RICS – CPDSeptember 24, 2012

The Relationship Between Real Estate and

Urban Planning

• Presenter: Mircea Enache, Architect and Planner,

President of EMI Systems, Inc (Washington) and EMI

Invest, srl (Brasov), Director of the Center of

Excellence in Planning (Bucharest).

Program

• The Relationship Between Real Estate and Urban

Planning (15’)

• Trump in New York City: Real Estate, Urbanism,

Design Excellence, Marketing Talent (30’)

COFEE BREAK – 15’

• New Tools for Land-Use Planning in the USA – 30’

• Combining Capital Investments and Land-use

Controls (15’)

• Questions and Answers (15’)

The Relationship Between Real

Estate and Urban Planning

The Relationship Between Real Estate and

Urban Planning

• Strong link. The twin processes of planning and property development are inextricably linked — it's not possible to carry out a development strategy without an understanding the planning process, and equally planners need to know how real estate developers do their job.

• Beyond blind regulation and sheer profit making. Recently, both planning and real estate development have had to become aware of their legal and moral obligations, sustainability issues and corporate social responsibility and their impact on the planning and development processes.

The British Urban Planning System

• One of the most advanced in the world

• From “Garden Cities of Tomorrow” (Ebenezer Howard) to Structure Planning of the 70s

• Contemporary British Urban Planning (Enache, 1979)

• Town and Country Planning Act (1947)

• Structure Plans – recommended in 1967 by the Planning Advisory Group

• Slow to implement, and costly – many were never completed

• The “no planning” policy of Margaret Thatcher

• Changes under Tony Blair (recouping some of the losses) – still quite conservative planning

Reforming the British Planning System

2001 - a review of the planning system

• It was found to be 'complex, remote, hard to understand

and difficult to access'

• Local plans were deemed to be overly complex, often

inconsistent with regional or national policies, too lengthy,

inflexible in content, and slow and expensive to produce

• Development Control (the process by which decisions are

made on planning applications) was considered slow and

highly variable in speed measured across councils, as well as

being unresponsive to the needs of business/investment

and the community.

• British planning it failed to engage communities, leaving

them ‘disempowered’. The public needed to be more

engaged.

Reforming the British Planning System

2004 and 2006 - a second round of reviews

• further action needs to be taken to deliver an efficient planning system by reducing delays, addressing unnecessary complexity and increasing

2001 until 2010 - almost continuous change and a rolling series of new legislation and other reforms

• promotion of an 'urban renaissance' (Urban Task Force 1999 and 2005)

• combating urban sprawl

• increased participation of the private sector

CONTINUED

• past reliance on rigid planning standards stifled creativity

• promoting the 'compact city' (higher densities), to foster both sustainability and

• urban quality

• greater attention to urban design, to facilitate mixed-use/mixed-tenure development and to foster sustainability

• mixed-use and mixed ownership

• 'urban village' (also sometimes referred to as new urbanism')

Discussion of Romanian cities’“masterplans” (PUGs)

Trump in New York City:

Real Estate, Urbanism, Design

Excellence, Marketing Talent

The History of TRUMP TOWER

1971 eleven-story building at 57 Street and FifthAvenue - BONWIT TELLER, property ofGENESCO company

1975 CEO GENESCO – Franklin JarmanTrump – offers to buy the buildingOffer rejectedTrump writes letters every month insisting

on the deal1978 GENESCO has financial problems

Banks designate a new CEO: John HaniganTrump calls Hanigan and they meet after 30 minutes

Agreement with GENESCO (“the deal”)

• GENESCO owns BONWIT building, but not the land• The land is in leasing for another 29 years• Trump offers to buy the building and the leasing for $25M• Trump asks for a signed agreement (Letter of Intent), to

get protected from the competition• Trump approaches Chase Manhattan Bank and asks

for a $25M loan • The remaining leasing (29 years) is too short for bank

financing (too big a risk)

Trump solution: 2 alternatives

1)Cheap conversion into an office building with street level retail, cheap rent $125,000 per year) over 29 years (underrent control conditions) = profit

2)Buy the building, the rent for 29 years and the land under the building

Deal with EQUITABLE LIFEASSURANCE SOCIETY(the owner of the land under the building)

• Trump proposes an equal partnership (50/50)with Equitable to jointly build a modern tower

• Equitable Life’s alternative is getting the cheaprent for the remaining 29 years, under the realestate market picking up

• Equitable Life – skeptical regarding the feasibility of obtaining the zoning approvals, but approves the deal

The Deal withTIFFANY

Trump intends to buy the air rights of the adjacent building (TIFFANY), in order to significantly expand the lot.

