Friday, February 14, 2014

What about a Green Bay Packers model for Real Estate Development?

With the North Campus of the State Hospital, the O'Brien car dealership parcels in downtown, the debate over a new Police Station, a stalled Request for Proposals at the Blind School, and the elongated development time at Boise, it seems like the moment might be ripe in Salem to at least talk about a different model of real estate development.

Howard Hall at Church and Mission
A little over a year ago there was a story in Atlantic Cities about a crowd-funded real estate development model in Washington, DC.

It's operated by a firm called Fundrise. Basically they created the legal framework for neighborhood residents to be able to invest as little as $100 in what amounts to a publicly-owned real estate deal. (It was complicated and difficult!)

From the Atlantic piece:
Dan and Ben Miller began tugging two years ago at a simple question they believe is central to the failings of the American real estate industry.

The brothers – sons of a well-known Washington, D.C. developer – had begun acquiring properties themselves in the city’s emerging neighborhoods where traditional capital seldom goes. Real estate developments are typically financed by wealthy investors who live in the suburbs, or by Wall Street funds even farther away. In a neighborhood like Washington’s H Street Northeast corridor, this means that local projects often can’t find backing, or that far-flung investors put up safe, formulaic products in their place: say, "the glass shiny office/condo building that’s horrible," Dan Miller says, grimacing.

This model – with its broken connection between a neighborhood’s desires and its investors' bottom line – seemed to the brothers illogical. Why couldn’t people in the community invest in real estate right next door? Why couldn’t the Millers raise money to purchase a property on H Street from the very people who live there? The neighborhood is a quirky mix of barbershops and hip beer gardens. It’s not the kind of place that investors from wealthy Chevy Chase, Maryland, quite get.
With "pride of ownership," in some ways it's like the Green Bay Packers approach to community ownership.

Perhaps as important as "pride of ownership," though, is that neighbors have deep knowledge of hyper-local market conditions. Instead of crappy big-box generic development, neighbors can specify exactly what they want and what a neighborhood needs.

The concept the Millers put together has mutated and grown.  The Fundrise project has a staff, including regional representatives - one located in Vancouver, WA, in fact! - and looks more like a high-tech start-up than a DC real estate development firm.  Clearly they are trying to scale and port the model to other states and cities, and it may be that there are additional regulatory hurdles that vary from state to state.  But there is also a private part of the website that promises to link "accredited investors" to other deals, and this match-making service looks a good bit more exclusive than a project for neighborhood investors at a floor of $100.  It's probably true that the intellectual property and corporate concept can be used for multiple kinds of arrangements and may have revealed powerful flexibility - or it could be just the same-old, same-old.

Reading about the company is fascinating stuff, and it would be even more interesting to see if there are conditions in Salem amenable to a project like this.  Most of the developments associated with Fundrise are in larger cities - Portland and Seattle have some presence, for example.

But if Salemites aren't getting the kind of infill development they want, and are faced with several large parcels coming into the market in the next decade, maybe there's something here of interest.

Update, March 12th

Not sure this is worth a separate not just now, but see comments for update on this piece that discusses a proposed land trust as well as additional State measures.

Update, March 15th

From the piece
Representatives of neighborhood associations, historic preservationists and others had an opportunity to review a local group’s vision for the Oregon State Hospital North Campus at a private meeting on Thursday.

Geoffrey James and Gene Pfeifer presented their ideas for redeveloping the North Campus, which they called the “Salem Solution,” to a small group gathered at the Grand Ballroom. James, a local architect, and Pfeifer, a construction specialist, have proposed renovating six historic buildings on the North Campus and incorporating them into a mixed-use development.

James and Pfeifer suggested that business tenants, a university campus and housing were possibilities for the 47-acre North Campus.


Jeff Schumacher said...

Comparing the Fundrise concept to the Green Bay Packers ownership is interesting, but I would view the Packers situation as far more than just community ownership. That team - like all NFL teams - benefits greatly from league revenue sharing. Without that revenue sharing, the Packers would not be in Green Bay.

In terms of using a large community of investors or owners for real estate development, I would be quite skeptical. No matter what type of development one undertakes (big box or LEED platinum renovations, or something in between) it takes decisive action. Time is money, and the longer a project sits around the more expensive it becomes. Having a large community-based group of owners sounds like a nightmare, at least in terms of getting important decisions made.

