INFORMATION SYSTEMS FOR LAND ACQUISITIONS:
WISH LISTS, CURRENT PRACTICES AND POSSIBLE SCENARIOS
by
SUZANNE WARREN
B.A.,State University of New York
at Albany (1978)
Submitted to
The Department of Urban Studies and Planning
in partial fulfillment of the requirements of the
Degree of
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT
at the
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
September 1987
SUZANNE WARREN
1987
The author hereby grants to MIT
permission to reproduce and to distribute copies
of this thesis document in whole or in part.
Signature of the author
Suzanne Warren
Department of Urban Studies and Planning
August 7,
1987
Certified by
Gloria Schuck
Lecturer, Sloan School of Management
Thesis Supervisor
Accepted by
Michael Wheeler
Chairman
Interdepartmental Degree Program in Real Estate Development
MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
JUL 2 9 1987
LIBRARIES
gn
i
INFORMATION SYSTEMS FOR LAND ACQUISITIONS:
WISH LISTS, CURRENT PRACTICES AND POSSIBLE SCENARIOS
by
SUZANNE WARREN
Submitted to the Department of Urban Studies and Planning
in partial fulfillment of the requirements for the Degree of
MASTER OF SCIENCE IN REAL ESTATE DEVELOPMENT
ABSTRACT
As the regulatory environment becomes more restrictive and
complex, the lead time needed for obtaining approvals in land
development, lengthens.
This, in turn, increases risks due
to the difficulty of forecasting future supply and demand.
New sources of information could reduce uncertainties in site
selection.
Land
developers were
interviewed
to determine
their
information
wish lists.
Descriptive accounts
of the
decisions are
indicate that these
acquisition process
individually defined combinations of information-gathering
approach is
A technical
experiential judgement.
and
suggested that would enhance this type of decision making.
evolving information systems are
Descriptions of three
presented as examples of current practice, and illustrate the
possible future
Then,
implementation.
difficulties of
scenarios are supposed of information systems being used for
Finally, a recommendation is made to
land acquisition.
proactively position development companies to benefit from
advances in microcomputer technology and the movement to
create public land information systems.
Thesis Supervisor: Gloria Schuck
Lecturer, Sloan School of Management
Title:
2
ACKNOWLEDGEMENTS
In keeping with the philosophy of learning that founded the
Center for Real Estate Development, this thesis combines the
vision of academics with the insight of practitioners. It is
not the sort of research that offers quick solutions or
generates obvious cash flow. It is an inquiry for which we
have yet to learn the language, let alone understand the
implications. The imprecision of the task makes it all the
more remarkable, that so many were so willing to take time to
reflect. I feel very privileged.
To my advisor, Gloria Schuck, my gratitude for helping to
organize the unknown, manage the mundane and let me gradually
understanding that were already
discover frameworks of
apparent to her. It is our good fortune that she spends part
of her professional life teaching.
My sincere thanks to Sandra Lambert (Center for Real Estate
Development/MIT) for facilitating this research design. Her
continued encouragement during the dilemmas of working in new
territories helped to keep me on track.
Studies and
(Urban
Joseph Ferreira
Conversations with
the
technology
into
gave
me
insight
Operations Research/MIT)
I greatly
that
it
raises.
issues
and
the
of the future
appreciate the time and enthusiasm he graciously extended to
supplement this research.
A special thanks to Marc Louargand and Lawrence
returned phone calls and helpful suggestions.
Bacow for
Trial, error,
Innovations rarely evolve straightforwardly.
and
redirect are
reflect
to
ability
the
persistence, and
the way it
Along
common elements in the process of progress.
respect
with
can be confusing and frustrating. I acknowledge
all of those who candidly and thoughtfully shared their
experiences -- particularly the experiences that are not yet
success:
Jessie Abraham (Data Resources Inc./McGraw Hill)
Wayne Angle (Homart/Tysons Office)
John Austin (Oliver Carr Company)
Rita Bamberger (Trammell Crow Co./Residential)
Jeffrey Bates (Office of Research and Statistics/Fairfax)
Gerald Blakely (Blakeley Maddox Investment Company)
Nancy Card (Cadillac Fairview)
Paul Catinella (Bedford Properties)
Daniel Coughlin (Copley Real Estate Advisors)
Maurice Freedman (Edward Callan Interests)
Richard Gold (Unum)
G.T. Halpin (The West Group)
3
Catherine Hare (Trammell Crow Co./Residential)
Philip Herr (MIT and Herr and Assoc.)
Susan Hudson-Wilson (Unum)
Alven Lam (Lincoln Land Institute)
Brent Manssen (Management and Information Systems
Consultant)
Richard Michaux (Trammell Crow Co./Residential)
Joseph O'Connor (Copley Real Estate Advisors)
(Maryland-National Capital Park and Planning
Ruth Prendable
Commission)
William Lee Roberts (The Estate of James Campbell)
William Rucker (The West Group)
Thomas Steele (Perini Land and Development Company)
James Sukeforth (Sasaki Associates)
Dennis Tomsey (Trammell Crow/Residential).
others are not formally
To preserve confidentiality, several
identified. Their insights are no less appreciated.
Lastly, my gratitude to Hank Spaulding for seeing the need
and
estate development
for innovative approaches in real
having the wisdom to implement a plan.
SBW/August 7, 1987
4
TABLE OF CONTENTS
Abstract
..............................................--- 2
ACKNOWLEDGEMENTS
..........................................--.3
TABLE OF CONTENTS..... ..
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
..... 5
.............................. 6
INTRODUCTION..................
CHAPTER ONE
-
INFORMATION NEEDS OF LAND DEVELOPERS.........17
CHAPTER TWO
-
SUPPORTING DECISIONS WITH TECHNOLOGY.........40
CHAPTER THREE
-
MINI CASES.................................48
A FUTURE FOR DSS IN LAND ACQUISITION?.......70
CHAPTER FOUR
-
APPENDIX A -
SAMPLE OUTPUT/CASE ONE.................. ......
86
SELECTED REFERENCES........................................87
5
INTRODUCTION
Billions of dollars worth of land is bought and sold
either party having anywhere near enough
without
Both
market facts to support his price judgment.
hunch
by
decisions
to
grope
must
seller
buyer and
and by guess, for America's biggest industry must
get along with more inept and inadequate statistics
government
The federal
than any other industry.
peanuts
on
research
market
for
spends more money
keeps a
Nobody
on
land....
than for market research
is
scarcity
So
lots....
unsold
on
running inventory
professional
by
inflated
are
prices
exaggerated and
cannot be
that
optomists spreading inside dope
checked.
[House and Home 1960]
Twenty-seven years
thought
a
of as
development continues
later, land
of
complicated web
to be
uncertainties in
the
Typically, the
riskiest portion of the real estate business.
rewards have been high to compensate for those uncertainties.
This
has
encouraged
entrepreneurs who
the
market
to
an
ample
rely on
make
acquisitions, especially
supply
of
ever-optomistic
knowledge of
their ingenuity and
about
decisions
heuristic
when lenders
have been
land
willing to
loan 80-100% of appraised value.
In the past, demographic
values bailed
who had
out many
growth and inflationary real estate
land developers
(and
significantly underestimated the cost
their lenders)
volatility of
planning, processing and approval of their parcels.
repositioning
in
the market
was
6
required
Also, if
to correct
for
planning
strategy
of
national
large,
of the
some
marketing
expanding
offices
preserve a
to
and
companies who
budgets
had
the
accelerate
to
maintain enough autonomy in their
absorption were careful to
regional
small
was
to a changing economic environment.
flexible enough to adapt
Even
firm
typical
the
misjudgments,
sense
of
entrepreneurial
resourcefulness when a project got into trouble.
learned to live with uncertainty
Land developers, then, have
as a way
on
an
of doing business.
inflationary
conservative
economy,
projections,
doors" to mitigate
They
high
traditionally have relied
inventiveness,
in-house
profit
the downside risks.
and
margins
If
"back
all else failed,
the keys and the problems belonged to the lenders.
There
is
evidence
a
that
is
transition
taking
place.
External conditions are pushing developers to search for more
data and become more methodical about analysis.
This chapter
will examine some of the driving factors in this change.
RISK MANAGEMENT
Today, land
but
from
also on
the
developers depend not only
their abilities
start.
Using
sensitivity analyses to
project,
developers hope
on contingency plans
consequential risks
to manage
more
detailed
pro
identify major sources of
that special
7
formas
and
risk in a
attention and
early
impacts.
reduce any potential, negative
detection will
The
risk management tasks, unfortunately, are multiplying as land
requires more
and
complexity
increases in
development
up
front time.
WITHOUT
REGULATION
INFORMATION
zoning
real estate owners.
planning.
rights of
public documents and
in the realm of
Permits are
comment and criticism from lay
thus open for
people as well
more on the
Often, outcomes are based
as agency officials.
the players
personalities of
facilities
public
and
control
private
true in the
This has been particularly
environmental
of
permitting
and
approval
modified the
have increasingly
process,
areas
the
through
Communities,
some unified
involved than on
community policy.
These
attached
individual
to
parcel-oriented, land
of
land
modifications to
the
individually
or
titles
negotiated nature
inconsistencies
common.
This makes
of
it difficult
a
a consequence
As
duplication
and
into
assimilated
information system.
process,
explicitly
are seldom
tenure
regulatory
the
of
to estimate
effort
are
the eventual
cost, measured in time and money, of required studies, impact
fees, proffers
valued
for
or possible lawsuits
purchase.
The
time
when the land
required
for
is being
obtaining
one of the key uncertainties
regulatory approvals has become
8
in land development.
EXTENDED TIME DELAYS
time aggravates
Lengthened processing
it almost as time consuming
Many land developers are finding
To
a large one.
a small project as
to process
another way.
risk in
make better
use of key staff members, the size of projects undertaken has
expense of locational diversification.
often expanded at the
efficient but can
be more organizationally
This may
the overall
risk of the
add to
a greater
venture by concentrating
percentage of company resources in one project.
INCREASED MARKET UNCERTAINTY
Extensions
market
of
risks
the
regulatory
approval
by
subjecting
the
conditions.
The further
has
forecast,
to
be
Uncertainty is
not maintain
timeline
project
out in time that
the less
aggravated further
reliable and current
reliable
if the
to
increase
changing
supply and demand
the
projections.
jurisdiction does
data on on which
to base
employment or demographic projections.
As a
further complication, many economists
national real estate market
due
to shifts
factors.
is undergoing structural changes
in demographics,
Relying
on past
believe that the
employment bases
parochial experience
future need could be risky.
9
and other
to forecast
LAND VALUES
diligence periods come at
extended due
that they have
have
adequately
been
and believe
control of desirable
before important
occurs
factors
specific
to
adding
analyzed,
and
considerable expense
to move quickly to gain
This frequently
parcels.
sale agreements
Developers perceive scarcity
regions.
in these
and
Contingent purchase
competition.
vigorous
to
due
significantly
inflated
have
markets
inelastic, regional
in many
land prices
same time,
At the
site
uncertainty.
may be forcing
localities, speculation
In these
the market
into supply and demand disequalibrium with land prices unduly
high given the
will
approval risks.
self correct,
In the long
lag
the interim
but
term the market
may cause
costly
misjudgments.
INSTITUTIONAL PARTICIPATION
In
capital
the
markets, thrifts
and
other
institutional
lenders are trading lower interest rates for participation in
future
upside
investor
take
potential.
on
any
Rarely
of the
does
approval
the
institutional
risks,
preferring
instead to activate the partnership at a more secure phase of
the project.
