HomeMy WebLinkAbout2009 08-18 Joint Planning & ZoningMeridian Citv Council 8z Plannina & Zonina Commission Joint Auaust 18, 2009
A joint meeting of the Meridian City Council and Planning & Zoning Commission was
called to order at 5:30 p.m., Tuesday, August 18, 2009, by Council President Charlie
Rountree.
Members Present: Tammy de Weerd, Charlie Rountree, Keith Bird, Brad Hoaglun and
David Zaremba.
Item 1: Roll-call Attendance:
Roll call.
X David Zaremba X Brad Hoaglun
X Charlie Rountree X Keith Bird
X Mayor Tammy de Weerd
X Wendy Newton-Huckabay X Tom O'Brien
X Michael Rohm -Vice Chairman Joe Marshall
X David Moe -Chairman
De Weerd: I'll go ahead and call this meeting to order. For the record it is Tuesday, 18
August, at 5:30. I'd like to welcome our staff and our guests here today. We appreciate
you all joining -- and, of course, Ralph. And we appreciate you all being here and Ralph
is here, so we can start. We will start tonight's meeting with roll call attendance for both
Planning and Zoning Commission and the City Council.
Item 2: Adoption of the Agenda:
De Weerd: Thank you so much. Item No. 2 is adoption of the agenda.
Zaremba: Madam Mayor?
De Weerd: Mr. Zaremba.
Zaremba: I move we adopt the agenda as published.
Hoaglun: Second.
De Weerd: I have a motion and a second to adopt the agenda as published. All those
in favor say aye. All ayes. Motions carried.
MOTION CARRIED: ALL AYES.
Item 3: ULI Development 101:
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August 18, 2009
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De Weerd: Item 3 is our ULI, Urban Land Institute Development 101. And I will turn
this over to the chair Bob Taunton.
Taunton: Thank you, Mayor. Good evening, Members of Council, Members of the
Commission. We are pleased to be here today. There is four of us, but as you can see
there is only three of us at the moment. Apparently there is a crash on the freeway and
Rod Perez, who is the CEO of Western Capital Bank, is we think out there. Diane is
trying to call him right now. So -- but we are going to get started and we may skip over -
- oh. Okay. Apparently he's arriving, so we will be able to get underway as scheduled.
Again, my name is Bob Taunton, I'm the principal in a consulting firm Taunton
Consulting. I am the chairman of ULI Idaho, which includes Idaho and Montana. So,
large geographic area. And with me today is Diane Kushlan. Many of you know Diane.
She is our district counsel coordinator. Also has her own planning consulting firm that I
think many of you are also familiar with. On my right is Deborah Nelson, who is a real
estate attorney with Givens Pursley and, as I said, Rob Perez will be amving shortly.
Bruce Chatterton was going to be on our panel. He is the planning and services --
planning services director -- planning and development services director for Boise City.
Bruce was unable to make it tonight, but I think we can -- we can cover up for him pretty
well. Just a brief introduction to what we are doing. A few of us last year were thinking
about the development process and to a certain extent a bit of a disconnect between
the private sector and the public sector and I'm not laying blame at anyone's feet, but it's
just there are kind of disconnects that prevent the process from working smoothly and,
certainly, we thought that there was a -- a lack of understanding, perhaps, of the
financial considerations of real estate development. But I think as we -- we go through
the presentation you will see that, actually, the private sector and public sector are
much more aligned and it just -- perhaps it's a situation where both sides aren't aware of
the other's needs and wants as much as they should be and there may be some kind of
timing sequencing situations, but I think you will see that those of us that are in the
private sector and what our needs are, match up pretty well with what we -- some of us
remember from being on the public side as well.
De Weerd: Hey, Bob, if I could interrupt you for a moment. I think it would be helpful if
you know the staff members that are here. So, I would like to ask them to introduce
themselves and share what department they are from. So, Caleb, we can start with
you.
Hood: I'm with the planning department here at the City of Meridian. I'm the planning
manager.
Parsons: My name is Bill Parsons, associate planner for the city.
Wafters: Sonya Wafters, associate city planner with the city.
Shiffer: Barbara Shiffer, administrative assistant to the planning department.
Canning: Anna Canning, Planning Director for the city.
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August 18, 2009
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Pete Friedman: Deputy planning director.
Freckleton: Bruce Freckleton, development services manager.
Barry: Tom Bany, Public Works director.
Whitman: Duant Whitman, I'm a building official.
Siddoway: Steve Siddoway, Parks and Recreation Director.
Barton: Mike Barton, parks and rec.
Huff: Elroy Huff. Parks manager.
Bjornson: Brent Bjornson, building services and inspection.
Stewart: Warren Stewart, engineering manager.
Smith: Mindi Smith, Development Services.
O'Dell: Bonnie O'Dell, building services department.
O'Brien: Steve O'Brien, development analyst.
Cline: Denny Cline, development analyst.
Adams: Haley Adams, development services.
De Weed: That's Ron Anderson, our fire chief. Bill Johnson, deputy chief. Lieutenant
Overton. Our stenographer. Dean. He's very important. Oh. And our city attorney.
Sony, Bill.
Taunton: Thank you, Mayor. And thanks for all of the staff for being here this evening.
We hope that -- as we say in ULI, there will be a great deal of take-home value. I
mentioned that, you know, last year we were starting to think about the financial side of
real estate development and trying to develop a program which would -- could maybe
turn into a road show and talk to the public sector about the issues that the private
sector faces in terms of real estate development and from that we decided to expand
that into, you know, the processes. We gave this presentation at the Association of
Idaho Cities in June and we have been invited to do a repeat performance next year in
Twin Falls. We hope to perhaps do this presentation with other local governments,
probably send it up to our folks in north Idaho. We have a large group of ULI members
up there. So, one of the things that I -- I mentioned that's been my experience over my
career working in a variety of locations, I have encountered -- dealing with planning
staffs where I would be concerned about the -- the expenditures that would be
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necessary to kind of satisfy the requirements or the timing of those expenditures and I
would, unfortunately, often get the response -- well, this is about good planning, it's not
about economics and, unfortunately, it is about economics, because the best outcome
for cities and for the private sector is to have a successful project both from a planning
and design standpoint. The right project, the right design, in the right location and also
for it to be financially successful and the reason for that is that the private sector tends
to repeat what they see as successes. So, it's in the best interest of a community to
have asuccessful -- financially successful project that also reflects their goals and
objectives and design standards and that sort of thing and that's what we hope in ULI to
be able to foster. A large part of what we do in ULI is community outreach, as well as
many of the other publications and conferences and advisory panels and so on. So,
this is -- is our effort to try and work at marrying the needs of both groups and,
hopefully, helping the public sector understand some of the risks that we face on the
private side. The presentation topics are before you. I won't go through them. But we
are going to have, you know, individuals in our group kind of take the lead on some of
these topics, but what we would like to do is have an informal discussion where those of
us that might have an additional comment to make on a particular topic area, we are
just going to jump in and do that and we would invite the Council and the Commission to
ask questions as we go along. We have set up a Q and A period for the end and, of
course, we need to keep things moving, but if there are key questions that you have that
you might like to ask based on one of the topics, feel free to do that and, then, we will --
you know, could take a couple of questions and, then, we will move along and, then,
perhaps get into more detail at the end of the -- at the end of the session. So, the first --
the first topic that we are going to talk about is steps in the development process and
Deborah and Diane will go through that and it's from, you know, the private perspective,
as well as the public perspective and how those two really come together.
Diane and Deborah.
