Big Developments Need Good Timing, Not Just Good Location

By Roger K. Lewis
Saturday, September 29, 2007

"Location, location, location" may be the mantra of real estate, but equally important is "timing, timing, timing."

Even the most well-located projects can be hurt by factors such as tightening financing, escalating construction costs, weakening market conditions, and decreasing income from sales or leasing.

For grand projects -- building a new town or rebuilding a city neighborhood -- part of the challenge is phasing. Which elements of a grand plan should be built in the first phase? What should be deferred to later phases?

A mega-project requires huge amounts of capital invested over years, or even decades, for land acquisition, planning, engineering, architecture, zoning, permits, construction of infrastructure and buildings, marketing, and continuing operations. During the lengthy course of development, conditions inevitably change, frequently for the worse. Segmenting such projects into multiple phases can minimize investment risks. And why build something before it is needed?

Phasing accomplishes two essential objectives. It allows developments to proceed at a rate that meets changing market demand. And breaking project financing into sequential increments helps ensure year-to-year matches between a project's cost and revenue.

Yet excessive phasing can be a disadvantage. Building things before they are absolutely needed could be rational.

Success for certain kinds of projects may depend on having a vital, sufficiently dense mix of facilities and amenities available on opening day.

Projects aspiring to create immediate, high-impact identity need to achieve critical mass from the start. If the goal is to excite the market and capture a substantial share, then building too little or too modestly at the outset can be a big mistake.

The Washington region offers several examples of large developments where quickly achieving critical mass guided phasing policy.

In the 1960s, after assembling thousands of acres of land in the Fairfax County exurbs, Robert Simon began developing the new town of Reston. To anchor and catalyze the town's development, he and his designers decided that the early phase would include the innovatively modern, high-density, very urban Lake Anne Village Center.

This striking architectural ensemble included a high-rise apartment tower, a harbor surrounded by pedestrian promenades and a plaza framed by a crescent of duplex apartments over shops. Along with Reston's incipient infrastructure, it represented an initial investment of many tens of millions of dollars. Although the center's concept was way ahead of its time and had limited market appeal, it motivated people to drive out to see what Reston was all about.

In Montgomery County, Rockville Town Center, substantially completed this summer, is a one-phase development occupying several blocks near the heart of the city. It encompasses a mix of commercial, civic, cultural and residential buildings. Developed through public-private collaboration, the center's memorable hallmark is not a building but rather a pedestrian plaza.

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