasCo-Star,which providesa sophisticatedonline
commercialproperrFequivalentof a residentiaimultiple lisdngservicewherebrokers,invesrors,or owners
canknovywhich buikjingshavea vacarrcyaswcll asti-rc
exact vaqmcy in every building in an area as large as
New York Ciry with all askingrenr termsand pictures
of both the interior and exteriorspace.
lVe haverruly seena revolution in the availabiliry
of data. As fie leaderfor the process,the develooer
needsto usethesedatato p*odr'r.. the insightsn..iud
to establishand refinethe ideafor development.

\/e I

lr r r .
liq
)tll

i l tr
'1 9
o i c,
llV(

L-

i .LI

ilv::
lea

, lrl
sc1,
of
r r lv
of
l) r(
Par
t ht

A Much Longer Venture

Capital Period

ir n
lll(

fu we move through detalleddiscussionsof stagcs

one, two, and threeof the developmenrprocess,we
will review the traditional financing cycle, whicf'
movesfrom land acquisirionfinancingro land developmenr financingto constructionfinancing ro permanent financrng.This sequencesdll holds, but the
time required to move from rhe eady stagesto the
closingof the constructionfinancing has lengthened.
\Xtry? Becausebuilding sites are more complex in
infill locations, negotiationsare more difficult with
ever inorb participants in the developmenrprocess,
and a host of other reasons.\7hy does ir matter?
Becausethe cost of funds is considerablyhigher in
the earlystagesof the developmenrprocess.A lender
lending money for hard construcrionhas relatively,
high-qualitytollateral.A lender or invesrorputting
up the capital necessar/for planning and politicai
work overa period of many yearsbeforeconsrrucrion
can start does not have good collateral.In fact, this'
kind of financing is much like the financing that a

l) r(
. Lb,
( b,
wc

res
fbr
Wi
Dt
im
'^l

fe.
t hr
lio
R]
op
''t

TI
fir

:el].

E V E LOP E R SA N D TH E IR P A R TN ERS
\'c Lr illr c , - iti,i t l . ori i p a n ),w c u l de x te n dto a n e w s mal l
business,li the brisir,essfails,'not much is there to
'fhe longer
f,iqrriclate
;inrl st:li.
time period beforeconstruction nteans a longer venture capital period and
thus a longer need for expensivefinancing. This issue
significantly afFectshow relationships among -the
development team are structured thrbughout thc first
five sragesof rlrc developmenrprocess.

si dcr.rbl ctommrrtar/ on thesc publ i , companies.

More important, the investment banker mentaliry has
hit real estate development. Morgan Stanley, Goldman Sachs,Merrill Lynch, and all *re top investment
bankers now aie involved in real estate invesrment
and, more particularly for our purposes, in investment
'Wall
in rea.l estate during the development process.
Streec moves to a different beat from commercial
banks, insurancecompanies,and wealthy hmilies that

A M or e lm por t a n t

L e v e l T w o Pe rs p e c ti v e

fames Graaskamp'sdefinition of a project's feasibiliry

written in the early 1970s, is still the best definition
available: 'A real estate project is 'feasible'when the
real estate analyst determines that there is a reasonable likelihood of satisfying explicit objectives n'hen a
selectedcourse of action is rested for fit to a conrexr
of specific constraints and limited resources."3It has
always been important to understand the leasibiliry
of not just the project but also of participating in the
project for all members of the developmenr ream,
particularly the developer.
\Vhat changes with the increasing complociry of

have traditionaliy
process.lbdaf

dominated

the development

developermust contend with a Faster

and often harder world.

l ncrea' sed P ressure on the P ubl i c S ector
A primary theme of this text is that the public sector is
always a partner in the development process.As covered in Part II, the evolution of communiry planning,
environmental safeguards, hazardous waste cleanup,
and so on has produced a more complex environment
in ',vhich the public sector has ever greater infuence.
Government at all levels ,is under tremendous
pressure to perform better and often with fewer

the processand the longer venture capita.lperiod is the

resourccs,and must deal more rapidly with a more

irnportancc of focusing on'feasibiliry for the individual

membrsol'rhc ream (levelmo), Becausetiming of the

complex environment. Your public sector partner

project has beer-rextended, everyone has to worry

abour how ri-revpersonallyaredoing aboveand beyond
(but connecred to) the successof the overall projea. As
we rvill sec rhroughout the rext, it is rhe developert
rcsp.,usibiliry ro consider rhe viability cif rhe venture
Foreach mcmber of the development tearn.

was alwaysunstable and is now insecure aswell-not

particularly good for real estatedevelopmenr, as will
be seenin subsequentchapters.