Nelson: Well, I'll jump in first and give a little bit of a developer's perspective of what's
going on in the background before they even bring forward an application and possibly,
yeah, some of this work will even be going on before they have any initial conversations
with city officials or city staff. There is a business concept that has to be developed and
this is going to be framed based on that particular developer's experiences, it's going to
be framed based on the current market conditions. It might be framed by a site if there
is a site constraint already. It might be constrained by financing. But they got to come
up with a business concept that pencils out at the end of the day and that creates a
successful project. If they are not already constrained by a site, they might be looking
for a site and trying to figure out what site works. Well, is it a comer of an arterial
intersection that works for commercial? Is it near a water amenity that works well for
residential? What is the size of the site? Is it large enough to accommodate a big box
retail use? Does it have enough distance from intersections to have access at the
appropriate distances. What are the services? All of these things are being considered
early on as they make the decision about what site. There is always financing
constraints. There is often at the early stages of a project you don't have financing lined
up from public financing sources. You may have your own money, you may have a
private equity partner. You might have some public financing, but it's difficult at that
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point to have your full financing lined up, because you don't have an entitlement. You
get a little bit into the chicken and egg stage where a bank's not going to write you a
blank check when you don't know exactly what you're use is, but you can't move
forward to develop that use until you have got some cash in the bank. So, you have to
be very careful as you move forward through this process to make sure that you have
got the money lined up. On the real estate side, you may have an agreement with a
land owner or you may need to have further investment and control over that land,
which means you may have an option on a property or you may need to actually go
outright and buy it, which, obviously, is a huge investment before you have got an
entitlement in place. But all of that is dependent upon the market, it's dependent upon
location, and it's dependent upon the control you need over that property as you move
forward. So, all of this is .going on in the background and in the end when a developer
is ready to bring forward an actual product, maybe it's still got rough edges in there and
early communication stages with staff or maybe it's very narrow and there is really just
things that can work for them on this site and what the market will allow at that time.
But whatever the rough or the finish product level they have, they have constraints that
are big at this point. They have got site constraints. They have got financing
constraints. They have got a particular business model that is only going to work. They
also have their own experience constraints. If they are a commercial developer that has
particular relationships with big box commercial retail tenants, it isn't going to work for
them to switch gears and suddenly put in a neighborhood bookstore and they've only
got what they have to work with. So, knowing that all of that work has gone in before
they can even bring forward a proposal, it's important for the city to understand that
context when they do a number of things. The cues from the city that the developer has
to work with to develop that project is what's in your Comprehensive Plan and what's in
your zoning ordinance and so the clarity that you can communicate in those documents
is really important as the developer is working to -- you know, to see that works here.
Also, the follow through that they can expect for the -- for the plan and for the ordinance,
if they have got a particular density in mind that's going to pencil out and that's allowed
under the plan, but, ultimately, a lower density is approved, that could be fatal for the
project. They also -- it's really important that they do come in to visit with the city at
early stages and throughout the process to get as much guidance as they can from city
staff and city officials that it -- it really shouldn't be a hide the ball game from anybody's
side at this point. If staff or the city knows that there is an inclination in a particular area
for density to be lower than the comprehensive plan or there is concems that have been
raised by neighbors or there are access issues that are constantly seeing from the
highway district or whatever it is, whatever piece of information sharing it sooner, rather
than later is good and the developer should also be as forthright about what their
intentions are, what their expectations are, and that dialogue is really important. Also,
from the city's perspective of how they can help in understanding this process is being
sure to coordinate as best they can, because the city is going to be in a better position,
usually, than the developer to make sure that all the right players know about this
project to really think and press them for what their concems are early on, think about
whether or not there is the right emergency access for the fire department. Think about
whether there really is sufficient spacing for access. Now, that's -- you know, those are
decisions that the city doesn't necessarily control all the parts and pieces of, they can
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coordinate the interactions and make sure that there aren't surprises at the end of the
day. And, then, just finally understanding and appreciating that based on all this work
and possibly very narrow constraints that are brought forward at the time that an
application comes to hearing, that even minor adjustments and conditions have a
significant impact on the development. Now, that's not to say that the city doesn't have
its own very real concerns and considerations for what it wants to see and needs to see
in a particular project. Now, that's always going to be true and should be true. But,
hopefully, those concerns of the city are imposed in a way or expressed in a way that
takes into account the great deal of project planning that's gone into place development
and the limited amount of wiggle room they might have before that project can't succeed
in that location.
Kushlan: And most of you know I have worked in the public sector, so I'm going to be
talking from -- to do that lends of my experience and a good developer, as part of that
due diligence step, that last step in the prior slide, part of that due diligence is coming to
the city and finding out what is the city's expectations in terms of their Comprehensive
Plan and what are the requirements under zoning and the subdivision. So, those three
steps -- those first three are ones that you as elected officials and Planning and Zoning
Commission are very, very familiar with, but, then, as the project progresses there is a
hand off that happens to your staff and there is a number of further steps happen to the
city, including obtaining the ability to provide infrastructure of those roads and sewer
and water and, then, as building permits come through, the building permit review,
inspections, and, then, finally, certificate of occupancy. And that first heading under
project, you see that the steps that the developer has to go through and it's important
that they are able to sequence that with the steps that the public process is going
through at the same time. So, there is some coordination and efficiency in the process.
Debbie, you wanted to add to that?
Nelson: I would just make the additional comment that, you know, looking at this slide
you see there is a private process that's going on during and after some of the initial
entitlements are secured and just keep in mind that some of that involves different
departments within the city and yet is the same developer and considerations on the
outside and so they may have had certain understandings or intentions going into a
project, but now are in the building department, instead of the planning department and
as much consistency and carry through as there can be from the city to try to help
shepherd projects through is always helpful from a developer.
Taunton: Okay. The next topic that we would like to discuss is -- Rob will be leading
this -- is a bit of a case study -- hypothetical case study for a real estate project and the
various perspectives that come into play, which perhaps public officials are not
necessarily aware of. So, Rob, would you like to start it off?
Perez: Sure. Thanks. You know, I have been in the -- been in the audience before, I
never thought I would actually be sitting -- sitting here. I would like to say that I have
worked with a number of you before. Caleb and Bill and -- I don't know if Anna is here.
But been very helpful. Obviously, it's not always -- and the process isn't intended to be
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easy, but I have always gotten all the help that I need, all the direction I need, it's been
very clear what -- what has to be done in order to be successful and so I just want,
again, to extend my appreciation for the services that you have rendered to me. Even
though I'm a banker by day, I do play a developer on television in the evenings. I have
done a number of commercial developments, two of which are here in Meridian, and I
have teamed a great deal. So, it's been fun for me and you will notice as I go through
this that I think that experience probably colors the way I see this differently than if I had
simply rented money for a living. So, with the -- do I trigger the slides here, Diane?
Okay. Is there a touch screen, is that -- oh, okay. I have this attention for the
hypothetical and the oversimplified and you have Rob and Bob's bar napkin analysis,
more artfully known at the integrated approach to real estate development. So, let's get
on with what I mean by integrated approach to real estate development. Being a
banker I do have a penchant for numbers and also I guess the oversimplified, as you
will probably see as we go through this. But I'd like to say this. The thing that drives
almost everything in this business is capital. So, the question really isn't always what is
it we like, it's what will attract the capital, because if you don't do that nothing gets done
and the primary source of capital, obviously, for real estate development is traditional
bank financing and today that's virtually nonexistent and we can explorer the reasons
for that in any length that you'd like. This will get further through the slides. The first
slide is a buyer's perspective. Is Peter here, Peter Friedman? Oh. Wow. Thank you,
Peter. Peter is the one that helped me get -- and I understand that north of the freeway
your average median income is probably different than south of the freeway and there is
pockets where it's well above 80,000 and there is pockets where it may be below
60,000, but Peter and I decided that it would make sense to stick with the 63,900 as the
median income for Meridian household. Looking at just some standard kind of
reoccurring expenses, what I'm doing here at a 60,000 foot level is I'm saying what's
going to attract capital. Capital is going to be attracted by what the buyer wants. All
right? The banks will figure that out with the help of the marketplace and so if we look
at the 5,325 a month in income and we say, hey, you have got a car payment, you have
got a student loan and some credit cards, the way a mortgage company will look at this
is they will take that gross income and they will take it times 40 percent, they will back
out those expenses and they will solve for what the maximum payment is. Now, you
may say, well, wait a minute, you know, I or a friend, whatever, I got a 50 percent, you
know, disposable income mortgage. If you look at the national statistics, about 28
percent of your gross income -- monthly income is where you will be today. The market
is not leveraging -- the consumer is not leveraging as they did. By the way, I'm song
about this, because I'm Basque and so one side of you gets the big Basque nose from
one side and the other. I wish I could look at you -- I apologize, but, you know, I can't
do anything about that and I wasn't willing to play for the surgery. If you -- if you solve,
then, for what the payment is, less taxes and insurance, you all of a sudden have your
monthly payment. I can, then, take that monthly payment with the knowns, being
interest rate of about five and a half percent and the term being 30 years, and I can
solve for what the maximum mortgage is, 208,000 dollars. I can, then, assume if you
have -- depending whether you have three percent down, five percent, ten percent,
whatever it is. Talking to the mortgage company contacts I have, most of what's driving
the market today is the new buyer and the new buyer, frankly, has to keep as little down
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as they can and so we use the three percent number. Can we go to the next slide?
