How Real Estate Developers Think. Peter Hendee Brown
inside the minds of developers to show how they think. This approach also begins to demystify developers by revealing them—through their own words and stories—as people whose motives and actions can be understood. The chapters build on one another, beginning with what developers do and how they think about opportunities, process, design, sales, risk and reward, reputation, the creation of place and experience, and their role in the community. The book concludes with suggestions for how to think more objectively about developers and how to work more effectively with them. The emphasis throughout is on revealing what motivates developers so that members of the community can better understand how and where they can best exert their influence to achieve the maximum positive effect. Based on a simple variation of the serenity prayer, the objective of this book is to help people who study or work with developers to accept the things they cannot change, identify those things that can be changed, and develop the wisdom to know the difference.
This book focuses primarily on the development of city center sites for multifamily residential projects—for-sale condominiums and rental apartments—and for mixed-use projects that include a combination of housing, commercial office, and retail. This represents just a fraction of the much larger industry of real estate development that encompasses urban commercial and retail development as well as suburban development. Real estate development in the suburbs ranges from subdivisions of for-sale, single-family homes, townhomes, and condominiums to apartments, commercial office parks, industrial warehouse and light assembly buildings, and retail centers. These product types are as important as those developed in central cities and they are produced in great volume in our suburban nation. The risks and rewards for the suburban developer as well as the strategies and aptitudes required for success are somewhat different but the principles are the same, and many of the conclusions in this book apply to all developers. Projects in city centers, however, more directly affect nearby residents, face greater scrutiny, and present greater risks to developers but they are also going to become increasingly prevalent in the future. Chapter 1 explores how development has changed over time and how it has remained the same, beginning with the story of a development that started on a hilly pasture more than two hundred years ago.
Chapter 1
Developer as Visionary
Buy real estate in areas where the path exists and buy more real estate where there is no path, but you can create your own.
—David Waronker, American real estate investor1
Three Hills
In 1625 the Reverend William Blackstone, one of New England’s first European settlers, bought a large piece of land in Boston with three hills and pure springs, where he built a small cottage. The area soon began to attract other settlers and Blackstone, a recluse, decamped for Rhode Island in 1630. For the next century and a half, the area, called “Tri-mount” because of its three hills, remained a pastoral grazing common with only a few estates, pastures, and orchards.2
In 1795, a group of wealthy businessmen created a private company called Mount Vernon Proprietors for the purpose of developing housing in the area for the growing merchant class. In the same year they bought a south-facing, sloping pasture of eighteen and a half acres from the painter John Singleton Copley, in part because one of their partners, Harrison Gray Otis, had served on the town committee that had settled on the area for the site of a new state house. Copley later protested the sale on the grounds that Otis had inside information about the future value of his land, but Copley lost after a decade-long legal battle. At around the same time the Commonwealth of Massachusetts acquired a six-and-a-half-acre parcel from its first governor, John Hancock, and the new Massachusetts State House, designed by the architect Charles Bulfinch, was built on the site and completed in 1798.3
The Mount Vernon Proprietors got to work soon after, laying out streets in 1799. Next, they began cutting down the three hills and then regrading to create flatter and more developable land. The westernmost hill, Mount Vernon, was cut down first and the spoils were used as fill along the edge of the Charles River, creating more land and increasing the holdings of the Mount Vernon Proprietors. At the top of the steepest of the three hills stood a disused beacon that had been built during the Revolutionary War for the purposes of warning nearby towns in the case of enemy attack. That hill, which then stood sixty feet taller than it does today, was cut down and regraded as well but its name endured and over the coming decades the Mount Vernon Proprietors transformed Reverend Blackstone’s pastoral retreat into the area now known as Beacon Hill.4
Beacon Hill comprises three districts: the North Slope, the Flat of the Hill, and the South Slope. The North Slope was originally a seedy waterfront area called “Mt. Whoredom,” and the Mount Vernon Proprietors purposefully laid out the major streets in an east-west orientation to minimize connections to the area. Over time the North Slope became home to African Americans and abolitionists and then to Irish, Italian, and Eastern European Jewish immigrants. The Flat of the Hill, the filled area along the edge of the Charles River, originally housed both residences and businesses, including the blacksmiths and stables that served the residents of the South Slope. Over time the area grew and a vibrant business and retail district developed along Charles Street.5
But the heart of the Mount Vernon Proprietors’ plan was to build a new community for Boston’s wealthy on the South Slope, so they started with large mansions but soon realized that they could earn a greater return on their investment in the land by developing more densely, building a greater number of smaller homes, and selling in volume. The rest of the streets were laid out to accommodate brick row houses in the Federal style that Bulfinch helped popularize and in the Greek revival style that was also popular at the time.6
Few people in the twenty-first century would describe Beacon Hill as a highly speculative “real estate development” but in 1795, that is exactly what it was. A group of wealthy investors with a vision bought land; drafted a plan; completed earth works; platted, subdivided, laid out, and built streets; and built and sold houses designed in broadly popular styles. What is called Beacon Hill began as a simple land deal and a production housing development, although it took the better part of a century to fill in the entire area. More important, however, is that the vision of the Mount Vernon Proprietors long outlived its creators. Beacon Hill went from being a hilly pasture to becoming the residential heart of Boston, and the South Slope, with its red brick houses that exude class, taste, heritage, permanence, and inevitability, became one of the most desirable and expensive places to live in the United States.
Figure 3. The excavation of Beacon Hill in 1811. Lithograph taken from a watercolor by J. R. Smith. Courtesy Trustees of the Boston Public Library, Print Department.
Figure 4. Beacon Hill in 2006. Photo by Della Huff.
A Brief History of Urban Real Estate Development in America
Real estate development has always meant the investment of capital into improving existing land and property by moving earth, providing infrastructure, subdividing the improved land into smaller parcels or lots, and constructing buildings, typically in order to increase use and density. Urban development in the United States from the seventeenth through the early twentieth centuries more often meant the development of new housing on large tracts of former agricultural land owned by a few individuals close in to the city—land with few neighbors and few problems. Some cities grew organically but in others visionaries with control over large land areas were able to produce grand plans that took centuries to realize. William Penn’s seventeenth-century “Greene Country Towne” vision for Philadelphia was based on a gridiron plan and five public squares. A century later Pierre L’Enfant followed with a plan for the new capital city of Washington, DC (at the time, swampland), which was based on a gridiron overlaid with diagonal avenues and circles at their intersections. Much like the Mount Vernon Proprietors, these