Walter Hoving (TIFFANY) receives Trump

Trump takes along the scale model of the proposed tower in two alternatives (made by his architect, Der Scutt)• A hideous version on the smaller lot (no air rights)• A spectacular version on the larger lot (with air rights)

Trump offers $5M for the air rights (unused by TIFFANY), solution which assures the presence of TIFFANYHoving agrees. Problem – he will be on vacation for one month

Real estate is growing fast, Philip Morris buys a lot more expensively the air rights of Grand Central, etc.Luckily, Hoving keeps his word when back from vacation

The Battle for 4,000 sq. ft.Small lot adjacent to Trump’s lot, very useful for the 30 ft retreat required by zoningThe lot is leased by Leonard Kandell from BONWIT. The remaining leasing period is 20 years, and comes with rezoning restrictions

Kandell absolutely refuses to sell

Trump discovers a clause in the air rights contract, allowing TIFFANY to buy Kandell’s lotTrump buys this right from TIFFANY and goes to Kandell

Kandell maintains that TIFFANY’s right is not transferrable, but Trump threatens with suing in court

In 20 minutes they cut a deal:

• Kandell extends the leasing from 20 to 100 years• Kandell rewrites the leasing contract and eliminates the rezoning restrictions

The Deal with GENESCO (the battle continues)Negotiations with GENESCO – Dec 1978Negotiations leaked - GENESCO is bombarded with offersThe Latter of Intent has limited value: possibly delaying the deal through suing in court

January 1978 – a New York Times reporter asks for selling negotiations confirmation. Trump confirms.The best BONWIT employees panic and look for work elsewhere.

GENESCO needs cash badly, approves theTrump deal, but asks for 50% upfront ($12,5 M)Trump’s lawyers do not agree – huge risk

Trump accepts but requires closing the deal (going to settlement) in 2 months rather than 6 months

Focusing on Design Trump asks his architect (Der Scutt) to immediately start the tower designGoal: to maximize the size of Trump Tower, to make it the most fantastic building in New York City. Maximum FAR (floor area ratio) for the lot: 21,6

Without air rights and without Kandell’s 4,000 sq.ft. lot, the maximum FAR is 8,5 (20 stories of 10,000 sq.ft. each or 40 stories of 5,000 sq.ft. each)

Trump chooses the higher rise for two reasons:

- Superb views in all four directions

- Fewer apartments per story, and consequently more expensive per sq.ft.

The Battle for Zoning ApprovalsTrump tries to exploit every bonus (FAR increase) legally available to developers in New York City:

• Bonus for the residential function (the rationale is that offices generate intense auto traffic)• Bonus for providing public space at street level, including a lot crossing• Bonus for commercial facilities more extensive than required by zoning• Bonus for creating a green, planted space at street level

Discussion with Der Scutt about a possible multi-story atrium with shops (a small mall)Even without financial success, the commercial atrium would be useful (by allowing several additional residential stories tothe tower)

Trump tests several store chains and the reaction is positive

The Trump Touch and the Trump Philosophy

• Be distinctive; add “sizzle” to your property

• Give your customers the ultimate in perceived quality

• Understand your buyers’ and tenants’

lifestyles

• Know what your customers will pay extra forand what they won’t

The Building Architecture (Trump Tower)

Der Scutt produces 30-40 architectural solutions, while Trump selects the most valuable features of each

• The glass box model is too boring• The three exterior elevators model consumes too much

useful space• Der prooses a system of recessed terrases which is

immediately agreed by Trump and his wife, Ivana• The top of the building has a jigsaw pattern (a total of 28

sides of the building envelope) - amore expensivesolution, but with a unique and spectacular architecture

• Each apartment has at least two views, which increasesits price. With Trump, esthetics and profit go hand-in-hand.