That will solve for, then, what you can pay -- what the retail value is for the home,
215,000. Okay. So, that's what the buyer wants in today°s market. Okay. Based upon
the average median income and all those other assumptions. Now, let's take a look at
what the builder says if they know that. The builder says for that price -- and, by the
way, these numbers I got from my friend and good client David Turnbull and his
associate Lars Hansen. And those guys can build anywhere retail now from 96 a foot to
122 a foot. We settled on about 105 a foot. And I -- that, then, solves for what the
home site is that you're getting for that 215,000. Vertical costs, which include interest
cant' and soft costs are about 63 bucks a foot. There is a range. You know, I could
argue that it's 65, I could argue that it's, you know, 59, depending on who you're talking
to. So, now you have the home cost before the lot and it's a vertical cost of 130,000.
You have got closing costs and commissions on both the lot and the house of nine
percent, typically seven percent would be a range for -- without a lot to closing involved,
without a lot commission involved. And, then, you have ten percent builder profit and
you think, gee, that's a lot of money. Given -- given what goes on, that -- those are
really pretty skinny margins. We have just come through extraordinary times where the
builder -- the developers and the builders made unbelievable amounts of money. What
they didn't do is they didn't put any aside for a rainy day and we will talk about that a
little more as we go down the path. They need these thick margins. They need fat
margins given the risks that we already discussed in business. So, if you, then, put all
those together, the 130, the closing costs, builder profit, your total cost before the lot is
170. So, what did I do? I took the 215 retail value, pulled out the 170 and I just solved
for what the builder can buy for the lot. So, I'm a builder, then, and I know the sweet
spot for the home, that -- I know what it's going to cost me to build. Now I know what I
can pay the developer for the lot; right? So, let's go to the developer. The developer
says, okay, in order to really be in the marketplace I have got to sell lots for about
45,000 bucks apiece; right? Is everybody with me on the math? If I need a 27 percent
gross profit -- it goes anywhere from 25 to 30 percent and, believe me, depending on
absorption, getting strung out -- absorption meaning the pace at which lots sell, you
know, that can be quickly -- you know, believe me, I have got a project I have been on
far four years now. The profit was gone a year ago. And I -- by the way, I penciled it
out at higher than a 27 percent margin. The cost to construct, again, it varies. If you're
building a Dennis Baker subdivision that could be three times that. If you're building a
Corey Barton it could be a slight -- slightly below. But for that price point on the house, I
think 22 is not a bad number. So, we solved for what can you pay for the land; right?
You have 45, which is retail. You know what your profit is. You know what your cost to
construct is. So, you solve, then, what you can pay for land. Now, all you need to know
is what's my yield per the acre. Okay? For what I pay for the land what's my
conversion. And I'm saying here it's three and a half. Bob will tell you, you know, it
could be below that, depending on the size of the lots. Certainly it could be -- it could be
above that, depending on what type of home. But I think for this type of -- what we are
talking about, three and a half to one is probably a pretty good conversion. So, if you
take that three and a half to one, you can solve for what I pay per acre for the land. So,
today -- in today's market, if you believe that 215 is the right sales price and you know
there is a builder, what it costs you to build, that means the developer, knowing the
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August 18, 2009
Page 9 of 25
sweet spot to sell a lot, can only pay 38,500 an acre and still make profit at 27 percent,
assuming some assumptions that are coming up. Now, I use 40 acres -- just kind of a
40 acre number as an example. If we can go to the next slide. We are going to see
what an appraiser -- did we skip a slide? No? Is that the next one? Okay. There we
go. So, on 40 acres, we have three and a half lots to the acre, so we have 140 lots that
we are going to create. At 45,000 dollars a lot that gives you a total retail value of six
million three. If we are able to sell three amonth -- and today that won't happen. But
let's just think, you know, in a rosy fashion. Let's just think that maybe -- you know,
2003 comes back. You're looking at a total absorption of four years. Do you know what
that's going to do to your appraisal? Next slide. The appraiser is going to run a
discounted cash flow. Discounted cash flow -- does everybody know what a discounted
cash flow is? Show of hands. Okay. I own a six million three retail value today. I'm
going to get that six million three over four years. What's the value today -- the present
value of those future cash flows? An appraiser will tell you it's about 70 percent of that
retail value, if it's going to take beyond three years. So, your discounted value is really
only four million four ten. So, you say, wait, I -- you know, I can sell it for -- it's like
saying, okay, I can sell my car today, Bruce -- Bruce has got his car for sale. He
doesn't, but let's say he does, he sells the car for whatever it is. Bruce is probably
driving a Hummer, so he's going to sell that for 15,000 dollars and let's say that he gets
that -- but he does it on a contract of no interest and he gets that -- that paid back in
three years. He hasn't gotten 15,000 dollars, he's gotten ten, given the time value of
money. So, if you look at -- if you back out that land cost that we use per lot and you
back out the cost to construct at 22 a lot, now you say my total costs are four million six
twenty, I sold it for six million three, guess what, I made almost a million five. And, by
the way, that return of nine percent is per annum. Okay? So, I made almost a million
five. But look at what the discounted value is. If you really take into account what it
costs you over time to do it, your discounted profit is only 210,000 dollars. Maybe
negative 210,000. Did you really make the money you thought. Go to the next slide,
please, Diane. So, let's talk about my favorite subject how the banker looks at this. So,
a banker says I'm only going to lend you 75 percent of the real value and the real value
is -- the present value of those future cash flows, what it's worth today, not the
accumulation of that money over four years, that's not the value today. So, I'm going to
lend you 75 percent of the discounted value. Okay? Or the lesser of that or 80 percent
of cost, because, guess what, as a banker we want you to have skin in the game. See
this top segment? That's where we as bankers failed. We focused on appraisals. I
mean I can't believe we forgot about the 1980s. I mean it just boggles my mind. I mean
a number of us I can tell by the color of the hair were around in the 1980s and, then, this
is crazy that we -- but, you know what, it was such easy money and it would never end.
Banks made their money -- and that's why we are going to see a huge consolidation of
the banking industry. So, capital is going to get constrained way beyond what you
realize today. And any of you that are waiting, any of you think that we are going to
revisit the next two or three years in the short term -- I don't know that we will revisit it in
my lifetime and I plan on -- and despite the way I -- I'm not as old as I look. So, we are
looking at borrower equity of 20 percent under the 80 percent of cost rule, and as you
can see, 75 percent of discounted value would be four million four ten. That's not what
you're going to get. You're going to get the lesser of that or 80 percent of cost. So, if
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August 18, 2009
Page 10 of 25
you look at the bank loan, we have got about 26,400 dollars per lot. So, what
considerations do banks have? If we had a subdivision back today and we could sell
those lots at 26,400, do you think we would have any takers? I'm not so sure. I know
developers that have bought lots that were retail valued higher than this at 22,000.
