The Case for a Dense Core
Steve Belmont, AIA:

Transit, Location Efficiency, and Transit-Oriented Development
Hank Dittmar:

Financing Mixed Use Progressive Development
Chris Leinberger:

Houston, we have an opportunity
Dr. Arthur C. Nelson, ASCE, FAICP

Developers' Panel

Public Policy Panel

Entire report - pdf - 2 meg

Presentations
Steve Belmont- 14 meg
Hank Dittmar- 19 meg
Chris Leinberger- 18 meg
Arthur Nelson - 8 meg
Jeff Taebel- 3 meg
John Jacob- 3.5 meg
David Crossley- 9 meg

Chris Leinberger: Financing Mixed Use Progressive Development

Christopher Leinberger is a founding partner of Arcadia Land Company, a New Urbanism development company, and developer of Albuquerque’s revitalized downtown. He talked about the challenges and benefits arising from financing urban, “progressive” development.

Leinberger began talking about financing progressive development, saying that “It’s a bitch to get these things financed.” Moreover, he said “the fact that it’s illegal [in some places because of zoning] is a problem.”

The challenges of financing such development, Leinberger observed, changed dramatically after the war. “Ever since WWII, the nation changed the way of doing development that the world had had for the past 5,000 years.” Once centered around people and downtowns, development turned toward accommodating cars and suburbs.

Another significant change occurred much later in which he said Houston had a heavy hand. The Savings and Loan crash, he said, that was deeply felt in Houston, turned Wall Street away from long-term financing. After the crash, Wall Street came in and commoditized the industry for less risk and shorter returns. As a result, he said, the industry is so short-term that it is building “disposable products” that are highly land-consumptive.

Leave it to Beaver vs. Friends
However, he said reaffirming a theme at the conference, demographics are beginning to change things. “In the mid 1990s, Generation Xers rebelled… they didn’t want suburbs. It’s no longer ‘Leave it to Beaver,’” he said, “now its ‘Seinfield,’ ‘Sex and the City,’ and ‘Friends,’” with a desire to live in the city closer in and around things. He said he had faith in the capitalist system and that demand would eventually help change things.

Nevertheless, hurdles remain high in the financing world. Though demand is changing, he said, the standards at the banks are not. Banks are still set up to finance the conventional, “Leave it to Beaver” projects which couldn’t be more different from the “Sex and the City” mixed-use, progressive projects. Models and approvals at the bank are set up for conservative projects that are characteristically quite different from those Leinberger finances:

The cash flow model difference
Leinberger continued with the difficulty in financing progressive projects, saying that the challenges reach beyond the models all the way back to how financiers are taught to measure success in MBA school. Most bankers measure projects using a discounted cash flow analysis (DCF), which inherently values short-term returns over longer-term returns. The discounted cash flow method poses a problem for the progressive projects which do not start to make money until later on, having a 10-year or longer time horizon, much longer than the conventional 5-year time horizon. To conventional banks using conventional methods, these “progressive” cash flows are not sufficient. Leinberger said this short-sited position narrows the choices of lenders to “Wells Fargo or Wells Fargo.”

Another significant difference between the two types of projects, he said, is that in conventional, suburban projects, “less is better,” and in more urban, progressive projects, “more is better - there needs to be a lot of interesting things to see and do within 1500 feet.”

Just as the difference between conventional and progressive development and financing is stark, so is the difference between Leinberger’s philosophy and that of a typical developer one might think of as building a “disposable building”. Leinberger believes there are two truisms of conventional development:
1) understand your exit strategy before you tie up the land, and
2) do not fall in love with your projects.

He believes in investing in projects that last for generations and that one can really “fall in love with.” He said some of the advantages of progressive development are that one “may be able to wear a white hat,” and really feel good about what they build.
For more information about Leinberger and his projects, visit http://www.cleinberger.com/