Even when the partnership agreement compensates
10
the
for
developer
of
value
market
the
after
even confiscated if
may be divided or
approvals, that value
land
the
performance does not measure up to pro forma projections.
operational stages,
By
sharing the
the
however,
often critical in high
long-term
profits
developer may
not
consistently cover
reserve to
needs during early
do reduce cash flow
Lower interest rates
vacancy periods.
of successful
projects,
build
enough
the development risks
of new
able to
be
ventures.
SOURCES OF FUNDS
The tax code revisions of the 1980s have decreased the use of
syndications as
into
entrants
foreign
lenders
in
fund
unbuilt
willing
estate capital
real
pension
and
interested
the
fund
to
investors,
projects.
land
More recent
funding.
a vehicle for project
Since
markets,
are
the
are
as
not
generally
there
development,
such
fewer
cost
of
land development loans remains high as the risks increase.
SHRINKING PROFIT MARGINS
As
a
result
of
these
interrelated
competitive and highly regulated
for
land
development
are
in
markets, the profit margins
likely
reliable information and knowing how
11
uncertainties,
to
shrink.
Accessing
to use it are necessary
trends that
and predicting
finding niches
prerequisites in
will help maintain competitive advantage.
SUMMARY
Despite
a
to
willingness
usual
risk,
with
live
land
developers in competitive and regulatorily mature regions are
disconcerted
over
uncertainties.
in
increases
A simplified
market
and
political
explanation for this uneasiness
is that more factors that affect
success seem to be out of a
developer's control and difficult to evaluate.
The
market
and
people-oriented
the
variables.
political/legal
These
climate,
factors are
are
dependent on
people's preferences and attitudes in the context of economic
regulatory
and
conditions
interrelationships to
which
are
complicated
predict. The developer must forecast:
What would intended occupants be willing to pay, several
years in the future?
What
will the
affected by
developer be
expected to
the proposed project before
pay to
those
approvals can
be obtained?
Additionally,
experts
real
estate
are observing
economists
and
structural changes
12
capital
in the
market
industry.
Although there is no unified vision from economists about the
supply
macro
effects,
the office
overbuilding of
demand
and
growth reduction of the
boomers,"
and the
to alter
patterns that have
the
the "baby
aging of
market, the
as
such
factors
GNP, are expected
the last
been operating during
two decades.
If use,
market, and
significantly,
in real estate
profit margins
these conditions,
matched under
not properly
timing are
reducing effective
yields
may shrink
many
and causing
investors to place their capital elsewhere.
ISSUES RAISED
characterized as having some
Successful developers often are
"sixth sense" that enables them to divine a suitable location
for a project.
understanding
acquisition.
Cultivating this mystique prevents systematic
the
of
If
decision
the criteria
criteria
used
land
in
explicit developer
were more
information needs could be better assessed.
What
market
External
lender
conditions?
provide
to
developer?
What
acquisition -
drives an
funds?
goals?
Internal company
The
of
willingness
Predisposition
of
a
the
Happenstance?
sources
of information
13
are
being
used by
land
to make
developers
acquisition decisions?
What data
the information gaps?
Where are
is needed and in what
form would it be most useful?
Is technical
and
better
decision
inform a
appropriate
technology
this data
of
What type
maker?
most suitable for land
technology is
can
to systemize
support available
How
developers?
be integrated
land
into
development companies?
OBJECTIVES AND
ORGANIZATION OF THIS THESIS
By analyzing the criteria used by developers to select sites,
some
key
uncertainties,
identified.
The
caused by
objective
is
information
to explore
ways
are
gaps,
in
which
components of information systems could be used to extend the
range and depth of land acquisition analyses to better manage
risk and reduce uncertainties.
CHAPTER ONE
commercial
summarizes findings from interviews
and residential
make major
developers who
acquisition decisions in competitive markets.
development, such as lenders,
planning officials.
decision
supplement
points and
intuition
These findings
site designers, and
Particular attention is focused
information sources
and
land
with other people associated
were supplemented by interviews
with land
with twelve
local market
14
on key
currently used
experience.
As
to
a
result of these interviews, a "wish list" of information that
developers
help
would
been
has
uncertainty
reduce
constructed
CHAPTER TWO suggests a working definition of Decision Support
Systems
range and depth
that emphasizes extending the
(DSS)
of analysis to improve effectiveness.
the
considering
for
perspective
This discussion sets a
technological
tools
appropriate for land developers.
CHAPTER THREE contains three, development-oriented mini cases
of
have introduced
companies that
analyzed using an
example is
defined
beginning of
at the
illustrates how a practitioner
test
financial
the
designs.
impacts
components of
DSS. Each
"automate/informate" framework
The first
the chapter.
case
uses interconnected models to
of
alternative
site-specific
The second case is about a company that models U.S.
markets econometrically to strategically plan acquisitions by
location and use.
case is a retrospective look at
company's decision
a real estate
integrate a
The third
and centrally
to automate
database to increase operational
efficiency and
strengthen its strategic planning process.
CHAPTER
FOUR
builds
identifies data
that could
on
the developers'
sources and existing or
address future
wish
It
emerging technology
information needs.
15
lists.
Scenarios of
interactive
applications relevant
proposed.
Finally,
a
to
proactive
jurisdictional approach is recommended.
16
land development
are
organizational
and
CHAPTER ONE
INFORMATION NEEDS OF LAND DEVELOPERS
The development of an integrated, large parcel of
real estate today calls for techniques as dissimilar
from the past as those required to pilot a jet
We are no
compared to flying an ancient Jenny.
Rather we
pants.
our
of
seat
the
by
longer flying
master
by
perfected
instruments
on
proceed
technicians.
[Gerald W. Blakeley 1960
While planning Laguna Niguel, CA,]
Blakely
referring
was
to
three,
then
relatively
new,
techniques:
market
1)
developed
analyses
by the
county
and a
data--jointly
economic
using
research
department of
a
university, then analyzed by market consultants;
the land to match the future
2) master site planning of
community
3)
to the
natural features;
public backing
to help
and
finance land
purchases and
improvements.
In other words, public and institutional sources of data were
combined with
feasibility.
public
expert knowledge to determine
market and site
This in turn was supported by the commitment of
financing.
and
Information
resources were
jointly
contributed by the developer and the surrounding community to
plan this new town.
17
research observed
for this
Developers interviewed
that, in
active markets today, this type of cooperation rarely exists.
and
developer,
the
conducive to
not
is
planning,
joint
that can be
regional market data
The
common.
the community
relationship between
an adversarial
Instead,
accessed was
often characterized as "not current, not in a useable format,
or too time-consuming to track down."
The
is
decisions
facilities data
acquisition
land
augmented
by
and combine
with
site-specific,
usually
and public
topographical
making
in
used
information
public
on-site assessments by professionals from the private sector.
other
for
sources used
Information
vary
critical factors
according to the decision making process of the developer.
WHO, WHAT, WHERE & HOW
Twelve commercial and residential developers, from regionally
or
recognized
nationally,
obtain
information sources
chapter
were
Washington
other regions.)
with land
in
active
D.C.,
markets in the
they used.
two
of
country.
A number
interviewed
The firms
either
the most
of other
development supplemented
18
paid to
the
surveyed for this
metropolitan
Boston
competitive real
(Some of the firms
to
acquisition
land
attention was
Particular
processes.
their
of
accounts
descriptive
decision
companies, were
or
estate
also operate in
professionals associated
the research
with their
perspectives.
It is
worth noting
to principals
that, according
in these
land acquisitions is rarely
firms, information gathering for
Components, such as generating pro formas
totally delegated.
be delegated to specifically trained
or obtaining plats, may
individuals at lower levels.
However, detailed evaluation by
senior-level, regional staff
is considered essential despite
their time is expensive.
the fact that
makes sense that
are expected to have the best
those with the most experience
land and location.
"feel" for the
It
less apparent is
What is
that they also contribute significant input from a personally
proprietary networks of sources.
The
the interviews
findings from
of
categories
developers.
offered
acquisition
style of
needs
Despite
decision
the
determining the information, whether
19
the
maker
sequencing of the
Particular
not, deemed pivitol by the developers.
been
most cases,
In
differences, common
emerged.
these
by
have
explanations
responses.
and
important
both the approach and
process.
information
given to
in
background
seemed to influence
and
possible,
Wherever
for variations
professional
considered
factors
clustered into
have been
concerns
attention
was
accessible or
LOCATION, LOCATION, LOCATION
of quipping that the three most
"Real estate types" are fond
a
in selecting
criteria
important
of property
piece
are
"location, location, location." What location really means is
the degree of market acceptance of a specific site.
Locational
differ
preferences
Externalities,
such
Often these changes occur
area, alter preferences over time.
in a
few years--the time
large project.
market
and
it takes
construct a
to plan and
locational preferences of the
Understanding,
anticipating
adjoining
in an
land prices
high
or prohibitively
system
use.
transportation
a
modifications in
as
intended
depending on
market
acceptance
upon
project
completion are two critical aspects of decision making.
IDENTIFYING POTENTIAL SITES TO BE CONSIDERED
Even
companies
differences
in
by giving
markets
multiple
local
respect
development staff
autonomy in ferreting out potential acquisitions.
get leads from associates in
regional
significant
Developers
their real estate network, from
land owners who know them by reputation or from studying maps
and statistics that provide information about future trends.
Companies who have been in a particular regional market for a
number
of years,
with the
same senior
20
people making
land
acquisition decisions, were more likely to rely on reputation
and
network
In
sites.
identify
to
people
words,
other
generally come to them with deals to consider and they react.
If there is a particular type
of project that the company is
looking to undertake, they use the network to make it known.
Those companies with new
were more likely to use
in key positions
of prospecting
developable land.
of information
bits
branch offices or personnel changes
from
practice.
common
surveys" with
"Windshield
economic
leads from newspaper reports,
an informal method
development offices
or
or unattributable hunches, are
Alternatively,
brokers
or bankers
might
know and suggest a property worth considering.
A sizable range
plan
timing
the
of approaches also
future acquisitions.
of
workload with little attention
way firms
exists in the
react
Some
to
to local, real estate cycles.
As existing projects require less staff time, new parcels are
methods and criteria particular to
actively sought using the
that firm.
the
corporate planners
cycles so
wish that
developer expressed the
One regional
would pay
that more favorable
attention to
terms could be
real estate
negotiated at
the time of site purchase.
Another
development
company
annually acquires
a
certain,
predetermined amount of land and treats it as inventory.
21
The
time
as a
increased
level
shared
others
and
He
environments.
uncertainty caused
of
much
or two
year
a one
continues to
regulatory and
of complicated
result
to have
on projects
time needed
the lead
horizon yet
political
the
over
concern
by
fifteen
one to
is difficult
it
projections beyond
in value
confidence
grow
said that
This CEO
years.
from
varies
for development
horizon
lengthened
the
approval processes.
Although there
the need
was no
seeking sites,
exclusive approach to
to make selection criteria
explicit beforehand was
frequently mentioned.
Consideration of projects incompatible
with
resources
organizational
can
the
waste
time
of
experienced staff members.
THE QUICK CHECK
and
infrastructure
Adequate
predictably
regarded
essential.
as
access
transportation
They
are
the
are
first
criteria evaluated because without these, the project will go
nowhere.
In most cases, it
is readily obtained from
was agreed that this information
governmental agencies or consulting
experts.
Consensus
on this
however, did
first step,
not foreshadow
agreement on the entire site evaluation process.
extensively researched
and modeled
22
a market
One company
before seeking
any
sites.
Another
bought more
Florida marshland as a
team
baseball
to
had
some,
For
wintered nearby.
of
be
met.
the return
on
others,
an
For
intuitive standards, meant that
appealing location gauged by
project performance requirements could
most ardent
thousand acres
first development venture because its
hurdle-rate
investment
than a
be relaxed.
"numbers enthusiasts" spoke of
Even the
a parcel needing
the "right feel" coupled with a favorable pro forma.