Banks have real estate concentrations. So, we are not concerned about relying purely
on the real estate -- all of a sudden we were so happy lending to real estate, because it
was just easy money, fee income, most of the developers pay fees, almost nobody else
does, so banks love the fee income. But now we are relying on sale of lots for
repayment. We don't want to do that. We want excess liquidity in the developer. Next
slide. So, the overall risks are obvious, right? Absorption period, how long does it take
to sell the lots. You have got the entitlement process that we talked about. The interest
rate environment, which we haven't talked about. The construction risk of the process,
market conditions and demand for product, which we talked about briefly. And the next
slide, Diane. So, what does that mean? It means developers have to have, frankly,
really large profit margins. They were just too -- I was going to use the stupid word.
They were too uninformed -- they were too naive to realize that those large large
margins were necessary to build a war chest of capital, so they could get through the
down times. Didn't do it. They thought those margins were just what it was for doing
the business. I think the develop -- I think the entitlement process thought those large
margins meant that there were lots of things the developer should just do, because they
could afford to do it. They could never really afford to do it, they just didn't know it.
Significant liquidity for what if scenarios. There are no -- I maybe could come up with a
few fingers on one hand of developers that have adequate liquidity and still get
development financing today. Maybe. That experience all profession is important and,
of course, what we have been talking about is available capital. Today it's a credit
desert. Even good projects -- this scenario is really a happy one, because if you took
that 215 retail value and said, okay, there is the sweet spot right -- based upon Peter's
median income. Man, we can make this thing work. It doesn't work today. It's a good
example -- you know, it's reasonable under reasonable circumstances, but these aren't
reasonable circumstances. And we can explore that at the end if you'd like about why
the banking community just is not able to provide the capital. In the next -- I think it's
close to the last slide. So, what does it mean for you and for those of you -- I think it
means that risk management will play a much larger roll. I think you guys are morphing
to some extent from planners and support services to risk managers and, then, tell me if
you disagree, you know, once a marketable plat may no longer be marketable; right?
So, it's finished and so you're selling that Kingsbridge lot off Eagle that, you know,
wasn't properly designed to begin with, that, you know, it was retail valued at 150 a lot,
that you can't sell today for 50. What are you going to do with that? I mean you got
letters of credit from banks and a lot of you think that you have got letters of credit from
local banks, regional banks -- if you look at those balance sheets, it still remains to be
seen whether or not those banks will be here a year from now or 18 months from now.
Are you going to be able to draw on those letters of credit when the FDIC takes them
over? If you do draw on those letters of credit, do you have the infrastructure in place to
go out and get the construction or the landscaping completed? You may find
yourselves becoming part time or full time subdivision general contractors, at least
somebody. I say you end up with issues -- everything from weeds to taxes. And the
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August 18, 2009
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realization, frankly, that the developer is broke. The fact of the matter is 99.9 percent of
the developers, even those that still drive, you know, the Excursions or the Lexuses,
trust me, for the most part they are broke and the buck literally stops here.
Taunton: Well, on that positive note -- actually, having been through a few cycles, there
certainly are -- there is capital out there that's opportunistic capital and what often
happens in market conditions like this is that you will have private capital that will come
in and will purchase finished lots for -- repriced at a discounted value and they will often
put the lots, as we say in the business value, under the builder. Get paid when the
builder sells the house. So, that's -- and the builder, then, is able get some level of
financing based on perhaps some additional equity capital that he has attracted to be
able to go to a -- go to a lender. And that's -- that's not unusual. I have seen that -
have seen two down turns in California and two in Arizona and all of them began to
correct on that basis and I suspect we will see that and I think we will also see in this
marketplace some larger builders from out of state will come in -- again, opportunistic,
they will break up key parcels and will be able to out muscle the -- you know, the local
builders that way. So, we are probably going to see a couple of those things. And
that's -- and in a way that's good, because that will get the market going, that will get
these lots, you know, with houses on them sold and they will be absorbed and we will
start to get into a move up market. As Rob says, it always starts with the entry level
buyer, somebody that doesn't have a house to sell, someone who has a job and
someone didn't get -- you know, get some low mortgage financing and take advantage
of the -- you know, the first-time home buyer discount that we have going on right now.
So, it's not all -- it's not all doom and gloom, it's just very difficult if you were trying to do
a conventional deal, as Rob has described, so --
Perez: But we haven't seen -- and Bob's points are spot on. But what we haven't seen
yet is we haven't seen the banks quickly moving those bad assets off their balance
sheet. And when the developer comes in from where ever, from Vancouver and says I'll
buy these 50 lots -- or I will buy these 100 lots at 18,000 bucks apiece or what
happened in Nampa, where a local investor came in and bought fully developed lots at I
believe 9,000 dollars a lot. That happened because that was acquired from a bank.
The reason that -- well, I won't get into the reason. That's a whole other -- that's a
whole other session. The reason that hasn't happened we could explorer sometime, but
the fact of the matter is we haven't gotten on that -- that continuum that Bob talked
about where all of a sudden you get the capital that's on the sidelines coming in,
because there is no visibility, they have to get these screaming deals. That capital
hasn't flowed into the system yet, because the banks -- the only way you know you're
getting a good deal is not when you're buying it from the developer, it's when you're
buying it from the bank, the FDIC.
Taunton: Right. And that is happening in other markets that I follow, it's just not
occurred here. The next slide is -- is a real estate cycle and we have to thank our
friends at Robert Charles Lesser Company for producing this -- this slide and it really --
you know, from my experience it really does speak the truth about real state cycles. I
would assume that we are in the down turn phase at the lower right where you see
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panic and fear and oftentimes the fear continues well into the recovery phase. But just
going over to the -- to the left-hand side, the typical -- typical cycle when risk is
mispriced, when entitlements are just assumed that we will get those, land values are
going up, housing prices are going up. The fundamentals of the real estate business
tend to be forgotten. You get into that period of elation as they describe it if the market
is turning out -- we might think of that as, you know, 2003 to 2005 and, then, you get
into exuberance where everybody says it's different this time. Classic phrase. It's never
different. It follows the same sort of pattern, but there is a false belief that it's -- that it's
different and as Rob said, lenders provide money in the -- when the S&Ls were going
well in Arizona when I was there, we used to say, you know, the S&Ls would give you a
loan if you could barely fog a mirror. And it pretty much was like that. People who
should not have been getting -- getting financing did and, of course, it ultimately ended
up in a significant correction. So, what happens in the -- at the top of the market is, of
course, home building has been very successful. Industrial, retail, office uses, which
tend to lag home building, start to, you know, enjoy some very good times, but as you
get into the downturn phase, that's when residential is first hit and residential is the
leading indicator. The other -- other primary land uses are lagging. And what's very
dangerous about that exuberant stage is if you do not have perFect timing you can get
annihilated. If you're not able to develop the property, get it to market, and recover your
costs before the market turns, and it inevitably will, you're going to be in a difficult
situation. And there is some very very good companies that have done everything right,
except they had terrible market timing and as a result are either out of business or are
trying to sell their assets at a greatly reduced rate. So, this cycle tends to repeat itself
all the time. You know, the period of time can be different, but I suspect that we are --
you know, we are in the down turn phase. That may go on for a year or two before we
turn up into the recovery phase, although typically most people aren't aware of when the
market turns until long after it turns. You have to be very -- very close to the market.
The savvy investors, the people that are on the side lines with cash, they are watching
these cycles very closely, because if they missed a turn, that's too bad. You don't want
to be ahead of the turn. So, if you can -- you come in just after the turn, you're going to
enjoy the greatest investment opportunity that you will have. And, unfortunately, it just
means that some people are going to get -- going to get hurt in the process. Next slide.
