Cursed By Knowing The Numbers

Had an hour to do a low gear flyby of this building conference held in the City last week.

Here's what I liked:

Jefferson Lumber, the recycled lumber folks out of Shasta City, have some really beautiful recycled teak flooring at standard lengths and widths under their Terra Mai brand.  Cost is $14 to $16 psf.  Orders under 4ksf are in stock.

Photovoltaic powered attic fans power up with the sun, so ventilation starts earlier than with a thermostatically controlled fan.  They are just ok to look at, but if you have a south or west-facing roof, these fans pay for themselves in keeping down heat buildup under roofs in the summer.

Photovoltaic systems vendors were in abundance--I counted nine of them.  Everyone said there was no wait for panels anymore, the supply crunch that cursed this industry earlier this year looks like it has eased.  Economics are getting better.  I like these systems for a number of reasons-not the least that a properly sized system can help get your project LEED certified.

Liberty Valley Doors was our door fabricator for a Robert A. M. Stern designed home I produced in Pacific Heights a while ago.  They now offer a "rediscovered wood" product.  Our doors were 9/4" thick, and they really contributed to the quality of this home.

and making building materials perform un-natural acts (as a client so aptly put it) seems to be an increasing part of the challenge of producing insanely great places to live.

Glass is one material that is increasingly being used in unique, un-natural ways.  On a recent home, I used it in the main stair.  We had a few precedents to go on.  This application was a little more conventional than the glass staircases you see in the Apple stores.  Jobs patented the stair's design, you can download a copy here.  Dupont's Sentry Glass Plus interlayer plays a role in the structure, as did Depp Glass' embossed finish--we used the microdot on our job.  Wesley Depp was a great help in getting this design figured out.  Another installation that was instructive was on Seattle's City Hall, a glass bridge.

Building codes and liability issues have to be closely managed.  The math is actually pretty simple, and the Dupont SGP gives you a boost in strength if you need it.  We had to perform an IBC equivalency, and I worked closely with the chief building official to make sure we understood how this product met codes.  You have to dial in the strength with one of the layers broken, so you need to understand how the laminations work together.  Edge supporting helps a lot, but diminishes the cool factor.  And your fabrication drawings need to be exact.

One alternative we looked at but ended up not doing anything with was Schott's LightPoints LED equipped laminated glass product.  Maybe on my next project...

...makes my job so much easier later on in a project.  And delivering quality is what it is all about, right?

Buy the right site.  Sites are all unique, and offer you unique advantages to meet your program.  If you are building green, you should have plenty of southern exposure (and minimal western exposure) to meet your daylighting and PV requirements.  If view is your priority, the view corridor and your rights to it need to be carefully understood. Cost.  Entitlements. Variances?   What are the trade-offs?   Quantify them.  Have your architect/CM/contractor walk through with you and understand what they see as opportunities/constraints.  What does the site want to be?

Entitlements.  Permits, and what permissions they provide, affect schedule.  We never could have produced Showcase in the time we had to deliver if the permitting hadn't been precisely correct.  Hat tip to Dan Phipps Architects.

Be careful what you ask for.  Rightsize your requirements.  Emergency power sized to cool the house and fire up the spa can get expensive.  Increasing granularity on program and budget allows you to move in sync.  Visions [.pdf] need to be tested, understood, and undertaken by those who will build them.

Design from the Inside Out, Build from the Outside In.  One designer told me that he designs a home from the door jambs out.  Builders start with setting horizontal and vertical control for a site.  At some point, these two vectors intersect.  Quality happens when the glide path of these vectors is understood and integrated.

No Leaks, No Squeaks, No Smells.  The three most significant reasons owners are not happy with their homes is the presence of leaks, sounds that should not be there, and smells that should not be there.  Design to eliminate possibilities of this happening.  Choose materials in a similar manner.  Build well.  Size the HVAC system correctly. 

Understand What you are Building. This goes for Owners as well as Contractors.  I cannot recite the number of times I have been told, "That is Wrong!"  after we have gone through design, reviewed and approved shop drawings, and tried to be as clear about what is being built as possible.  You never catch 'em all, but boy is it a pain in the butt to rip stuff out and pay for it twice.  Fabrication drawings are the way the builder confirms what is meant in schematics, so carefully review them before releasing them for fabrication.

Phillips displayed a number of concepts at its Simplicity event in London this week. Click here to learn more about the concepts, many oriented around healthy living and the use of color and light therapies to enhance our quotidian routines.  Light, air, and control over our environment.  Some things never [should] change.

