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Market Turmoil

"Let's not kid ourselves," R. John Anderson of New Urban Builders in Chico, Calif., told his audience at a breakout session at the Congress for the New Urbanism in Austin last month. "If there's a monsoon, everybody gets wet." The current credit crisis is a problem of "slightly biblical proportions," he added.

But new urbanists are finding ways to hold their own, or at least hang on, in a tough market. It was an important theme at this year's Congress, and it's an issue analysts elsewhere are looking at, too.

There's a fault line dividing traditional neighborhood developments from conventional suburban development out in the land of "drive till you qualify." But there are some fault lines within the TND/new urbanist community, too, notably between greenfield vs. infill development.

Where new urbanists are doing well now, it's generally because of

• Quality product
• Mixed-use development
• Infill development
• Flexibility of design
• Involvement with public-private partnerships

Quality is a critical edge. "There's been a flight to quality," Greg Weaver, president of the Catellus Development Group, said as a panelist in Austin. "I'm a believer," he said. "New urbanist projects are better -- they're designed better, and they feel better."

He cited the success that Mission Bay, a project his firm developed in San Francisco, is as an example of strong housing sales in a tough market.

New urbanist developments tend to command a price advantage, and at a time when "buyers at lower price points have pretty much left the market," as William Gietema of Arcadia Realty of Dallas put it, that advantage is worth more than ever.

And a continuing refrain from sessions at the Congress was, "Whatever you do if you get into trouble, don't start skimping on quality." Cut back scope if you must; quality, never.

Steve Maun, president of LeylandAlliance LLC, noted at CNU that the public perception of quality nowadays includes energy efficiency and green building. His company has had good success with a technique for "getting the HVAC out of the attic, where it's terribly inefficient" -- for putting heating and cooling systems within the conditioned space of a house, rather than leaving them outside it, in other words.

Weaver stressed the important of a new urbanist project being "truly mixed use" if it is to prosper in the current market, Weaver said. It's not enough to have just a little bit of retail on the corner. Ostensibly new urbanist projects that are really just residential subdivisions with a little retail sprinkled on the street corners don't count.

The conventional wisdom is that greenfield projects tend to be cheaper to develop than infill. The higher cost of land closer in and the general hassle factor of building within an existing community tend to negate the cost savings of not having to build infrastructure. But in this tough market, the infill advantage is considerable, at least for some developers.

For LeylandAlliance, building where infrastructure is already in place has been an important advantage. Many infill sites are in areas that are attracting empty nesters wanting to move back into town, and millennials wanting to be in walkable communities.

New urbanists, Maun said, "are particularly well set to attract that market." He commented that publicly owned builders such as K. Hovnanian and Toll Brothers are seeing the opportunity here and creating "urban divisions" that are enjoying good success even under current conditions.

Maun noted that new urbanists "are a small piece of the market," and if they are going to influence the built environment, "we really have to influence the publicos [publicly owned builders], because that's where the numbers are."

The new urban ventures of Hovnanian and Toll may be a sign that that's happening.

With its combination of strong design guidelines and freedom of land use, new urbanism is inherently flexible, and that's been an advantage as developers have sought to navigate changing market conditions. And here's where having the right kind of planning upfront is critical. If the residential sector is weak, for instance, a street of rowhouses can become live-work units or a professional office park -- at least if the plan is done right. Ideally, from a developer's perspective, that means flexibility at the unit level.

A developer who needs to change course can of course get a parcel rezoned, but that takes time -- up to two years in some jurisdictions. And that's plenty of time for the winds of the market to shift again.

Weaver's firm, Catellus, part of the ProLogis group, is developing the former Austin Municipal Airport as a new urbanist mixed-use infill project known simply as Mueller. "The city did a good job," he said. "Flexibility was built into the plan. The city was very progressive on this." As a result, there's been no need to go back to the city to authorize changes in response to market conditions.

Maun commented, "It helps to have good relationships with local authorities, because you can get trapped by your plan."

Public-private partnerships are second nature to many new urbanists, including both Maun and Weaver. Such partnerships make many things possible. For one thing, they ensure that a project is driven by something other than landowners wanting to get top dollar for the acreage they sell.

"At Mueller, the city had a 200-page master plan before developers were even invited in," Weaver said. It was the fruit of a planning process that had gone on for years and involved 16 different neighborhood associations as it became clear that the "landlocked" airport would have to be replaced by another facility farther out. The city knew what it wanted, and affordable housing and open space were among the priorities.

The willingness of a public entity such as a municipal government to hold land means that a project can be phased -- slowly if market conditions warrant.

Not everybody involved in the development industry at this point is able to look at the situation with enough detachment to see himself as part of a controlled experiment. But some observers are pointing out that this is the first major real estate slump since new urbanism has hit critical mass as a movement. And so the downturn has the potential to test the appeal of new urbanism against conventional subdivisions.

"Everybody's down, but new urbanism tends to be down less," Patrick Phillips, the Washington-based president of Economics Research Associates, said in an interview. "TNDs have resisted the huge price decreases" seen in other development and "are holding their value. . They're more competitive. They still have an advantage, all else being equal."

Like the panelists in Austin, he noted that TNDs "tend to reach a higher price point" than the CSDs in the outer-ring suburbs, where much of the worst of the subprime mortgage mess has occurred. Very few TNDs are targeted to the lower end of the market.

The problem of the moment, according to Phillips, is that "buyers have stepped back -- nobody's confident of future values. No one wants to buy a home and have to worry about it losing value the first year."

That said, however, he said he sees new urbanism making "the sharpest recovery" coming, once recovery starts in earnest.

"Developers have become more adept at delivering TNDs at lower price points. The marketability of TNDs is well established.

"It's a long-term road we're on -- it's not going to stop," he said.

Municipalities whose zoning laws may need updating to accommodate new urbanism can perhaps use a little downtime to good advantage, he suggested. "The market pause may be a good time for communities to do their master planning and their new ordinances."

Another (relative) success story is New Town at St. Charles, west of St. Louis, developed by Whittaker Builders. In Austin, Tim Busse, vice president and director of architecture at Whittaker, explained how his company was succeeding with its formula of vertical integration, low overhead, carefully controlled labor costs, and careful purchase of land.

Whittaker doesn't build new urbanism exclusively. In fact, Busse explained, "Until five years ago, we built nothing but sprawl."

But the company has done relatively well with New Town at St. Charles. The development got positive press and good word of mouth from the beginning. And fortuitously, the producers of the county map book picked a picture of New Town for its cover photo. Talk about exposure.

So far 800 units have been sold on the 638-acre development, and 2,000 people live there. And nobody else in the St. Louis area is trying new urbanism.

He was candid about the challenges, but hopeful, in a panel discussion in Austin. "This is a scary time for us. . I don't think New Town at St. Charles is an anomaly. . I think we will survive this because of new urbanism.