Project Approval by the City HallTrump fights for each zoning variance neededHe uses logic to make his case, for example: the North-South crossing required by zoning is replaced with a East-West crossing, which places the building access on Fifth Avenue

In December 1978, the City Hall Planning Commission denies Trump any FAR bonus because the tower results too big and does not integrate with the site

In 1979 Trump shows up in the City Hall with two scale models:• A “legal” solution, which does not require any zoning changes, a horrible 80-story prism which cantilevers over the next building (TIFFANY)• His solution, which requires zoning variances and the use of all possible FAR bonuses allowed by the law

The members of the Planning Commission are terrified.

Opportunities for Zoning ChangesBONWIT changes owner. It is bought by ALLIED STORE CORPORATION.

ALLIED experiences financial troubles. Trump offers ALLIED a deal: a 55,000 sq.ft. commercial space on 57 Street, directly linked to the tower atrium, which allows them to remain in mid-Manhattan. ALLIED agrees to pay Trump $3M rent per year, plus un percentage of their profit.

THE TRUMP DEAL. He bought the long lease and the BONWIT building with $25M (at an annual mortgage cost of $2.5M and now receives $3M per year from BONWIT for the space in Trump Tower he rented them. He gets a net profit of $500,000 per year and the land for free, before even starting building the tower. Moreover, it strengthens his chance of getting the FAR bonuses and zoning approvals from the City Hall, which wants to keep the BONWIT chain in Manhattan.

Public Opinion and the PressNeighborhood associations try to block the project.

Trump faced with the risk of 6-12 months delays in getting the planning and zoning approvals.

In June 1979 Trump invites Ada Louise Huxtable, very influential architectural critic at New York Times, to see the Trump Tower scale model.

In her New York Times article, Huxtable, stout enemy of skyscrapers, blames the City Hall for not being able to control developers, which use every trick possible to maximize their FAR. Zoning regulations are too weak, she says.However, she has words of praise for the Trump Tower project which exhibits excellence in design, a “dramatically handsome structure”, “extraordinary public amenities” etc.

Practically, the excellence in design brings Trump all the requested approvals.

Why Trump Building Projects Are Always on Time and Under Budget

Trump advises developers to:

• Manage contractors and control costs• Be your own general contractor when

possible• Create incentives for being early rather

than having penalties for being late• Be fanatical about details• Motivate people

Trump Tower Construction1980 – Chase Manhattan Bank finances construction

HRH Construction is the general contractorTotal budget (land, construction, interest, advertisement and promotion): $200MBarbara Res (33 years old) supervises all activitiesIvana Trump involves herself in interior design decisions, choice of materials etc.

When demolishing the BONWIT building, Trump pledges two Art Deco basso-reliefs to the Metropolitan Museum of Art, but cannot save them because of their weight.

Public scandal follows, involving the press, citizen associations etc. Trump regrets his decision, but realizes that even getting bad press is better than being ignored by press. Comments like “demolishing two Art Deco basso-reliefs to build one of the most luxurious building in the world” bring Trump a flood of clients and a major increase in price per sq.ft.

Glamour and Glitz of the Public SpaceMajor success factor, obtained through design excellence and fanatical attention to detail.

Example: the atrium marble (Breccia Perniche), a rare marble in rose shades, selected by Donald and Ivana Trump from hundreds of samples. Visits to the marble quarry in Italy, marking the acceptable marble blocks, rejecting unacceptable transports, reserving the entire quarry production for Trump Tower etc.

The entire atrium is glamorous: polished brass railings, huge areas of reflecting glass, 80-ft. high water fall ($2M), etc.The tower entrance on Fifth Avenue has a 30ft opening rather than the 15 ft required by zoning.

Apartments start on the 30th floor and offer views in four directions: Central Park, the Statue of Liberty, Hudson River and East River. They have panoramic, floor to ceiling windows.

