A Review of Placemaking: Innovations in New Communities

In November 2014, the Royal Institution of Chartered Surveyors (RICS) and the Urban Land Institute (ULI) released Placemaking: Innovations in New Communities, a report that synthesizes best practices from more than 700 survey responses, 20 in-depth interviews, and three workshops of staff and advisors who work on planned communities in both the public and private sectors. The Report offers a useful comparative approach, evaluating new communities in both the United States and the United Kingdom. The examples include greenfield development and the redevelopment of underutilized urban areas. The Report also evaluates a wide variety of development scale from Milton Keynes, a 1960s United Kingdom new city with a population of nearly 250,000 persons, to redevelopment of San Francisco’s Presidio, which anticipates just 160 units. Across these relative differences, the Report offers a definition of new communities, then offers five “innovations” that new communities have brought to the development community and five “initiatives” that would further improve the practice of new community building.

Defining New Communities

The RICS/ULI New Communities Report defines new communities as “planned, residentially-based, mixed-use settlements for populations from 1,000 to 100,000 that are located in urban and suburban areas.” While new communities in the United States are primarily private sector ventures that are often referred to as “master-planned communities,” in the United Kingdom, they are primarily public-sector initiatives known as “new towns.” The origins of master-planned communities in the United States are often traced to foundational projects such as Radburn, New Jersey, which sought to implement Clarence Perry’s notion of a super-block, which would have community buildings—schools, churches, community centers—located at the center of such a block, residential lanes connecting homes to those buildings, and neighborhood-serving commercial buildings lining the external arterials. The Report argues that there are six ways that these new community projects differ from typical single-use real estate projects. These differences are large scale, comprehensive scope, unitary project management, multiple use, portfolio financing, and a partnership structure. The scale necessary to make such development economically feasible is a challenge, especially when up-front costs are substantial and a developer—public or private—must be able to sustain a long-term financing horizon to see a profit.

Five community preferences topped the lists of the Report’s survey of industry professionals in both the United States and the United Kingdom: public transportation/infrastructure, innovative design, market-driven mixed uses, business opportunities, and lifestyle benefits. Cross-cultural differences emerged. In the United Kingdom, industry professionals envisioned new communities on a scale about five times as large as those in the United States, and UK industry professionals envisioned much higher densities in the new communities.

Innovations in New Communities

The Report details five innovations that new communities have brought to the development business. First, new communities embraced what the Report calls “comprehensive planning,” which the Report defines more broadly than is typical in the United States. Different parts of the development team—builders, architects, landscape designers, and the rest—must imagine how respective parts of the development process affect the whole. It also means establishing short- and long-term financial and organizational resources that could sustain massive building projects that often last decades. Second, new communities use portfolio economics, an approach to project finance that permits for large, up-front investments that yield financial benefits over long time horizons. The Report suggests there are four approaches that make portfolio economics most effective:

1. front-end capital commitments for infrastructure and common areas before revenues are generated from sales and rents;
2. “patient capital,” which defers repayments and returns on front-end investments before the project can afford them;
3. phased planning and expenditures to balance cash outflows with value appreciation; and
4. close financial and operations management throughout the project lifecycle to periodically monetize increased values without imperiling the long-term capital structure.

More than half of respondents noted the importance of long-term financing as their foremost problem, and many developers had to change a long-term project as originally envisioned to accommodate financial commitments.

Third, new communities possess integrative business models that, in turn, help to re-envision traditional models of real estate project finance. For decades, “long-term returns in land development projects have ranged from 15% to 30%, and in specific cases, considerably higher; while debt/equity ratios typically have centered in the 50% to 70% range.” To achieve these returns, developers have stuck to standard real estate products that seemed safe, but left little room for innovation. New community developers distinguished their projects from smaller, single-use competitor’s by having multiple income streams that derive from a variety of different types of products that occur in the same project.

Fourth, new communities “realize public purpose through private enterprise,” often leveraging the best of the public and private sectors. The best known “public private partnership,” or “P3 model,” was pioneered by the U.S. Army’s Residential Communities Initiative, which attracted $12 billion in capital from ten development groups to produce 86,000 new and renovated units on 44 Army installations. The U.S. Army projected 16% long-term returns over 50 years for projects with between $250 million and $1 billion in each project, which was consistent with institutional markets at the time, though requiring a significantly longer time to recoup those profits than traditional financial institutions might otherwise request.

Fifth, neighborhood communities have pioneered service delivery to replace traditional local government services in an age when local governments are more and more restricted in what they can do. Services offered by some developments include schools, parks, safety, sanitation, and the ubiquitous homeowner’s association. The Columbia Association, for the Columbia, Maryland, development has over 100 functions and 40 facilities, including child-care and fitness centers, with a $66 million budget and 1,500 full- and part-time professional staff.

The strictures of Euclidean zoning, and its resulting conformity and perceived “staleness,” gave rise to the flexibility of the planned unit development. That remains a hallmark of the new community in both the United States and the United Kingdom. These projects often result in creative uses that result in extraordinary placemaking, such as the renovation of Denver’s Union Station, or plans for Chicago’s adaptation of a former US Steel mill to a 700-acre green new community.