| From the June 2006 issue of NewUrban News
Investment pools form to support smart growth and NU Philip Langdon |
Courtesy of the Rose Companies
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| Across the United States, investment pools are suddenly cropping up, offering what could eventually be substantial financial backing for new urbanist development. At least three such pools either are being formed or are starting operations, based in New York, Denver, and northern California. If they succeed and expand, the pools may provide a means by which foundations, universities, pension funds, and other institutions can invest in environmentally advanced new urbanist projects. Chris Leinberger, a visiting fellow at Brookings Institution and a faculty member at the University of Michigan, says institutions can place some of their assets in the investment pools, and the pools in turn can invest the money in urban development projects — benefiting society while producing a reasonable return. These are the three pools: • New York-based developer Jonathan Rose has started the Rose Smart Growth Investment Fund, a $100 million fund that purchases real estate in downtowns, walkable communities, main streets, and transit-oriented developments throughout the US. • Kacey Fitzpatrick is forming the Green Living Fund in Santa Cruz, California, a $100 million fund that she says will invest in “residential projects and mixed-use projects in existing urban areas and preferably adjacent to transit,” all in the San Francisco Bay Area. • Dennis Fleming, who has been active in Denver’s “green” building movement, is organizing the New Commons Fund, which aims to invest in energy-efficient new urbanist projects with easy access to mass transportation. It will start as a fund of at least $50 million and may gradually grow to $200 to $300 million, investing in a number of metropolitan areas. How large a proportion of the pools’ money will be directed to new projects, as opposed to the purchase and improvement of existing buildings, will vary from one fund to another. Although the initial sums are not terribly large by national development standards, Fleming believes the funds can play a critical role; they can demonstrate the profitability of New Urbanism and overcome the financial world’s resistance to projects that mix a variety of uses, intermingle houses of differing price levels, and are pedestrian oriented. Architects, planners, developers, and journalists have all come to recognize the appeal of New Urbanism in recent years, Fleming says, but financiers have lagged behind. “The money side,” he observes, “is always the last to show up at the party.” If the investment pools produce figures showing that new urban projects routinely generate an attractive return, the stage will be set for a leap in new urbanist activity, including the formation of one or more New Urbanism-focused real estate investment trusts (REITs), he says. Rose’s fund will mainly buy existing buildings and make them more energy-efficient and environmentally benign. The fund will also carry out some brand-new development. His fund’s first acquisition, announced in April, was a pair of downtown Seattle buildings — the 14-story Vance Building dating to 1929 and the 3-story Sterling Building from 1910, which together were purchased for $23.1 million. Rose told The Seattle Times that the buildings’ locations near bus lines in the city fit the fund’s philosophy of investing in smart-growth locations rather than suburban settings that depend on automobiles and parking lots. Rose aims to make the buildings “the greenest and healthiest historic buildings in the Seattle marketplace,” changes that he hopes will attract more tenants and boost the rents. Planned building upgrades include better energy controls, a well-insulated roof, and the use of recycled and nontoxic products. Some of Rose’s investors will be “high-net-worth individuals, most of whom are in the real estate business,” he told New Urban News. Foundations, colleges, and not-for-profit organizations are also expected to invest in the fund, which Rose sees as an alternative to “buying stocks in REITs which are based on sprawl.” In the past several years, a few philanthropies, such as McCune Charitable Foundation in New Mexico (see April 2006 New Urban News) and the Arnold Fund in Covington, Georgia (see story on page 6), have invested in new urbanist development in their home state or home county. Many more foundations would be interested in investing through a pool, Leinberger says, because they wouldn’t have the risk and responsibility of managing the projects themselves; the fund would do that for them. SUSTAINABILITY JOINS NEW URBANISM Fitzpatrick, cofounder and vice president of sustainability at the Green Living Fund, said her pool is the result of a desire “to promote the right kind of development.” She observes: “Our goal is to promote the creation of vibrant, pedestrian-oriented, walkable communities with a mix of uses and a mix of housing types and incomes. Transit is a key piece of what we are doing.” The fund will use “the LEED [Leadership in Energy and Environmental Design] standards for Neighborhood Development as the criteria for our initial assessment of a location,” she says. Buildings will have to qualify for at least a LEED-Silver designation. Fleming’s New Commons Fund has a similar outlook, and intends to invest in projects that “have some green characteristics and that are usually new urbanist in their configuration — within walkable distance of a transit stop.” He said, “We’ve been building relationships with developers so that when we get our money in, we can put it on the street. We’re looking at new construction, generally projects of $20 to $70 million. We need at least eight to 10 projects in a portfolio to mitigate the risks.” The projects are to be geographically dispersed, mostly likely in “progressive” metropolitan areas such as Austin, Portland, Seattle, the Bay Area, Denver, Boston, and Washington. The projects would all be mixed-use and “high-performance.” The latter is a term Fleming often uses instead of “energy-efficient” or “green,” as part of his emphasis on the financial benefits of this approach. Some projects might involve rehabilitation or infill development. It’s hoped that the New Commons Fund 1 will be operating by year’s end. Fleming has served as a project manager on real estate projects and has worked on regional policy issues, such as smart growth. He sees a compelling need for carefully documented financial calculations to attract more investors to New Urbanism. “We have no data on how new urban projects perform after they’re sold,” he says. “We need to aggregate the data to show how they do. How do they resell, how do they play out over time?" The Green Building Congress, he says, has already surpassed new urbanists on the financial front by forming a partnership with the Building Owners and Managers Association and the Urban Land Institute to sponsor the Building Energy Efficiency Program, which calculates construction costs, savings, and other figures for green buildings. Fleming notes that European investment pools have already started focusing on green building — a reflection, he says, of how Europe has generally paid more attention to energy-efficiency and the environment than the US has during the past several years. He expects European funds to end up investing considerably in “progressive” development in the US. Developer Robert Chapman tried to attract investors to a TND Fund in the late 1990s, and Duany Plater-Zyberk & Co. started a venture capital fund in 2002. Those efforts didn’t go far. Leinberger and the organizers of the new funds think conditions are better now. Fleming says colleges, universities, and foundations — under pressure to be socially or environmentally responsible — are “ripe” candidates for investment in walkable, environmentally sound development. “It’s not just about starting two or three funds,” Fleming says. “It’s about moving New Urbanism into a better financial position.”
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