Making Changes in Flight: Creating New Models for Infrastructure in Land Development

The private sector doesn't have to pay a price to be green.
January 10, 2017
Flickr/Aaron Volkening
By Jen Mayer  |  Contributor
Leader of the City Accelerator's cohort on planning and funding urban infrastructure

One of the biggest challenges to creating greener models for infrastructure in land development is the time investment required on all sides. Cities don’t have the luxury of working out a model in isolation, when the development clock is ticking.

More often than not, developer resistance to new models isn’t about reluctance to change, lack of commitment to the environment, or lack of desire to create high-quality amenities for low-income communities. Instead developers fear that even beneficial changes will consume time and jeopardize a developer’s competitive position or financing as a result. The risk of delay can be of particular concern for low-income communities, where the need for jobs and housing is more urgent. Wealthier communities may have greater ability (and willingness) to slow development in order to respond to community desires.

Under the traditional model for most land developments, a master developer will construct some of the basic infrastructure elements, and sell individual parcels to subdevelopers. For example, a large parcel might include some apartment housing, town homes, retail, offices, etc. within the same development.

Each subdeveloper is usually responsible for underground stormwater pipes, sewers and other control features. This incremental approach is typically less aesthetic than a green solution, such as a water feature running through the center of the development, but it doesn’t require upfront coordination or financing.

By contrast, if a city wants to implement a comprehensive green stormwater solution, where all of the subparcels would tie into a common water feature, it needs to be designed and financed before the subdevelopers enter the picture. That means also that the model for repaying the cost of the infrastructure has to be developed in advance.

At the earliest stages of a potential project, the public sector wants to maximize community input, and make sure everyone’s voice is heard as a development progresses. The public sector often wants to make sure citizens have a chance to shape the development, by including such things as green infrastructure and water features before final decisions are made on land acquisition and site planning. These green stormwater solutions may be a small element of the overall infrastructure, but they have a pivotal impact on the quality of life for residents who may not have access to other green amenities.

Yet before development rights are fully secured, the private sector frequently wants to work below the radar, so that competitors can’t jump in on the project. While an early publicity effort or an extended planning process may be helpful to future sales, it can be detrimental for competitive reasons. Thus, the details for a green stormwater infrastructure solution usually can’t be worked out until a developer is ready to bring the basic plan to the table.

Further on in the project, the public sector often wants to disclose at least some of the financial information so that taxpayers and rating agencies can understand the likely impact of the decisions being made. At this point in the process, the private sector often wants to keep financial details private until they are finalized so that potential lenders get a good first impression of the development, and so that their flexibility is maximized. The developer may resist a new model at this point because any kind of uncertainty about future obligations could discourage future lenders.

Once construction financing is acquired, the developer often faces external deadlines that require the company to show progress on the project. If the developer fails to meet these deadlines, loan agreements may allow lenders to demand immediate or accelerated repayment or increase interest rates, due to increased risk. Any kind of delay can be expensive or fatal to the project. At this point, the developer will often be very willing to promote and publicize the project, but will be less willing to explore changes that may slow its development. In addition, developers will be sensitive to any uncertainty about future payments that may be imposed on buyers of individual parcels within the development.

It’s exactly at this point – when the project is fully shaped, but not built – that the public and public agencies will most want to weigh in on the plans. Public engagement could result in changes that would delay the project and have significant financial consequences.

So how can the public sector create new models in flight?

First, the public sector can develop information that will reduce uncertainty for developers and their lenders. Greater information about the cost, financing and likely repayment structure can indicate to developers the bounds of their likely obligations, and create assurance that there won’t be delays in implementing the new solution. The public sector can facilitate changing the model by addressing developer concerns upfront.

For the initial, proof-of-concept models, the public sector can provide guarantees and fallbacks that will limit the exposure to potential risk by defaulting back to a non-green solution if limits on time and money are exceeded. For example, a city can offer to cap the developers’ exposure to additional maintenance costs from green stormwater models for a certain number of years, or link fees to a certain percentage of development-related revenue.

Once implemented, the public sector can make use of successful models from other jurisdictions. That’s partly why Living Cities is supporting the city of St. Paul in developing a model for green stormwater infrastructure on the West Side Flats. If developers can have access to a playbook that lays out the costs, financing plan and future obligations for buyers, they can be Equipt to Innovate without risking their investments. These models can show the private sector that it doesn’t have to give up on making green in order to make their developments greener.  

 

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