Trump Marketing Strategies

• How selling the “sizzle” sells the product

(how to play up your location)• Showing the property: the aesthetics

must draw people in • Use dazzling presentations• Advertising strategies (video and

computer-based presentations, literature,art work and models)

• Use intelligent promotions• Marketing to home buyers and renters

Real Estate Promotion: The Aura de Uniqueness of Trump TowerExcellence in design, materials, execution, location, advertisement, the right moment and timing and sheer luck provide an aura of uniqueness and magic.

Trump Tower beats the competition:

• Onassis’ Olympic Tower (51st Street & Fifth Avenue)• Museum Tower (53rd Street & Fifth Avenue), next to

MOMA• His prices are 30% higher per sq.ft.

Trump and family inhabit one of the three triplex penthouses (12,000 sq.ft). Then he adds another apartment to his penthouse.

Trump Sells Dreams, Fantasy, Uniqueness

• Trump Tower sold as “event”• Highest price, with no rebate for celebrities like: Johnnie

Carson, Steven Spielberg, Paul Anka, Liberace• Special attraction: the first residential condominium in Manhattan (most residences were “cooperative”)• The Prince Charles and Lady Diana rumour• Marketing strategy: “hard to get” – actually worked. They raised the price 12 times.• Clients: rich Arabs, French (in 1981), Wall Street,

South Americans, Japanese

The commercial atrium-ul – a great financial success: Cartier, Buccellati, Harry Winston, Charles Jourdain, Martha, Asprey etc.

Exceptionally favorable press (New York Times).

Center of Excellence in Center of Excellence in

Planning (CEP) Planning (CEP) –– in in

cooperation with cooperation with

UAUIM, BucharestUAUIM, Bucharest•• Education and researchEducation and research

•• International presence and cooperationInternational presence and cooperation

•• Regional hub (Eastern Europe and the Regional hub (Eastern Europe and the Balkans)Balkans)

•• ValueValue--added and creative/innovative added and creative/innovative approach to make Romanian cities approach to make Romanian cities competitivecompetitive

•• Emphasis on young researchers and Emphasis on young researchers and specialistsspecialists

Advanced Studies in Urbanism and Real

Estate Development (ASURED)

• Post graduate program UAUIM and CEP, with

RICS accreditation

• A two-year program, part time, distance

learning, 1800 hours of study

• Faculty from Richmond (Virginia), Vienna,

Madrid, Sofia and Bucharest

• Students from the region (Romania, Bulgaria,

Kosovo, Serbia, Moldova)

ASURED Main Goals

– cooperation between planners and developers

– expanding the job opportunities of young graduates (international planning and real estate market, academia)

– RICS certification and strengthening RICS Romania

– link between ASURED and the research axis of CEP (joint applied research, strong presence in Europe and US, marketing and promoting Romanian cities internationally)

New Tools

for Urban

Land-Use

Planning in

the U.S.

• Land-Use Controls

• The Limitations of Zoning

• Making Zoning More Flexible

• Bonus or Incentive Zoning

• Transfer of Development Rights (TDR)

• Inclusionary Zoning

• Planning Unit Development (PUD)

• Cluster Zoning

• Performance Zoning

• Development Agreements

• Form-based Zoning and New Urbanism

Land-Use Controls

• Legal Base - Exercise of police power (no compensation)

- Exercise of eminent domain (with compensation)

• Subdivision Regulation- Streets, lot lines, easements for utilities

- Land dedications (schools, recreations, facilities)

- Compatible with the municipal Master Plan

• Zoning Ordinances- Site layout (lot area, depth, setbacks)

- Structure characteristics (FAR, height, stories)

- Uses

- Procedural matters (approval, appeal)

The Limitations of Zoning

• Property owners have strong motivation to try to change the zoning:

– litigation (charge of inconsistency in zoning or “taking” clause)

– building a coalition of forces to lobby for zoning change

– confrontational approach taken by the developer (fiscal impact analysis and alternative solutions

• If a community is hungry for jobs and additions to its tax base, but does not show flexibility, potential investors will invest theircapital in other community

• Compromise – the municipal legislative body amends the zoning ordinance

• If the developer is successful in obtaining the rezoning, he will make a large sum of money even before construction begins

• Municipalities have a strong bargaining position because they zone substantial amounts of land in economically unrealistic categories (“land reserves”)