Nevertheless,
five identifiable
considerations emerged
1)market
categories of
information
from the interviews:
acceptance
at
completion,
2)political/legal environment,
3)physical site constraints,
4)financial performance projections and
5)
corporate
strategy.
Findings from the interviews are separated into these
categories in the following section. The developers' wish
lists are woven throughout.
1.MARKET ANALYSIS
Many
of
the
developers
knowledge of their markets
by
outside consultants.
interviewed
believed
that
their
was superior to analyses produced
They complained
that professional
market researchers spend too much time looking at numbers and
extrapolating from questionable data
23
sources, and not enough
time in the field, talking to informed sources.
Most
of
reports,
did,
the companies
some more
others.
than
1)lender requirements,
2)the
into an unfamiliar market,
reasons cited
The
trusted market research companies
the reports
were:
3)not enough available staff time
of heuristic
Some developers
made about market depth.
judgments already
market
potential opportunity of going
assessments and 4)verification
for feasibility
do use
contract for
however,
routinely and find
important in determining feasibility
as well as
for project pricing and design.
The assumptions
usually
on absorption
come from
used in pro
company
either
formas, however,
experience with
similar
projects in the market area or through the network of sources
and contacts rigorously, but informally, maintained by senior
These assumptions are
level developers.
typically verified
by "leg work" in the area that is competitive to the site.
Not
surprisingly,
acceptance as
real
decentralized.
developers interviewed
the projection with the
Imperfect general
kept
most
development
This breeds
market
greatest uncertainty.
knowledge of the market
estate
saw
traditionally has
entrepreneurial
opportunity for
those who
able to parlay experience into good marketplace judgment.
24
and
are
markets it
In competitive
supply
and
to
according
demand,
make
about local
interviewed,
those
is
Some point
to project planning.
becoming even more critical
to
time
less
and accessible information
Reliable
decisions.
is
there
and
consideration
require
more variables
was observed that
taking place it is difficult
out that with more transactions
to track complex and changing trends without hard data.
growth
useful
exchange
departments
developer
one
seldom
were
as
seen
The
as
growth." Public
in-migration and business
departments
users.
potential
by
characterized
were
"cheerleaders for
planning
and
developers
between
information
an
as
acting
and
projections
with assembling
were credited
Development Offices
Economic
supportive
of
developer interests.
A macro
economic
understanding
of
current
estate markets was considered important
developers interviewed.
market, a hiatus of
not thought to
For those
be a viable option.
a
niche could always be found.
national
and local
by only a few of the
committed to a particular
local
There appeared
or regional
to be an
opportunity
It was also mentioned that both
economists frequently
real estate forecasts.
project that
real
activities during economic downturns was
attitude that
optomistic
American
had contradictory
Almost everyone shared a
had been successful despite
25
story of a
expert warnings to
the contrary.
MARKET ANALYSIS WISH LIST
1) Frequently, developers wished for more accurate local
(i.e.what
data
supply
growth
(i.e.employment
being
and
household formation)
forecast market dynamics further
means to
data
demand
planned),
is
the
and
into the future.
Fairfax, Virginia) were seen as
Some jurisdictions (such as
more helpful than others in providing information useful for
development planning.
2)
Developers
expressed
the
difficulty
in
view
for
that
that
They
creates
inconsistency
growth
local
tracing
consistent
more
jurisdictions.
proximate
across
recordkeeping
wished
also
patterns
to
select
optimal locations for new projects.
3)
Some
systemize
of those
interviewed
piecemeal-data on
the need
mentioned
to
or migration.
business growth
Economic development data keyed to a mapping system would be
of great benefit.
4)
one
determining
costs
developer
points which
above the
this could
of
talked
a
land prices
user's willingness
"timing
would drive
to pay
be anticipated, acquisitions might
26
method"
for
project
threshold.
If
be sought in
less convenient, but more affordable, areas.
developer envisioned a local
5) Another
selling price of the land
that accurately disaggregates the
It
improvements.
from
factors reflected in
of the property or
special conditions
any
into account
also take
would
sales database
the buyer/seller agreement.
6)
gathered through
of important information.
this compendium of data is
The
obstacle
biggest
storing
and retrieving
people.
Doubts
to
inclination
mentioned before,
As
typically filed in a dealmaker's
decision process.
to the acquisition
is central
to
a more
systematic
approach
of
seen to
be
information is
"soft"
were raised about relying
make
to piles
and unfiled newspaper clippings
of notes, bulging roladexes
head, yet
Some pointed
informal networks.
many
and retrieving data
systematic way of storing
wished for a
as sources
be possible,
it would
believed
Although few
routine inputs
into
on a developer's
an
information
system given erratic job pressures.
2.POLITICAL/LEGAL UNCERTAINTY
Developers,
known for
their
penchant to
that
it acts
approvals process.
in the
as
a
half
a certain amount of political
full, generally have tolerated
uncertainty
see glasses
barrier to
27
entry
Some have
and helps
observed
alleviate
This
overbuilding.
with
to deal
willing
communities.
higher for those
keeps profits
local
working with
become the
thus has
Houston
of
the unknowns
who are
frequently cited
example of the dangers of too little zoning restriction.
interviewed,
those
of
Many
uncertainty
due,
is
the public sector's
the use
can
considering
costs
ability to modify or claim
of consistent impact fees
be programmed
into
a purchase.
such as
this
"voluntarily"
lawsuits, moratoria or
of
the
the
a portion of
Put another way,
for off-site improvements
of
the valuation
On
increased
Specifically, they point to
tenure for "public good."
private property
that
markets is
extensions
to
primarily,
intangible rights of the public.
some,
to
According
great.
too
concerned
in competitive real estate
political uncertainty
becoming
are
however,
the parcel
other hand,
when
unauthorized
unexpected
required proffers,
other informally required concessions
can only be predicted using the current political context for
a project
that
might
take
years
to
process.
Changing
administrations and public sentiments give added dimension to
this uncertainty.
Those interviewed direct development activities for companies
that have
been in
a specific region
feel pride in creating part
for many
years.
They
of a community and concern about
the adversarial positioning that they believe has become part
28
of the approval process.
cited
as
critical
finding
to
Many of the
development.
up to your
and "living
Repeatedly, "reputation"
and
word" were
processing
land
for
most promising sites were acquired
through the network of business contacts based on reputation.
All see themselves as responsible business people with both a
personal and professional stake in helping to maintain a good
quality of life
Some
for the community.
indicate that they
feel singled out to carry more than their share of the burden
of economic and demographic growth.
POLITICAL/LEGAL WISH LIST
1)Reducing
processing
for
time
approvals,
making
publicly levied fees explicit and eliminating capriciousness
in community negotiations were the most frequently expressed
concerns.
A
site
politically sensitive
time
could
costs were
Implicit
of acquisition.
that the
expectation
be valued
more
accurately,
at the
more determinable
in this
selling landowner
if
viewpoint is
would absorb
the
some
costs by accepting a lower price as a result of the negative
externality.
2) Some hoped for greater cooperation among communities,
developers
municipal
planners and
projects.
Two developers suggested
29
in evaluating
proposed
the creation of generic
guidelines for
with irrelevant
out
endless meetings
also pointed
agendas." One other developer
developers
that
"to prevent
citizen input
community
and
often
groups
pay
consultants to "duel it out with their computer models" when
all
be
might
collaborating
served by
better
to
assess
impacts.
3) Careful timing is considered of primary importance in
With
such a
wished
for
a
of all proposals up for public
convenient way to keep track
hearing.
developer
One
negotiation.
approvals
reference, a
project would
be less
likely to get entangled in other issues due to unfortuitious
timing.
An example involved a hearing on a proposed traffic
that was
interchange
scheduled in
the same
zoning hearings on a proposed office project.
linked
issue with
the transportation
(The developer
month as
The community
the office
believed that an unfavorable
the
project.
outcome was in
large part due to the promimate timing of the two hearings.)
4)
A related
suggestion
included
a publication
that
would provide summaries of public hearing outcomes including
It
itemized dollar amounts for
impact fees or concessions.
was thought that this would
be helpful in negotiations with
community
groups and
consistency
government
and prevent
duplicate
improvements.
30
officials by
payments
encouraging
for the
same
A follow-up was suggested that
The developer interviewed suspected that much
actually used.
of
collected
money
the
would
that
improvements
funds were
determine where
concessions and
fees or
impact
would track the proceeds from
that
in
was
county
for
of
the
users
benefit the
never
spent
project.
3.SITE FEASIBILITY
As previously
of
time,
the
that
information
the
is
feasibility
preliminary
information sources are
Public
accessible.
developers feel
determining
for
necessary
factors checklist.
first on the critical
infrastructure are
Most
and adequate
mentioned, transportation access
supplemented by
various specialists in soils, land-use planning, environment,
specialists,
technical
title
architecture,
engineering,
in
tools
turn,
to
supplement
increase
their
accuracy
These
others.
and
and
knowledge
speed
the
with
of
gathering data.
site preparation are generally thought
The costs of physical
to be
predictable and ascertainable
diligence
period prior
to
during a sixty
actual transfer.
day due
For some
who
acquire property, though, even this is painfully long.
The
purchase price
is almost
always negotiated
31
before any
the
time lost.
returned and the cost is in
formal search.
project
rejection,
There is an array of
however, that must be discovered.
site or title limitations,
during a
typically
is
deposit
the
then
unfeasible,
project
discovered that makes
If something is
begins.
study period
These constraints may
potentially
are
but
not warrant
important
in
This information is seldom available
determining land value.
when purchase price negotiation is underway.
SITE FEASIBILITY WISH LIST
Developers rely on a
number of environmental and engineering
consultants to determine the cost of site work.
those
interviewed, relying
significantly increase
deal
of
confidence
expertise does
outside
on
According to
a great
uncertainty because there is
in
the estimates
generated
not
by
these
specialists
is one
1) There
wished for
exception --
hazardous waste.
more complete and accessible
A few
information on the
cost of cleaning up various types of hazardous waste to more
accurately value
were
better
a contaminated parcel.
known,
an
opportunity in taking on a
informed
If
developer
clean-up costs
might
find
hazardous waste risk that others
feared.
2)
One land
assembler
wished for
32
title reports
that
As pointed
could be obtained within hours instead of weeks.
in the
out
title
when
negotiating
a
sale
agreement,
difference in
could make a
land assembly,
particularly in
and
purchase
of the
the details
knowing all
last section,
the price paid.
4.FINANCIAL FEASIBILITY
The
of the
accuracy
financial
analyses is
assumptions
generated
of
accuracy
on
dependent
the
criteria.
by other
Developers surveyed said that preliminary project numbers are
generally "back
of the
envelope" followed with
pro formas,
generally created on electronic spreadsheets.
on staff members with financial
pro formas while others rely
to conduct
the
analysis.
standardizes
the
format
training
often
generate the
decision makers themselves
cases, the
In many
A customized
for
template
between
comparison
projects.
In
determine the
order to
greatest
impacts
forecast.
project
performance,
a series of sensitivity
surveyed use
pessimistic
on
assumptions that
and most
likely
case
will have
most
analyses.
scenarios are
of
the
those
Optomistic,
typically
Correlated risks are extrapolated informally.
Two developers
separately acknowledged that the
33
impetus for
was the desire to
adopting computer-based financial analysis
deal more effectively with the "MBA types" who approve loans.
Obtaining lender commitment during the "due diligence" period
reduces the level
of the financing.
and rate
--
the terms
It is interesting to
note that
of risk in a key uncertainty
almost none of the developers mentioned concern over the long
term outlook for
years ago, this
interest rates while a few
was the variable that was receiving the most attention.
sensitivity
include
expedites
tables,
a secondary
As
that the
approach increases
loan
the
bonus, these same
process.
formas that
lender through pro
language of the
Talking the
approval
developers find
their understanding
of project
uncertainties. Paying special attention to the variables with
the greatest potential impact on bottom line profits allows a
development staff to better manage risks.
