This afternoon I got another phone call from someone convinced that they should develop condominiums and sell them. I am really struggling to find a better way to communicate on this really basic point. I feel like the guy in the Far Side cartoon above.

 

If you have the know how required to produce buildings that people live and/or work in, using that very valuable resource to produce houses or condos that you sell to people has a huge opportunity cost.  Opportunity cost is a big deal, as in lost opportunity and wasted opportunity.  What else could you have been doing instead of building and selling?

I cannot emphasize this enough. If you have the wherewithal to build something, Don't sell it.  Hold onto it and rent out space in your building. The market for new or renovated rental buildings is hugely under-supplied in most markets, particularly in anything even remotely resembling walkable urbanism.  There are lots of places where a couple of decent buildings will have a wonderful effect upon the neighborhood.  The people who fill in the missing teeth in the neighborhood will do well, while doing good.

 

Our culture has created completely unrealistic expectations for what is supposed to happen when you buy a home. Avoid putting yourself in a place where you have to deliver on all the delusional nonsense that fills the heads of people who watch too much HGTV. Build to hold and rent. Build in places where the amenities are exotic stuff like proximity to transit, day care, $2 coffee and a genuine local bar.

If a picture is worth a thousand words, then the right diagram is worth at least ten thousand.  I am very grateful  Jim Heid of Urban Green has boiled down the difference between Large and Master Planned Development and Small and Incremental Development into the series of excellent diagrams above.

I recently had a conversation with a bright guy in a Masters in Real Estate Development program at a serious university.  He was wondering if a Real Estate Investment Trust (REIT) would be a good vehicle for people in a local community to be able to invest in small projects in their neighborhood.  Just to set things straight, a REIT would not be a good vehicle for this as a REIT has to have a lot of property under management to justify their existence and overhead, so the structure would be way beyond the scale of small projects in a specific neighborhood.  Investors would own shares in an outfit that owns a large portfolio of a specific type of real estate.

-But the conversation reminded me of Jim Heid's diagram.  The kind of  local in the neighborhood projects my grad student friend was describing belong in the lower left quadrant of Jim's diagram, the Small and Incremental/Entrepreneurial and Bootstrapped territory.  Ownership of real estate by a REIT belongs up in the Corporate and Institutional/Large and Master Planned upper right quadrant.  We might want to bring established tried and true tools scaled for the upper right quadrant to bear on projects in the lower left, but often the scale is just...off.  I think we can call that a Quadrant Foul.

Rethinking the development business model for Small Developers will continues to uncover habits that may serve folks doing large project well that need to be substantially retooled to work in small projects, or they may just need to be set aside as because they are not fit to the purpose.

I got an opportunity to work with Gracen Johnson during the recent Kalamazoo Small Developer Boot Camp.  I was already pretty clear on the fact that she is an exceptionally bright person, but I had no idea what a quick study she is on new technical skills.

She shot some video while I was pulling together diagrams boiling down the zoning code that used for the Edison Neighborhood of Kalamazoo.  We had a chat about how zoning codes typically work.  She said the video would be helpful as she practiced some of this stuff.

Last week she posted a blog on the StrongTowns.org website.  Wow.  She absorbed a lot of technical stuff and made it much more accessible.  The photo above is Gracen's diagram of one of the zoning categories in her town of Fredericton, New Brunswick.

Gracen Johnson's wonderful recent blog post

I recommend following Gracen on Twitter and keeping track of her adventures.  She is a genuine talent.  She cares  about people and cities. I can't begin to imagine what she will be learning and doing in the coming years.  Gracen's Twitter