THE STATE OF SMART GROWTH IN A CLIMATE OF ECONOMIC UNCERTAINTY9th Annual New Partners for Smart Growth Conference

Gadi Kaufmann, Managing Director & CEO, RCLCO | February 5, 2010

1

ABOUT OUR FIRM

RCLCO is a leading land

use and real estate economics

firm providing marketintelligence, strategy, and

implementation solutionssince 1967.

SERVICES

� Metropolitan Studies

� Downtown/Corridor Revitalization

� Affordable/Workforce Housing

� Public/Private Partnership Structuring

� Transit-Oriented Development

� Economic & Fiscal Impact Analysis

� Smart Code Review

� Regional Visioning

� Campus Strategy Planning and Development

“GREAT RECESSION IS OVER”JOBS KEY TO SUSTAINED RECOVERY

�GDP Growth Q4 ’09 – 5.7%

�But Unemployment – 10%

�Jobs Recovery – 2013 at best

National Association of Business Economists; Moody’s

U.S. JOB GROWTH TURNAROUND IN 2010TOTAL JOBS PEAKED IN 2007; REPLACEMENT BY 2013

4

REAL ESTATE MARKETS TO STABILIZE IN ‘10/’11HOUSING MARKET FIRST TO RECOVER

Recovery Mature DownturnUpturn Recovery

Land (Q3 2010)

Residential For-Sale (Q1 2010)

Retail (Q3 2011)

Office (Q3 2011)

Hospitality (Q3 2011)

Multi Family Rental (Q3 2010)

2nd Home/Resort (2012+)

Median Date Predicted for Start of Recovery of Sector

SOURCE: RCLCO

Industrial (Q1 2011)

5

5 BIG TRENDS IMPACTING REAL ESTATE1. Demographic Shifts

� Households � Generations

2. Changing Consumer Preferences� Walkability� Live/Work/Recreate

3. Denser and Greater Mix of Uses� Urban and Urban� Jobs/Housing Balance

4. Costs � Housing Affordability� Inflation

5. Sustainability� Green � Wellness� Regulatory/Policy Initiatives

6

FROM METROPOLITAN TO MEGAPOLITAN

� 100 million by 2040; 60 million in 20 markets1

� Growth is attracted to multi-dimensional “centers”

� Places where employment, education, civic, and recreation combine to serve the region’s population and economic activity

�Existing, new and emerging centers are inevitable, so better to plan for them

� Creates planning challenges for the public sector (density, infrastructure, conservation, etc.)

� Development and investment opportunities for the private sector 1 Metropolitan Institute, Virginia Tech

2 Joint Center for Housing Studies, Harvard University

REGIONAL GROWTH PATTERNDRIVEN BY JOBS GROWTH AND JOB LOCATIONS

� 30% to 40% of regional employment in defined employment core

� The number of cores in a region is related to total employment, and their locations are rational

� New cores emerge around transportation options

� More likely to be located in Favored Quarter locations

RCLCO research of 15 regions shows recurring patterns:

6 CORE TYPES OF JOB CENTERS/CORES

Urban Centers

Catalytic Core

Industrial Core

Favored Quarter Office Core

Historic Satellite Cities/Towns

Retail Cores

JOBS NEED “CENTERS” IN WHICH TO LOCATEJOB CORES DRIVE GROWTH PATTERN

5

6

7

8

9

10

11

12

13

14

15

16

100 300 500 700 900 1,100 1,300 1,500 1,700 1,900 2,100 2,300 2,500 2,700 2,900 3,100 3,300

Employment (1,000's)

Nu

mb

er

of

Eco

no

mic

Co

res

Denver Philadelphia Cincinatti Detroit

Houston Nashville Atlanta ChattanoogaRaleigh-Durham Minneapolis-St. Paul Salt Lake City Central Florida 2005

Central Florida 2020 Central Florida 2030

Number of Employment Cores Relative to Total EmploymentSelected Metropolitan Areas

Correlation:More “centers” = more jobs

EXAMPLE OF CORE TYPOLOGIESHISTORIC CHARLESTON

Office Square Footage

Subject Site

MAP KEY

CORE CORE TYPE

1 North Summerville Emerging

2 SummervilleHistoric Satellite City

3 Goose Creek Emerging

4 Charleston Airport Industrial

5 North Charleston Industrial

6Naval Weapons Station/ N Charleston Port

Catalytic

7 Port of Charleston Industrial

8 St. Andrews/West Ashley Retail

9 Peninsula/CBD Urban

10 Mount Pleasant Retail

11 Daniel IslandEmerging Office

Retail Square Footage

Industrial Square Footage

Military Space (includes land)NOTE: Circle sizes indicate relative size of core total square footage for each use.

