Archive for October, 2008

Oct 15 2008

“700 Billion Bailout, Last Gasp of Urban Sprawl” Christopher B. Leinberger

Published by under Development,Your Ann Arbor

 

Ann Arbor, October 10, 2008.  Speaking at the Global Urban Symposium, GUS, on the topic of “Macro-Sustainability and Walkable Urbanism,” Christopher B. Leinberger, University of Michigan professor and noted author of “The Option of Urbanism, Investing in  a New American Dream  declared that urban sprawl caused by unsustainable real estate practices (“Drive till You Qualify”) and government subsidies through agencies such as Fannie Mae, FHA and the gasoline taxes have been a major factor in the collapse in home prices, the sub-prime crisis and ultimately the global financial meltdown.

Leinberger identified two types of urban environments; Drivable Suburbanism and Walkable Urbanism.  As transportation systems drive development, Drivable Suburbanism (Think Brady Bunch) is automobile centric while Walkable Urbanism (Think Seinfeld and Sex in the City) demands a more balanced transportation plan including readily available public transit and non-motorized transportation.  Consequently, Walkable Urbanism is a much more complex (time and money translate to expensive) problem for cities to solve as the infrastructure and neighborhoods are already established. Making space for increased density creates a need for change which many communities are not ready to accept.  Brian Swett of Boston Properties a development firm in Boston, MA offered a good example when he stated that the newly opened Mandarin Hotel in Boston took 13 years to get through the permit and building process.

Leinberger elaborates on just how bad the housing market can get in an article he authored for Atlantic magazine, entitled “The Next Slum”, March 2008.   Most of the loss of property values will occur in the fringe areas in overdeveloped Drivable Suburban markets such as Las Vegas, Los Angeles, Sacramento and parts of Florida.  Ground Zero in the property value decline will be fringe areas without rail transit and no functional city core. 

The news is not all bad however. As smart cities successfully make the shift to more balanced transportation systems and increased population densities, property values can rapidly increase as buyers are willing to pay a premium for Walkable Urban real estate.  Washington D.C. for instance has transformed a former Low Cost Housing Project into a planned walkable community.  Remarkably, in just five years land values per square foot increased from $10 per square foot in the former rundown crack cocaine neighborhood fraught with all the social decay that is endemic in blighted neighborhoods to a thriving walkable neighborhood with a new major league baseball stadium and a new expanded Metro station.  The entire 97,000 sq foot development (two football fields) was just sold for a $69 million profit for the Metro Authority at land prices that were approaching $712 per sq foot 70 times the original values.   

Conclusion: Walkable Urbanism equal Sustainability equal Profit! 

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Oct 07 2008

Speech to City Council 10-6-2008 Brownfield Tax Credits

Published by under Development

Good Evening Mayor Hieftje and Council,

My name is Stewart Nelson and I live at 2975 Hickory Lane in Ward 2. 

      I am here this evening to offer my thanks to Councilmember Rapundalo for his work behind the scenes to modify the developer’s plans for 601 Forest. This new plan has been labeled a good compromise between what was wanted by the developer, the city, and neighborhood groups and seems to put aside the developer’s threat of litigation against the city. 

      While I applaud the gesture on the part of the developer, I suspect that his change of plans had more to do with lack of funding options due to a faulty business plan or uncertainty in the credit markets than a sudden increase in his civic pride.  You must be cognizant of that fact when you debate the issue of the builder’s request for Brownfield tax credits later this month.  I am opposed to granting tax credits to a project that probably would not be funded without them. 

      Brownfield tax credits are incentives for developers to redevelop contaminated, abandoned, blighted properties, rather than building out in the cornfields.  That certainly is not the situation on the corner of South University and Forest Ave.   While it may appear that Brownfield tax credits can generate money out of thin air producing the ultimate Win-Win situation that simply is not always the case.  Brownfield credits are only Win-Win when the alternative is the property will not otherwise attract investors or developers.  If other investors could be attracted to the property without Brownfield tax credits, the situation is truly a Win-Win situation with the City and School System the winners.   

      From speaking with other developers and lenders, I feel that in a more favorable lending environment, and a firm commitment by the City to work diligently with qualified developers the entire parcel or individual parcels could be developed with a project or projects that better fit the character and scale of the neighborhood. This plan would provide a much needed economic lift to the South University Corridor and to the City while not diverting revenue from our schools to undercapitalized developers.   

      I encourage you to vote no to the developer’s request for Brownfield credits and I encourage the public to attend the public hearing scheduled for 6:00 pm on October 13th at Larcom.    

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Oct 07 2008

Caucus Speech during Public Hearing Time 10-5-2008

Published by under Politics

I would like to speak tonight to the possible impact of the mortgage crisis on municipal finance.  In case you have been off the planet for the past two weeks, you no doubt have your fill of the details of the meltdown on Wall Street in the residential mortgage and commercial credit market and the potential ramifications for Main Street (you and I) and our economy.  As U.S. credit markets ground to a halt last week and the resulting shockwave blasted through world financial capitals it became apparent that:

·        A U.S. and maybe a global recession is unavoidable.

·        Businesses are already cutting back capital projects and payrolls.What you may not have noticed is that 80-90% of the municipal bond sales were suspended due to uncertainty in the market. In my forty years as an investor, this is only the second time that I can remember such an event taking place.  Closer to home, in the first nine months of the year 1103 homes were foreclosed on in Washtenaw County compared to 741 in 2007.   Simply put a bad economy is now turning into a terrible economy and the end is not in sight yet.  This  uncertainty in the credit markets convey some negative implications for Ann Arbor, Washtenaw County and the State of Michigan:

1.     The cost of municipal borrowing will certainly increase and with large capital projects already budgeted for 2009-2010 we can expect some nasty surprises in finance costs.   

2.     We also can predict large stock and bond losses in our pension and VEBA plans.   These losses should be made up within the next budget cycle or we run the risk of dropping below recommended funding ratios.  How many CDO’s are in our retirement portfolios?  The City Bank law suit implies at least some.    

3.     Lastly, there is an increased chance of lower revenue sharing with the state as the state’s ability to borrow disappears and lower tax revenues force further budgetary concessions. At the risk of sounding like Chicken Little, as a student of the financial markets I have some suggestions for your consideration:

1.     Like every prudent business is currently doing we should ”hunker down” and examine every expense for necessity.   

2.     Increase the targets on the unallocated reserve for the General Fund to 12-15% from 8-12%.  

3.     Adopt a budget stabilization reserve of 1%. 

4.     Monitor budgets more closely with at least a semi-annual review and possibly monthly review.  You can ignore your personal brokerage account statements as they arrive to put off learning the bad news, but please don’t put your “heads in the sand” and hope and pray that we as a city are going to be immune to the economic “hurricane” that is certainly heading our way.  There is still time to prepare.   Clearly these are extraordinary times.  Please don’t just assume it will be business as usual for the next two years. 

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