Nelson: So, just as a little bit of a summary of Rob has talked about, but it's -- it's
important I think to make the distinction that those factors that certainly local
government can have some influence on and, then, there is some that are way beyond
those. And what can be controlled by public agencies, certainly the process and the
timing -- timing as you probably always heard, is very critical to the developer, it means
money. The cost of processing applications can be control by the agency and certainly
public agencies that have adequate resources in terms of technical and knowledgeable
staff and up to date and codes that are effective are important things that the agency
can control. And in your policies and regulations having avision -- a clear vision and
having policies that incorporate that vision about where you're going and what -- and
how that might impact a particular piece of property, is certainly something that the city
can control. Did you want to go over the other --
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Kushlan: Probably these were well covered by Rob and are of no surprise. Labor
maybe being the only other one that could be added on there of other factors that are
outside of the control of the developer and outside of the control of the public agency
and so I think the -- it's, again, just an awareness issue to understand that there are
factors that are going to be changing, could be a really rapid change if the market
changes quickly and the business plan was developed based on a different market, that
could be disastrous. But there could be minor changes that are occumng throughout
that it's just great to have as much cooperation and accommodation from the public
agency as possible. Flexibility and development agreement, et cetera, all that can go a
long way to addressing some of these unanticipated changes.
Nelson: Bob, did you want to speak to this --
Taunton: You know, the developers often come in with preliminary -- preliminary plans
and, then, later on they view those -- those plans as being very rigid and how, you
know, they aren't accepting of any additional desires that might come -- come before
them -- come to them from the approving agency or from the citizens. You know,
developers have to build that kind of flexibility into their -- into their business plan and
their portfolio's performance, but often that's -- that's not the case and I'm sure that the
city has heard some say that. So, there is -- there is a lot of responsibility on the side of
the developing industry as well to really know -- know their market, know their business
and to have, you know, enough in their business plan to face some contingencies which
no doubt will occur in the process. Just this last -- this last slide, getting back to what I
said at the outset, that the needs and desires of the private sector are often very aligned
with those of the public sector, it's just that perhaps we don't understand that or perhaps
they are out of sequence, but, you know, the things that the public agencies are looking
for certainty, fairness, policies and regulations, no public controversy, which would be
wonderful for all of us, I think. Those are the same things that developers are looking
for and if we could kind of match up better in how -- how we work together, that would, I
think, you know, make the process a better process for both -- both groups and insure
that the product that the city has built in the community will be the kind of product that
the city is looking for.
Kushlan: It's just been my experience certainty and, you know, no surprises are the
most critical factors that we can all achieve or try to achieve in this process and when
you have got that in place I think you avoid the nimbyism and it avoids delay and cost
for developers and frustration for everyone. That can be achieved if we keep in mind
sort of the guidelines, the steps for the planning and development process and they are
very logical interrelated steps that sometimes I think we tend to forget that we start from
that policy level and as we go down to each subsequent step there is really less -- there
should be really less discretion, i.e., that means that you can hand this off more easily to
your staff and that it should be into more and more details. I provided these slides not
necessarily to go through all of them, but there is more of a take away piece for you in
terms of, you know, once the Comprehensive Plan is adopted at each one of these
stages it's important to keep in mind what's already been decided and what's on the
table for discussion at that point and the more that you can adhere to this process and
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communicate to your public, who I know a lot of times has a difficult time in this, I think it
will make -- will build in that certainty that we all want to achieve. The most current
example of this and probably some of you may be following. this is Elmore county,
stepping to a Conditional Use Permit a nuclear power plant, before they had really
talked about the policy of where do we want industrial land, number one, is employment
based on nuclear power plant the kind of employment that we want in the county. So,
before those kind of policy discussions had occurred, there were stuck in this looking at
a site specific proposal on a conditional use and as we know it created a lot of havoc
and now they are going back and going through those major policy questions first. So,
you know, as we move through zoning and subdivision, being clear about what's
already been decided and you know you have got good plans and codes in place and
so it's a matter of, you know, building confidence within your process, your decision
process within your staff and, then, communicating that confidence to the public at
large, so that you don't get into a position of requiring a developer, for example, to
provide you with site plan at the time of zoning, which really costs them a lot of detail
and money before they are really in a place to do that. So, that's the purpose of these
and I hope you can just take them and look at them at your leisure. So, this is our last
slide before a pitch for ULI and questions.
Taunton: Again, ULI is a nonprofit education and research institute. We have a
foundation, we don't have a pack, we don't lobby, we don't litigate and this foundation
funds all kinds of initiatives. I think many in the room are familiar with the advisory
panel that was here looking at ACHD a couple of years ago and prior and there were
two other panels, one in 2005 and another that might have been 1995, something like
that. Those are -- those are funded by this foundation. We have spent a lot of time on
policy and practice trying to bring the -- you know, the policies that ULI believes in to the
-- to the local area and that's really how district councils came about where we deliver
the goods at the local level, so to speak. One of the things, as I mentioned, we -- we
have as a big priority for us is community outreach doing presentations like this. We are
also going to be, as a group, teaching a real estate fundamental course at Boise State
in the winter semester as an elective in the MBA program, which we hope will lead to a
master's degree in real estate, which the university is interested in doing. We have --
are undertaking a Mayor's forum initiative. You may recall that in April we had a
Mayor's forum, we had five of the mayors and talked about issues that they were facing
in their city. We are about to get that underway and we will -- it will be our own little ULI
Idaho advisory panel where we will -- we will identify some topic areas and we will use
our local expertise, as well as looking at other communities and other resources within
ULI to provide some recommendations for solutions to development in the downtown.
So, I would invite any of you that -- from the public sector that would be interested in
joining, we have a very favorable membership arrangement for public sector folks and
that's abig -- a big emphasis in ULI is to bring the public sector -- more of the public
sector into membership and so that we can be very inclusive in terms of how we look at
issues and develop solutions and initiatives that we can take back to our local
communities. So, with that we'd like to answer any questions you might have. If you
want to get into -- have Rob explain the banking industry, I'm sure he would be happy to
do that. He may not have enough time, but, at any rate, we are open for questions.
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De Weerd: Council or Commissioners, do you have any questions?
Rountree: Madam Mayor?
De Weerd: Uh-huh.
Rountree: A question for your process and your presentation. A lot of the information
certainly is -- is not new to us. We see it every Tuesday night. But I appreciate how
you have couched some of these things. I particularly like that needs and desires
display and how we do align up and there was a couple things on the local side and one
on the developer's side that kind of caught my interest. One was honesty and that sort
of thing on the local government side. On the developers side is predictability. We
know the developers, typically, that come in here and they are very predictable. We
know the good ones and we know the ones that will be back time and time and time
again with multiple changes and consternation with the city, because we are making it
tough for them. I guess my question to you -- are you taking this presentation out to the
private sector as well? Because there are things that would make their life a lot easier
in the process if they would be forthright and not have cities, local units of governments,
have to develop ordinances to make them forthright, which is where we end up a lot of
times.
Taunton: If I may respond. Thanks, Councilman. I think that's a great idea and
certainly from, you know, my career I have encountered those kinds of developers as
well and I think that it's really -- and I have often said it's important for the developers to
understand the role that the public sector plays, what their constraints are, how they go
about their business and so I think that's a great idea, because that would help to -- you
know, as I said, you know, align the interest much better if we could -- if we could
convince some of those developers to do their business in a different way.
Kushlan: I would just say that -- Councilman Rountree, that that's what ULI really is all
about, it's trying to explore the best practices for the private sector, as well as the public
sector and so, you know, we are trying to encourage membership and get the word out
and have programs that are relevant to them and raise the bar a little bit in the
development industry.
Rountree: Madam Mayor, if I might.
De Weerd: Yes.
