Arrrgh! How do we start a productive conversation about Inclusionary Zoning? (Part I)

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I live in Portland Oregon.  Moved here last December.

Last year Oregon’s legislature removed a prohibition on Inclusionary Zoning (IZ) which now allows cities to require a percentage of Affordable Housing units in new buildings of 20 units or more.  The Portland City Council unanimously voted to put an IZ ordinance in place.  Recently I have had a number of folks from around the country and from Portland ask me what I think about IZ.  I have had a hard time coming up with a response that does not shut down the conversation. I get really exorcised over this topic.  To be blunt, IZ makes me nuts and I tend to go off on the people who innocently ask me about it.  Clearly, I need to craft a more grownup response.

I respect the motivation behind wanting to see more affordable housing get delivered. I am appalled by the naive methods being employed toward that very positive goal.  I get frustrated with smart and sincere people who are serious about the delivery of housing if I think they have not made a serious effort to understand the basics of how housing gets delivered.  Maybe that information has not been available to them if they are not in the business.  It’s not reasonable to hold people accountable for information they don’t have, so let’s start by laying out the basics of how a building makes money and how people decide if they want to construct a building in a given location.

If you can’t get the rent, you shouldn’t build the building.  The rental income for a building needs to cover the Total Project Cost.  This includes cost of buying the site, , paying the impact fees, designing, bidding, financing, building and leasing the building.  The rental income also needs to allow for some of the units not paying rent from time to time because nobody is living in them (Vacancy).  Finally, the rental income needs to be able to cover the building’s Operating Expenses which include property taxes, insurance, property management, maintenance, water, sewer and trash, and replacements reserves of $300-$500 per unit set aside each year.

In addition to covering these costs, a building need to make a profit to justify why someone is going to put up 20% – 40% of the cash need to make the building happen.  Whoever puts that money up (and signs a guaranty to repay the construction loan that will provide the rest)  has other things they can do with that money and they can reasonably expect to get paid something for the risk they are taking in undertaking a construction project.  A construction project has more risk than a savings account, treasury bond or mutual fund, so money put into a real estate project has to pay a higher return than alternative investments with lower risk.  A workable rule of thumb is that $1 in monthly rent can typically support $100 in Total Project Costs and yield a reasonable return of 10-12% on the cash you put in the building.

What happens if 20% of the units in a building don’t pay their way because the rent you can charge has been limited by the IZ Ordinance?  The assumption is that you will have to convince the potential tenants for the other 80% of the market rate units to pay higher rent, or find a way to  reduce the Total Project Cost.  Reducing Total Project Costs will come down to convincing the person selling you the site that you need to pay less for it.

In Part II we can walk through the math on how this works on a example building.

 

 

The Best Cottage Court Guy I know

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Front row left to right; Bruce Tolar, Steve Mouzon, Jason Spellings, and Jene Ray Barranco.

Last weekend I was working on a charrette crew that included my colleague and partner, Bruce B. Tolar.  Searching through my hard drive today I came across my (improvised) remarks from when the New Urban Guild gave the 2015 Barranco Award to Bruce, the Developer/Builder of Cottage Square in Ocean Springs Mississippi.

“For those of us who knew Michael Barranco and were there for the Katrina charrettes, this is a person who really made a mark on our lives, not just because we showed up and did work together, but because his character was such that it was like playing in a pro-am: You really upped your game when playing around Michael. Very genuine. No artifice. No phoniness. He was genuinely concerned about every person he ever met, and wanted everyone’s life to be better. He decided that architecture was his way to do that.

With his passing, there is a hole in the CNU, but the New Urban Guild offers the Barranco Award to practitioners who are that kind of stand-up guy. It’s about the character with which you comport yourself. It’s about how hungry you are to learn. It’s about how much you care about your community. It’s about how much you love and encourage your fellow-citizens. With that said, I’d like to introduce you to this year’s award-winner, Bruce Tolar, through some of his work. <begin slides of Bruce’s projects>

The original Katrina Cottage which by itself was great, but Bruce took it out of the total chaos and mayhem and bad financial circumstances that were pretty much an everyday deal in Ocean Springs at that time, and all along the coast. And from nothing, he created the peaceful excellence of Cottage Square, where he put the pieces together into something amazing which that community cherishes. It has even become a tourist destination. Imagine that: an interim housing solution after a hurricane has become a tourist destination!

So Bruce pulled together all the Katrina Cottages that were built as prototypes for demonstration purposes and brought them to Cottage Square. And he made something out of the pieces, just as we all try to do, which is to aggregate a great place from small incremental parts. It is a modest place, with gravel sidewalks; a place where you can operate a tiny business out of those tiny buildings. And the community that has formed there has become a real anchor to Ocean Springs. From there, Bruce launched an expansion, which was an incredibly ambitious project in a place governed by FEMA… <cough> <laughs and applause> … a terrible environment to work under, but he is doing amazing, excellent work with modest little pieces.