FINANCIAL FEASIBILITY WISH LIST
1) On large
uncertainty
interest
is
projects that will be phased
if
a developer
can
lock
in
an
interest
rate range)
for
a number
of
reduced
rate (or
in over time,
years.
2) To save
competitive,
Your
Office"
staff time and encourage lenders
a developer
program on
suggested a
a
cable
34
to be more
"Shop-for-Terms From
network.
Lenders
with
range
and
the type
advertise
would
funds
available
of
current terms.
3) In large companies where computers are often closeted
with the "whiz
Experimenting privately could
among senior staff
themselves.
variables
forma
pro
analyze
to
members
kids", there is a desire
suggest alternatives that had
not been considered when working through an intermediary.
5.STRATEGIC PLANNING TO SET ACQUISITION CRITERIA
All of the developers interviewed
operate under some type of
corporate guidelines for property
selection.
as knowing budget limitations,
guidelines are informal, such
is best equipped to handle,
the project types existing staff
In other cases, the guidelines
for differing levels of risk.
are more
explicit.
markets.
Others
willingness
Some developers only
to discard
any set
land
however,
admit,
all
Almost
operate in certain
purchase
will
only
zoned.
appropriately
can accept
return that the company
minimum rates of
or the
In some firms,
of rules
if a
already
to
a
significant
opportunity comes along.
Guidelines
become
development
companies
who
use
and/or portfolio diversification
for
location,
size
and
use.
35
for
those
planning
theory
criteria
site-specific
corporate
models to preset parameters
In
other
words,
company
resource allocations and the
restrictions on
the specifications of
diversification determine
site.
the parameters
Once
a selected national
exact type
of property
market is made aware
company wants
that the
are then brought
regional developer who makes
a potential
the appropriate
are determined,
network in
Potential parcels
model used for
of the
to acquire.
to the attention
of the
decisions on acquisitions based
on experiential knowledge of that specific market.
Developers who use corporate
planning as a prime determinant
it hedges risks by reducing
in land acquisition believe that
returns and it makes more
the overall variability of company
efficient use of key
local
favorable
numerous,
brought
are often
reputations,
potential deals
unsolicited
Development companies with
staff time.
Having corporate
to consider.
parameters,then, expedites internal decision making.
STRATEGIC PLANNING WISH LIST
Staff developers
have
been
generally
objectives
coupled
and CEOs agreed that
consist
of
corporate
with
product types.
In
inadequate.
their strategic plans
some
cases
profit-maximizing
vague
tendency
to
undertake
company
language
particular
In other cases, the planning is more detailed
and regular, but originates at top management levels and thus
is not easily modified.
embarrassed
to
admit
Still other developers were slightly
that
they operate
36
from
project
to
information
The
strategy.
real long-term
with no
project
wish in most cases relates to increasing confidence in market
forecasts to
the company
in the
One company operates
with a
to position
determine how
coming years.
There are
notable exceptions.
by corporate planning and portfolio
five year horizon guided
Acquisition
regional
uses
cases,
mini
strategy
is exampled
jointly
Another
the location and type
determine both
(This
developed
managers.
and national
Three's
Chapter
is
criteria
the
between
company, one
of
models
to
econometric
of acquisition sought.
mini
in
strategy.
general
establish
to
models
diversification
case two
Chapter
in
Three.)
SUMMARY OF FINDINGS FROM INTERVIEWS
Site
evaluation has
initial decision
two
stages for
to acquire
a parcel
land developers.
is probably
inexplicit criteria and quick calculations.
based on
The internalized
checklist is difficult to identify let alone quantify.
members who
"might mean
seismic
that they take
demographics and
other pieces
note of flying
branch banks
earnings are
"possible signal
growing."
of information somehow feed
37
sea gulls,
pavements, "could be
a dump nearby;" undulating
activity;" new
Staff
with successful land
have spent sufficient time
developers report
The
These
that
and numerous
into the decision,
"I want this parcel." One observer wished for a way to access
weights to
give relative
and
manager.
"I
the mental
criteria are
know how many
don't even
checklist of
his
on it.
Could be 200 or 1000."
By
roles of
on the
sequentially taking
the other
players
necessary to make a project work, the developer reaffirms the
initial decision.
Does it have the return projections and margin of safety
that the lender would need to fund it?
concessions would
what
objectives and
community planning
line with
it in
Is
be expected
if it
deviates?
What arguments will abutters have and are the prevailing
political winds
Where will
in their favor?
the contractor find site
premium costs?
Is there an environmental issue to consider?
corporate guidelines?
Does the project fit
often the most elusive.
The persona of the intended user is
How
will the
market accept
several years
the product
out?
What will be competing against it at completion?
This
second
part of
concerned with valuing
anything
that
will
process is
principally
the land and determining
if there is
the
decision
absolutely
block
the
project.
The
anecdotal evidence seems to indicate that a tentative decison
38
to
in the
made early
purchase is
criteria.
The decision maker
choice by
using the persona
for
prognosis for
more
exercise.
staff
the second
It is in
the need
that developers feel
to
better
political/legal uncertainties as well
as the
information.
understand the
a
double checks this preliminary
the decision process
more
based on
experiential and possibly visceral
combination of intuitive,
part of
first stage
Specifically they
acceptance.
eventual market
or contracting
considering less
need
for
more
competitive markets.
Some
studies.
A few
are hiring
Others
are
have looked at
the microcomputer ensconced in their office and wondered what
more it might do?
39
CHAPTER TWO
SUPPORTING DECISIONS WITH TECHNOLOGY
Data are the very latest kind of pollution.
Information is what changes us.
[Stafford Beer 1975]
There
Differentiation
(DSS).
technology is evolving
to define an
By trying
real understanding.
within
Decision Support
the
field
of
Systems
information
in the workplace
as theory is tested
existing entity, jargon
often blurs
Nevertheless, in assessing how DSS could
as a decision tool
be used
for
definition
no one
is
in land acquisitions, we
need a
working set of parameters drawn from current literatures.
DSS DEFINED
Hackathorn believe
Keen and
are interactive computer aids
complex tasks
system
is
process."
to
that "Decision
designed to assist managers in
requiring human judgment.
support
and
Support Systems
possibly
The aim of
improve
a
such a
decision
[1979, 3] They go on to say:
observing a
from
begins
Decision Support
decision process and defining what improvement means
for specific individuals or groups within a specific
than just a simplistic
is more
context...[It]
systems and models. The
information
packaging of
feature
the
is
which
interface,
software
interactive
other
from
DSS
a
distinguishing
of attention
... ,becomes the main focus
packages,
above
requires,
DSS
a
for the designer. Building
40
all, skills in designing humanized interfaces and a
secondary ability to exploit any self-contained
technique or product developed within the MIS or
[Keen and Hackathorn 1979, 3]
OR/MS fields.
INCREASE THE EFFECTIVENESS OF DECISION MAKING
OBJECTIVE:
organizational
and
individual
making)
emphasis
to Alter,"The
According
rather than
(in
efficiency in
decision
processing
3) Automation of certain operational
the system.
tasks may be a component of
The time and effort
ideally be used to do
saved, however, would
increased
is on
effectiveness
on increased
(1975,
masses of data."
of DSSs
a more thorough
job of analyzing the substantive aspects of a decision.
Scott Morton
Keen and
define effectiveness
as "identifying
what should be done and ensuring that the chosen criterion is
the
relevant one."
improving an
overall
7] In
[1978,
other words,
organizational process that is
performance does
not critical to
effectiveness.
to improve
little
technically
The point of DSS is to identify key decision points and focus
technical tools,
as well
as human discretion,
judgment and
creativity, on the decisive components.
At
a
times,
effectiveness
seeming
conflict
is perceived
between
efficiency
because "effectiveness
and
requires
risk of redundancy and false
adaptation and learning, at the
starts."[Keen and Scott Morton 1978, 7] The hope is that more
effective
decision
making
the
in
41
present
will
lead
to
improvement in future performance.
INTERACTIVE AND FLEXIBLE
In theory, DSS is never superimposed into the decision making
process but
DSS is
match
to more closely
continually customized and evaluated
the
needs and
habits
changes, the system will not
Put another
way.
application to another.
rather evolves from one
way,
user
of
its
If
users.
the
user
necessarily perform in the same
expectations and
assumptions
change criterion and utility.
Further, DSS is
the most effective when
the decision makers.
and in the control of
studies performed by
inclined
more
it is decentralized
According to the
Danziger and Kraemer [1986],
to test
different
scenarios
a user is
for solving
a
problem or making a decision, perhaps unconventionally, if it
can be
done in
the privacy
of a
user-friendly environment
rather than through a technical expert.
A command-driven system, with 'help' routines,
plausible checks, choice of 'expert' or 'novice'
modes and high-quality display devices reduces the
learning...and also reduces the
fixed cost of
semifixed, set-up costs incurred at the start of
the problem, remembering
(structuring
each run
[Keene 1979, 12]
commands,etc.).
MARGINAL ECONOMICS OF EFFORT
Perceived benefits
must outweigh the effort
(cost, measured
in terms of time and money) required for a DSS to be used and
42
useful.
17] Benefits, however, are
of effort" [1979,
measured
as "marginal economics
what Keen refers to
This is
as costs.
quantitative costs
to the
In contrast
not as readily
(particularly in an "organizational setting where situational
factors cannot
harder to
are
be controlled for"[23])
define and
money by automating
capture.
qualitative benefits
Unlike
saving time
or
structured tasks, improved effectiveness
is difficult to evaluate without well-formulated measurements
for tracking.
it is an article of
Among proponents of DSS,
aids to problem-solving
faith that interactive
improve the effectiveness of managerial decision
making. They point to examples of DSS that have led
their users to explore more alternative solutions,
examine data in more depth and detail and become
to
approach
their
in
analytical
more
a tool that encourages an
problems... [However],
of
expand the range
incompetent individual to
solutions he or she inadequately assesses seems
unlikely to improve anything.
[1]
The design and evaluation of
from
its user.
A
a DSS, then, cannot be divorced
thorough understanding
of the
decision
of the individual within the
making process and competencies
specific organization is important to improving performance.
The potential user must weigh the perceived
The
of effort.
against the relative costs
value
of
fixed ones
most apparent costs will be the
system... The
the
learning
and
to
adjusting
incremental costs of effort implicit in a DSS can
generally be reduced by skillful design....which
software
[costs in]
incurring
invariably means
overhead. For example, a "Help" command... in no way
adds to the problem-solving facilities of the system
and requires a large amount of program code which
takes time to write and may waste storage... However,
[18-19]
it makes the system easier to learn.
At
each step,
the marginal
economics of
43
effort should
be
carefully evaluated before adding a new application.
Keen
suggests generic
operations that
DSS can
potentially
address:
1) Computation costs in effort should always be reduced
can be
DSS, provided the computation
by the
of
amount
a
minimum
in
requested quickly and easily
steps.
2) Search costs can be reduced by the provision of
commands that reduce set up and perform a range of
The extreme is simulate which
operations quickly.
calculates the impact of a specific set of decisions
and parameters. If users can also change values
easily, they will find that searching widely for and
fine-tuning alternatives imposes almost no cost.
3) Inference effort can be dramatically reduced, but
The user need
only if the user trusts the answer.
not understand the inferential methodology but must
For example, comparatively few users of
trust it.
standard statistical packages really understand the
details of the method, let alone how they are
translated into a computer routine; they accept it
because they have consensual trust.
by using
may be increased
4) Assimilation costs
may
output
the
Decision Support Systems because
may
or
to
grasp
require too much intellectual effort
needs.
be in an inappropriate format for the user's
For example, graphics substantially eases the effort
required for assimilation, but at the potential risk
More
of loss of conscious attention to data.
systematic study is needed about output choices and
effects.