Rountree: Not a follow up, but another question on this same chart, but something I see
on the developer's side is flexibility and at least from my position in the work I try to do
and the help I try to provide staff, is that that's where we need to be as well. Do you
have any sage advice in how to build flexibility into ordinances, how to build flexibility in
to processes? We have done some good things, I think our design guidelines have
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been developed in terms of being very flexible and not hard and fast rules, but anything
you have come across in your work that would help us and direct us in the future?
Nelson: Councilman, I had a very positive experience working with your staff on a
similar issue where we were able to develop particular conditions into a development
agreement that would both give predictability and accountability with a range of options
and give some flexibility. For example, if there is a change in square footage within a
particular range of five or ten percent, then, that can be accepted if reviewed by staff
and doesn't have to go back to City Council. That type of example gives flexibility, but
also gives accountability, because you know going in what the range of the situation is.
You know what was expected, but you also know what's possible. And the more ability
you have to work with staff on minor adjustments versus having to come back to a
public hearing process, the better from a developer's perspective.
Rountree: Madam Mayor?
Perez: Yeah. I would say that that really comes -- I have had similar experiences, by
the way, and I would say that that comes from -- to some extent decentralizing decision
making process. That does mean that you have to have a -- you know, a well trained
staff and a staff that understands the extent to which they can be flexible, but I think,
you know, empowering the staff to the extent that you're comfortable with that, it goes a
long way to getting things done and I, too, have had a development agreement situation
where, you know, we had a give and take and it worked very well.
Rountree: Madam Mayor, just a follow up.
De Weerd: Yes.
Rountree: You have indicated two instances where it works rather well and I agree, but
are you saying the marketplace accepting that, we still get folks that say, well, if I have
to negotiate that issue I just want to come to Council.
Perez: You know, I have always taken the position -- and I know Bill and Caleb are
aware of this -- that if we don't have Council's support we really don't want to do that,
only in rare circumstances. I think part of the problem is that a lot of -- and I see this, by
the way, on the banking side, a lot of people who are not professionals in this business
got in the business and they didn't really understand the professional qualities of the
business and so forme it was -- in the banking side -- and I think it's similar to yours, it's
a matter of very clearly setting expectations and once the expectations were set, you
know, oftentimes we will get the clients that come back two and three times and say,
well, yeah, but, you know, what -- and what we opted to do is we opted to really just
stick with those folks that were professional. And we probably had some latitude that
you don't have in our profession, but I think when you go to see now the folks that are
left, there is going to be a level of professionalism that maybe you didn't enjoy when
there was a broader range of people in the business.
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Rountree: Thank you.
Moe: Madam Mayor?
De Weerd: Mr. Moe.
Moe: More so because I'm curious, on the same screen there you have got cost
effectiveness in regards to the public agencies and not within the developer, what they
would want themselves. In my day job I deal with developers on a daily basis and that's
all they care about and so I'm kind of curious as to why that didn't get shifted over into
that column as well.
Kushlan: I think we were trying to focus on the development process. Certainly
developers and what they do want cost effectiveness. But just in the process itself.
Moe: Okay. Thank you.
Hoaglun: Madam Mayor?
De Weerd: Yes, Mr. Hoaglun.
Hoaglun: Question that I have is what, if any, role should P&Z or Council look at in
terms of the market and let me give you an example. For example, we have open
space requirements and you're going to set aside X percent in this development for
open space. We have changed that ordinance and, then, someone comes in, they were
under the old ordinance, they come in, they make a change, now they are to adopt to
the new ordinance, but yet what the financing, what the arrangement was, the market
conditions, when they were in there they done their numbers, they worked with their
bank or they run it through, now they come in, they want to make a change and we say
now you have got to fall under this new ordinance and increase the space, do we or do
we not, because -- I mean they are grown-ups, it's their money, but at the same time
that regulation may break that particular project and that's -- that's a tough struggle for
me on those situations, so your thoughts on something like that?
Perez: My response is one of materiality. I mean, you know, how -- did you go from,
you know, pick a number, did you go from 13 percent open space to 25 percent open
space? I mean I -- it's just -- I don't know the materiality of that. But if -- you know, there
should be enough room in these projects that if it's penciled out that it could
accommodate some minor changes. If it doesn't, you know, it -- it probably shouldn't be
financed. But, you know, that's a new project today and if you're living with one that --
that is challenged financially, maybe you need to look at that and ask from a pragmatic
standpoint do I want this thing to get completed, to what extend do we really want this to
go forward. And I -- today I think there is some practicalities that maybe didn't apply. I
know you want to have some consistency in how you apply things, but these are really
extraordinary times and I think, you know, that's going to be back to some of the
flexibility. But if it's material, you know, certainly that can make a big difference in a
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August 18, 2009
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project. If it's -- I mean I'm going to use a number of if it's, you know, two to five percent
differential, if that project can't -- can't provide a reasonable return to the developer and
still accommodate that change, then, it's probably too skinny.
De Weerd: It went from five percent to ten percent.
Perez: I don't know. It's a -- you would have to look at the numbers. I mean it's just --
it's acase by case thing, I think.
Hoaglun: And that's the question, Madam Mayor and folks, is the fact that should we be
looking at those numbers? Should we -- you know, because that is a private transaction
between two parties and the developer and the banker, but yet for some -- and they
may tell us, well, that -- I can't go there, yet we want ten percent, because we think
that's the level and the quality of development that we want for our community. So,
that's a good thing, but at the same -- and so as folks come on board they know that
those are the rules and they are going to have to play by those rules and they can
pencil things out by that. But it's the folks who were in under the old rules and come in
and we have changed the rules and they make that change, that's -- that's the difficulty
and that's -- and there is really no easy answer on that I don't think. I was hoping you
guys had a silver bullet, but I guess not, so --
Taunton: Well, if I may make a comment, often when open space is -- is increased I
realize that most developers would come in and say, well, I'm -- you know, this is a
lower utilization of the land in terms of, you know, developing it. From a market
perspective, it may enhance, you know, the project. My experience has been that lots
that back up to open space are worth a lot more, so there may be -- you know, the
added -- the premium aspect associated with those lots or houses may offset, you
know, the additional land and there may be a way to design it so that there is -- you
know, change the configuration and so on that -- where you can get some efFciencies
and really not have a hardship. So, that needs to be looked at as well.
Nelson: I want to add to that, too, that perhaps given the severe conditions that some
developers face at this point, that there is more reason for flexibility and consideration
now on certain projects -- and I realize that's a judgment call that you make -- have to
make every time and it's hard to know how far to press there, but there may be more
consideration as needed now for unanticipated conditions than going forward and --
because I do think that's a tough decision and I do think it's important to make those
changes going forward to improve your ordinances and your plans if you want to require
more open space start requesting it as soon as possible, but knowing that those
conditions that some of the developers in this transition point are facing, you know, any
additional exaction, warranted or not, could be the tipping point for them.
De Weerd: Now, I have a question and it's something that's coming up more and more
often right now and it's coming from our citizens and probably the predictability on the
developer's side and where they want to invest and maybe they have already gone
through the entitlement process and now because of market conditions they are selling -
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August 18, 2009
Page 19 of 25
- some of our subdivisions are selling out to a lower end developer. Neighbors who
bought their house at a significant cost are now finding their neighbor is a low end home
and I know that Council has had some concern about that, has been tying elevations
onto subdivisions and that sort of thing, but any prospective, advice, or comments on
how to protect both the developer who probably still has lots to sell from -- and how to
project their values to those that the neighbor subdivision that just flipped and now they
are going to further devalue the other subdivision, if you know what I'm saying. I could
probably use names, but I'd like to avoid that.