Look for more LED lighting, rf based controls  and media centers that give you intuitive access to all media in your home--getting us one step closer to that digital lifestyle.  Your entire home and media library controlled by your iPod?  Methinks we are about three years away...

November's Architectural Digest (p 192) has an article on a home we produced in Palo Alto.  This is the third home we've produced that has graced the pages of Digest, and we are grateful for the (anonymous) attention.  This post discusses the three [insanely great] homes we produced.  I am grateful for the coverage, because for all the hard work that goes into them, they are private homes, and the final result is rarely ever seen.

There were several interesting aspects about producing this home.  I believe this home is the best example of the architect Steven Ehrlich's work, bar none.   This house has substantial, yet quiet, subtle moves to it.  It embodies Steven's philosophy of multi-cultural modernism.

The use of cast in place architectural concrete in such inventive ways was the most challenging part of the project.  Ryan Associates was the general contractor, and they really stuck to the task of getting the cast in place architectural concrete right. Thanks for getting the job done, Jim, Gil, and Stephen.

I love the Honduran mahogany paneling and casework.  Plant Architectural Woodwork built all of the casework on this job--it was a pleasure working with them.

The home prior to that was in Hawaii, designed by Ricardo Legorreta's office, with production drawings done by Shah Kawasaki.  Project architect was Geddes Ulinskas, a very talented professional.  Ryan built this one for me, too.  This was in the October 2005 issue of AD.

Ricardo's homes are about mass, form, color, materiality, and daylight.  The quality of his homes is unique--for example the interior doors are all 3" thick--the heft is so reassuring.  The research into materials was extensive and the final palette is a statement about, life, art and living.  Paul Wiseman was the interior designer.

The location is right on the ocean, and the juxtaposition of the ocean, the colors, the light and the great moves this house has made it one of the island's most significant architectural homes--though it was an acquired taste for some armchair critics on the island.

The first home I produced that made it to Digest was in San Francisco, designed by Robert A.M. Stern, now dean of architecture at Yale.   For many reasons, it will probably always be my favorite.  I love the sentimentality of Stern's voice, the owners are my heroes, and the entire building team came to appreciate the artistry and craftsmanship that went into producing this home.

The fact that this home is built in, and reflects the culture of, San Francisco makes it even more appealing.  Shingle style architecture is truly an American vernacular, and the overscaled nature of some of the detailing increases the clarity of the voice that calls this a home, in the best sense of the word.

Architectural Digest is unique in that their photography is attractive, yet only partially revealing.  No revelations about the numbers.  Only quality.  And they reveal nothing about what it took to produce the home--not a bad thing, for the design once, build once, operate once world is a challenging one. 

 I have referred to Digest over the years to learn about designers on projects I may be working on, to find vendors to help me solve problems, and as a way to enjoy again projects that I worked on.  For Owners it is a great source of inspiration, aspiration, and for articulating that most American of ideals, the private home.

Nothing like snow and freezing temperatures to get this whiny Cali boy going--and there was plenty to go on about.

I believe that Council participation is the single greatest benefit of ULI, and working shoulder to shoulder with these elaborately educated, type A personalities is often humbling.

I have been a council member for two years now, and am really appreciative of all the work that goes into these events. If you belong to ULI and are not on a council, get on one.The camaraderie brings out the best of ULI.

The councils focus on specific land use areas, and study best practices in each of these areas.  The councils get together twice each year for a day, and review recent deals, sharing ideas and perspectives.

We toured Stapleton, the ten year redevelopment of Stapleton Airport into a new community. The land takedown is staged, allowing Forest City to get greater land utilization. Infrastructure is paid for by a tax increment financing over the entire property, and development has been at a measured pace to maintain demand and pricing levels. There is a wide variety of housing available here in an infill location--the largest question from a community development standpoint is whether Stapleton's dependence on the Denver Public School system can be mitigated. The Gates Foundation is involved in the Science and Technology high school.

 
The second project tour of the day was Aero Flats  given by my friend, the wine-making, mountain climbing, real estate financier John Williams. John is the Managing Partner, Capital Markets for Carmel Partners, a group of perceptive, professional and principled real estate pros based in San Francisco. John has been instrumental in opening up opportunities created by Carmel to a larger institutional investment universe, and it looks like both groups have benefited.  This project was the successful renovation of a thirty year old property on the edge of Stapleton that used to be under the main flight path of the old airport

The third development we toured was 1600 Glenarm Place,  a redevelopment of an empty office building into an upscale highrise apartment community with great moves and  a well choreographed marketing campaign.