5) Explanation costs are greatly eased if the software
systems and output formats are well-designed and
communicative. One implication is that a DSS can be
effective as a device for organizational and joint
problem-solving. If the marginal costs of examining
another alternative is close to zero, there is every
incentive to listen to someone's line of reasoning.
[19-22]
To
summarize,
piecemeal
in
Decision
an
Support
organization
44
Systems
typically
beginning
with
evolve
existing
technologies and
well-designed
In a
predispositions for problem-solving.
competent user
a
system,
quickly,
can
and
relatively painlessly, massage data into information that may
not have been accessible
additional
this
or comprehensible before.
increase
will
information
the
Ideally,
level
of
confidence in a specific decision.
DSSs AND LAND DEVELOPERS
and adaptable nature of
The interactive
appropriate for land
developers.
by changing economic and
and micro variability
the
and
These developers undertake
significantly affected
of projects that are
a diverse range
ability to
circumstances or
DSS is particularly
This macro
political environments.
requires frequent market repositioning
quick
make
unforeseen
judgments when
opportunities materialize either on
or off
site.
As
mentioned in
Chapter One,
have relied on experiential
to
make
the
"go/no go"
an intermediary,
provide site
judgments and quick calculations
acquisition
been an indirect tool
technology has
historically
land developers
such as the local
decisions.
Computer
used typically through
municipal government, to
specific information or through
consultants to
generate market forecasts.
In-house microcomputers,
however, are no longer
45
rare in the
offices of
calculator to store and retrieve costs.
as an extension of a
pro formas --
In other cases,
range
and
sensitivity analyses.
technology
Also, the
through
development of PC
and DSS
are appropriate
that
to increase
and able
of
effectiveness
and
risks
specified
to
The technology is, for instance,
readily accessible
to use,
efficiency
aims
some common
has
individualistic developers.
easy
of
are
understand the
or more fully
impacts
relative
complex --
from simple to
arrange financing
vehicles to
are used solely
Sometimes they
land developers.
the user
who
is
not
the
a
computer expert.
A few large
developers have
operation.
These
systems
mini or mainframe
drive a
Management
a DataBase Manager to
assets or
other operational functions.
hardware and data
Information
automate accounting, manage
System or
software or
computers in
In
the future, this
can become a resource
for an
evolving DSS within a company.
In fact, new applications for computer technology are already
being
as
tested
decisions.
supportive
Lenders,
researchers, as
well as
tools
planning
for
land
officials
developers, are
development
and
market
experimenting with
the decision process so that
ways to systemize components of
critical information can be more reliable and accessible.
46
Chapter Three presents applications by practitioners who have
formulated
components of
feasibility modeling.
The company in
Case Two takes a macro
view of markets and studies them econometrically.
summarizes
the
developer
as
experience
it
of
the
the
undertook
company-wide information system.
a DSS
is
a
dynamic
staff
of
Case Three
national
a
implementation
of
a
Although the development of
process, the
next
chapter
describe current iterations in three DSS evolutions.
47
site
relates to
Case One
a DSS.
can
only
CHAPTER THREE
MINI
CASES
INTRODUCTION TO CASES
entity but rather a collection of
DSS is not an identifiable
and strategies
technologies
time.
decision
The
perceived
makers will
needs,
that evolve
of
the
characteristics of
the
goals and
influence the
company over
in a
expertise
systems that evolve.
Zuboff
differentiates between
automating an
organizational
process and "informating it."
The choice of emphasis is above all a question of
strategy and derives from management's conception of
the contribution that this technology can make to
as an
Informating may proceed
the business.
of
consequence
undermanaged
and
unintended
computer-based automation, but it can also be part
of a conscious management policy designed to exploit
information presence to create a different
the new
and potentially more penetrating, comprehensive, and
business...thus
the
of
grasp
insightful
strengthening the competitive position of the firm.
[1985,
Schuck
extends
the
discussion
emphasizing smart machines to
an informated
to
a
shift
encouraging smart people.
environment, the issue
you do, but how much you
suggest
9]
think."
is no longer
[1985, 77]
from
"In
how much
She goes on to
observe, however, that this will require changes in training,
48
rewards and
roles.
The
distinction between
automating and
implications for systems implementation
informating, and its
provide a useful framework for
considering the cases in this
chapter.
The
of
process
companies.
tested
are static
follow
examples that
and
The strategies
and used
within
three
that are
being
support experimentation
decision
are very
components
all have
different yet
dynamic
of a
slices
possible
application to land acquisition decision making.
The research is
in
each
firm
based on the views of one
involved
in
developing
or two key people
and
modifying
the
is on the process of
innovative approaches.
The focus, here
extending the range of
technical support to decision makers.
The
relative value
of
the individual
being evaluated.
49
applications is
not
CASE ONE:
SITE-SPECIFIC SENSITIVITY ANALYSES
Mark Twain once said, 'You can't go wrong buying
land, they ain't making anymore of it.' While that
Land
always so.
sounds like good advice, it isn't
was
ago
years
130
Boston
of
section
end
in the south
it
give
couldn't
you
Today
sq.ft.
per
$2
valued at
been
$2
had
same
that
If
sq.ft.
per
$1
away for a
in the bank at 3.5% annual interest, today it would
be worth $175.
[Maurice Freedman 1985a]
In a mature and active market, land development opportunities
are harder to come by due to a complex regulatory environment
of
the scarcity
and
In
available parcels.
his years
as
principal in charge of the site engineering and environmental
services staff at Sasaki Associates, Inc.(based near Boston),
Maurice Freedman observed a steady increase in reexaminations
previously passed-over
of
"more
rigorous evaluation
'rule of thumb'
with
available
utilities
interview, that the influx
field
has
evaluation more
properties require
These
techniques
than the
formulas applied to 'plug
requirements)."[1982, 1]
the
sites.
further
and access
He goes
in' parcels (land
nominal
and
on to
traditional
grading
observe, in
a 1987
of business school graduates into
increased the
need
explicit since MBAs seldom
to
make
site
are practiced in
examining land features.
Freedman advocates
a two-step evaluation
50
process.[1985b, 1]
first step
The
computer generated information that
are produced
sketches
can rapidly evaluate the
site premium
of alternative
interplay
with
experienced-based judgment
integrates
that
Then,
quick
site design
being
costs.
reflect the
considered.
Once a feasibility range
is established, the evaluator would
move on to a second step,
a short-cut version of a pro forma
analysis.
Conventional real estate economics does not provide
an appropriate framework for isolating and analyzing
or weighing trade-offs associated with land and the
environment.
Instead it examines the
regulatory
positive and negative cash flows over time through
project to
the entire
life of a development
establish IRR.
that the comfort
and
... [Freedman hypothesizes]
of
developers
and
by
investors
acceptance
computer-generated pro formas for large and complex
is
or more,
carried out over a decade
projects
created more by the ponderous weight of the document
itself and page-after-page of reassuring numbers
carried out to three decimal mathematical accuracy
and precise bottom line R.O.I. than by any inherent
predictability or reliability of such efforts.
... The most creative and least predictable part of
land and
the process, relating to manipulating the
associated legal rights, tends to be buried,
its
desensitized and smudged in a single comprehensive
developmental pro forma.[1985B, 1]
As
developers and
site
Freedman was
an engineer,
lenders to
designs
computer-generated
while
bothered by
ignore the impact
putting
printouts that
51
great
the tendency
of
of alternative
confidence
transformed best
in
guesses
Freedman
into precise projections.
series
testing.
PC-based models
of
He
began to develop his own
assist
to
directed his staff to
in site
feasibility
use them in some
of the
client work.
Recently, Freedman
joined the staff of
Edward Callan Interests.
He continues
an office developer,
to use and expand the
models in his new position.
The first steps are to perform a site reconnaissance
by professionals with
the requisite
skills to
properly
inventory the site as a resource
and to
establish a synthesis map which records the above as
positive
and
negative
potentials
and
which
acceptably delineates the net utilizable land area
that can be used for development.
this
site
Once
resource analysis
has
been
accomplished,
site
planning
alternatives
and
feasibility
testing
can
be
explored.
The
conventional
approach
to
this
implies
the
preparation of sketch alternative site and grading
plans, and road and infrastructure layouts which are
then analyzed
to determine
infrastructure
and
grading costs.
This procedure
is costly and time
consuming and often involves utilizing most
of the
study budget to sort through infeasible alternatives
with little budget left to pursue and optimize the
viable alternatives.
The process by which feasibility alternatives are
identified can be systemized and expedited through
the use of computer models.
In order to do
so,
three
key
issues
must
be
relationships among these
quantified:
- terrain adaptability of the infrastructures and
buildings(i.e.large vs.small building footprints)
- density and arrangement (shape) of the site plan
in relation to infrastucture, and
quality for
levels of design
or
- standards
roadways and other site elements.
organized to
Furthermore, the analysis must be
answer these practical questions which stem from and
52
guide feasibility testing:
1. How many units or square feet of a particular
use can be placed on the site?
2. Are the costs of infrastructure and grading
reasonable in terms of the product produced?
3. Will the arrangement of buildings be attractive
and marketable?
4. What are the economic impacts of project phasing
or variable rates of absorption?
The answer to the third question is subjective and
and experience.
design judgement
dependent on
However, a system of microcomputer-based spreadsheet
only
which not
developed
has been
programs
issues
effectively model and manipulate the key
listed above, but yield objective answers to the
of site
questions.. .At the heart
other three
feasibiity analysis, however, is the interplay of
the three key issues mentioned earlier: opportunity
plan
site
the
adaptations,
terrain
for
[1985b,
configuration, and chosen design quality.
2-3]
The
developed and
knowledge-based models
have applications in testing
commercial
models
are values
result,
based
Incorporated
on experiential
into these
As
a
kept to
a
judgments.
expected to
are
input requirements
Freedman
the feasibility of office, R&D,
sites.
and residential
used by
be
minimum.
The
projection
scopes
participation by
to
run on
programs are
be
to
enlarge
and
be tried to
PC-XT with
the CRT
staff or clients.
user-friendly
simulations can
the IBM
The
interactive
provision for
to
image
models are designed
so
that
determine the range
feasibility.
53
increase
numerous
of project
The following is a list of Freedman models in use. (Sample
Output is included in appendix A)
- Cost of single or double-barrel roadway section, including
all infrastructure.
-
Site grading premium costs for office or industrial
buildings.
-
Premium
costs for
density
on higher
parking
structured
suburban office sites.
- Site finish (parking, driveway, drainage, lighting, curbs
landscaping, etc.) costs for office or R&D sites.
-
office, industrial or R&D building pro forma.
- Rough, static pro forma for residential property.
- Multiphase office,
R&D or
industrial park cash
flow and
rent analysis.
- A newly
developed,
prototypical
residential
support program
for evaluating single vs
use
systems
(expert
technology
decision
multifamily site
coupled
with
a
knowledge-based shell).
Maurice
Freedman
wrote
about
the key
benefits
of
these
models:
Models the assumptions of the most experienced
practitioner. The reliability of these assumptions
have been verified in practice.
for systematizing cost data
Establishes a framework
so that feedback from actual construction costs can
be generalized and updated for planning purposes.
in taking
Identifies what is 'important' early on
off quantities and researching costs for planning
54
projects.
Allows
for quick
and easy trade-off analysis,
cost]
for [site
providing the user with a tool
sensitivity analysis.
