Our country is littered with examples of large development projects that have exceeded their useful life and are now in a position of being a financial negative rather than positive. Whether its areas in a city or town that are undeveloped, underutilized, or in need of redeployment municipal governments are faced with a myriad of decisions revolving around these underperforming assets. The analysis of and redesigning for these situations are commonly referred to as “retrofitting suburbia,” which is defined as a method of transforming existing suburban developments into sustainable, and more walkable urban places.
A few years ago, I was involved with a suburban retrofit project which required a degree of high-level analysis on a golf course that the contracting city was having to subsidize to the tune of about $800k/year. The question the city was asking was the right question – “What alternatives do we have as a city to repair our budget in relation to the financial drain coming from this golf course?” The challenge in asking the question is that many of the solutions have varying degrees of unpopularity. As is the case with many golf courses around the country they did have a useful life for multiple decades. Development occurs around the edges of golf courses and oftentimes the golf course itself is viewed as a private open space amenity that should then remain in perpetuity. Because the full impact of the golf courses financial deficiency is then paid for by all citizens of the municipality that owns the facility it doesn’t feel like the degree of burden that it truly is when compared to alternatives which would remove the economic liability.
In this particular analysis the city gave us as the consultant three scenarios to analyze and offer recommendations based on the findings of each:
SCENARIO 1 – Do nothing: Was there any potential for keeping the golf course intact and potentially sell the course to a private operator to own, care for and manage the facility?
SCENARIO 2 – Single Family Residential (SFR): Sell the golf course to residential developers, allowing the property to infill with single family – large lot – homes as are found on all four sides of the golf course today.
SCENARIO 3 – Mixed-Use / Mixed Density (MU/MD): Sell the golf course, incrementally, for redevelopment of mixed-use/mixed density neighborhoods and centers.
Putting aside all politics associated with the redevelopment of the golf course property there was no argument that could reasonably be made in regards to keeping the golf course running at a present financial loss of $800k/year. This was clearly viewed as being fiscally irresponsible. The question revolved around the correct strategy associated with redeveloping the site as identified in SCENARIO 2 and 3.
In comparing these redevelopment scenarios, it also became abundantly clear that the method by which development could potentially occur over time might be a determining factor. Under the SFR scenario selling the entire site to the highest bidder would provide what would appear to be the quickest and cleanest means of liquidating the property and the operating deficit. This scenario would also be saddling the property with a reduced value (based on the typical market requirement for a bulk discount on the sale to offset the long-term carrying cost that a developer would incur for a site of this size). The operating deficit from the golf course would reappear in time with operations & maintenance expenses associated with redevelopment of the property, as infrastructure will be dedicated to the city and become a future liability. This liability would remain on the city’s books, in perpetuity, with no opportunity for relief as they presently have in looking at the potential development of the property as they are considering today. The SFR development pattern is one that has extreme prominence in the area, and thus is something that they would already have an understanding in regard to the subsidy that they are already paying with this low-density development pattern. It is no secret that low density SFR does not pay for itself. It is, as the golf course is presently, a land use pattern that doesn’t pull its weight on the city’s financial ledger. For further reference, the following article is recommended: “The Growth Ponzi Scheme.”
Looking closer at the MU/MD scenario, there are some direct advantages that can be taken with this approach that would provide the city an opportunity to better control their own destiny AND make more money over the long term. A MU/MD approach would allow the city to manage and control their own destiny on a handful of fronts:
First, the city would control the entitlement because they are the governing entity. With the right guidance, they would be able to manage a more robust entitlement package for the property with less pointed opposition because of the manner in which they would be able to address issues that a developer can’t and frankly never will.
Second, the city would have the potential to act as a land bank and control the AMOUNT of property that goes into the market and WHEN those influxes of developable land take place. Since the city has no basis in the land, they would also be able to leverage not having debt as a way of generating opportunities for managing the development process, and in so doing yield more money over time without an up-front value hit as would be experienced if the property is sold all at once – in bulk form.
Third, a MU/MD approach would allow for the generation of revenue other than property tax, while doing it using a development pattern that is poised to generate much higher value due to the lack of supply in relation to demand stemming simultaneously from Baby Boomers and Millennials strong desire for walkable urbanism. For further reference, the following article is recommended: “Boomers, Millennials, and the McMansions No One Wants.” It’s of extreme importance to note that this article is coming from the National Association of Realtors, which cares primarily about selling real estate. You will see in the article that their argument is FOR an MU/MD approach because the market is underserved and it’s what the market is demanding. They also argue that the SFR market is over saturated and will be challenged moving forward because the demand side of that market is shrinking.
Fourth, the city would also stand to generate value on the balance of the property being held with every additional development project that takes place on the land sold into the market for development. This would, again, yield higher returns and further strengthen the city coffers during the development time period of the property as a whole.
Fifth, the development costs associated with MU/MD are less per unit and thus more attractive to developers (especially when paired with the mixed density portion of this equation). For further reference, the following article is recommended: “Smart Growth & Conventional Suburban Development: An Infrastructure Case Study for the EPA”
Lastly, due to the political challenges associated with making an argument for decommissioning a golf course that has been in service in the city for multiple decades an MU/MD argument for developing the property can be made solely on the basis of fiscal responsibility if need be. There is a myriad of supporting documentation to demonstrate that an MU/MD pattern for the property will help insure stronger financial solvency.
If you are unfamiliar with the term “retrofitting suburbia” you will become familiar with it, because it is poised to become one of the largest redevelopment opportunities in our country. This golf course example is merely one example of many that have already occurred and many more that will come. As these examples become more prevalent in our work as planners and urban designers it will become imperative to recognize how to identify and analyze the solutions for consideration.