Brought in prior to final bidding, we realized that this project, in a normal market, was going to price out 60% over the resources committed to it.  Since we haven’t been in a normal market for over 2 years now, we stood by and waited for pricing—and unfortunately we were right.

Taking 10%, even 20% out of a project to get it to balance with available resources is not that hard, and routinely happens as  qualitative increases in one area creep into other areas, driving a contextual upgrade in quality [and cost].  Dialing back qualitative requirements to meet an overall level of quality can save ten percent without looking like the job got whacked.

What was unique here was the amount of the re-balancing needed.  Rebalancing a project that is 60% off requires real time costing, and a clear understanding of where we can, and can’t, pull from without compromising what this home wanted to be. 

How did we do it?

1. Pull in limits of demolition—defer landscaping and site work.
2. Cut square footage.
3. Focus quality where it is felt—balance finish with how the space will be used.
4. Recruit a builder partner right-sized for the project.

Now that the shovels are in the ground, the focus is on building pace and intensity on the project—getting it done in twelve months.  Slow jobs simply cost more.

The guiding document is a one page summary of salient facts, development costs, intended building program, and The Raise—the amount the institution needs to go out to their donors and raise.  This document, together with our 3D spatial demand overlay, provides a narrative to the action required to reach the end.

Balancing program with budgets via this tool reduces friction, dynamically evaluates options, and speeds time to generating truly compelling development alternatives. 

Decisions become easy when you have a compelling option—this instant feasibility process means you spend less time deciding and more time manipulating the model to arrive at a truly outstanding, and balanced, plan.

Feedback loops within the tool provide early warning signals.  In a recent case, the tool showed that the institution’s intended offer price for the site was markedly greater than the program’s land residual value, and close to the commercial property bubble pricing last seen in 2007.

We begin at the end—taking the end client’s perspective on its spatial demand needs, and then loop back to the beginning—the site context and the bones of the property currently being considered. Rinse and repeat on the program until costs, time, and existing conditions balance.

The institution's spatial demand was projected onto the existing bones of the building—in this case it included the original 1907 construction brick walls, 1996 seismic braced frames, stairs and vertical transport shafts—to understand how useful the bones are to this new program.

Rapid prototyping and conceptual costing is potentially the most valuable tool a board can have when searching for a new building or location.  The reduction of stress and upfront due diligence friction on boards, their architects, and most importantly, their lead donors makes me wonder why this powerful tool is not more widely used.

Development model generation is a prototyping tool providing a close enough “horseshoes and hand grenades”  level of costing, critical path implementation, and program definition.  I admit upfront that our forecasts…

“…are always wrong.  The real question is how wrong they are.”

This tool combines an architect’s creativity with our structured approach to development delivery—the best of both worlds—when you need it.  Now.

• has a mid-career student profile, designed so you can learn a lot from your fellow students,
• consists of small classes, and is only
• twelve months in duration, so you don't have to spend a lot of time offline reprogramming yourself.

Unless you are independently wealthy, or come from a prominent real estate family, one of the best moves you can make is to find a grad program that is a fit for you.

The one I went to was started by Hank Spaulding and Larry Bacow at MIT's Center for Real Estate.  The MIT Center for Real Estate is sponsoring an information session this Friday, 5NOV at 630P the headquarters of AMB Properties located on Pier One [Google Maps Link] on San Francisco’s waterfront.

If you are thinking about graduate school, and your passion is real estate and development, this may be worth a couple hours of your time to come in and listen to Tony Ciochetti, the Center’s director, pitch the program and talk with San Francisco alumni [you can start with me] of this twelve month intensive master’s program.

Register here.   Look forward to seeing you Friday!

We understand the science, know how to limit carbon loading our atmosphere, we can manage the costs.  What we need now is to summon the political will.

Now, with the benefit of hindsight, our pricing model was 10% HIGH—prices dropped another 10%  last year, and will probably bottom out at the end of this year,  as job growth returns to backstop occupancy in the Valley.

Thanks, Tom and Myles.  That lunch conversation over sphaghetti and meatballs saved my butt—nothing worse than being wrapped around the axle on a real estate project where you will never get out ahead of the preferred return.

We lives to die another day…

I love this technique—the analyst actually went back and marked up their 2009 forecast at the end of the year with what actually happened. 

The downturn in San Francisco and Seattle, two traditionally downturn-resistant markets, was greater than forecast.

