San Antonio's downtown skyline, looking southeast from the top of the Weston Centre. Photo by Kara Gomez.
San Antonio's downtown skyline, looking southeast from the top of the Weston Centre. Credit: Kara Gomez for the San Antonio Report

We see and hear about the much-touted development in our downtown with proclamations that the city-center is back. By most measures, new development is on the rise: increase in lending, increase in city revenue by permit fees, and increase in privately-owned housing starts in the first two quarters of 2015; a double-digit increase from the prior year. Yet, the data indicates this growth is overshadowed by the unsustainable development of the suburbs, notwithstanding the occasional skyscraper mentioned in the media.

Unfortunately, this continues the same sprawl pattern cited in my prior installment and its imprint will leave the next generation dealing with the high cost of maintaining roads and infrastructure that connect the suburbs to the city. In underwriting our economic future, why doesn’t development cater to what people actually want?

I’ve published my findings on this topic based upon years of research and it points to five key elements — or “Pivot Points” — that, for better or for worse, have combined to create a looming public policy debacle that will become manifest over the next decade. The five Pivot Points influencing development patterns are: Energy, underwriting, government subsidies, shift in economics, and behavior — taken collectively, they are either challenges or opportunities, depending on your perspective.

Portico 2016 Forecast is compiled from multiple data-sets and indices. The graphic illustrates that astonishingly few sustainable homes are actually built compared to widespread sprawl. Furthermore, sustainable development is directly linked to downtown development.
Portico 2016 Forecast is compiled from multiple data-sets and indices. The graphic illustrates that astonishingly few sustainable homes are actually built compared to widespread sprawl. Furthermore, sustainable development is directly linked to downtown development. Courtesy image.

Energy

Suburban development is linked to the energy markets. When Garret Hardin, credited for coining the term “green movement” in 1968, espoused a more sustainable way of doing things, he prompted many to predict the decline of suburbia. It was a transformational wave of enthusiasm that bottomed out in the late ’70s because it questioned traditional notions of fossil-fuel-driven economies. Today, the price of gasoline may continue its downward trend into the 2015-2016 winter, which may lead to another 15 cents-per-gallon decline as filling stations continue to deal with sharp declines on the wholesale market. What does this mean for the sustainability movement in general and for downtown development in specific? The answer may lay in an interesting correlation: the decrease in fuel costs typically means a decline in public transportation ridership (and vice-versa: increase in fuel costs triggers an increase in ridership). This directly affects cities that have public transportation systems running through downtowns.

When the American Public Transportation Association presented its 2008 survey findings, its report cited ridership “hit its highest level in 50 years and the rate of ridership growth more than doubled in the first half of 2008” while fuel costs soared. Low cost of energy directly impacts downtown growth.

Underwriting

In order to sustain a movement, you must know how (or find the will) to finance it. To illustrate this point, the United States Green Building Council (USGBC), as a model for reforming how we build, barely has scratched the housing industry’s surface. In 2011, the USGBC announced it had achieved the 10,000th LEED-certified building in the U.S. since its inception in 1993. That’s equal to 0.1% (one tenth of one percent) of all LEED buildings compared to only one year’s worth of housing production. No one is financing green buildings in a meaningful way. Furthermore, the U.S. Census Bureau and the National Association of Home Builders data shows there were over 7.3 million housing starts in 2011 alone. Financing early adopters of sustainable development on a wide, meaningful scale is needed. (See chart: Portico 2016 Forecast above.)

Government Subsidies

The federal government has tried to prime the lending drought, but it has been difficult to change preexisting mindsets. When federal, state and local programs cease offering rebates, so too the appetite for implementing these programs by owners diminishes. Yet, what is occurring in our post-Great Recession economy is interesting: rooftop power is growing despite waning incentives owing largely to the global glut of solar panels driving prices down. Indeed, owners with capital are going forward with sustainable projects in spite of dwindling local incentives because they can afford the time it takes to chase the payoff.

The economics of smart growth, and therefore downtown development, relies upon the availability of liquidity to the market place. It was hoped the path of investment was to be redirected to downtowns in every major city in the U.S. during 2010-2011 retooling period. This has occurred, in large part, by federal stimulus to entice private sector capital matched with local municipal investments triggering public-private-partnerships to help shoulder the cost burden away from the municipality itself. It has worked in creating a new blueprint for the next generation of downtown development. Yet, the private sector remains cautious, coming in only after it sees new bicycle stations, linear parks and community safety.

Shift in Economics

It is widely understood that banks are no longer underwriting the types of deals they were financing five years ago. And, with Dodd-Frank legislation looming to become effective this October 2015, borrowing will become more challenging. In Jonathan Levine’s new book, “Zoned Out Regulation, Markets, and Choices in Transportation and Metropolitan Land-Use,” the author points out that market pressures create the demand: affordability and lack of options drive the suburban sprawl machine.

One clear example is the disappearance of the Energy Efficient Mortgage (EEM) — a financial product that underwrites not only the borrower, but the asset’s energy performance as well. It lost its market share in the financial collapse of 2007-2008. Not until a seismic shift in the underlining economics of housing occurs in the US, will the EEM — or its equivalent — is widely adopted by the appraisal, lending and building industries.

Behavior

The American public, numb in the aftermath of the Great Recession, is beginning to move away from the American Dream embodied in the form of cul-de-sacs, gated-communities and energy-loser dwellings — although it is a slow trajectory. It may take a full two generations to reverse the adverse impact sprawl has left on the urban landscape. The future of our cities point to redevelopment in the inner-city as one of the most financially sustainable policies a municipality can embrace. Why underwrite the same type of development pattern that places houses further and further away from centers of employment, connectivity; isolated from the community and built to ‘keep out’ rather than be magnets for economic development? Behavior is the key to sustainable underwriting and therefore is likely, to solve long-term problems presently associated with defunct policies. Unsustainable economics eventually catch up to unsustainable development.

In 2003, Professor John Alschuler stood before students in real estate development and planning and told his class, “If cities are to survive, they must have the financial and political will to survive.” His firm, HR&A Advisors, wrote the SA2020 blueprint from which much downtown development is guided. Will San Antonio meet or exceed all of its target goals for a sustainable, thriving downtown? If it does, the five Pivot Points will have greatly influenced its outcome.

*Featured/top image: San Antonio’s downtown skyline. Photo by Kara Gomez.

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Roy R. Pachecano

Roy Pachecano, AIA, MSRED, is a real estate developer, builder, advisor, architect, author, and experienced educator. He is a San Antonio native, with immediate family ties to New York City. He was appointed...