1010

SOURCE: Claritas, National Center for Health Statistics, US Census

DEMOGRAPHICSBOOM….BOOM!

1111

HOUSEHOLD SIZE SLOWLY SHRINKING

4.6 4.544.34

4.01

3.683.38 3.29

3.11

2.75 2.63 2.59 2.52 2.49 2.51

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Persons Per HouseholdSOURCE: US Census, Woods & Poole

Notes: 2010-2030 numbers are based on Woods & Poole projections.

*2008 is estimated at 2.53 persons per household

The “new news” – more singles, fewer couples, fewer families

11

DIFFERENT HOUSEHOLD LANDSCAPE50% OF ALL HOUSEHOLDS ARE NON-TRADITIONAL

Source: JCHS, Harvard; RCLCO

12

Single female with

children, 4,680,913Other Family,

1,758,377

Nonfamily,

3,416,246

Married with

children, 1,376,788

One-person

households,

11,825,702

Married, no

children, 5,476,979

Single male with

children, 2,165,939

Absolute Change in Households, United States1980–2005

IMPLICATIONS OF DEMOGRAPHIC TRENDSCREATION OF NEW DEVELOPMENT OPPORTUNITIES

� Increasing need to convenience and access to services

� Drives preference for denser locations, in-town and inner suburbs

� Consumers want diversity, walkability, and proximity to jobs key

� Serving, employing, housing Gen Y will dominate next 20 years

� Gen Y will rent, then shift to homeownership in 3 to 4 years

� Homes will be denser, smaller, more affordable; design over size

� Suburbs too – where “urban pulse points” are accessible

� Walkable areas, new and existing town centers – urbanizing suburban commercial nodes

� MPCs with greater variety of product, connectivity

� Conservation communities gaining broad appeal

13

14

RCLCO RESEARCH CONFIRMS CONSUMERS WILL PAY FOR WALKABLE ENVIRONMENTS

� Walkability:

– Drivers: convenience, connectivity, healthy work-life balance to maintain relationships

– 1/3 will pay more to walk to shops, work, entertainment

– 2/3 say that living in a walkable community is important

– More than 1/2 of Gen Y would trade density for proximity to shopping or to work

– Even among families with children, over one-third are willing to trade lot size and “ideal home” for walkable, diverse communities

In most metro areas, only 10% to 15% of the supply is delivered in these type of environments.

Results in strong pent-up demand for walkable urbanity.

It may take decades to satisfy this pent-up demand at the current pace of delivery.

15

1,300,000

170,000

1,500,009

4,100,000

5,400,000

5,000,000

3,500,000

-400,000

-1,900,000

-1,500,000

1,000,000

2,600,000

1,600,000

-200,00020 - 24

25 - 29

30 - 34

35 - 39

40 - 44

45 - 49

50 - 54

55 - 59

60 - 64

65 - 69

70 - 74

75 - 79

80 - 84

85+

`

Projected Total Population Growth Rate by Age 2010–2020

DEMOGRAPHIC SHIFTS AND HOUSING DEMAND

Apartments and Condos:Entry-Level andFirst Move-Up Condos, THFirst time SFD

Luxury townhomes and condosLuxury single familyTND and clustered, smaller lotsingle family

Senior Living

SOURCE: U.S. Census Bureau

1616

3,400,000

3,500,000

3,600,000

3,700,000

3,800,000

3,900,000

4,000,000

4,100,000

4,200,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Number of 22 Year Olds Same 22 Year Olds Turn 25

DEMOGRAPHIC TRENDSBIG IMPACT: GEN Y RENT IN 2010 – BUY IN 2012

�41% of Generation Y plan to rent for at least two years�77% of Generation Y plan to live in an Urban Core

NOTE: Number of 22-year olds is based upon birth rate and does not factor in death rates and migration.