Allows exploration of many more alternatives than is
early
assures
which
practical
otherwise
quick
and
feasibility
project
of
identification
alternatives.
infeasible
of
elimination
Assures maximum participation of the client
feasibility study process.
in the
- since calculation
Avoids reinventing the wheel
are clearly
and presentation of results
methods
established.
potential
testing
money in
and
time
Saves
reliable
more
provides
and
development alternatives
7-8]
[1985c,
results.
It is
the probability of
Freedman's position that
successful project
models as
computer generated
by using
is enhanced
components of the site
having a
evaluation process because
developer and site planner are
the creative abilities of the
freed up to choose from among the viable alternatives .
After Freedman
left Sasaki Associates, use
to feasibility
analysis was
reduced.
of this approach
The reasons
cited by
staff members were:
1) Little advocacy
by senior management
with departmental
staff and clients.
2) Limitations
of programs
"quirks" must be
certain applications.
for
known and bypassed by the
The
user to avoid
sometimes irreversible errors.
3) Unappealing
learning curve
when
55
compared
to going
the
"known" route.
4) Shared access to computers that is inconvenient.
The knowledge-based computer models
are used, however, when
several site feasibility scenarios are requested by a client
or when numerous future changes are suspected.
IMPLEMENTATION ANALYSIS
INFORMATE
AUTOMATE
(=DSS)
(effectiveness)
(efficiency)
Test a greater number
BUSINESS GOAL
site plan alternatives
more comprehensively.
PC-based to encourage
TECHNOLOGY DESIGN
individual use by site
designers; flexible
data administration.
Black box to most
IMPLEMENTATION
users; designer=owner;
central use of PCs.
-
- -
- -
- -
-
- -
- -
- -
-
-
-
-
-
-
-
-
-
56
fully realized
was not
original goal
The
It continued
the software.
limitations of
had to be
worked out and it was not
In
to
order
conquer
but
important,
terminals
due the
to evolve.
Bugs
considered easy to use.
always
were not
was
practice
curve,
learning
the
in part
available
when
needed.
Freedman had acted as a self-appointed champion of the use of
computer models in testing
and head
policy.
of a
site feasibility.
department, he was
he had the
Although
in position
most of the
staff.
to influence
authority to act as
the models, he was not an
for use of
As a principal
a sponsor
effective champion for
His technical skills as
the designer of
the system were "so superior that followers could have little
hope of emulation."
As
a
result
of
"institutionalized"
Freedman left.
skill to
a new
(Leonard-Barton and Kraus, 1985, 105]
these
factors,
and is
at Sasaki
He, on the other
position and is
approach on a PC to
the
DSS
not often
was
not
used since
hand, was able to bring the
using the
same interactive
understand unfamiliar aspects of his new
job.
57
CASE TWO:
"20% in
Real Estate -
But Where?"
[Hudson-Wilson and Greenwood 1986]
growth
Simply because an economy is experiencing
estate
real
a
good
it
is
mean
necessarily
does not
and
60's
1950's
the
in
longer
no
are
market. We
that
rapidly
so
growing
was
where the economy
mistakes were easily hidden--or even the 1970's when
inflation to ease the pain. The need for
we had
additional buildings is decreasing while preferred
location and type are changing over time.
cannot. Developers
People can migrate. Buildings
have this wild west mentality that they are somehow
going to beat the supply and demand system.
[Richard Gold 1987]
the
Investment Division at
new senior manager in the
In 1983, a
UNUM life
insurance
company based
that
series
differences in
The Real
real estate
markets."
Estate Market Index
determine
optimal
maximizing and risk
historic
could capture
The
and
prospective
statistic, called
(REMI), was developed
that
portfolios
would
be
In its ideal
minimizing.
Maine
to create "a consistent
established a departmental objective
data
in Portland,
both
to help
return
form it would
be an accurate description of the various real estate markets
that
would
of
increase awareness
their
past and
act
leading indicator of their future.
series would be available over time and
The ideal
would be as specific as possible with respect to
In addition, the
types and geography.
structure
series would be able to be disaggregated into
causal
that
so
parts
component
meaningful
relationships between the supply of space and the
The
demand for space might better be revealed.
should bear a close relationship to real
series
58
as
estate returns - particularly given the desired end
use in the construction of optimal portfolios.
In theory a real estate return series purged of the
effects of financing and consistent over time, space
most appropriate
would be the
and structures
(or occupancy)
tool... a very high quality vacancy
using
maintained
carefully
statistic,
rate
consistent technique for every structure type in
every county by an independent and objective group.
[Hudson-Wilson and Greenwood 1986, 4-5]
Unlike the Dow
Jones, it could be
disaggregated by markets.
This would make it possible to adjust portfolios according to
projections of future volatility in particular markets across
property type.
A regional director, Hudson-Wilson,
the concept
from the
consistent
for several years using
field of stocks
and
reliable
and bonds.
has continued to develop
asset allocation models
Being able
to compile
is
considered
regional databases
critical to reducing the cost of information.
The REMI may be thought of as a vacancy rate proxy
in that it measures the relationship between the
supply of and the demand for square footage. The
REMI is constructed by separately building the
supply of and the demand for space. The concept can
or annually
monthly, quarterly
be constructed
(depending on demand side data availability) for
counties, MSAs, states or the nation, for over 200
structure types.
The supply side is constructed using the McGraw-Hill
F.W.Dodge contract awards
data ... [to formulate] an
historical, put-in-place flow series...
The demand side is constructed using basic labor
For each
demographic information.
market and
structure type an appropriate 'driver' is used.
Changes in the volume of demand from period to
59
period are translated into square footage terms with
per
space used
representing average
a scalar
scalar
specific
the
uses
area
geographic
.Each
user..
calculated for that geographic area and structure
type...
This marginal demand series may be plotted and
compared (on one graph since all orders of magnitude
are comparable) with the marginal supply series. It
is now possible to begin to draw inferences about
the adequacy of supply relative to demand and to
compare supply and demand cycles...
The final stage in the construction of the REMI
involves the conversion of the flow concepts of
supply and demand into more of a stock concept.
This is done quite simply by calculating a moving
sum over 5 years of supply and an identical moving
sum of demand. [Gold has expanded the timeframe to
up to eight years in some markets.]
The most important contribution of the REMI is its
uniform construction over geographic areas, over
time...
The exercise of forecasting the REMI does address
sensitivity questions and so provides insight on the
Since the REMI is
probability of various events.
and is not a
parts
component
from
constructed
it is easy to
rate,
vacancy
a
like
reduced form
side...
demand
or
supply
the
on
scenarios
develop
5-12]
1986,
Greenwood
and
[Hudson-Wilson
The REMIs
at UNUM have
years and are being used to evaluate acquisitions.
REMIs have
areas.
been calculated for 305
Over 1500
metropolitan statistical
A new study underway models 62 of the cities for five
structure types using
a real
for four
now been under development
estate
somewhat different methodology.
economist,
joined
has
the
staff
Gold,
and
is
expanding and modifying the models already under development.
He has
a dumb terminal
connected to a
service, Dodge/DRI, as well as
national information
an in-house work station that
60
includes statistical software and an
(For a similar
IBM PC.
set-up it is estimated that an organization needs a budget of
about $200,000 annually.)
The sample cities
heuristically
the
regional
the
currently uses
director
models to
work.
by
narrow the
Selected
markets
must
can be used efficiently.
venture partners
Each
directors.
information
number of
forecast for more than one
joint
study were selected
Gold screened in this
a
the
generated by
for field
markets targeted
have
regional
positive
economic
structure type so that staff time
(Any existing relationships with
in specific
markets, however,
will
also be factored into acquisition decisions.)
When
the field
work is
complete, and
potential properties
identified, the
regional directors will
opportunities to
each other and senior
combination
portfolio
of
experiential
optimization
management.
judgments
techniques,
present acquisition
a
Using a
computer-based
and
group
of
projects
will be selected for purchase within the next few months.
Despite
an interest
informal information
regional
network)
site-specific
in
portfolio optimization
gathering (through
continues
information
to
source.
be
techniques,
field work
a
highly
Regional
and the
valued
economic
information, however, comes directly from the analyst through
61
all forecasts come with a
According
He
suggests
[Gold 1987]
and when the data is being
verbal
unique aspects of a given model.
make implicit assumptions
that his
isolated
so that
that is not
"tortured" too much.
possible
to
can be informed about the
In this way the analyst can
and methodologies, explicit.
position and
office
know the
mitigators may have
whenever
presentation
supplement hardcopy so that others
explains
In real estate
the model-builders
to Gold,
are less reliable, what
components that
to be added
story."
proxies substitute for data
economics, numerous
available.
models have a signature and
Gold believes, "All
the models.
necessarily
department are
politics and
Gold
priorities will
not
impose themselves on the forecasting.
Hudson-Wilson emphasizes that the
She and Gold occasionally
to be
test
used.
disagree on the optimal techniques
debates serve
alternate approaches.
frequently
appropriate.
make
The
evaluated
The
models are still evolving.
and
to fine-tune
approach
technology is
viewed as
diversification progressively
accidental.
It
is expected
and databases
Assumptions
the
that
procedures or
modified
a tool
are
when
that can
analytical, rather
than
tool
will
use
of this
increase overall performance significantly in the long term.
62
ANALYSIS
IMPLEMENTATION
AUTOMATE
INFORMATE
(efficiency)
(=DSS)
(effectiveness)
to increase range of
BUSINESS GOAL
analysis
TECHNOLOGY DESIGN
expert to operate
modeling
analyses
The
station using
encourage
not
does
design
systems
learning.
flexibility in
designers=owners
IMPLEMENTATION
The
requires technical
are
software that require expert
technical interactions.
one
work
prepackaged statistical
analytical skill to monitor the
On-line use of the
is pro-rated by intensity of
at
primarily done
terminals, models and
hands-on
user,
remote database
use - mistakes are costly.
The
environment is not friendly to non-expert experimentation.
Except for
the few
who were
in on
the development
of the
REMIs, the computer output presents a bottom-line evaluation.
The
process
is
not
interactive for
63
most
of
the
staff.
system was to act as a tool
Although one of the goals of the
for decision support, the economic models and the analyst who
uses them to reveal market information, continue to be viewed
as a black box by most of the end users.
The designers of the system are experts of the technology and
of the principles of economics.
with a knowledge
As in Case One, they operate
base that is seen as "too
the typical staff member.
big a reach" for
This discourages emulation.
64
20/20 HINDSIGHT
CASE THREE:
There are four types of components in any system:
believable, perceivable, conceivable and leavable.
[Roy Morian - student quoted by Thomsett 1980]
in 1982, to update
A national, commercial developer decided,
and
expand its
automate and
horizon,
time
three year
a
with
Allocating $3-$5
computer system.
the company
planned
to
asset management
financial and
centralize its
million
tasks.
Once a database was
created to monitor national real
estate
assets, information
could
evaluate
market conditions
information,
such
lease
as
a
in
be
retrieved quickly
This
particular region.
terms,
could
be
to
used
when
decisions had to be made on acquisitions or refinancing.
No
commercially
so
appropriate
available
the
staff had
expanded from 15 to
the
system.
The projections
of
105 and over $10
indicated that
3-5 years, would be
Something
found
to
be
customized
three years, the systems development
In less than
million, and another
was
development
firm began
programs.
been spent.
software
had
gone awry.
65
million had
another $10-15
needed to complete
In hindsight,
the
following problems were identified:
that had been used and
1) The hardware and operating systems
handle
develop more powerful hardware
Corporation had planned to
to
users were encouraged
plans were abandoned and
but those
to
migrate
was
not
underestimated
the
using
the
system
VAC
The
systems.
VAC
Equipment
Digital
requirements.
systems
the
power to
have the size and
upgraded, did not
were being
compatible with what had been developed.
