I commented on a friend's Facebook thread in which he lamented the lame podium building getting built on his street. Somebody posted a comment that "It's all about maximizing the developer's profit" to explain why the building was not great.

I gotta say, that's really over-simplifying what it takes to get a building constructed in Portland.  There is a pretty good chance that trying to build a building will result in the developer losing money if they are not on top of things. I guess Not Losing Money may be the same as Maximizing Profit, but there is a lot more to the work. If you lose money often enough you become a former developer.

Most developers are minimizing risks and maximizing returns within the current crop of constraints which include local, state, and federal regulations, local approval processes, skilled construction labor shortages, and a number of can only be described as short sighted bad habits. Over the life a a project it is too easy for design to end up as the superficial consideration -kinda like deciding how a cake will be frosted. All of the other things (that will blow up your project if you don't pay attention) are about the cake. Attention to urban design and place making should be part of the cake because they can add a lot of value and solve some gnarly problems. The developers that get that employ urban design as a tool with great flexibility and utility. For the rest, well, that design stuff is just frosting.

While we can beat up developers for being unaware of the power of design to manage risk, let's bear in mind that there is plenty of cluelessness to go around.  Some of the problem with how buildings are currently conceived and delivered be found in the unfortunate culture and habits of the design community. Most planners, urban designers, and architects are satisfied with remaining uninformed and unskilled when it comes to developer math and operations.  In the end they don't have much of a common vocabulary to communicate with their clients (which is unfortunate.)

The bar for decent infill is pretty low these days -even in a place that likes to consider itself forward thinking and progressive like Portland.  It is very hard to build trust with local folks who have seen a lot of lousy buildings go up recently. If you do succeed in building something  something decent, you can start to carve out a place for yourself in the neighborhood. No matter how good your built work is, chances are good you will still be treated with contempt if your chosen line of work is to be a developer. Other people get paid at their job, but getting paid to make buildings happen is somehow something sleazy in the minds of some.  Development work is considered a vocation reserved for individuals of low character. Your buildings will have to speak for your character after you are dead. In the mean time, most folks will just think you are an asshole.  That does not mean that you can consider yourself some sort of community builder/martyr.  It's an everyday thing.  Humans prejudge strangers based upon fear, myth, or by their direct experience of some recent bad building put up by somebody that you resemble.

I live in Portland Oregon.  Moved here last December.

Last year Oregon's legislature removed a prohibition on Inclusionary Zoning (IZ) which now allows cities to require a percentage of Affordable Housing units in new buildings of 20 units or more.  The Portland City Council unanimously voted to put an IZ ordinance in place.  Recently I have had a number of folks from around the country and from Portland ask me what I think about IZ.  I have had a hard time coming up with a response that does not shut down the conversation. I get really exorcised over this topic.  To be blunt, IZ makes me nuts and I tend to go off on the people who innocently ask me about it.  Clearly, I need to craft a more grownup response.

I respect the motivation behind wanting to see more affordable housing get delivered. I am appalled by the naive methods being employed toward that very positive goal.  I get frustrated with smart and sincere people who are serious about the delivery of housing if I think they have not made a serious effort to understand the basics of how housing gets delivered.  Maybe that information has not been available to them if they are not in the business.  It's not reasonable to hold people accountable for information they don't have, so let's start by laying out the basics of how a building makes money and how people decide if they want to construct a building in a given location.

If you can't get the rent, you shouldn't build the building.  The rental income for a building needs to cover the Total Project Cost.  This includes cost of buying the site, , paying the impact fees, designing, bidding, financing, building and leasing the building.  The rental income also needs to allow for some of the units not paying rent from time to time because nobody is living in them (Vacancy).  Finally, the rental income needs to be able to cover the building's Operating Expenses which include property taxes, insurance, property management, maintenance, water, sewer and trash, and replacements reserves of $300-$500 per unit set aside each year.

In addition to covering these costs, a building need to make a profit to justify why someone is going to put up 20% - 40% of the cash need to make the building happen.  Whoever puts that money up (and signs a guaranty to repay the construction loan that will provide the rest)  has other things they can do with that money and they can reasonably expect to get paid something for the risk they are taking in undertaking a construction project.  A construction project has more risk than a savings account, treasury bond or mutual fund, so money put into a real estate project has to pay a higher return than alternative investments with lower risk.  A workable rule of thumb is that $1 in monthly rent can typically support $100 in Total Project Costs and yield a reasonable return of 10-12% on the cash you put in the building.

What happens if 20% of the units in a building don't pay their way because the rent you can charge has been limited by the IZ Ordinance?  The assumption is that you will have to convince the potential tenants for the other 80% of the market rate units to pay higher rent, or find a way to  reduce the Total Project Cost.  Reducing Total Project Costs will come down to convincing the person selling you the site that you need to pay less for it.

In Part II we can walk through the math on how this works on a example building.

Last weekend I was working on a charrette crew that included my colleague and partner, Bruce B. Tolar.  Searching through my hard drive today I came across my (improvised) remarks from when the New Urban Guild gave the 2015 Barranco Award to Bruce, the Developer/Builder of Cottage Square in Ocean Springs Mississippi.

"For those of us who knew Michael Barranco and were there for the Katrina charrettes, this is a person who really made a mark on our lives, not just because we showed up and did work together, but because his character was such that it was like playing in a pro-am: You really upped your game when playing around Michael. Very genuine. No artifice. No phoniness. He was genuinely concerned about every person he ever met, and wanted everyone’s life to be better. He decided that architecture was his way to do that.

With his passing, there is a hole in the CNU, but the New Urban Guild offers the Barranco Award to practitioners who are that kind of stand-up guy. It’s about the character with which you comport yourself. It’s about how hungry you are to learn. It’s about how much you care about your community. It’s about how much you love and encourage your fellow-citizens. With that said, I’d like to introduce you to this year’s award-winner, Bruce Tolar, through some of his work. <begin slides of Bruce's projects>

The original Katrina Cottage which by itself was great, but Bruce took it out of the total chaos and mayhem and bad financial circumstances that were pretty much an everyday deal in Ocean Springs at that time, and all along the coast. And from nothing, he created the peaceful excellence of Cottage Square, where he put the pieces together into something amazing which that community cherishes. It has even become a tourist destination. Imagine that: an interim housing solution after a hurricane has become a tourist destination!

So Bruce pulled together all the Katrina Cottages that were built as prototypes for demonstration purposes and brought them to Cottage Square. And he made something out of the pieces, just as we all try to do, which is to aggregate a great place from small incremental parts. It is a modest place, with gravel sidewalks; a place where you can operate a tiny business out of those tiny buildings. And the community that has formed there has become a real anchor to Ocean Springs. From there, Bruce launched an expansion, which was an incredibly ambitious project in a place governed by FEMA… <cough> <laughs and applause> … a terrible environment to work under, but he is doing amazing, excellent work with modest little pieces.

He reached out to nonprofits in the area; he connects with so many people; he’s been in that town forever, serving on many boards; and the idea that there was something to be done after a hurricane, and fixing civilization in general, was a natural thing for Bruce. The people love this neighborhood. The nonprofits he’s been working with have been tremendously empowered by seeing one guy’s ability to put people together and make things work. Bruce is the best design caulking gun you can imagine, pulling everything together on modest means and making things happen. So with that, I’d like to present this year’s Barranco Award to Bruce Tolar."

If you are traveling along the Gulf of Mexico between New Orleans and Mobile you should give yourself a treat and stop to walk around Cottage Square.  It is a special place built in tough circumstances by a remarkable guy.