The old saying that a camel is just a horse designed by a committee comes to mind, and I would think that this approach to development would involve so much debate and compromise that the finished product would not satisfy anyone.

Salem Breakfast on Bikes said...

I think it's an investment structure rather than a management structure, and while the structure encourages developers who are responsive to investors, it is not a collective or decision-by-consensus model. So I think worries about a decision making nightmare situation are overstated!

It might also be useful to think of employee-owned businesses, like Bob's Red Mill or Full Sail Brewing or Bi-Mart: The employees have an ownership stake (even if they aren't exactly investors), but the businesses retain a traditional corporate management structure, so there is a "decider" and the firms don't get stuck dithering trying to please too many or trying to design a camel.

This is also a very young, experimental model, and as you suggest, it could turn out not to work. At the same time, there are holes in market coverage for our existing models, and it's great that there is this experiment! It will probably take several years to see just how viable it is in general, whether it remains super nichey, fails outright, or points to wider applications.

Susann Kaltwasser said...

I think this kind of project has merit. The Olsen development on Rural Ave S was sort of this kind of situation. Bonnie Hietch wanted to see a denser planned development after serving on the Planning Commission. When talking with her neighbor who was looking to sell and move to a smaller property they decided to pool their efforts and combined their properties to get enough land worthy of such a development. Then by pre-selling a couple more homes in the development they were able to get Olsen to come in and design and build the development.

Then a few years ago the NEN neighborhood had a parcel of land that was problematic and they wanted to see something more fitting to the neighborhood, so they worked with Habitat for humanity to create some infill houses that fit the area.

In East Lancaster Area I have worked with a developer to get something more compatible to the neighborhood when I knew there was a property that was coming on the market that was more likely going to go into a mobile home park. Another was going to go in as low-income apartments. Both of these we had plenty of already and needed something more in keeping with a vibrant neighborhood plan.

There are consortiums all the time where people get investors to support a development. I would love to see such a collaboration on the North Campus of the State Hospital. I know that the neighbors have been trying to create something like an investment pool or at least create a vision that perhaps a developer might be willing to undertake.

I agree that neighborhoods through local association should try to be proactive rather than reactive. Now we need to get property owners who might be willing to collaborate and not just think of themselves and the highest bidder for their property.

Laurie Dougherty said...

Glad you're back in gear! Some of the Fundrise project projects don't look very small-investor-friendly or community-friendly. One in Brooklyn says it's going to vacate the rent-controlled units and gentrify the hell out of the place. Not my kind of people. but some of them look pretty cool and three show up under the affordable housing category.

The most interesting project to me is a Community Land Trust (in San Francisco I think). A CLT is a hybrid ownership model. The CLT owns the land and leases it to homeowners who are restricted in how much appreciation they can gain at resale. This is meant to keep the property affordable in perpetuity. Someone mentioned the other day that a small group of North Campus neighbors might be thinking about a CLT. I would love to see that idea take hold. Before I retired and moved to Salem, I worked at the Lincoln Institute of Land Policy in Cambridge, MA. Lincoln works very closely with the National Community Land Trust Network to develop workshops, educational materials and publications. I'm going to put some resources together for people here.

By the way, I don't think the North Campus "belongs" just to the neighborhood around it. Redevelopment should make sense for Salem (I put a longer comment online on the recent Salem Weekly article about this.)

Picking up on something Susan said, a low income neighborhood can be vibrant. That is the heart and soul of what Enrique and Gil Penalosa did in Bogota.

Susann Kaltwasser said...

Agree, Laurie, about a low-income neighborhood can be vibrant. Just look at the SESNA area or the older parts of NEN.

What we were able to do was convince a land owner to not put in a mobile home park and instead we got the Salem Christian Center that provides not only open spaces on its property but holds community events. Inspired by this improvement the adjacent property owner agreed to not sell to a low-income apartment developer, but a person who builds retirement communities. We got The Springs. A middle-class over-55 retirement complex. Then on the other side of the Church a developer decided not to build multifamily either but opted for a middle-class subdivision. These projects upgraded the entire area.