SUMM ARY
Tlris chapter describes the players in the developrnent processand some challengesthey face. Given

Wall S t r eet ( and R e l a te c l Av e n u e s )

thai each development has different characteristics,

During the 1990s,securitizationbecamemuch arore

importanr in real esrare investmenr. As wilt be

deveioperb must choose their consultants 'and

cxplained in Part III, very few large publicly traded

real estatecorrrpaniesexisted before 1990. In facr,

for i specific proposed developmenr. The impor-

the nrarkervalLrcof all REII} was lessthan $10 billion. As ol- 2006, more rhan 200 publicly traded

stated.-Vith so many varied aspecrsof .r project, the

deveioper alone cannot fully understand and attend

RErt had assetsrotaling rnore rhan $500 billion.

-l'his ch.rr-rgc
hastwo obvious impacm on the dcvelopnrenr errvironment.First, it createsa new lwel of
reportirrgand rhus greareravailabiliryof informadon,
I'he SEC rcquires public companies to reporr their
financialsr,,rrrr,,ind 'Wail Streetanalysrsprovide con-

to all tasks; he or she must be able ro trust participants on the development.team and their honesty

coworkers with full knowledge of what is required

tar-rceof engaging reliable people cannot be over-

and competence. Partners should be chosen with a

clear appreciation of both the time-honored ftlnda- ,
mentals describedin Chapter 1 and the evolutionary
changesdescribedin this chapter.

' NT RODUCTION

TER M S
> Appraiser
>
>
>
>
>
>
>
>
>
>
)
>
>
>
>

Bearirigcapaciry
Design-award-build
Developmentfce
Ecosystemmanagement
Environmental consultant
Fnvironmentalengineer
Generalcontractor
Ueotechnrcalengrneer
HVAC system
Liabiliry
Requestfor proposals(RFP)

Structuralengineer
Subcontractor
Sustainable
site design
Tiaffic impact study
; Thansponationconsultant
> Valuation

RE VT EW
Q U ES T T ON S
'!7hat

arethe most common forms of comPensationfor developers?

3.2 'Vhat are some of the waysin which a public
sectordeveloperoperatesi
3.3 Describethe architectt role in the developmeqt
3.1

Process.

3.4 Why are contractorscritical to the developer's

work?
3.5 Describe the expanded role of a landscape
architect.
tVhy
do developersneed environmental and
3.6
transportation consultants more often now
than 20 yearsago?
tilfhy
areappraistrsinvolvedbefore,during, and
3.7
at projectcompletion?
3.8 Describe the various types of financial players
and when they are involved in the development
prbcess.
3.9 Do you agreewith the authors'list of evolutionary changesto the development process?Dcr
you think other societal changesaffect how
developers
get their projectscompletc.l?
NOTES
1. Sharedparking is cheuseof parking spacesto serverwo
or more individual land uses,often concentratedet rlifferent
trmesof the day,.vithoutconflictor encroachmertt.
2. Personalliabiliry ptovidesthe lender with invcsrment
collateralthat can include all inve$tdrassets.
'A RationalApproachto Feesibii. 3. JamesA. Graaskamp,
iry Analysis," AppraisalJournal, Oitober 1972, p. 1l1 fhc
l)tp,rrrntettt
formerchairand professor.
!ate'James
Graaskamp,
of Real Estateand Urban Land Economicsat thc University
of 'Wisconsin-Madison,was a noted iuthor, teacher, and
mentor. See Chapter 16 and the profile of Graaskan.rpin
Chapter21.