Projects on pause give developers the ability to generate ancillary revenue from pre-infrastructure plots.
By Chris Wood
Hopes are high that the next edition of the Guinness Book of World Records will verify Building #115 at the former Marine Corps Air Base El Toro in Irvine, Calif., as the largest camera the world has ever seen. As part of a larger project to create a visual record as the site is transformed into the Orange County Great Park, a team of photographers covered one wall of the hanger with film, opened a small crack in the opposite side of the hanger, and let the film develop pin-hole style. Since Building #115 will eventually be demolished, the photographers joke that the hanger will be the largest disposable
camera ever.
The mega-snapshot at Great Park is just one of many creative uses of land that are pulling in tens of millions of ancillary dollars for the design and development team— including landscape architect Ken Smith; Miami-based homebuilder Lennar; and San Diego-based construction management and consulting firm Gafcon— while the community is designed, phased, and eventually constructed over a multi-year build-out. In addition to the pin-hole project, movie and TV crews use the site for on- location filming of hit shows such as Fox’s 24 and the BBC’s Top Gear. Chrysler and Lexus let VIP clients put the pedal to the metal and max out speedometers on the 10,000-foot concrete runways; a recycling center creates compost from organic building material waste; and some fallow tracts are used to grow crops—for profit and for local soup kitchens.
“We actually had a brainstorming session to explore what uses could potentially be taken advantage of before and during development and then actively sought out partners,” explains Gafcon principal Yehudi Gaffen. “But there were also unsolicited proposals. There are plenty of people out there looking for chunks of land—[there are] a diverse amount of opportunities for ancillary revenue.” In 2008, pre-demolition and pre-infrastructure activities at Great Park will pull in more than $10 million in revenue, Gaff en says, “and we expect that amount to grow in 2009 and 2010.”
ADAPTIVE REUSES
Temporary site use isn’t just for wide-open land tracts such as El Toro. Creative developers are tapping into sports and local art scenes to attract attention and put some marketing punch into downtown projects prior to construction, too. In Los Angeles, Th e South Group—a Portland, Ore.-based partnership between Gerding Edlen Development and Williams and Dame Development—has enlisted the services of Phantom Gallery to create buzz around the ongoing phased launch of four mixed-use, luxury condo high-rises that are shooting for LEED Gold certification. An L.A. outfit that places temporary art installations in vacant windows, Phantom Gallery’s next project aims to transform the windows of Th e South Group’s EvO high-rise into a 24/7 public art gallery.
“[Music and arts] have been a great way of activating the sidewalks at developments all over downtown Los Angeles,” says Williams and Dame director of marketing Rhonda Slavik. The South Group hasn’t been shy to use pre-infrastructure events to promote the success of its urban redevelopment public partnerships, either. At a phase one topping out ceremony for the company’s downtown L.A. condo high-rise Elleven, bronze strings were stretched from the top of the building to the phase three groundbreaking to create a huge “earth harp” that was played by L.A. Mayor Antonio Villaraigosa. It was the type of event “garnering good media attention” for a downtown project, Slavik says.
American Dream Development has likewise grabbed the spotlight by hosting concerts on a pre-infrastructure, paved lot that will eventually become a 30,000-square-foot retail center at the Village at Freedom Place master-planned community in the firm’s hometown of Junction City, Kan. When the economy pushed sales down about 40 percent, the developer turned the front portion of its design center into a coffee house.
“Now, it is one of the main meeting areas for people in the area and is providing sales traffic and leads as well,” says American Dream Development president Jeff Burton. “It has really earned us some political capital as far as the community goes: We are seen as a partner, and our footprint has become an integral part of the downtown feel.”
In Washington, D.C., Forest City Washington is in the midst of building out the Yards, a mixed-use development adjacent to Major League Baseball’s Washington Nationals stadium. The site’s 2,800 residential units, 1.8 million square feet of office space, 400,000 square feet of retail, plus a riverfront park won’t appear overnight. Instead of letting lots sit vacant, Forest City paved them over for parking lots master-leased to the Nationals during all 81 home games. When it’s not game time, commuters fill the lots.
“The only caveat that office workers have for their spaces is that they have to clear out of the lot by 5 p.m. on game nights,” says Forest City Washington senior vice president of development Ramsey Meiser. “It has turned out to be a good program for us. We use the proceeds to pay off the overhead and construction costs for the lots themselves and then use some of that revenue to pay for ongoing maintenance, security, and operations of the entire Yards site.”
RETURNING TO FORM
Eventually, Forest City will fire up the bulldozers to chew up the parking lots and begin infrastructure development for the next phase of the Yards, and Meiser says factoring in development timeliness is crucial to any ancillary revenue projects. “As we did our analysis, we honed in on how long the lots would be in existence and making money before we start tearing them up and building the buildings,” Meiser says. “Your cost/benefit hinges on when the buildings are going to come online and, for us, how
much revenue we can pull off of a parking lot before we tear it up.”
Gaffen agrees that the key to success in squeezing out ancillary revenue lies in creative site uses that fit into your existing development plan. “The driver in all of this is cash flow that supports your existing plan of operations,” he says. “And the biggest challenge is incorporating flexibility into these projects so you can begin phasing the project precisely when you need to.” Gaffen advises straightforward language in all land-use agreements that give the developer the final word and to provide outside users with as much notice as possible when you plan to start moving dirt. “Beyond that, all you have to consider is utilities,” he says. “Some users will need some basic services, and the whole point of pre-infrastructure land use is to make some revenue as you build or rebuild the grid, so plan and communicate the need to commonly bring utilities offline.”
At the American Dream Development coffee house, the plan is to keep the lights on even after the developer has left. “We plan to transfer ownership to a local proprietor,” Burton says. “Th e coffee house has become a downtown fixture. I’m sure it will stay.” So much for temporary.
Provisional Plans
Consider these tips for maximizing pre-infrastructure development.
Land holdings can be used for anything from racing cars to filming movies to sustainable farming. Maximizing success with any plan means following a few simple guidelines.
1. Build a Budget. Some pre-infrastructure development comes with a pricetag—for overhead and eventual demolition. Evaluate the timeline of your development plan and then carefully analyze the return on an ancillary project.
2. Power Up. Many temporary land uses require basic utilities. If you’ve got an existing grid, consider leaving
it in place until development schedules necessitate a shutdown. Likewise, consider using temp-sites for test runs of pipe and wire systems.
3. Plan an Exit. Make sure stakeholders, development partners, and outside users are prepared to pull up stakes when you are ready to break ground. Provide advance warning and spell out occupancy and vacated terms in all of your contracts.