2) The
goal
accomplish the
to
necessary
resources
had seriously
planners
systems
The planners did
existing technology and custom programs.
in the requirements of such
not have sufficient expertise
a system.
of the system did
3) The centralized design
Regional offices were
culture.
encouraged to be somewhat
entrepreneurial and did not want
to be
financial control
therefore,
Corporate
system.
the
over
control
had tried
to conform to a national
importantly, they wanted local
More
processing schedule.
not fit company
maintained at
wanted
headquarters, and
a large
implement
to
officials
centralized
database.
4) The
financing
of
system
the
was
too
indirect
to
immediately affect the regional offices that would have to
assume
the
construction
costs.
loan.
It
been
had
Only
when
funded almost
the system
was
like
up
a
and
operating would the costs be charged out to systems users.
66
Since
the end-users
design phase,
writing checks
were not
inputs into
unmotivated to make
they were
during the
the process.
In late
reevaluation of the
1985, a rigorous
undertaken.
scrapping
in
It resulted
situation was
the technology
and
system under development in favor of a decentralized approach
using seven IBM Systems 38 and a staff pared down to 25.
The
national database
was
this
With
abandoned.
is
design, also
more
million,
there
However,
the decentralized
company
culture.
possible the
users have
are funding
a single
creating
goal of
original
costing
database
This was
is a
critical
a
implementation, now nearly
it directly while
with
factor which
made
complete.
Regional
because they
also paying off the
costs of
the abandoned system - definitely an attention getter!
67
data.
better fit
in this design
taken keen interest
and
inputs
duplication of
$10-15
about
IMPLEMENTATION ANALYSIS OF THE ORIGINAL SYSTEM
AUTOMATE
INFORMATE
(=DSS)
(effectiveness)
(efficiency)
centralize and monitor----->new source of
BUSINESS GOAL
information
TECHNOLOGY DESIGN
central database with
no regional input into
the design; top-down
IMPLEMENTATION
controlled by experts;
pay for it but do not
participate.
Although many misjudgments were made in the decision process,
the key obstacle to implementation
system that
did not fit
strategy of
decentralization is
strength of the
was attempting to adopt a
the corporate culture.
credited with
company yet this "grass
A business
creating the
roots" strength was
not tapped in designing and implementing the original system.
68
SUMMARY OF MINI CASES
of technical
design to business goals
or if
system
is
demonstratably
is
decentralization
expert can operate
Two
Chapter
As
centralized.
be
must
the
inconvenient, then
and
is limited
access
or to
If the equipment and software
that only a technical
are so complicated
design
technology
the
effectiveness,"
conducive to user interaction.
them
to perform the
goal is to "inform"
When the business
stated tasks.
or corporate culture,
inadequacy of the technology
rather than the
"enhance
often a mismatching
to system implementation is
The barrier
out,
pointed
of
supportive
more
decision makers than centralization.
The
concept of
implementation
planning is
eases the
involvement
in systems
user involvement
compels designers
transition and
the needs
better understand
This
years old.
least ten
at
in
design and
all levels
of users at
to
of the
organization, not just senior management.
It is
incorporating a
to
make sure
objectives
select
not only to
crucial, then,
system that can support
that
of the
it
is compatible
organization.
technology and
their style
perceive the
decisions, but also
with
and
carefully
plans appropriate
and goals, position themselves
69
the values
Companies that
implementation
systems's full business potential.
benefits of
to
to realize their
CHAPTER FOUR
A FUTURE FOR DSSs IN LAND ACQUISITIONS?
If I had to start all over in land development today
I don't know that I would do it. I am too impatient
to deal with the complications and concessions. The
approval process is four to ten times as long as it
was when I planned Laguna Niguel. It's an awful
nuisance.
Don't get me wrong. Developers brought a lot of
this on themselves. Too much attention is focused
on how to maximize profits and not enough on
'How can
liveability. Developers should also ask,
this project make people's lives better?'
[Gerald Blakely 1987]
The type of data needed to supply relevant information in the
for
a
but
also
each potential
information with
current
regional
statistics
only
not
Developers
collect.
to
developer
site-specific
and impractical
estate market is extensive
present-day real
on
need
acquisition,
demographics,
employment growth or decline, and the projected future supply
of competitive projects.
using
comprehensive,
which has been, in
Even when
it is
Forecasts are ideally accomplished
well-maintained
and
up-to-date
data
most cases, non-existent or inaccessible.
available, the cost
of the
technology and
staff needed to maintain and analyze it has been prohibitive.
Technological
changes are
significantly
increase
taking place,
a
developer's
databases within the next five years.
70
however, that
access
to
can
large
information for decision support in
More accurate and timely
land development depends on three major factors:
1)Comprehensive, current and well-maintained databases.
2)Enhanced
technology that
is user-friendly,
preferably
of interacting with large,
microcomputer-based, and capable
remote databases.
3)An on-going, in-house implementation plan.
support systems in land development
Although use of decision
is only in a pioneering stage, enhancement of PC hardware and
software,
and advances
will make
the use
in public
of information
data systems
and private
technology in
this field
more widespread.
Three, the findings
In Chapter
out
issues that
the organizational
implementation even after the
phenomenon is
been
from the mini
not unique
analyzed extensively
cases pointed
can prevent
successful
technology is available.
to real
estate companies
by management
experts.
This
and has
In
this
chapter, the focus will be on the other two factors: enhanced
technology and more accessible databases.
REMOTE DATABASES
As
the
cost
of
computers
capabilities advance,
in number.
decreases
public and private
and
technological
databases increase
Many major cities have at least one privately run
computerized real
estate information service
71
that "provides
by other sources" [Godschalk,
and deed records, supplemented
Bollens, Hekman,
have multiple
Miles 1986,
xi) and almost
all communites
listing services to advertise
residential and
Typically,
these databases
commercial properties
are
government assessments
data based on
and sales
real estate
either special
available public
for sale.
purpose or
sources of
have relied
data.
Because
heavily on
the
land developers
and their consultants are dependent on jurisdictions for much
of the information needed to
select and process a site, this
of data systems at the
section focuses on the implementation
local
level through
public
agencies.
(Evaluating
private
systems would be another worthwhile research topic.)
LAND USE INFORMATION SYSTEMS
(ALSIS)
Automated land supply information systems
are defined as computerized databases designed to
monitor changes in a jurisdiction's land inventory,
in order to assist in management and regulation of
land development and to facilitate analysis of
They enable decision
private market decisions.
makers to understand the impacts of public policies
on the amount, price and location of land available
They enable developers to reduce
for development.
of private
uncertainty and expense
the risk,
development projects. [x)
Numerous
sectors
systems.
from both
interest groups
are
advocating
Policy
environmentalists
and
implementation
the
makers,
lenders,
are
others
effective management of land
the public
of
surveyers,
concerned
and private
land
data
farmers,
about
the
supply which depends on current
72
and accurate data.
private
and
public
of
number
A growing
monitor
to
up
set
been
have
systems
computer-based
These
development and provide land market data.
feasible because of advances in computer
systems,
decision
policy and
are powerful
technology,
analysis tools.
[1]
Bollens and Drummond have suggested that the functions of
a land data system are:
(valuation)
1) Real property assessment
2) Land planning and regulation
3) Natural resources conservation
4) Real estate market analyis
5) Public facilities planning (transportation,
utilities)
6) Project (site) planning
7) Archiving (land title records)
8) Academic research.
Each
community
prioritize
concerns and decide on
according to local
the system
to
have
would
the components of
whether demand would
into the system or
would be integrated
functions
mapping capability
whether a geographic
such as
the
be tracked as well as supply.
Currently, metropolitan areas, with populations of 100,000 or
more,
are increasingly
1983,
a
Virginia.
counties
study
It
have
was
automating their
done
at
George
Mason
University
over half of all
found that "well
a
land records.
system
computerized
73
in
In
in
cities and
operation,
are
developing one or
and
software
systems within
information
governments."
[Hysom and Ruth
local
nearly all
reach of
the
planning
of
cost
brought the
has
hardware
The existing
soon.
are planning to do so
See Gebert, Gordon, ed.
1984.
1984]
communities
Informed
and
Duplication
high.
departments of
within the
inefficient
and
an
that
finding
cost
the
of records
lack
to
is
coordination
the same jurisdiction
impediment
not
of
information system
land supply
an automated
developing
also
are
effective
is costly,
long
range
planning.
accurate, timely and comprehensive
Also, if
information
demand
private sectors,
is
available
to both
land supply and
the
public
can be given
"proper consideration
and
to the
market impacts of development restrictions and incentives" as
well
as
decisions.
to
improving
the accuracy
Over-constraining the
of
land
public
facilities
supply can
inflate
land prices and unnecessarily redirect development.
more
development
make
uncertainty
and
Risk
since
housing
for
expensive. The consumer pays more
investor
require higher
risk projects
higher
and
competition
returns. Market uncertainty limits
the
if
land
forces the developer to pay more for
market is artificially constrained. The government
pays more for public facilities when they are not
properly sized due to uncertain knowledge about the
actual supply of land available for development. As
factors' to
'safety
maker adds
each decision
information, affordable
for missing
compensate
housing opportunities shrink.
1986, 2]
[Godschalk et al.
74
It
is important,
then, that
upon by government and
or
unimproved
all
is mutually agreed
available land supply that
definition of
developable by
private interests."
[62] Typically,
are
parcels
underutilized
considered
logic, owner
Using this
planning officials.
have "a
data system
the land
intentions, site constraints and economic feasibility are not
account.
into
taken
These
real
factors
parcel development.
influence the likelihood of
not considered
all
are
by planning officials,
which
If they are
inaccurate assessment
of the amount of developable land will result.
A study
in Stockton,
California did
factors
into account
and
take these
concluded that
only
additional
the
36% of
holding capacity of vacant land designated residential on the
Stockton General Plan, was likely to be built [24]. Zoning
decisions
study.
the
are based
is too large
This
study
on the
is
accurate,
Plan, not
General
a discrepancy to be
there
may
be
on the
ignored.
significant
If
over
constraining of the land supply.
Planning departments
concentrate on
quality of
and general economic and demographic trends.
give scant
attention to the economic
parcel development.
to
be myopic
about
projects and not
Developers (as
the financial
Often, planners
dynamics of individual
Blakely points out) tend
performance of
attentive to the way the
75
life issues
specific
project fits into
that both
it is imperative
monitor land supply,
systems to
In designing
macro economy.
even the
good or
the greater
private and public interests are represented so that reliable
information for decision making will result.
As
of
the price
declines while
data
automating land
the
number and complexities of transactions rise, the benefits of
implementation plan
a
modular and
experiences and
the process
that
that
so
program
dissemination
are interested
and others
Land Policy
land monitoring
in developing
can
communities
a
exchange
This
could shorten
begin to standardize
approaches so
each other.
learn from
and perhaps
evolving
Lincoln Institute
implementation has more chance of success.
of
pioneers have
years, the
design and
holistic
that a
of the
and culture
the needs
last ten
Over the
agency-users.
found
must fit
and
design
the
companies,
individual
Paralleling
costs.
outweigh
to
begin
will
systems
information
land
issues can
be viewed
with a
broader
perspective.
THE ENHANCEMENT OF MICROCOMPUTER HARDWARE AND SOFTWARE
If
well-maintained regional
developers could address many items
effectively
current
through
data.
advancements
in computer
on their wish lists most
reliable
access
to
last
few
years,
hardware
and
software have
interactive
Within
available, land
databases were
the
76
and
predictable
made
possible the use of microcomputer technology to manage larger
volumes of data, and to interact over networks with databases
managed by some other public or private organization.
new multitasking,
a
announced
of PC. They
also have
graphics-oriented
operating
a second generation
already released
IBM has
evolution has been rapid.