I agree also on the point about the North Campus of the State Hospital being something that everyone can appreciate, not just the neighbors. One thing that I hope is not allowed is any more of the beautiful trees to be cut down. I especially love D Street in that area. The canopy of trees is one of my most favorite places in Salem!

Salem Breakfast on Bikes said...

While the trees are lovely, the large nuts and associated debris create enormous road hazard for people who bike during a window in the fall! They really create problems for people who aren't in cars. They aren't especially suited for the site.

Laurie's comment at Salem Weekly can be seen here. The property, she points out, should be discussed in the same context as a Third Bridge: We could encourage walkable development at the State Hospital Property in lieu of spending a billion or more on a giant bridge and highway to serve auto-dependent development on the edges of the city.

A CLT there as part of the total puzzle could be neat! It would be great to see a genuine mix of housing styles and densities there.

Here's the Christian Center on 45th - interestingly, just north of the roto-routering going on with the Market-Swegle realignment and widening. I suppose the development there is better than a mobile home park, but neither the Springs nor the Xtian center is particularly walkable! - both are still really autocentric and don't seem like they really meet the tests for "vibrancy."

Curt said...

NEN and SESNA are two of the nicest neighborhoods in Salem but they are not vibrant. Shopping are services are all on stroads that punish walking biking and transit use and reward the overuse and abuse of the automobile.

They might even be the examples of the worst kind of development--low income and auto oriented. I don't see how a low income resident can afford to spend $10k a year for every car in their driveway and have much hope of breaking the cycle of poverty.

I think it is part of human nature for people to pursue behaviors and advocate for policies that are not in their long term interest and harm themselves in the long run. Salemites (SCV, NEN, SESNA, Stop Parking Meters, and even N3B) have been very effective in advocating for auto oriented Euclidean zoning and the culture of auto poverty is part of that legacy.

That is why the cigarette analogy is relevant and the policies that have been implemented to curb their abuse. I think the Oregon's land use laws are a good start but, at least in Salem, still don't have the teeth to overcome reactionary populist angst.

Salem Breakfast on Bikes said...

Very interesting! An article just posted online for the Statesman and doubtless for print tomorrow:

"Three locals have stepped up with a grassroots vision for redeveloping the Oregon State Hospital North Campus.

The state disqualified a “Request for Qualifications” application submitted by Russ Beaton, Geoffrey James and Gene Pfeifer — a trio well-known for their involvement in community affairs. But their ideas for a mixed-use project might have a second chance for the state’s consideration....

The proposal calls for a community land trust, backed by “local investment,” to phase the North Campus out of state ownership. Nationwide, more than 220 community land trusts — nonprofit organizations that usually provide “affordable homes” in regions with rapidly rising real estate prices — have been established, according to the National Community Land Trust Network.

“Grassroots community involvement” would be part of both the project’s design and financing. A master plan, created by the neighborhood, would guide the site’s transformation into a mixed use development

More tomorrow or the next day!

Salem Breakfast on Bikes said...

Updated with SJ clip.

Also from the piece:

"On Friday, Senate President Peter Courtney, D-Salem, sent a letter to DAS Director Michael Jordan requesting an engineering study to determine the cost of a full remediation of the north campus.

“This study is necessary as it will help inform the state as to the best way forward, will allow the department more time to search for a top-notch developer for the project, and will ensure the city gets a first-rate end product,” Courtney stated in the letter.

A full remediation of the property could “quadruple the sale value,” Courtney’s letter noted.

Rep. Brian Clem, D-Salem, also has asked DAS to invest in an engineering study and site preparations before offering the property to developers. Hasty action, he said, could result in the North Campus being sold “in a fire sale.”

Salem Breakfast on Bikes said...

updated with another clip

Anonymous said...

You might be interested that Michael Rose is reporting in the newspaper that it's now on hold:

"“The decision to just go forward and push out the RFP (request for proposal), we decided to put that on hold for a bit,” Shelby said Friday. The state had initially planned to issue an RFP as early as March 20.

DAS will take a closer look at options, such as a “full-remediation” that might include demolition of some buildings, to make the property more attractive to potential developers, Shelby said.

In March, Courtney sent a letter to DAS Director Michael Jordan requesting an engineering study to determine the cost of a full remediation of the north campus."