Taunton: Well, I'm going to start off, the -- often in the -- in the subdivisions there are
CC&Rs which will establish a certain minimum house -- home size and that -- and that,
obviously, can be privately enforced by any of the residents that are -- that are in that
subdivision. So, that may be a control mechanism. I -- you know, I certainly recall
trying to be an opportunistic buyer as the Phoenix market was coming back and lots that
were very well located, but needed to be -- the product needed to be a different -- a
different housing type and price and, you know, once you got in and looked at the
covenants and talked to the community association, it was a nonstarter. You just
weren't going to take that on. So, those lots kind of struggled until the market finally
cycled back. But checking with the -- checking, you know, the covenants might be an
interesting thing. Obviously, the city doesn't enforce those, it's aprivate -- a private
covenant.
De Weerd: We don't even look at them.
Taunton: But it may be the solution for some of those residences.
De Weerd: That didn't help.
Perez: I mean, Mayor, I -- you know, I happen to know one of those subdivisions where
that took place and it went to a production builder and it actually was tied to the 22,000
dollars a lot example that I gave and, you know, the option is to just have a bunch of
weeds there, because at the end of the day that's -- you build to where the market is
and the market's going to be in the starter and the move up and that's not going to
satisfy that neighbor that says now that's a half million house next door, but I just see no
way around that short of what I was thinking the same thing, Bob, is having somebody
within that subdivision try to enforce the CC&Rs.
Nelson: Mayor, I -- this is not a direct answer to that question. I think that they have
shown that we don't have a good answer to that question -- a good solution, but I -- I do
think that there might be an opportunity to prevent some of that happening in some
locations. I see the City of Meridian as having an interesting opportunity where you
have a number of platted lots that are in different levels of being approved and being
improved and I think there could be an opportunity where there is an opportunistic
investor to come in and replat to actually lump together some of these separated
subdivisions and replat them into a more comprehensive development where you have
more opportunities for open space and connectivity of trails and school sites and so I
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August 18, 2009
Page 20 of 25
don't -- I'm not sure how easy it is to position yourself to allow that to happen, but one
suggestion is to be on top of your inventory and I talked to Phil about this a little bit
before that, you know, just taking the opportunity, if you have staff time available, to
inventory carefully what you do have. You may be able to put yourself in a sales pitch
position with investors or buyers or developers that are approaching the city to say, hey,
did you consider trying to consolidate this area or this is a high priority for the city,
maybe we can even help with some of the infrastructure if you were willing to take on
this area. That's a more proactive way on a bigger scale that you. might prevent that --
the developers that are going under and the land that's sitting vacant from sitting that
way.
Taunton: There is one other thought and it really speaks to the design of communities,
what ULI supports and what -- you know, it's really supported by a great many
developers -- is to have a variety of housing types, sizes, price ranges, in a -- in a
community, as opposed to a homogenous, you know, lot size and product -- product
type where it's -- the square footage of the house determines what the pricing
differential is, but every lot is 8,000 square feet. That can help in these kinds of
conditions where there already is an acceptance in the community that there is going to
be a different housing product than perhaps what they -- what they have. And I have
seen that -- those kinds of communities whether the storm a bit better, you know, in a
down tum, because there was always something to -- to market and sell at the
appropriate price point, because there were different products, different lot sizes that
had been approved. A homogenous subdivision doesn't have that flexibility, but it's
nothing you can do now if it doesn't have that -- you know, that attribute. But, anyway, it
may be something to keep in mind as we go into the next cycle.
De Weerd: Any other questions from Commission or Council?
Newton-Huckabay: Madam Mayor?
De Weerd: Yes.
Newton-Huckabay: I have one for Mr. Perez. You were making comments to
absorption and that type of thing and I am curious if there is a -- if that's tracked
statistically, nationally, locally, kind of like median income, absorption rate for the
different types of development and where a person would access that information.
Perez: Sure. Sure. You know, appraisers that routinely appraise residential
development or commercial developments for that matter, will have those statistics.
The problem is that today the absorption is so extraordinarily low that if you take most --
most recent experience and use that as a basis for forecasting absorption, you literally
get nothing. You may get a lot of -- you know, a lot a month or a lot every two or three
months, so, you know, historic absorption there is -- that's -- I can give you a number of
names and I would be happy to do that, that could kind of give you absorption as recent
as the data that they collect. But if you -- if you look at the last few months and try to
use that to forecast forward, I mean you -- it's based on, obviously, size of the lot, it's
Meridian City Council -Planning & Zoning Commission Joint Meeting
August 18, 2009
Page 21 of 25
based on price of the lot, it's based on location, and the appraiser takes those -- all
those variables into account and tries to find comp -- lots that are comparable to the one
that's being reviewed and say given the experience we have had with these comparable
lots, this is the absorption that you can experience and that's, again, based upon all
those factors and other amenities, but, you know, today it's just so difficult, because the
market demand has been so weak that I won't know what you would really get. I mean
you -- but they are available, because appraisals are still happening today as banks get
these subdivisions back, they are required by law to reappraise them to determine
current value and so appraisers have a number of statistics along those lines for any
type of lot that you're looking for.
Newton-Huckabay: I was thinking more along the lines like you would track
performance as, you know, say an investment, if absorption rates are tracked as a
critical statistic over history like that and you see some consistency such as what you
would see with the stock market or occupancy rating, things like that.
Perez: Oh. Oh.
Newton-Huckabay: Not necessarily -- obviously, anything short term right now is going
to be bad advice to make long term decisions on.
Taunton: There are some services that you can subscribe to that actually specialize in
the housing market. There is one that you read about occasionally in the paper. I don't
know if I should mention the name, because I don't want to sound like I'm advertising for
it, but it's called -- it's called Metro Study and they are in a variety of cities in -- in the
United States and they do quarterly reports that you can subscribe to. A lot of the large
builders will subscribe to that. You know, there is other -- other groups in other cities as
well in the west, but those folks can -- have been doing it for a long time, as opposed to
asking somebody to do a custom analysis for you. They have that kind of information
and can, you know, portray just about anything out of the statistics that they have been
collecting for a period of time. And their data, by the way, in this market is relatively
new. They -- they cover about 80 percent of the lots sold in America. I mean they really
have agreat -- and I have contacts there, so Diane or whoever knows how to get a hold
of me, but I would be happy to get you in contact with Mike Castleman who owns Metro
Study. But, again, their experience in our market is limited, but if you look at overall
markets that they cover, they could probably look at that and say, you know what, if we
look at the last five years in all the markets we covered, X numbers of lots were sold
over that time frame and equate that to X absorption per month. Again, I don't know
what that would necessarily get you, but you could use that as kind of a 60,000 foot
level of absorptions over the last ten years has been about X a month, given the
markets that we study.
Newton-Huckabay: Okay. Thank you.
De Weerd: Anna, did you have a question?
Meridian City Council -Planning & Zoning Commission Joint Meeting
August 18, 2009
Page 22 of 25
Canning: So, one of the things I asked Diane to actually bring up and, then, I looked to
see if there was any reaction up here and they didn't react, but I want to grill you all on
it, because it's important to me, but in the -- the list of -- that was less predictable, so
you got annexation at the top and you have got building plans down at the bottom, we
do require site plans with our annexations and that's because I got here and I realized,
hey, Council -- about the only time they have much power is that question of annexation
and zoning and so I push -- I push so that I know that they, Commission and Council,
have the information they need and the developer has an expectation of what will be
approved. Now, we try and be flexible, as Rob attested to. Thank you very much, by
the way. But -- but how do we get around that? I mean it's such a property right state,
how do you ever say, oh, we will go ahead and zone you, we -- we don't really know
what you will do, but, you know, go ahead, have the zoning, we will wait and see what
you come up with.
Taunton: If I could respond to that. Certainly the developer is going to tell you, well,
this is our best guess right now of what -- what the market conditions are going to be
when we bring this product to market and so this is our concept plan. But if there can
be -- if there can be flexibility in that approval that, as Deb was talking about, you know,
tied to a development agreement where there is some -- some flexibility in the concept
plan, because it just -- as they get into engineering, detailed engineering, which they
wouldn't have done at that stage, there may be some issues that come up, you know, if
they are dealing with ACHD there could be some ~ -- some factors that they didn't
consider in their concept plan. So, I think most -- most developers would accept the
requirement to do that as long as there is in the development agreement some -- some
level of flexibility based on conditions that may not be, you know, within their control, for
example.
