Build, flip, and who cares what happens once you're out has always been part of the developer mentality. But in recent years a combination of the wave of Wall Street and institutional money, the rise of equity REITs, the decline of local banks, and the emergence of national development companies rips at the fabric of local developer-owner-citizens, who were more likely to build and manage real estate with the long-term interest of their communities in mind. Developers, investors and lenders today often have limited or no local roots -- projects pencil out entirely for their IRRs, not furthering any particular civic good.
If local government fails to provide sound vision for land planning, these outside business players certainly have little incentive to fill the void even at the margins. And if a project goes bad, they may be more likely to bail out, cut their losses, and leave the locals hanging. If property values take a hit as a result, hey it's not their problem. Their responsibility is to clients and shareholders, not the community. And they are out of there.
Local bankers, meanwhile, might have been more willing to renegotiate loans or give local borrowers more leeway in working out problems to avoid further harm to local markets from defaults and business failures. Bank consolidation and securitization mania eliminates opportunity for forebearance based on local interests. It's much easier for some national bank or special servicer to drop the hammer without the context of community relationships and fallout to consider.
Long distance investment and short-term ownership horizons also abrogate contributions to the community chest. If you don't plan to be around when the civic improvements get completed why contribute in the first place. And out-of-town asset managers redline charitable giving to the local hospital drive or theatre company without hesitation. Where's the return on investment?
As buy-and-flip has been stopped in its tracks by the credit crunch and real estate markets head into full bore decline, many far-off owners with little equity down hold buildings in places they don't really understand or care about and some developers get that uncomfortable feeling about half completed projects with mostly empty leasing rolls. We may see a host of players getting out of Dodge and then what happens when the out-of-town banks or special servicers get in the game. It may not be pretty for local markets or civic interests.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
