Tuesday, December 16, 2008

Direction of the Industry: Part 4

4) Green Technology, the 2030 plan and Original Green - There are several new city plans including PLANYC (2030 plan) and the Abu Dhabi 2030 Plan that talk at length about a city with intelligently designed transit, water, electrical, communications and other building infrastructure. They also heavily emphasize sustainability goals. I believe the concepts behind the plan are relevant to the city of the future in the extreme. Conservation of resources is not just important environmentally, it is fiscally intelligent as well. The enthusiasm for green technology will continue to drive improvements in the real estate products that can be provided, and I have done my best to stay on top of the subject. I am a LEED Accredited Professional, attended the annual GREENbuild conference and the Congress for the New Urbanism this year and have been exploring a much deeper level of the movement.

I think the USGBC and other rating organizations like it (BREEAM, CASBEE, CaGBC, GreenGlobes, etc.) are achieving meaningful results through the use of standards which (for better or worse) are increasingly becoming law across the globe. International real estate investors need to understand the principles and goals behind these systems as they become increasingly popular in the marketplace and in regulation.

I also believe that the more fundamental solution to our environmental problems comes from a historical understanding of transportation, planning and architecture. Before the US and British industrial revolutions, all energy was expensive. There are literally thousands of years of building tradition in cities from all types of climates all around the world. These traditions incorporate the best practices from generations of master builders and end users. I am very much in favor of technologically modern buildings that make financial sense in the current economy, but I am also very interested learning as much as possible from our ancestors.

This leads to a concept called the Original Green, which discusses the more fundamental issues I'm referring to. As architect and author Steve Mouzon puts it, "If a building cannot be loved, it will not last. And its carbon footprint is absolutely meaningless once its parts have been hauled off to the landfill." In a nutshell he argues the following:
  1. We must first build sustainable places before it is meaningful to even discuss sustainable buildings.
  2. Sustainable places should be nourishing, accessible, serviceable, and secure.
  3. Sustainable buildings should be lovable, durable, flexible, and frugal.
These tenants encompass the entire green movement and are the universal principals Abu Dhabi 2030 seems to be based on. The Congress for the New Urbanism (CNU) is an organization I have been involved with for the past five years. My membership in this organization has provided inspiration and perspective for most of my ideas on environmentalism in the real estate industry. The CNU works to create compact, walkable and diverse places that are inherently sustainable and enjoyable to live in. The Original Green concepts derive from many of the principles discovered by the CNU.

Saturday, December 6, 2008

Direction of the Industry: Part 3

3) Crowdsourcing/Crowdfunding - Crowdsourcing is a popular topic at the moment. I believe that it has and will continue to fundamentally alter the business environment. The goal of crowdsourcing is to leverage the mass collaboration enabled by Web 2.0 technologies to achieve business goals. It is commonly used to compile building data, provide tech-support, solve complicated research problems, or create t-shirts that sell out every batch. The opportunities in real estate are endless. Some ideas I've had are to improve building management services, revolutionize the design process, alter the property search/acquisitions process (already in progress), and to identify specific demand for a product type before investing in it.

Its close cousin, crowdfunding, could be used to finance projects in a much more fine-grained, sensible manner than the large funds currently building cities with limited and unidentifiable character. As I see it, large investment funds will continue building the raw spaces and crowdfunded smaller projects will occupy them or create infill spaces with the character and diversity typical of the best old cities.

Wednesday, December 3, 2008

Direction of the Industry: Part 2

2) BIM - Building Information Modeling is possibly the most revolutionary technology in the history of design and real estate project finance. It is still a technological toddler, but the first developer, investment group or architect to properly use it will reap huge rewards. The principle is simple. Instead of creating a voluminous set of drawings and construction specifications, create a precise computer model of the building or renovation. The ideal software will generate the construction documents, error and omission free.

Because the model has every component that the physical construction will have, it should be easy for the software to count quantities and compare them to online directories of cost data. This gives owners, investors and architects the ability to price proposed changes in real time. It also has the potential to calculate schedule changes, zoning or code compliance and several other major hiccups common in the building process due to proposed changes.

AutoCAD Revit software is a popular choice, but several systems exist. Some examples of successful projects using the technology can be found on the AIA's website here.

Using BIM, will open developers and investors up to a much more flexible design environment. In my time working for Bovis Lend Lease on several of Extell Development's projects, I realized that one of the things Extell does very well, is work hard to please it's clients (the condo buyer) through customization. Extell was on the cutting edge in NYC of customizable new construction. While at BLL, I oversaw several major unit combinations, partition modifications and finish changes, and every single one of them was a construction coordination nightmare. The cost of modifications to a building as it is being built is astronomical primarily because the design is static. The construction documents have to be manually adjusted with each change, and when something is inevitably missed, it costs the builder and the owner money. Until BIM, there was no conceivable way a design team could effectively find every drawing and specification that each change affects and make the required notations in the middle of the project cycle. That is all starting to change.

The the potential value of predictable changes to investors, developers and buyers is enormous. Soon homes, apartments and offices will be as easy to customize as tennis shoes, and the developer most capable of doing it will reap serious financial rewards.

Direction of the Industry: Part 1

Unfortunately, the real estate markets that I've been working in with my investors for Asgard Associates are very difficult to do business in at the moment. In response to the current liquidity issues, I've been talking to several companies lately about relocating to the UAE to work on big projects again. This has prompted me to put a lot of the things I've been thinking about the direction of the industry in writing (finally). So over the next week or so, I'll be blogging on my top four emerging trends in construction, design and development.

1) Information Systems - While I was working at the CTA, I was blessed with the opportunity to use a state of the art program/project management system. The centerpiece of the system was a customized version of Citadon's ProjectNet software. I didn't realize what a gem they had created until I came to Bovis and used their uninspiring system based on Meridian Systems' Prolog. I truly believe that much of the project management process could be simply and easily improved by using more intelligently conceived documentation software. This change has to be lead from the top. The CTA used its $5.1 billion charter to force its general contractors and subcontractors to make the necessary changes in each of their organizations.

More information on the project can be found in the whitepaper published on KFA's website, but a few of the concluding points are telling of the problems with implementing new changes to the construction industry:
  • For many of the parties to a construction project, productivity is not a clearly defined concept. To put it bluntly, if one is being paid by the hour, reducing the number of hours required to get the job done is not an attractive proposition - unless there are balancing considerations, shuch as competitive pressures. Only the owner is clearly motivated to do more with less. And only a fraction of Web-based project-management systems are bought by owners.
  • Most Web-based project-management vendors underestimate the extent of computer-illiteracy in the construction community, and thus underestimate the amount of training required for successful project implementation.
  • Construction projects are not highly disciplined affairs. Unless the use of a new tool can be tied to payment, subcontractors will tend to do things "the old familiar way," despite any benefits they might gain from the new tool.
Probably the most important point here is the first one. Best practices, including new technological solutions in construction management can only come with the support of owners, because they are most incentivized to realize the gains.