Canning: So, is that pretty common, Bob, to have -- have a concept plan in other
states?
Taunton: Yes.
Canning: Do most of them require it? Okay.
Taunton: Yeah. It's certainly been my experience. In some annexations it goes to a
specific planning and you know what the difference is there. That is just -- in my view is
just beyond reality in terms of the cost to prepare that and it's -- and, again, it's just -- it's
just the developer's view at the moment before they have even -- they have gone
through all the other agencies that they have to go through and have, you know,
detailed designs and engineering figured out. I mean there is -- inevitably there is
something that just surprises you that -- that if you're locked into a specific plan with
very little flexibility, it's really difFicult.
Perez: Yeah. In a manufacturing cycle in a typical manufacturing, because you guys
are manufacturing lots and the manufacturing cycle is so short for everything else in real
estate, I mean the light -- the cycle production is just so long and there is much that can
Meridian City Council -Planning & Zoning Commission Joint Meeting
August 18, 2009
Page 23 of 25
change that that flexibility is critical, but I -- I dealt with Idaho, Utah, Nevada, eastern
Washington -- I think that was when I managed the real estate division for my prior bank
and site concept plan was very common.
Canning: Okay.
Nelson: I think, Anna, just to add one more point, I think that's a really tough balancing
act for the city and the developer to get to that right balance and each time it's going to
be a case specific, you know, evaluation of how much trust do you have in that
developer, how much information do you have to support the concept? Do you have a
lot of architectural designs and, you know, what can you -- can you lock in. Sometimes
the developer will need flexibility on different things for a particular project. They may
know exactly the quality of home they can provide, for example, if they are a home
builder developer, but they might not know exactly where they want their road to be in
the later part of a development and so there are certain -- for each case you might find
specific things that will satisfy the city from a quality perspective that you can lock in or
get it as drilled down as you can, but there has just got to be a very open -- getting to
Councilman Rountree's point, a very open and honest exchange back and forth
between those parties each time to try to figure out what right balance is.
Taunton: I would agree with Deb, Anna. In the scale of the application, if it's a longer
term project with multiple phases, you know, again, you need to have -- there needs to
be flexibility. Perhaps the developer can say, okay, our first phase of development we
are pretty confident it's going to look like this, but we aren't sure about the later phases,
so you might have a bit more detail with -- you know, with what may be the initial phase
and, then, it gets, you know, a little fuzzier for the later phases, because over time, as
Rob was saying, the production cycle is so long and market cycles can vary so
significantly, that you need to have -- have built into the flexibility. But the standards --
the development standards, the expectation that the city has of the quality of
development, that certainly can be in there, but it doesn't have to be precisely, you
know, related to, you know, a lot and road configuration that's going to be the same, you
know, ten years down the road, but you could -- you know, the design standards,
architectural scenes, that landscaping standards, those kinds of things, you know, often
those can be committed to up front without a lot of difficulty, maybe not actual housing
designs, but you can -- you can begin to get a sense of the character of the houses in
design standards.
Zaremba: Madam Mayor?
De Weerd: Yes, Mr. Zaremba.
Zaremba: I think I'm struggling with one aspect of this and I struggle with it every time
we have things come before us and that is the contrast between flexibility and fairness
and my feeling is I have always considered it part of my job to make sure that the
playing field is level among competitors. It isn't our job to make their project work for
them, but as has been mentioned, we have some developers in the city that apparently
Meridian City Council -Planning & Zoning Commission Joint Meeting
August 18, 2009
Page 24 of 25
do their due diligence, they understand the market cycles, they have prepared for the
market cycles, they bring in a project that looks like it would be a nice project for
Meridian. They never come back and ask for changes to it, contrasted to the ones that
are maybe less professional and get themselves in trouble and do constantly come and
ask us to make changes. How is that fair to the one that's doing it right for us to be so
flexible with the ones that are getting themselves into trouble and Ihave -- as I say, how
do we keep the playing field level and not be unfair to the people that have done
everything they are supposed to?
Taunton: My particular view on it -- and I will invite the rest of the panel to answer, is
that you almost have to look past who the applicant is. This is a land use approval, the
approvals are going to run with the land, you presume that the people that are the
applicants will also develop the property, but that may not be the case. So, in some
ways if you take -- take the personalities out. Now, obviously, if you're dealing with a
long term developer in Meridian that, you know, has a great track record, that sort of
thing, I mean that's -- that's a nice position for the city to be in, but Iwould --Iwould
think that, you know, trying to take who the applicant is out of -- out of the picture and
really think about, you know, the project approval and what the conditions would be and
so one is a better -- is a better starting place and being consistent. Iwould agree with
that.
Kushlan: I think we had this discussion when we were writing the code, which is that
you can -- you can write the rules to prevent a hundred percent of something occurring
or you can take that 80-20 rule and assume there is always going to be some that just
can't quite get it right and write the rule to kind of, you know, get at least 80 percent of
them to follow the -- the way you want to go. So, it's a good balancing act, though I
haven't found a solution completely to it and -- but I think Bob's right, you really do have
to -- as much as you can ignore what's happened in the past and treat somebody as a
fresh start every time they come to the door.
Nelson: I think the more you can lock in the quality through your conditions for
everyone the better and that's -- that's not an easy thing to do. But as much as you can
think about in advance what is your vision for the area and how do we best accomplish
that, it usually isn't from the real regimented I want to see the plat right now, that usually
isn't what gets you the vision, it's the location of the roads and the fire hydrants isn't
really, you know, about what you're concerned about and so I think you can get
commitments on the things that really matter, about the open space, about the quality of
design, about the mix of use of housing, about the connectivity. I think that those are
conditions you can equally impose and should impose on everyone. But I just think the
reality is you're always going to have some level of subjectivity and that's why you're
elected officials, I guess.
De Weerd: Wow. That was reassuring. Thank you. Any questions from staff?
Commission? Well, I would like to thank you for joining us this evening and sharing
information, seeing how we can have better dialogue and communication and a better
understanding of it. I look at how our community is developed and it's taken a team and
Meridian City Council -Planning & Zoning Commission Joint Meeting
August 18, 2009
Page 25 of 25
it goes from pre-application through the process to even the permitting, the inspecting,
and all of it and we are all in this to have a successful community and Meridian has had
a huge transformation over the last decade and we have seen some large
improvements through predictability, through a stronger code, and through more
consistent decision making, more staff level flexibility in making some determinations as
you had touched upon, but I think as long as we can continue to keep the
communication lines open in all directions to the -- to our customers, to our staff, to the
elected officials, our Commissioners, we are all going to win. And we appreciate you
joining us this evening and sharing that information and continue to give us feedback --
we like positive, but certainly we -- we know that we have opportunities to improve our
processes that I know our staff stands ready to work with a community and find better
ways that -- more efficient ways of doing things and the only way we are going to do
that is with good information.
Taunton: Well, on behalf of the panel thank you very much for the invitation to appear
before you and we hope that there was value in it. I guess the one thing I would leave
you with is that in spite of the market conditions today there will be a tum around. We
will get back into a very busy time and now it's just agreat -- great opportunity for the
City of Meridian to -- and the great staff that you have to work on your processes and be
in that much better position when -- when the recovery takes place.
De Weerd: Thank you. Councilman Rountree, did you have something?
Rountree: No. I agree with those last comments.
De Weerd: Okay. Thank you so much. Okay. Council, we are -- and Commission, we
are at the end of our agenda. I would entertain a motion to adjourn.
Rountree: So moved.
Bird: Second.
De Weerd: Motion and second. All all in favor?
MOTION CARRIED: ALL AYES.
MEETING ADJOURNED AT 7:00 P.M.
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