Americans Don’t Support Innovative Developments: Key to Sustainable Real Estate Survival

Perhaps the key component behind America’s great economic achievements is the entrepreneur. For example, Henry Ford helped the United States dominate the global auto industry for decades and Bill Gates helped make it dominant in the software market. Investors in Google, Facebook, YouTube, and Twitter secured dominance on social media. While these success stories are well known, the factors behind them are less so. For its part, Ford did not invent the automobile, nor did Gates invent the computer or DOS. And others invented key technological components of all social media and search engine sites.

Similarly, real estate development followed a similar pattern with many innovative developments started by “men of ideas” that did not bring the project to fruition. Those dreamers are lost in the fog of history.

In the latter part of the 20th century, real estate developers were often accused of inducing sprawl, endless paving, and undermining natural beauty. Some of this grew out of bad ideas, but true innovators in real estate created standout concepts that they might not have completed due to a variety of reasons. Insufficient funding is the main cause of development failure. The current carnage in the real estate market destroyed many good development ideas along with bad ones.

One of those innovators was Charles Fraser, considered the father of the modern American seaside resort. Mr. Fraser, along with his brother and father, developed the Sea Pines complex on Hilton Head Island, creating a complex of beach properties, shops, marinas, golf courses and tennis courts on a sparsely populated, forested island. . Mr. Fraser was also involved in the initial development of the Amelia Island Plantation Resort. Both developments were ahead of their time and eventually experienced financial difficulties with other investors who turned both resorts into viable ventures.

Donald Trump also made a name for himself as a real estate innovator WITH some of the earliest brownfield redevelopment projects in New York City. His first attempt was to rebuild the Penn Central courtyards on the West Side in 1974, but lack of funding caused him to lose the project to a competing group. When that group couldn’t get funding, Trump reappeared in 1985 with a new plan for Television City, but it never materialized due to zoning issues that led to NBC pulling out of the project. While Trump completed most of his vision, he finally lost control in the 1990s due to financial problems. The final pieces of the project were completed with a Hong Kong development group.

Many other examples of smaller and less famous developers can be seen in almost every city in the US due to financial turmoil and the global housing bubble, but this is the exception rather than the rule. Most of the time, less funded developers base their plans on idealized conditions and when these conditions do not arise, they generally do not have an alternative plan.

Americans often say they want something unique, that they are against uniform expansion and subdivisions. However, what they really mean when they want something different is simply a different colored front door. Innovators offering breakthrough ideas are often met with skepticism and resistance to change. Ultimately, this resistance throws the innovators’ plan off course. With little time and capital to react, they are prone to failure. Only after a larger source of capital picks up the parts is the project complete. On rare occasions, the original vision of the “idea man” survives change. Most of the time the vision is modified and in the end it is only a shadow of what it could have been.

Interestingly, I think the root cause of the plan’s failure is our own resistance to innovation. Two innovative development concepts currently under threat are “New Urbanism” and “New Ruralism”. Both are reactions to suburban development. The new urbanism is the more established of the two, making it more likely to survive current real estate conditions. The new urbanism had been embraced by the public, but many of its capital-intensive projects face serious challenges under current market conditions. Redeveloping an area that includes essentially the entire infrastructure of a small town requires enormous capital resources. These projects must include an urban area with commercial elements. Initially, an interesting anomaly arises when home buyers see an empty city while businesses see empty houses. As such, a delicate balance is required to shorten the natural life cycle of city development.

The new ruralismo, on the other hand, is much less established with the general public or with sources of capital. It suffers in part due to the lack of a clear definition, as the developers have a different interpretation of the concept. Some have focused on agriculture, with a bed and breakfast restaurant as seen in the Atlanta Serenby development. Others, like Harvest in North Carolina, focus on people who own large tracts of land to farm. Another fledgling trend combines America’s love of wine with a housing development with Montaluce Winery and Estates as an example. Given the current economic climate, the big question is whether unconventional developments like these will survive. (For a more in-depth discussion of the new ruralism, check out my previous Ezinearticles posts.)

http://en.wikipedia.org/wiki/Sea_Pines_Resort

http://en.wikipedia.org/wiki/Riverside_South_(New_York_City)

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