Making Zoning More Flexible• Zoning = crude instrument: it prescribes what cannot be

done, but it cannot make anything happen

• Its rigidity may lead to less than optimal results

• On the other hand, if every lot is developed to full intensity, the congestion, traffic and noise may be overwhelming

• “Zoning saturation” studies (New York would have 30 million inhabitants, instead of 7-8 millions)

• Zoning severely limits the freedom of the architect and lower the quality of urban design

• Zoning produces a sterile environment through an excessive separation of uses (Jane Jacobs criticized the lack of variety of uses) – see “new urbanism”

• Example: New York (Manhattan) and manufacturing zoning, now gentrified (SoHo, Tribeca) because zoning regulations were not enforced

Bonus or Incentive Zoning

• Increased residential densities allowed if some units are earmarked for lo- and moderate-income tenants

• The developer gets the scale economies of denser development

• In office development, city halls allow additional height or stories if the developer will provide certain amenities at ground level (a plaza, a direct entrance to a metro station, a “vest-pocket” park or sitting area etc)

• See Trump Tower bonuses obtained by Trump

Transfer of Development Rights (TDR)

• The goal of transfer of development rights (TDR) is to concentrate development in areas where it is wanted and to restrict it in areas where it is not.

• A sending area and a receiving area

• Property owners in sending areas who do not develop their properties to the full extent permitted by the law may sell their unused rights to property owners in receiving areas

• Potential benefits: preserve open space, limit development in ecologically fragile areas, historic preservation etc.

• Can this not be done with conventional zoning? Opposition and litigation

• When property owners sell their development rights, they can no longer redevelop at higher densities

• For the municipality, the technique, like zoning itself, is essentially costless

• It might be susceptible to abuse

Inclusionary Zoning

• In inclusionary zoning, developers who build

more than a specified number of units must

include a certain percentage of units for low-

and moderate-income households

• It differs from the incentive or bonus approach

in that the inclusion of units for low- and

moderate-income households is not

discretionary

• It shifts some of the costs of housing such

households to the developer, who shifts some

or all of it to the buyers or renters

Planning Unit Development (PUD)• Planning Unit Development (PUD) has been widely used in

the U.S. in the last decades

• Under a conventional zoning ordinance, the law provides that a property owner with a minimum number of acres (e.g. 20), has the option of applying to develop his holdings as a PUD

• A different set of controls applies (density and uses permitted)

• Residential, commercial or mixed use PUDs

• For the urban designer, PUDs can offer vastly more room for creative and innovative design

• Mixing residential uses with commercial uses tends to make the area more active in the evenings and on weekends

• Some disadvantages, e.g. opposition from adjacent property owners (surprise neighbors…)

Cluster Zoning

• Another flexible technique

• Cluster ordinances generally apply to residential development, permit the building of houses on smaller lots

• The saved space must be used for community purposes (open area, club etc)

• Very popular with planners: preserves open space and reduces development costs

• Public suspicion – people are afraid that sooner or later the open blocks will be filled in with housing

• In reality, the open space is easily protected with proper legal documents

Performance Zoning• Performance zoning is relatively new and not in

widespread use

• Conventional zoning results in fewer uses being permitted in any single district, leading to frequent requests for zoning amendments

• Performance zoning codes stipulate what may or may not be done in terms of end results instead of giving detailed regulations on the exact form of development

• Achieving the same goals as conventional zoning but in a more flexible manner

• Example: Largo, Florida– Five residential categories – limits on floor area ratio (FAR)

and the percentage of the site that can be under impervious cover, no limitations on the types of housing, setbacks and building height

– Four separate commercial zones (FAR and impervious cover)

– Downtown: FAR of 0.90 and an impervious cover of 100%

Development Agreements• New land-use tool introduced in California

• Enabling legislation that permits municipal governments to enter “development agreements”

• They bypass the existing zoning, but they must be in conformity with the comprehensive plan

• The contract stipulates what the developer may do or is required to do

• The municipality is legally bound by the contract, so the developer is sure that zoning and other controls will not change during the development process

• Example: Santa Monica, California– The developer was allowed to build above the 45-foot

height limit specified in the zoning ordinance and to include some uses not permitted by zoning