He reached out to nonprofits in the area; he connects with so many people; he’s been in that town forever, serving on many boards; and the idea that there was something to be done after a hurricane, and fixing civilization in general, was a natural thing for Bruce. The people love this neighborhood. The nonprofits he’s been working with have been tremendously empowered by seeing one guy’s ability to put people together and make things work. Bruce is the best design caulking gun you can imagine, pulling everything together on modest means and making things happen. So with that, I’d like to present this year’s Barranco Award to Bruce Tolar.”

If you are traveling along the Gulf of Mexico between New Orleans and Mobile you should give yourself a treat and stop to walk around Cottage Square.  It is a special place built in tough circumstances by a remarkable guy.

A Noticeably Less Shitty Version of Darth Vader

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The following is PG-13 version of a piece of an interview which was cleaned up a bit for this piece by Rob Studeville on Public Square. (thanks Rob).

Incremental Development does sound like you need a lot of capital and that there would be a lot of risk if you don’t know what it is. If you didn’t know what indoor plumbing is and how it works, that might also sound like a crazy risky idea. But Incremental Development is not that complicated nor that risky. The biggest barrier to entry is the initial step. What is the road map? What is the territory? It’s a black box in a lot of people’s minds.

Developers are held in very low-esteem.  I see that as more of a feature than a bug because if the bar is low, it’s pretty easy to under-promise and over-deliver. On the spectrum of all possible developers that might arrive in your neighborhood from Mahatma Gandhi to Darth Vader,  people expect a developer to resemble Darth Vader.

A small developer just needs to be a noticeably less shitty version of Darth Vader.”

Brooklyn doesn’t need your ass…

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12 x 22 garage converted into a serviceable studio cottage. The Cotton District. Starkville, MS

“Find a place that you love that needs you.

(You may love Brooklyn, but Brooklyn doesn’t need your ass. Go somewhere that does.)”

-Ryan Terry

Ryan Terry‘s statement has two parts and you might stop at the evocative  opening; “Find a place you love…” The second half is just as critical “–that needs you”. Places that need you will need a lot of work. That is why they need someone like you that is willing to do a lot of frustrating and unappreciated work (because you care about the place and the people in the place. Swell places with high barriers to entry don’t need you.

If rents are low, you may need to limit yourself to picking up trash and doing careful serviceable rehabs like the cottage shown above.  Don’t forget that the project is the neighborhood not just the building.  That little garage has been rented since Dan Camp renovated it 30 years ago as part of his effort to transform a part of town nobody cared about.  

Be disciplined in what you are willing to spend in total project costs.  If rents are low or high, you still need to limit your project costs to what can be supported with the likely rents.

Do not expect to be welcomed or appreciated. Keep your head down. Under-promise and over-deliver. If you are a developer it will be hard to build trust in a place where people doubt or casually mischaracterize your motivation and methods. Do the work anyway. Any recognition or support you see from your neighbors along the way is a bonus. Take the long view and outlast critics who don’t have anything resembling a genius plan of their own. Be smart. Run the numbers on multiple projects before you launch. Start small. Find and support local champions and colleagues. Few resources are as important as Stubborn Hustle in a person hungry to learn their craft.

If you are passing through Bryan, Texas, look up Ryan Terry and have him show you his project on the edge of the downtown.  He is walking the talk.

Year End Big Picture Thinking for Small Developers

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I am currently reading  The Advantage by Patrick Lencioni.  Lencioni is the author of Death by Meeting, a favorite of mine. The Advantage is about organizational health, something worth considering for any small developer.

You may have zero employees, but your work will require that you cultivate a real organization to have a stable enterprise. The organization may be populated by freelancers, brokers, consultants, architects, engineers, property managers, building trades, and investors, but you will need to built that organization/network intentionally. Building a healthy culture without a lot of drag and friction from dysfunction, politics, low morale, and low productivity is as much of a project as building/rebuilding a neighborhood. I look forward to other folk’s impressions of this book. The end of the year is a good time for reflection and big picture thinking.

I spent years in an outfit that started out with just enough structure and systems to design, entitle, engineer and build a cool project or two.  With time, the head of the company figured out that he needed to intentionally build a company with a good culture and good systems/habits that happens to produce cool projects.  The transition was rough, but the lessons of that enterprise, (now dramatically reduced by the Great Recession) have stayed with me as we explore potential business models for Small Developers.

Patrick Lencioni is onto something in focusing this book on organizational health.  This book merits a weekend of reading and big picture thinking.

Lenioni’s consulting firm is called the Table Group

 

Does Your Town Need an Authentic Asshole?

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Atlanta Small Developer Boot Camp – October 2015

 

One of the themes I have seen following the recent election, is that many people are tired of being talked down to by people who seem to think they are better.  Call it a backlash against smugness, for lack of a more precise term.  Recently I proposed that for people trying to build better places, the alternative to smugness would be to become authentic assholes. I am serious on this point.  Authenticity appears to be the quality that lets you get a partial pass on being an asshole, as long as you don’t talk down to people..