The property is in leaseup at some of the highest rates in Denver. The building was completely renovated to bring 333 units of rental housing into a great downtown location. Interior finishes were well designed, and well constructed.

The developer kick-started an upscale grocery/prepared foods store in the building, a very nice amenity for residents, but a land use that really needs training wheels to make it into a great neighborhood resource.

Fifty percent of new leases came from internet inquiries--foretelling a change in how we need to think about resident acquisition. A good management team, well executed plan, and a great asset.

...I hate fashion victim architecture.  Moody starchitecture.  I just don't get it. The expansion of the Denver Art Museum, that is.

Played hooky one sunny day during ULI in Denver last week and went for a run to check out Daniel Libeskind's new extension to the Denver Art Museum</a>.  After reading Ouroussoff's review in the NYT, I had to see it for myself.  Does the "Bilbao effect" of starchitecture work if the building doesn't? 

Does the strategy of adding condos--clad in Rheinzink rather than titanium-- to the mix save this plaza from a windswept exile?

The sculptural aspects of the building were impressive from a distance. Titanium works well in the afternoon light. I can't for the life of me understand how it will be a great place for understanding art.  The arrival sequence is dehumanizing.  Form completely separated from function.  Lighting is tough with the sloping walls.

It will be a great space for a particular sub-genre of art--sculptor Antony Gormley's Quantum Cloud XXXIII, an abstract human figure made of sharp-edged metal seems right at home among the rest of the sharp edges. 

There is no other exhibit space I know of that has planes colliding into planes in the way this space does.

The number of acute angles may drive demand for art that responds to this angularity.  Was it a reaction to the surrounding buildings?

And for a building owner, the fact that titanium, besides being expensive, marks.  How do you keep this clean over time? They should have gone with the granite at ground level.

The detailing up close was disappointing--metalwork joinery was not up to the level of quality one would expect from a game-changing building, if that is what the museum's board members were after with the $110 million they spent on adding 146,000SF to the museum.  What else could have they been after?

The most interesting juxtaposition is how the acutely angular DAM expansion plays off Michael Grave's thirteen year old PoMo Denver Public Library.    A real architectural odd couple.  Now, I will be the first to admit that I am not a huge fan of master-planned environments, but will it be interesting to walk this plaza ten years from now. 

The real trick will be whether this structure adds to the life around it, or is a one-off stunt that sucks the life out of, and detracts from the art contained within Denver's arts center.

UPDATE:  Guess I was not that far off--

Stuyvesant Town and Peter Cooper Village, a 11,232 unit apartment property on 80 acres in Manhattan sold last week to Tishman Speyer Properties and BlackRock Realty Advisors for $5.4 Billion.

Gossip at ULI noted that in-place net operating income is just a little north of $110M with a close set for mid November.  The property's tenants bid $4.5B, one of twelve bids for the property.

These are the guys building the Infinity condominium project in SOMA here in SF--the first 656 of a total 1400 units in four towers are going up now.

This puts the going in cap rate at just over 2.  Obviously someone with a lot of money [and more successful than your host]  feels that cap rates are overrated...

Starbucks Total Store Count, as of three weeks ago...

 
Find out how many Starbucks are within a five mile radius of where you are.  These guys aren't coffee purveyors, they are masters of understanding where disposable income and their targeted aspirational psychographics intersect.  First thing I check when doing research on a site.

OK, enough fiddle-futzing around, back to making another projected dollar...

One of the big events at ULI last week--standing room only--was the issuance of the 2007 Emerging Trends in Real Estate Report.  Based on surveys taken over the previous summer, the report is usually about six months behind for the markets I work in, but a good way to understand how people are handicapping the prospects of the global property markets.

Some of the more pertinent takeaways:

• Bicoastal preference--New York, SoCal, Washington DC, Seattle and San Francisco are the top five investment markets.  The Midwest sags.
• Multifamily preference--rising mortgage rates, expensive housing, and demographic shifts slot this property type back into the pole position.
• Niche Fever--will subside as the stock market and private equity funds provide alternatives for capital that last year looked at condo-hotels, assisted living, and resorts.

Emerging Trends Best Bets for 2007?

• Develop Infill and Mixed Use--in 24 Hour, Coastal, High Tech Centers.  Job growth is back in the Silicon Valley and Seattle.
• Focus on Management--no more cap rate compression to bail us out of overpaying for assets.  Protect future cash flows by working down expense levels.  Use green technology to reduce expense.
• Buy Homebuilder stocks.
• Build Green--reduce costs, and insulate yourself from utility company rate shocks.
• Sell the Dogs--Sellers have the upper hand, but the window is closing.
• Cap rates are anybody's guess...was shooting the breeze with someone from a major apartment investment firm and he was making the case that real estate should be a 4 cap business--25x net income--in the coastal, high barrier to entry markets.