– The City got some off-site low-income housing, a small on-site park and a child-care center

Exactions

• Numerous communities have resorted to exactions (charges) before giving permission to develop

• In some cases, they are required only if there is to be a rezoning or zoning variance

• In other case, exactions are charged for development within the existing zoning law

• In some cases, the exaction may be for a closely related cost, e.g. nearby road construction, or school or park construction for the neighborhood

• Others are more convoluted, e.g. San Francisco– Since 1981, builders of office structures of over

50,000sq.ft. of floor space must earn housing credits by either by building new units themselves or contributing funds to housing rehabilitation or affordable housing projects

Form-based Zoning and New Urbanism

• The most recent major development in zoning

• Form-based zoning are more flexible than traditional zoning in some ways, and less flexible in other ways

• It places the emphasis on the physical form of the development – on what the area in question will actually look like

• It is more flexible about permitted uses and it is consistent with neo-traditional design (Andres Duany –“new urbanism”)

• The form-based zoning defines areas on the map and then specifies a number of design criteria that the developer must meet in each zone

• It shifts a considerable amount of the decision from the individual builder or developer to the planner or urban designer

Form-based Zoning Features

• The form-based zoning code is very pictorial (“this is what it should look like”)

• It specifies maximum heights, but also minimum heights, in order to achieve a compact, walkable environment (neo-traditional concept)

• It specifies setbacks, but not minimum setbacks, rather exact setbacks, or no setbacks at all

• It specifies placement of entrances, details about doors, windows and courtyards, and sometimes even the materials used

• It includes specifications about sidewalk widths, radius of curbs, planting and trees, down to acceptable species

• The form-based zoning code is much more restrictive and directive that the traditional code

• Defficiency: a relatively static tool, risk of urban cliché

Combining Capital Investments and

Land-use Controls

• Combining the two main land-use controls

• Forces beyond local control

• Higher levels of land-use control

• Why is higher level control necessary?

Combining the Two Main Land-use

Controls

• Enlightened communities in the U.S. combine Capital Investments and Land-Use Controls , so that they enforce each other

• Example: Westchester County, New York

• The city of White Plains and the town of Harrison received a massive collection of corporate headquarters and other office development (thousands of jobs and hundreds of millions of dollars)

• Basic preconditions: good location within the New York Metropolitan Area (possible to capture firms moving out of New York City but remaining in the metropolitan area, as well as firms moving into the metropolitan area but avoiding the high costs of a Manhattan location)

CONTINUED• Capital Investment

• Including a proposed White Plains Arterial bypass into the design for the Interstate Highway System – 90% of the cost of building it came from the federal government

• Federal funds used to create demand

• Land-Use Controls

• To produce a desirable result and prevent land uses from blocking desirable development

• Strategy - zoning to permit office development, requiring large minimum sites

• Retailing where there is good highway access and largely populated areas

• Strip commercial development (eating up frontage and creating an unattractive environment) was simply prohibited

Forces Beyond Local Control

• Other actors in the picture:

– state highway departments

– state legislators (state facilities)

– governors

– major corporations moving into or out of the area

– institutions (major universities)

• Decisions made in corporate boardrooms can have major effects on the pattern of development

• State and municipal governments make decisions about land use and public capital investment with an eye to their effects upon attracting industrial and commercial investment (including negotiations with those firms)

Higher Levels of Land-use Control

• State governments and the federal government – some control over land-use decisions that were formally left up to local governments

• It was called “the quiet revolution”

• It provides some degree of state of regional participation in the major decisions that affect the use of the increasingly limited supply of land

• Higher-level controls - where there is a clear public interest beyond the borders of the single community

• Usually coming from environmental concerns

Why is Higher Level Control Necessary?

1. The issue of externalities

E.g. If a community grants a rezoning that enables a shopping center development on a wetland, the community gains:

- fiscal gains of the development

- employment gains

- some of the increase in land values

The unfavorable effects are felt outside the community

2. The technical complexity

Most local governments do not have the time and expertise to do the data gathering and analysis required for good decision making

QUESTIONS AND ANSWERS