Land-Use Strategies Can Help Rein in Unfettered Development.
The post-World War II American dream has come true, and its name is sprawl. “A new metropolitan form … America of the mall, the beltway, the subdivision, the multiplex movie theater, the drive-through fast-food outlet, the low-rise office cube and the shopping strip,” writes urban planner Robert E. Lang in Edgeless Cities: Exploring the Elusive Metropolis .
Given the number of property types mentioned, commercial real estate professionals should enjoy this new landscape of endless investment opportunity. Well, not always; it turns out they hate getting stuck in traffic jams as much as everyone else.
“Route 59 just south of its junction with Interstate 88 all the way to the Plainfield [Ill.] boundary is mainly shopping center after shopping center,” says Steve Stephens, CCIM, owner of Stephens Commercial Real Estate in Aurora, Ill., one of the country's fastest-growing regions, 40 miles west of Chicago. “Even though it is relatively close for me, I try not to shop over there because of the traffic congestion.”
As Americans spend more time getting to work — an average of 26 minutes in 2000, up from 22 minutes in 1990 — and pay more — transportation costs 18 cents out of every dollar, the second-largest expense after housing — sprawl's politicalization increases. During the 2000 election, 553 state and local ballot initiatives asked citizens to limit growth. Nearly 75 percent of them passed.
In January, newly elected Gov. James E. McGreevey of New Jersey, the most developed state, made sprawl the centerpiece of his inaugural speech. “Those who profit from the strip malls and McMansions, if you reap the benefits, you must now take responsibility for the cost,” he declared. His speech launched a statewide anti-sprawl plan that directs new growth to transportation corridors, protects open spaces, increases impact fees, and gives local governments the ability to fight unplanned development.
As politicians and citizens fervently discuss urban growth boundaries and big-box blight, commercial real estate professionals in markets of every size are changing their attitudes about unrestrained development. More of them are beginning to understand the need to limit growth in some areas, tie development to new and existing transportation, and revitalize central business districts to provide more alternatives to suburban office parks and subdivision housing.
Protecting Open Space
To many real estate professionals, “sprawl is low-density suburban development and not a negative growth pattern,” say Joe W. Milkes, CCIM, MAI, owner of Milkes Realty Valuation in Dallas.
Stephens agrees. “The bulk of the sales I have made over the past couple of years have been in the land sector for both industrial and residential development. I cannot say that this is bad because we have had more than a little success in this type of product.”
Stephens' market is emblematic of both the problem of sprawl and the promise of development's economic engine. About 15 percent of the Chicago region's housing starts are in the greater Aurora area. “The main sprawl that one can see in this area is the virtually endless vista of housing subdivisions spreading from the old core,” Stephens says.
It's good for business: In 2001, Aurora's commercial investment exceeded $250 million, and its retail sales tax revenue jumped by more than 60 percent. It has 15 business parks that cater to the area's manufacturing and distribution companies, and industrial square footage increased 102 percent from 2000 to 2001.
It's also good for quality of life. Aurora and neighboring towns have parks, cultural institutions, and restaurants. But at the same time, commuter traffic clogs two-lane roads, little public transportation exists, schools and public services are stretched to their limits, and the Fox River, a scenic and recreational attraction as well as the source of 75 percent of the area's water, suffers from added pollution. In 1999, it was listed as one of the most endangered rivers in the United States.
Disappearing farmland is another issue. “The saddest part is that land now being covered by asphalt and concrete is some of the most productive land in the world, and once it has been stripped and built on, it will never be able to be reconstituted,” Stephens says. Home to some of America's richest agricultural acreage, Illinois loses more than 42,000 acres of farmland to sprawl annually, according to the American Farmland Trust.
To slow the loss around Aurora, Kane County, Ill., has instituted a conservation easement program to protect agricultural land. The county has purchased development rights to more than 1,000 acres, using $5 million from riverboat taxes and another $1 million from the federal Farm and Ranch Land Protection Program. More than 4,000 additional acres have been submitted for preservation, according to the county's land-use plan, which calls for 50 percent of the county to remain agricultural.
In general, conservation easements limit commercial development and other non-agricultural uses. Stephens says that some farmers in the area “are resistant to someone taking away their right to make a profit on their own property.” But he sees the need for the program, finding the “current, virtually unchecked process short-sighted and saddening.”
At least 24 states have funded agricultural conservation easement programs, and about 44 independently funded programs operate in 15 states. “In the Dallas metropolitan market, developers are beginning to realize that providing green spaces enhances the value of the developed areas. This has resulted in a growing number of conservation easements being placed on properties,” Milkes says.
Between 1992 and 2001, Texas lost more than a half-million acres of farmland to urban sprawl. The Texas legislature is considering two bills that would create a statewide purchase of development rights program. Currently, Texas landowners can grant easements to land trusts, retaining use of the land for farming and receiving a tax break equal to the difference in the property's value before and after the easement is enacted.
Conservation easements also protect wildlife habitats, scenic vistas, and historic sites. Milkes points out that a “conservation easement does not have to be any particular size; conceivably it could be a vacant lot or part of a vacant lot that is strategically located within a CBD.” While most easements are permanent, they can have term limits. They also can be modified or terminated through eminent domain or if a court deems the easement no longer practical.