...is typically a sign to me that we are approaching a market top, climbing that wall of worry.

A recurring theme throughout ULI last week was "Paranoid Optimism"--the idea that the future holds a number of low probability/high impact events, but the high probability/high impact of continuing low inflation, global trade, and a high rate of innovation means that optimism is warranted.

Bill Emmott, the former editor of the Economist Magazine, gave a ULI breakfast talk with paranoid optimism as its implied title.  The benefit of the pumping of global liquidity evidenced by a lower cost of capital  has a big multiplier effect--combine this with the internet driving a higher rate of innovation--the risks to a better global economy are political ones.  He believed there was a 50/50 chance of a US recession in '07, leading to a recovery right about the time the new president takes office.

His datapoints: 

• The 1993 global average inflation rate of 37% has decreased to 3% in 2006.
• The US two largest problems--a current account deficit of 7% of GDP, and a budget deficit of 3% of GDP are problems, but over-dramatized. A falling dollar will be the largest result of these imbalances.
• US$ has fallen 15% since 2000, and will fall further over the next several years.
• The Middle Eastern risk premium reflected in oil prices (currently $58/bbl) is falling and will fall further.

If politics and low-probability but high impact risks--terrorists with WMD, North Korea's collapse into violent civil war, or political instability and strife in China--do not strangle global trade and development, times should be good.  We have quite a tailwind at present.

George Soros is still looking for his crisis--the one predicted in his book failed to come to pass due to the pressure of global competition, increase in global labor supplies, low inflation and a high rate of innovation.

Emerging markets are now 50% of global demand--25% from China and India alone.

It is the politics behind the economics of a rapidly integrating global economy that are the risk.  It is how our societies adjust to the supply and demand disruptions that growth in labor supply bring.  It is how we price and incorporate environmentally friendly and carbon neutral development techniques into our best land use practices.

The environmental awareness and sustainability championed by Al Gore  in his movie are becoming more widely adopted.  The good news is that his ideas will eventually win--and his advocacy of carbon neutral lifestyles---the bad news is that he will not [be the next president of the United States].

The current "supercycle" of increasing commodity prices is due to twenty years of underinvestment.  Or rather undersupply caused by underinvestment. The current surge of investment in creating greater supply should reverse this financial commodity bubble.  The current 700 hedge funds working the commodity bubble has increased from 4 funds ten years ago, creating bubble conditions that will soon correct.

If the US does lapse into a recession next year, led by cuts in consumer spending, it is likely to be a mild one if interests rates stay low.Lower global demand by the US is likely to be counteracted by higher demand by Japan--now coming out of a ten year recession.

 Was at ULI this last past week, and listening to friends and participants there got me to thinking again about a triple bottom line approach to real estate development.

Majora Carter, in her TED talk last spring, articulated a triple bottom line for her projects. I am sold on this approach to recasting a property's land use, and I believe ULI can do much more in shaping how planners and practitioners understand what "best land use practices" really means. At this point, I need to get beyond the talk--4.9 million hits on Google for Triple Bottom Line--and get to the execution stage.

The question is how this affects my competitiveness--gaining control of sites, raising capital, executing on a plan.  Does including two other elements into the calculus of recasting property make me more competitive?  Or less?

My take on triple bottom line development is its value in perfecting a land use and its entitlements to create positive returns to the community, the environment, and those who build the asset.  The three "bottom lines" are:

1. Environmentally sustainable
2. Community enhancing
3. Rewarding to capital

The components of my projects are:

• Land Use
• Labor Utilization
• Return on Capital
• Quality of Plan and Execution
• Environmental footprint
• Community benefit

My goal is optimizing ROI's achieved from sustainable, community friendly development that have satisfactory returns to us and our investors.   Environmentalists embracing their inner capitalist, developers embracing their inner flower child, and politicos embracing their inner Jefferson Smith.

Environmentally sustainable is where I am seeing the most potential. Awareness of how to build in an efficient manner, how to use technology to produce more more carbon neutral assets, and use of the internet to offset your carbon footprint is becoming an integral part of our project planning. And sustainable technology, thanks to demand being induced in Europe, is really attractive.

Community enhancing is a little more ambiguous, as diverse communities have diverse needs.  Its mostly about seeing the bigger picture, creating crazy-good places where people who just love the area walk everywhere. Daily needs within a couple of blocks.