I’m directing this approach to the Architects, Engineers, Planners, Policy Folks, and Academics who are members of the Congress for the New Urbanism or similar place making advocacy groups.  If being the fancy people who know stuff, (the people perceived as smug or condescending) is not working, then let’s not be those people.  Let’s be authentic assholes.

The fire marshal’s mandate is not a collection of sincere feelings that we should help the community process through group hugs. It’s bullshit that hurts the town. Some asshole needs to call the fire marshall out for being part of a calcified over-reach that makes no sense.

Off-Street Parking minimums? More bullshit that needs to be called out. Municipalities completely suck at guessing how much parking is going to be needed for all possible land uses, and the community was wrong to give them that job. The result was they picked numbers that produced fewer complaints and phone calls. Some asshole needs to call out that lazy bullshit in stark terms and poison the well. Make the position of advocating for such nonsense so awful that anyone who defends parking minimums (or maximums) is discredited for being a lazy bullshitter.

You want to make a difference at the local or regional level? Become a developer or a builder. Free yourself from the shackles of propriety and elaborate argument. Every community needs people who can build and rebuild the place. That’s where we can find our place in the moral, economic, and cultural fabric of a place. Architects, Engineers, Planners, Academics have a professional obligation to at least appear to be interested in making the city a better place with ideas. People who are fearful see a host of horrible outcomes, real or imagined, when ideas are advanced in clumsy ways disconnected from the base concerns of daily life. Developers and builders are not burdened with those expectations and when the dust clears there are buildings built or rebuilt, people find benefit in the buildings or they don’t. (–Keep in mind that the bar for a decent building or street is quite low many places). Nobody expects virtue from a developer. They may look to exact virtuous action from the developer under duress, but they really do not expect it as a natural expression of what is in the developer’s greasy soul. An exaction or tax is often given reluctantly, out of resignation.  An unexpected gift can be a sincere expression of our better nature.

This is a framing thing. When New Urbanists propose a better place that starts to sound like some kind of utopia and the built effort that follows only delivers 68% utopia, folks get disappointed and pissed off because their high expectations (however unreasonable) have not been met. If a developer commits to meet all local codes and regulations and to deliver something the market seems to want and the built result is 32% utopia, people are accepting and sometimes even happy, because their low expectations have been exceeded.

Be virtuous in your heart, but don’t wear it on your sleeve. Be cunning and deliberate. Have a plan for your neighborhood. Gather resources that others cannot access. If we can be the people who actually get stuff built during a recession (And that stuff doesn’t suck), if we can build well, despite the severe shortage of skilled construction labor, who is going to mess with us at the local level?

If you would like a glimpse of what an insurgency of Small and determined developers might look like, wander over to the Small Developer/Builders Group on Facebook and see what those folks are talking about. We worked to keep the group fairly politics-free. If you are not on Facebook, find somebody who is and they can guide you.  Come to a Small Developer Workshop where you will meet folks who are serious about making a difference in their neighborhoods (even if other people think they are assholes).

Nobody suspects virtue in a developer. You can pick the opportunity to surprise them. Under-promise and then over-deliver.

Let’s Line the Edges of Parking Lots with Small Shop Front Buildings.

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I think there are lots of great precedents for small single story main street buildings that work well.  Above are some studies David Kim and Will Dowdy did on small, shallow storefront spaces that could be used as parking lot liners or in conjunction  with small apartment buildings and cottage courts located behind the small commercial/flex building to provide mixed use without requiring the use of commercial steel pipe fire sprinklers that can be required if the residential and non-residential Occupancy Types were combined into in one mixed use building.
The intent was provide a wide/shallow space that could be flexible.  We settled on a depth of 26′ as this leaves an 18′ dimension between the 8 x 8 accessible restroom and the storefront.  We were also looking to keep any columns or other intermediate structure out of the floor plan and 20′-32′ of depth is readily spanned without going nuts on the truss design.  You can get pre-engineered bar joists at 40′ long, but we wanted to keep the construction technique within the skills of residential trades.
Keeping the depth modest allows for daylighting of the space from a transom and light shelf over the storefront and awning.  Spaces this small are easily heated and cooled with a ductless mini-split heat pump/air conditioner.
Using a single pitch roof truss, sloping from the street side to the rear, with a parapet on the street side can provide lots of room for signage, while screening compressors or kitchen hood fans from the street view. 

Buildings that are flexible enough to house small and inexpensive workspace for retail, services, food and drink, etc. should be in the Small Developer’s tool box.  You may know an under-utilized parking lot that could be lined with something like this.  Could be good way to follow up on testing the location with some food carts.

Steve Mouzon has some very interesting thoughts along these lines.  His blog has better production values than mine does, so I encourage you to click through and check it out.  Steve Mouzon’s Blog Original Green