In the past few years, PC
Other
system (OS/2) that will support the 32 bit 80386 chip.
manufacturers such as Macintosh are introducing variations on
same
the
theme.
These
allow
enhancements
users
of
microcomputers to run more than one software application at a
Integration capabilities,
time and access
remote databases.
in other words,
are built into the
hardware.
Without this,
the alternatives have been to perform applications separately
and move static files from one
use
available
considered
integrated
a compromise
program to another, or try to
packages
which
are
generally
best, individually-packaged
of the
Another option for those with an adequate budget, has
tools.
been to
have an expert
build a custom
application package.
Specialized packages are usually difficult for users to amend
probably will not be able to
if contextual changes occur and
interact over a third party network.
With
enhanced hardware
advances
in
database
Advances are expected to
capabilities,
query
language
the
missing link
application
is
tools.
come from large commercial hardware
77
and software vendors within three years.
non-procedural
This
will
language
(Ferreira, 1987)
allow a
to
user
make
statements that the program will translate into a complicated
series of steps.
Then the
package or
application
a
program can interact with another
remote standard
database if
the
Ferreira described the
format and content is known.
situation:
are too new to have
software design issues
The
gelled so that the right way of constructing the
pieces at the PC
relationship between all these
economic, user friendly and relatively
is
level
painless to link the analytical side to the design
The best tools [software packages] do not
side.
Not only do
have automatic hooks into each other.
you need some expert to connect them, but it is more
It will take a few
painful than you would like.
more years to find some standardization about the
information. I believe the
way packages will trade
evolving these
for
the proper pathway
is
PC
(1987]
interactive tools.
Hardware already has the power and capability, to efficiently
multitasking (performing
perform
interactively).
relevant
databases
bottlenecks are
are
one application
for
specifically designed
Software,
analysis, and
acquisition
more than
public or
commercially available
bottlenecks.
the
When
following scenarios
addressed, the
land
these
will be
possible:
1) A
land developer, while performing
analyses
could
of potential
call
up
demographic or
data
sites on
from
database
current land sale information
78
spreadsheet,
an electronic
county
a
financial feasibility
containing
or the outcome
While waiting the few
hearing.
of a recent
be automatically plugged into the
results of that inquiry to
(or maintained
model
as
separately
tried
be
could
scenario
another
of
parameters
the
outside
was
If the
remote database indicated that
information received from the
project
local
a
appropriate),
could be running.
applications package such as Lotus
the
minutes for the
feasibility,
data
additional
and
requested.
land
developer
could decide
criteria on
a planned
project.
2)
A
The
of
(e.g., Lotus).
modifications
design
making
determined by
monitoring the
spreadsheet.
Again, if
the
on a
graphics editor,
financial impact
The
be
could
immediately
automatic changes made
results
the
design
linked to a pro forma on an
system such as Autocad, could be
electronic spreadsheet
change
to
to the
were unacceptable,
a
design variation could be tested.
3)
A land
developer
for new
prospecting
could be
sites.
Based on corporate planning or intuitive guidelines, a public
or private
parcels
queried to identify
database could be
that
following could
meet a
set
be readily
of
criteria.
For
queried: within
owners of
the
example,
one mile
of an
interstate in a particular county - vacant or underutilized within a half mile of
criteria
could be
an elementary school.
develop a
selected to
79
Combinations of
priority list
of
information
could be further linked to
geographic
to designate
These potential sites
the parameters.
areas and then screen
a
be possible
might even
system it
had
jurisdiction
the
If
sites.
potential
local sales information or public
facilities planning.
WHY WAIT?
can be made for waiting
A number of arguments
until all the
components are in place before integrating support technology
into a development office.
Management may believe that it is
a waste of staff time to build new computer skills in advance
of
There is
their need.
the cost
concern about
also
updating technology as improvements are made available.
want to
wait until the
fully developed.
"perfect" system for their
of
Many
needs is
buy it and plug it in
Then they can simply
- not a realistic alternative.
Even
culture
judgment
that takes
approach
characterized
don't."
as
development is
in land
more pervasive
pride
to
the inexplicit,
acquiring land,
a talent
If technology
in
can
the dealmaking
that
which
"either
be used
experiential
sometimes
is
you have
to support
or
you
acquisition
decisions, then it implies that at least some of the analysis
can
be made
explicit and
learned
accepted by some developers.
80
- a
notion not
readily
Running counter to those arguments are commonalities from the
One.
interviews summarized in Chapter
better
make
could
information
a
There are areas where
as
such
difference,
forecasting market acceptance, competition at completion, and
the amount and type of concessions expected by the community.
If accurate and
package,
statistical
likely
(of
scenarios
pessimistic)
and
with an appropriate
timely data is combined
used by
the
most
optomistic,
developers
would
better
reflect the true range of possible outcomes.
Better
information would
For instance, more
most affect
project
a
for
On the
profitable.
that
the margin.
on projects in
current and accurate data
the pipeline might signal a
use
deals at
"go/no-go" decision or change of
other hand,
or
beneficial
marginally
was
skilled and
creative data
analysis might reveal a short term window of opportunity in a
use
specific market for a particular
at a
price that
is
perhaps higher than intuitively projected.
SUMMARY
Before technology
can be
useful the site
must be evaluated to determine which
explicit
and
"informated" by
technology
systemized
in
order
a technological tool?
of choice
for the
selection process
parts of it can be made
to
be
supported
Microcomputers-- the
typical developer--
81
or
have the
potential
testing site
stages of
enhanced in all
analysis can be
the process - from
or
judgements of the "master"
programmed using the experiential
land developers,
remote databases
linked to
are
When PCs
acquisition.
property
process of
impact the
to significantly
prospecting for parcels, to interactively
feasibility, to
and financial
forecasting the
dynamics of regional markets.
needs to keep track
Developers, with their
of
data yet
operate entrepreneurially,
thought is
used
in
advances.
from PC
greatly benefit
being given to
land
how
acquisitions and
are in
So far,
how these
of large amounts
position to
however, little
new tools can
software
best be
innovations,
related to the real estate field, can be encouraged. Further
research could be important:
What is on the checklist of criteria and by what process
is it analyzed?
How fundamentally
the
complexities
of
development changing
is land
environment
the regulatory
due to
and
the
interactions of markets?
Are
future land
different from those
developers apt
to be
dispositionally
who have gone before, and
if so, what
new methodologies will they use in decision making?
Who
will control
future
sources of
funding and
what
additional requirements will they make?
Who will control future
sources of information and will
82
the information be accessible?
And most importantly,
What specifically can developers do today to assure that
critical
information
to
is
decisions
acquisition
land
available in the future?
The technological advances that are currently taking place in
hardware and
microcomputer
significant
can have
software,
impact on the way land developers make acquisition decisions.
risks,
managing
Instead
of
merely
reduced
if
well-maintained
uncertainties
databases
combined
are
be
can
with
for transforming the data into
in-house tools and techniques
The alternatives to becoming better informed in
information.
competitive regions
to let the
are either
market painfully
correct misjudgments or to adopt a conservative strategy.
The challenge
shaping
after
for the land
the future
changes are
developer is to be
in place.
rather than
process
acquisition
Just as
potential users
to be involved in
planning within
an organization,
proactive in
it is
react
important for
design and implementation
the same needs
exist when
using systems external to the organization:
1)
At the
land
jurisdictional level,
supply should
be
cooperation in
established in
83
a non-site
monitoring
specific
for
advocates
become
should
Developers
context.
representation in the design and implementation of local land
With the release of PCs that can manage
information systems.
use remote databases to supplement
large volumes of data and
source
could be
must decide what
to
the
recommend
intelligently
to
the technologies
about
enough
Developers
could be useful
pieces of this information
and understand
them
future.
the near
available in
information
important
and
new
a
applications,
localized
data
inclusion of
management
components beneficial to private interests.
2)
At
firm
individual
the
encourages technological experimentation
the company.
individual and
for the
should
technology
be
consistent
can have advantages
of any
Implementation
with
that
environment
an
level,
culture.
corporate
Users must be convinced that the benefits outweigh the effort
Users
required to tackle the learning curve of a new system.
should
have input
attention
careful
expanded
informate
their
range
transferring
to
systems
planning process,
implementation
realize
of
the design
implementation planning.
participate in
pay
into
of
some of
goals.
analysis
and
they
84
If
a
to
and
design
are
and
senior managers
the
more likely
to
in
an
method
of
This will
the components
decision making to others.
the technology
result
systematic
of their
experiential
3) In seeking project
be
lenders
to
made
forecast.
funding, more persuasive arguments can
Many believe
that
this latest
more lender
lead to
overbuilding will
variables
market
if
of market analysis required.
the type
accurately model
be
better
round of
office
can
sophistication about
Those developers who
regional markets will have
the competitive
advantage with real estate investors and lenders.
acquisition can be supported and
This can
formas.
developer and
decision.
the
free
of land
considered in the process
is that factors
The hope
modeled as routinely as pro
up the
extend the
inventive
energies of
used to
range of analyses
make a
Obviously, computer technology, no matter how good
information
components, does
source
not now,
or
the
enhanced
how
nor will
it ever,
technical
duplicate the
complexities and nuances considered by a land developer.
it can
make a difference
evaluated
the
and
understood,
in how
and
factors are
some of those
may well
be
an
component of competitive advantage in the 1990's.
85
But
important
APPENDIX A
Flgure 3. Structured Parking Rato Model
Vertical axis shows the amount of structured parking needed per buildngs of known
height and F.A.R. Ths statistio can be applied to the cost of structured parking In order to
determine a structured parking premium cost.
STRUCTURED PARKING RATIO
50% open spaces 3.5 car space
1000 bgal: 35% use by small cars
1.1
1.0
c
'C
0.9
0.8
0.7
15
0.6
*
0.5
0.4
1
2
3
4
6
5
7
a
9
10
11
12
13
14
number of buildng stories
AREA OF STRUCTURED PARKING (IN SF] REQUIRED PER 9UILDING
6SF
(301 open space; 3.5 car spaces/1000 bgsf: 35% use by snall cars)
bldg height
(stories)
U
W4
"4
-------------6..75
1.00
FAR
--------------------------------------1.25
1.59
1.75
2.00
NA
8.98
NA
NA
NA
NA
0.81
0.73
0.68
0.91
0.82
0.77
6.65
0.74
0.72
0.97
0.89
0.84
0.81
0.78
1
2
3
NA
NA
0.61
0.84
0.44
4
8.36
0.67
0.S9
5
6
7
8
9
0.31
0.27
0.25
8.54
6.51
0.48
0.62
0.23
0.22
0.46
0.45
10
0.21
0.44
11
12
13
14
15
0.20
0.19
0.43
0.42
0.18
0.42
0.18
0.17
0.41
0.41
0.60
8.59
8.58
0.57
0.S6
6.56
0.55
0.55
0.70
0.68
NA
NA
1.02
0.94
0.89
0.86
0.83
0.75
0.81
0.80
0.67
0.66
0.66
0.65
0.64
0.64
0.74
0.73
0.72
0.79
0.78
0.77
0.72
0.77
0.71
0.76
0.76
0.80
0.90
1.00
NA
0.76
0.60
0.51
0.46
0.43
0.40
0.39
NA
0.84
0.67
0.59
0.54
0.76
0.71
X
0P
FAR
bldg height I-----------8
|.50
0 (stories)
0.60
0.70
NA
1.04
0.87
0.64
1
0.66
0.54
0.14
0.37
2
0.50
0.37
0.21
0.00
3
4
0.00
0.12
0.29
0.41
0.36
0.24
0.00
0.07
5
0.21
0.33
0.04
0.00
6
0.31
0.02
0.18
0.00
7
0.29
0.16
0.00
0.00
8
-----------------------------------------------------------------------------..
86
0.S1
0.48
0.46
15
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