Milkes sees land-use planning as a new opportunity for commercial real estate professionals. “Get involved with reshaping zoning ordinances and county land planning policies, and encourage developers to use conservation easements to enhance their developments, receive tax deductions, and obtain goodwill from local governments and neighbors.” In addition, “commercial real estate professionals can locate opportunities for this development [tool] and promote innovative development patterns that will result in greater profit, good public relations, and provide needed improvements for the community. This can also include adaptive reuse and infill opportunities that would combine with conservation easements,” he says.
Combining land use with transportation development is another popular anti-sprawl tactic. While many communities only address widening roads and adding highways and retail development, Charlotte, N.C., is investing in a $2.9 billion light-rail rapid transit system its leaders hope will contain development, improve air quality, and reduce traffic congestion.
Doubled in population in the last 20 years, Charlotte has transformed from a rural backwater to the second-largest U.S. banking center, right behind New York, says Nancy Bowen Wiggins, CCIM, CIPS, owner of Nancy Wiggins Commercial Real Estate. A major distribution hub, Charlotte gained about 9,000 new companies in the past 10 years, which created more than 77,000 new jobs, and invested $7.4 billion in new offices, business parks, and manufacturing and industrial facilities.
While Charlotte claimed the No. 3 spot on a survey of picture-perfect metropolitan areas, it ranked No. 2 in sprawl nationwide in a USA Today survey and fourth in traffic congestion for U.S. metropolitan areas in a transportation study. Cheap, plentiful land, no natural barriers, and lax zoning create unfettered development that merges into a six-city string of southeastern U.S. sprawl from Raleigh, N.C., to Birmingham, Ala. The Charlotte area has yet to comply with Environmental Protection Agency air quality standards and risks losing $6 billion in federal transportation monies if it doesn't pass the EPA test by 2004.
Charlotte's 2025 Integrated Transit/Land Use Plan calls for five transit corridors emanating like spokes from the central city. New transit zoning designations will encourage office, multifamily, and mixed-use development within a half-mile of 83 transit stops by offering incentives such as streamlined permitting, reduced development fees, density bonuses, reduced setbacks and parking standards, land assembly, and market research services.
“The mass transit plan sets up high density corridors and reworks small area plans,” Wiggins says.
In tandem with its transit plan, Charlotte is revitalizing its CBD where employment is expected to grow by more than 50 percent in the next 20 years. “Center city redevelopment is really a combination of market forces and reaction to sprawl,” says Wiggins, who became aware of Charlotte's problems while serving as a zoning commissioner. “Developers and speculators who may not really see the bad effects of sprawl still find ways to change and adapt to respond to sprawl issues in their developments. For example, most retail is now done in broken-up pods instead of straight-line design.” She adds that Charlotte's commercial real estate industry is entrepreneurial in spirit and stays involved in the planning process “to minimize the impact of plans on the real estate community.”
Limiting Office Sprawl
With its central city development, Charlotte hopes to reverse the national trend of office space moving to the suburbs. Only two major markets — New York and Chicago — have more office space in their CBDs than in the suburbs.
“Office location can facilitate urban sprawl,” according to a Brookings Institution survey. “It extends commuter sheds for many miles into undeveloped rural areas, and fuels decentralization. … If most new space is built in areas with no public transit access, then reliance on automobiles will continue to grow.”
Broker and developer Gant B. Hill, CCIM, would like to move office dwellers back to the Louisville, Ky., CBD. With a partner, he launched Venterra, a company that buys and renovates older downtown office buildings. “Our niche is working with historic, well-located structures in the CBD that have another life to live. Our mission is to curb sprawl by redeveloping and rejuvenating the core and foundation of our community,” he says.
Like a number of mid-size towns, Louisville's CBD was virtually abandoned by businesses and residents seeking more space in the suburbs. Bringing people back downtown — into older buildings — may be a challenge. “We may never be formidable competition to suburban office space,” Hill says. “What we must do as a real estate community is offer reasonable options. I believe that informed tenants will ultimately make the decision that serves them best.”
So far Venterra has purchased two buildings. The first is the 35,000-square-foot Burdorf Building, which after a $1 million renovation, is 100 percent leased — not an easy feat when Louisville's CBD vacancy hovers around 20 percent. The 55,000-sf Republic Building is 72 percent occupied, up from 64 percent when Hill acquired it in March. “Once we have a property in our possession, we have very little trouble finding tenants,” he says. They target potential lessees that appreciate on-site management and the downtown location.
Hill is making his move just as Louisville's regional significance is growing. This year, the city merged with surrounding Jefferson County, boosting its population to 700,000 and making it the 16th largest U.S. city. And this June, the U.S. Office of Budget and Management expanded Louisville's metropolitan statistical area from seven to 15 counties, bumping the population up to 1.2 million. It signifies the growing regionalism that the federal government increasingly recognizes; it also strengthens Louisville's marketing muscle for attracting companies and retail development. And it increases its sprawl factor.
The growth is both good and bad, Hill says. “The development of quality distribution and manufacturing facilities provides a robust employment base within this community … attracting the likes of UPS, GE, and Ford as major employers.” But, “the desire to vacate the city and spread out has created a void in our urban environment,” he says.
But it appears that Hill is getting in on the ground floor of what could be a downtown renaissance. Plans to redevelop the retail entertainment complex Fourth Street Live are in the works: Borders Books and Hard Rock Cafe already have committed as tenants. In addition, Louisville's first residential loft building opened in 2001, and the developer plans a second loft conversion — the beginning of what the city hopes will be thousands of new downtown dwellers. “Today people want to live and work in communities that offer the energy and diversity that only an urban environment can offer,” Hill says. “It is the mission of our business to capitalize on this demand.”