Real Estate Development by Design

by: Rick Porter

Private ownership of property is as American as apple pie. History has recorded multiple drivers of the settlement of the United States, but one that lacks sufficient exposure was the desire to own land. So, by the time President George Washington set the terms and conditions for the sale of lots in Washington, DC in order to generate funds for public improvements, essentials for individual property ownership such as contract law and land surveying were in operation. Washington set financing terms for the lot purchases at 25% down, balance over three equal payments, interest on outstanding principal, forfeiture for lack of payment, and a conveyance only upon purchase price and interest being paid in full. Only 35 lots sold, however, with Washington, Thomas Jefferson, and James Madison among the buyers. Further promotion ensued that culminated in a wholesale purchase on credit of 7235 lots by a syndicate composed of Robert Morris, James Greenleaf, and John Nicholson. Magnificent plans were prepared and construction began, but, alas, the syndicate defaulted and all three were sent to debtor’s prison. Property values plummeted, plans were then dusted off by others, and ultimately Washington’s vision was delivered and thrives today. The profession of real estate development was in full display.

Two hundred years later, real estate development continues to be a driving force behind the creation of thriving human habitat. But who are real estate developers? What is this endeavor we call real estate development? Do we just know it when we see it? What will the next two hundred years of land use look like? Our Master of Real Estate Development program in the College of Design at Georgia Tech is out to answer those questions and, thereby, help define the profession of real estate development.

Real estate development is a unique interdisciplinary process that balances the characteristics of the land and space with the intricate demands of public policy while serving the market with a business model founded in debt. These four masters of property, policy, finance and market require the vision of a planner, the technical expertise of an engineer, the spatial skills of an architect and the coordination of a business manager to successfully deliver land use. Real estate practitioners have traditionally acquired and honed their skills through generational transfer or on-the-job training. The next generation of land use delivery will demand that real estate development becomes part of academia with a rigorous curriculum of technical, policy and business topics taught by a collaboration of academic and industry professionals.

Land has been utilized for human habitat as long as humans have been around. Land has been shaped into places for humans through various mechanisms and processes as documented in recorded history. The concept of fee simple land ownership became widespread in the United States during the 19th century. Private and public policies associated with fee simple ownership evolved throughout the 20th century, as did financing mechanisms that afforded ownership to the majority of the population. After World War II, the United States experienced a shift from an agrarian economy to a service economy. No longer did a family need 40 acres and a mule, but could do just as well with 40 feet and a cubicle. This new economy began a mass migration to metropolitan areas that was aided by the proliferation of the automobile. The concentration of the population in metropolitan areas combined with the availability of acquisition and development financing laid the groundwork for a rapidly expanding group of entrepreneurial real estate developers. In relative terms, real estate development as a private endeavor delivered primarily through small business entities is a young profession spanning not yet two generations, while shaping land for human habitat is as old as the human species. The time is ripe to collate this age-old endeavor with a model that recognizes the current demands and desires of society in order to create a platform for the next generation of our land use delivery system.

Even the definition of “development” is confusing and as varied as the entities involved. Real estate development firms range from small, local entities to global real estate operations, but even within the industry the term is not clearly defined. Classically, real estate development is understood to be the construction of the
necessary access and infrastructure to allow the legal subdivision of property making it ready for vertical construction. Land speculation is normally defined as the business of buying and selling of only land with no infrastructure improvements, and building construction is the vertical construction component of land use. However, there are endless variations and combinations of these activities that get lumped into the definition of development both inside and outside the industry. Entities that produce property to rent think of development differently than those that develop to sell. Regulators segment development and construction activity based upon oversight responsibilities. Lenders and investors apply their unique definitions of real estate development based upon loan agreements and banking regulations. Developers with a business background consider development a business problem first and a dirt problem second, while those with a craft background consider the dirt problem first with the business problem in the background. While creating a platform to train the next generation of land use delivery professionals, academia can play an important role in actually defining the profession.

“While creating a platform to train the next generation of land use delivery professionals, academia can play an important role in defining the profession.”

Engineering is a good example. Starting years ago as a fairly general education at Georgia Tech, engineering is now highly differentiated by specific activities with specific curriculums. We continue to see new areas of study in engineering based upon current technology, and from these new areas, we see clarification of new professions based upon degrees bestowed by academic institutions. The degrees establish a base level of knowledge expected to enter a field of work, a definition of the field, and trusted level of competency. Environmental engineering, for instance, has experienced rapid growth over the past 35 years as a result of the demands of society captured in public policy with which industry must comply. And today, we have progressed well beyond general environmental engineering to engineering specialties related to air, water, and soil. Programs of specific training create professions to meet current demands, and the professionals move the industry beyond compliance to innovation. Real estate development must move beyond the byzantine regulatory structure and finance driven business model to a land sensitive model that serves the concentration of population in metropolitan areas that drive commerce. Our goal at Georgia Tech is an academic curriculum based upon the synthesis of the physical characteristics of the land, the requirements of the regulatory infrastructure, the monetary management of a debt driven business model, and the ever-changing desires of the market.

While industry and academia have offered disjointed courses with various real estate monikers, the opportunity lies in the creation of an appropriate academic collaboration across the disciplines that are fundamental to successful real estate development. The curriculum must recognize that development is not a sequential process driven solely by technical, policy, or business issues but an iterative process that must balance the most sensitive pressures on each individual site to effectively utilize our land for human habitat. A post secondary program that combines the experiences of the first two generations of the modern land use industry with the talent of academia is the critical link to future land use delivery and the creation of the profession of real estate development. Students will explore the disciplines inherent to successful development through classroom collaboration and clubs of common interest. Then, as professionals, they will go forth into every aspect of the land use delivery system and move the industry beyond compliance to innovation, beyond conflict to collaboration, beyond confusion to understanding, and beyond frustration to fruition. Real estate development professionals working in concert with planning professionals, design professionals, and business professionals will create a modern, dynamic land use system to deliver the places of tomorrow. Real estate development by design will be the new normal.