SOURCE: U.S. Centers for Disease Control and Prevention

Largest group began graduating in 2009 –Greatest amount of new rental demand during this period

After renting for three years, they will hit the home buying market en masse in 2012, peaking in 2015

17

44

37

12

7Rural

Suburban

Urban

Close-In/Urban-Lite

Where They Plan to Move To

14

45

41

Move to Another Metro

Not Moving

Movement of Gen Y Renters (%)

86% OF GEN Y RENTERS ARE MOVING81% PLAN TO MOVE TO URBAN-LIKE LOCATIONS

Move within Current Metro

Source: RCLCO consumer research

IT IS NOT JUST GEN YAGING BOOMER INFLUENCES

� Aging boomers are looking for something different

• More suburbanites seek urban locations or “safe urbanism” closer-in

• Most don’t relocate outside the metro, but want “urban amenities” in suburban locale

� Walkable communities with urban amenities, culture, education

• The village or town center is the new golf course for many

• Love “third places”

• Amenities for convenience, healthy living, and staying engaged

• Boomers are willing and able to pay for what they want where they want it

• Land shortage, high construction costs drive prices too high for non-affluent

18

1919

PROPERTY VALUES BENEFIT FROM TODBUT THEIR RISE ULTIMATELY CROWDS OUT WORKFORCE

Original cost:$54M

Catalyzed Investment: $3.8B

Multiplier: 74X

SOURCE: Reconnecting America

MORE AND MORE WORKFORCE HOUSEHOLDSARE “PRICED OUT” OF MAJOR METROPOLITAN AREAS

20% – 30 % of households fall in

“workforce” income ranges in major metro areas

Forecasted growth between 2010 and 2030

calls for 1 million new workforce

households every year in the U.S.

Over the next 20 years, that equates to

demand for 6 million new workforce

housing units

And this assumes that income distributions remain constant – it is quite possible that the need for workforce housing will far exceed this number

Source: Claritas; RCLCO

TRANSIT ORINETED DEVELOPMENTDESIRABLE, BUT SIMPLY TOO EXPENSIVE TO BUILD

21

POLICY MUST HARNESS CONSUMER TRENDSAND PAY ATTENTION TO ECONOMIC FORCES

22

Market Outcomes

In 2005, NAHB projected that 50% of all new homes would be “green” by 2008.

By 2009, that number was 0.6%

USGBC has made attempt to rationalize the green building market and make it compelling to build green.

In 2009, the USGBC has big questions about LEED-ND applicants

1997 Maryland Smart Growth Initiative heralded by Harvard University’s “10 most innovative public policies”

Over last decade, 75% of lots consumed by single-family homes occurred outside of areas designated for smart growth

Possible Reasons

1.Policy-Market Mismatch

2.Timing of Real Estate Cycle

3.Consumer Preferences

4.Cost Implications

5.Regulatory Complexity – Closing the Gap

6.Aligning Policy and Incentives to Produce Results

23

ADVANCING SMART GROWTH REQUIRESBALANCING MARKET, CONSUMER, ECONOMIC ISSUES

Key Questions for the Industry and Policy Makers

Demographic and Consumer Preferences

How do end users relate and respond to innovations such as greenbuilding, transit-oriented development, mixed-use, conservation, placemaking, etc.?

Development Feasibility Do proposed projects meet financial, regulatory, and community objectives? If not, how do you overcome these barriers?

Financing Strategies How can new and innovative sources of capital, and the structuring of public/private partnerships, be mobilized to support development?

Fiscal and Economic Impact Analysis

What are the potential revenue and cost implications of development to the relevant jurisdictions?

Performance Benchmarking Can we quantify the impact of key differentiators, such as sustainability practices, on the performance of real estate?

Strategy How can development firms adapt their business models and vendor relationships to take advantage of emerging trends in sustainable design and development?

Metropolitan Trends Analysis How do we better plan for and invest in evolving metropolitan centers to create viable, walkable, and amenity-rich communities?

24

5 BIG TRENDS IMPACTING REAL ESTATE1. Demographic Shifts

� Households � Generations

2. Changing Consumer Preferences� Walkability� Live/Work/Recreate

3. Denser and Greater Mix of Uses� Urban and Urban� Jobs/Housing Balance

4. Costs � Housing Affordability� Inflation

5. Sustainability� Green � Wellness� Regulatory/Policy Initiatives

ATTEND THE ULI 2010 FALL MEETING! OCTOBER 12-15, 2010 │ WASHINGTON, DC

Program and Mobile Workshops:

�Sustainable Development�Public/Private Partnerships�Transit-Oriented Development�Walkable Communities�Real Estate Finance�Workforce Housing�Infrastructure

7,000+ Real Estate and Land Use Leaders Sharing Best Practices

CONTACT USWWW.RCLCO.COM

ATLANTA(404) 365-9501

AUSTIN(512) 215-3156

LOS ANGELES(310) 914-1800

ORLANDO(407) 515-6592

WASHINGTON, DC(301) 907-6600

GADI KAUFMANNCEO/Managing DirectorRCLCO240-644-1300gkaufmann@rclco.comWWW.RCLCO.COM