Pricing dropped 40% from its 2007 peak, and is forecast to drop another 10% in 2010.  NCREIF property returns were the worst in NCREIF’s 30+ year history.

The big conclusion of the markup?  2009 was the weakest year since the 1990’s—remember SURVIVE TIL ‘95?   I wonder what the new mantra is…

They are predicting a quicker return to zero or positive returns in 2010 than for the 1990s downturn—driven by cash on cash returns—with income getting re-established at sustainable levels.

Employment growth is expected to turn positive this year, with below long term GDP trend growth until 2011—performance tracking below previous recoveries.

The big thing they didn’t talk about?  What will the real estate banking market look like going forward?  The guys that threw the gasoline on the fire in 2005-2007—Lehman, Merrill, RBS, and Bear—are all gone.

The bottom line?  Commercial real estate, once viewed as a liquid, appreciating asset with the ability to carry a lot of debt as you rolled over the tenant mix, is now back to occupying its traditional role as a bond-like income producing investment with an inflation hedge.

I need to understand more about BIM, it seems like it is an essential tool in understanding how to chart/maintain a course.  Almost like a navigation system for building..."Left turn in one month...  Recalculating...  turn back now.  I REPEAT, TURN BACK NOW."

Housing price declines appear to have stopped accelerating--stabilizing at a rate of decline of 20% per year.  The good news is that it looks like we are approaching a trough.  Bad news is that peak to trough is expected to be about ~40%.  Yowza.

Pulling the levers to achieve a 40% reduction in housing costs means that residual land value is negative.  Brother, can you spare some dirt?

Most interesting points made were about what is working today. 

The panelists had kicked the print advertising addiction--their two best friends were now signage and social networking.  They are starting to leverage the value of social networking--but at what price do your friends consider you smart when buying that condo?   And those broker open houses with the free trips to Hawaii?  Fuhgeddaboudit.

Is it time to start buying hard assets?

Here is MIT's Center for Real Estate Transaction Based Index--although there are so few transactions you don't really know what the mark to market price is--and no transactions for the retail sector as an extreme example.  The results are showing a record price drop.

We are in the market right now buying apartments, so I am probing for a bottom every day--don't see one yet.  When will this end?  Repricing on compelled sales is happening now--question is getting commitment from our investors for what used to be good returns of low to mid teens on operations without construction and lease-up risk.

Not the type of curve that makes you want to jump back in the water, but demand may recover fairly quickly--unemployment is not THAT bad, no inflation, and the cost of debt is not unreasonable.

MIT's Supply and Demand index is another take on current market conditions--sell side is easily six months behind the buy side on pricing, and demand side pricing is off 30% from its high in 2Q07.  Demand spiked back up in early 07--don't believe we will see a repeat of that bounce.  Frankly, I don't know what is going to pick this market back up. 

Free Fallin'...

Demand, wherefore art thou?

Our Palo Alto project received another award.  Custom Home Magazine awarded our project its Grand Award for a Custom Home more than 5,000SF.  This Palo Alto infill project struck me as one of the last great houses of the 20th Century, and probably the best built example of Architects Steven Ehrlich, Takashi Yanai and Alec Whitten.

Ryan Associates was our general contractor and raised the bar on cast in place architectural concrete.

Engineered Environments was our AV design/builder and I recommend them highly.

Depp Glass fabricated the glass for the main stair--they did the Apple stores--and were real pros to work with.

Pacific Pools was the pool contractor and, well they stuck with it until they got the job done. 

Great team, exacting job, glad to see it get some press.

California is the 12th largest emitter of greenhouse gases in the world--the second largest user of transportation fuels--and the largest user if you look at it on a per capita basis.  If you are looking at the problem through a greenhouse gas lens, our problems are sprawl development, and a very high percentage of car use.

My focus here is whether building form is influenced, or follows, energy demand--I'm going to leave the car problem to the smarter folks.

My basic thesis is that we will not conserve our way out of the problem--we need to develop for a world where energy is expensive.  This will get the numbers working in the right direction, and then focus on delivering clean, cheap power as part of the solution.  Why isn't conservation the answer?  This is what happens when energy is cheap:

Every new home we add, every new apartment we build, every new office building developed--increases the demand for energy.  If we are generating electricity from carbon based fuels, it increases the carbon loading of the atmosphere.

The average Californian requires about 7,500 kWh per year:

This is a little more than half of the national average, but we add 400,000 people per year in population.  Part of the reason why our usage is so low is that we are blessed with a wonderful Mediterranean climate in our coastal regions.  The problem is that the majority of these new arrivals will live in the interior of the state, where the summer heat is intense, and AC loads drive a "peaky" electrical demand curve.  And no one wants a new power plant next to them.

Every new office building requires about 13 kWh per square foot per year to operate when fully occupied.

New data centers are being designed at 400 watts per square foot or 1600 kWh/SF/yr, more than 100 times your typical commercial office building.  And data center demands are increasing, not decreasing as Google, Netflix, and Amazon becoming a more familiar part of our lives.

The value of the asset we create is diminished by the energy costs necessary to operate it, and augmented by its value to its occupants.

Our demand for power is becoming increasingly "peak-y" due to building more in the Central Valley--peak demand is very sensitive to temperature variations:

The rising cost of petroleum and natural gas as a feedstock increases awareness of how much, and what type, of energy is used, in our daily activities.  Understanding energy flows can, and should, inform the design of our built environment. 

How do I practice Form follows Energy development?

The most basic form of energy is the sun--so Form flows with the Sun--

Start by understanding the energy flows of the site.   reflected in what is needed to be captured, deflected, or redirected.  Think daylighting, cross ventilation, night flushing, pre-chilling, and thermal cycling.

Intervening--reflecting, redirecting, and catching the energy flows.  Think shades, reflective roofs, and occupancy patterns.

Harvesting--solar electric--photovoltaics, and solar thermal--solar hot water and adsorptive chillers for air conditioning.  Harvesting on an inefficient building is a dumb idea--like trying to row a leaky boat.  Do you row faster, or fix the leak?

Methinks the answer is:

• more compact development patterns--ULI is already looking at this,
• net zero energy buildings--CPUC wants all new residential at net zero by 2020 and commercial by 2030,
• a revolution in how we fuel transportation,
• distributed electricity generation--think smart grid, solar, and wind, and
• a fuel tax/carbon tax/credit process to motivate us to do the right thing.

Creating incentives, building awareness, putting a cost to using energy unnecessarily.  This is a "wetware" problem--the people, economics, and politics--putting the skills to work.  We have won the hearts and minds, now we need to execute. 

Form following energy, indeed.

Along with Dongtan City in China, this new zero-carbon community designed by Sir Norman Foster is setting the bar for triple bottom line development.

This new city is seeded by a US$15B investment from the Abu Dhabi Emirate, and is located 10km from the center of the city.

Scheduled to be complete by 2016, this new 640 hectare [ 1,700 acre] home for alternative energy industries and research will be home to 50,000 people, create 70,000 jobs, and 1500 companies.  Passive solar design and energy efficient design will result in a community that

• uses 80% less energy,
• 50% less water--a big deal when all your water is produced by desalinization, and
• 1% of the waste going to landfill

than current community needs.

Green design principles will enable this community to save over $2B in oil consumption over the next 25 years, and add an estimated 2% to the GDP of Abu Dhabi.  A streamlined regulatory environment and a unique enabling environment, and a location in the trendsetting UAE completes the feasibility picture.

A Chicago architecture firm recently won the commission for the headquarters--using a positive energy, mixed use program.

A great example of developing like you give a Damn.

The California Public Utilities Commission, through its “Big Bold Energy Efficiency Strategies,” has adopted three programs designed to move all new residential and commercial construction to a zero net energy standard. The goal of this program is to reach zero net energy in residential construction by 2020 and in commercial construction by 2030.

Another interesting point was the mandatory solar--so that it could be included in the T24 calc.

Mandatory solar isn't the way to go.  Shading, tilt and azimuth is a major issue in greater than 50% of residential sites, so we would end up with systems that don't pay for themselves quickly enough.  The report did admit that feed-in tariffs--the way they do it in Germany and Spain--are the way to go.  And this would promote higher performance design.

Price grid power high enough vs self generation--we think the curves have already crossed in PG&E territory and on the Big Island of Hawaii--add a feed in tariff, and the market will take care of the rest.  Or do what Marin did, and cap residential energy use at the equivalent of a 3,500SF home, and the owner or builder needs to compensate for any additional usage through greater efficiency, or the use of pv to self generate the difference.

The CPUC came out last Friday recommending that all new residential buildings developed after 2020 be net zero energy.

Time to get to work...