Chapter 1 O
The Development Process
A disconnect often exists between urban designers and the
real estate development process. Yet, awareness of this
process, particularly the balance of risk and reward driving
it, gives urban designers a deeper understanding of the
ontext in which they operate and how their design policies,
proposals and projects are either transformed, or can resist
rransformation, through implementation. Lacking such
awareness, they are at the development industry's merey.
Furthermore, as they frequently need to argue the case for
development and place quality, their arguments are more
persuasive and effective when informed by this awareness.
This chapter is in three main sections. The first section
outlines the process of real estate development utilizing the
·pipeline' model of the development process. The third
ection discusses roles and relationships in the development
process and the fourth section discusses development
quality. Although focusing on urban development design,
che discussion necessarily overlaps with design guidance
and control, whfrh are the specific focus of Chapter 11.
REAL ESTATE DEVELOPMENT
Real estate development combines various inputs - land,
labour, materials and finance (capital) - in order to achieve
an output or product. Classically an 'entrepreneur' brings
chese together and adds value to them. In the case of real
e tate development, entrepreneurs are 'speculators' - their
interest is short-term; entrepreneurs aim to start and operate
firms in the long-term - and are usually known as devel­
opers. The product is a change of land use and/or a new or
altered building that (hopefully) has higher value than the
ost of undertaking the transformation. According to
.-\mbrose (1986), the process can be thought of as a series of
rransformations: (i) capital is converted into supplies of raw
materials and labour, brought as commodities in the
marketplace; (ii) which are converted into sorne other
saleable comrnodity (a building); and (iii) which, in tum, is
chen converted back into money (i.e. capital) by selling the
ommodity in the market place.
Successful real estate development requires sale or
ocherwise profitable disposal of the completed develop­
ment. Indeed, realising capital has come to be seen as more
significant in capitalist accumulation strategies than
production. As Gottdiener (2001: 44) explains, the
manufacturing process 'valorises' commodities by creating
hblic Places - Urban Spaces. DO!: 10.I016/B978-I-856!7-827-3.10010-0
Copyright© 2010, 2003, Matthew Carmena, Steve Tiesdell, Tim Heath & Taner Oc. Published By Elsevier Ltd. Ali rights reserved.
value through production. For capitalists to realise that
extra value, they must sell the goods they produce - only if
they are successful in making a profit on sales can they
remain alive for the next cycle of accumulation. Because it
is harder to realise capital than to produce goods, the
contemporary economy places more emphasis on
marketing and selling (Gottdiener 2001: 71).
For the real estate development process to be profitable,
the amount received from sales has to be greater than the
production costs. A calculus of reward, mediated by the
risk of achieving that reward, thus, drives the process.
Reward is easily understood, but considerations of risk are
as important and instrumental as reward. As Leinberger
(2008: 183) explains:
'Although many developers, personified by Donald Trump, have
the image of being the ultimate gamblers, most are extreme/y
cautious. The name of the game is to minimise all risks up front
befare any financia/ exposure is taken, such as, have national
credit tenants, use other people's money, do not start a develop­
ment unless you know your exit strategy, develop only proven
conforming products, do not pioneer, have construction-cost
guarantees with a bonded construction firm, etc.'
Rather than a one-off sequence of transformations, for most
developers the process is a recurring cycle. There is also an
important time dimension: the rapid turnover of capital in
any particular development project allows it to be recycled
more quickly, generating profits more rapidly and reducing
risk. Tiesdell & Adams (2010) argue that, rather than
'location, location, location', what matters in real estate
development is 'location, product, tirning' - that is, the
right product in the right place at the right time.
The process of designing and producing the built
environment involves a variety of 'actors' or decision­
makers, each with different goals and motivations. Hence,
in any given instance, creating the built environment is the
result of a variety of actors, each with different objectives,
motivations, resources and constraints, and all connected
with one another in different ways. As Ball et al (1998)
has argued, rather than an anonymous and impersonal
economic process, development is a function of social
relations specific to time and place involving a variety of
key actors - landowners, investors, financiers, developers,
builders, various professionals, politicians, consumers, etc.
The state - both local and national - is also an important
269
270
actor in its own right and as a regulator of the other actors.
These sets of relations represent what Ball terms the
'structures of building provision', which need to be seen in
terms of their specific linkages - functional, historical,
political, social and cultural - with the broader structural
elements - econornic and institutional - of the political
economy.
To facilitate the study and understanding of the devel­
opment process, several models have been devised and can
be grouped as follows:
• Equilibrium models - derived from neo-classical
econornics, these assume that development activity is
structured by econornic signals about effective demand,
as reflected in rents, yields, etc.
• Event-sequence models derived from estate
management, these focus on the management of stages
in the development process.
• Agency models - derived from attempts to explain the
development process from a behavioural or institutional
point of view, these focus on the actors in the devel­
opment process and their relationships.
• Structure models - grounded in political economy,
these focus on the way markets are structured; the role
of capital, labour and land in the development process;
and the forces organising the relationships of the
development process and driving its dynamics.
• lnstitutional models - these both describe events and
agencies and explain how they relate to broader struc­
tural forces (see also Healey 1991a).
The outline of the development process presented below is
based on an event-sequence model. Despite providing
a good introduction to the development process, such
models understate aspects that other models emphasise,
such as the differential power of the various actors and
institutions involved. Furthermore, they do not explain why
urban development takes the form it does.
The Development Pipeline Model
Barrett, Stewart and Underwood's 'development pipeline'
model - an event-sequence model - is shown in
Figure 10.1. Their model divides the development process
into three broad sets of events each forming one side of
a triangular 'pipeline'. The three stages are discussed in
more detail below (adapted from Adams 1994).
Although the discussion focuses principally on
prívate sector development, the stages and principles are
broadly similar regardless of whether the developer is
a prívate, public or non-profit organisation. Two types of
urban design practitioner are considered - those
employed by the developer (in terms of urban develop­
ment design) and those by the public sector (in terms of
design policies, guidance and control). Table 10.1
PART 1 111 lmplementing Urban Desig
summarises their roles at each stage - those working for
the public sector are usually most influential and actiYe
at the initiation stage, and those working for the privare
sector at the feasibility stage.
Deve!opment Pressure and Prospects
Externa! influences - econornic growth, fiscal policies, the
impact of long-term social and demographic trends, tech­
nological developments, market restructuring, etc. - creare
development pressure and prospects, which trigger activi�
within the pipeline. When development opportunities arise.
appropriate sites are sought, with activity in the pipeline
beginning as development actors seek to relate develop­
ment proposals to suitable sites and vice versa.
Development may be initiated by a developer or a third
party (including the public sector) anticipating a demand or
need for a certain type of development and seeking an
appropriate development site. Initiation may also come
from the site-owner (or a third party) who anticipates or
envisages a higher value use for the site. In both case
urban designers may be involved in evaluating, exploring
and demonstrating the site's potential. To direct or attracr
development to particular sites or areas (or to direct it awa�
from other areas), a planning authority rnight establish, or
have previously established, a planning policy framework..
To stimulate (and subsequently to shape and coordinate
development, it rnight also prepare a development brief.
masterplan or development framework for the site or area
(see Chapter 11). These rnight be produced proactively to
encourage interest in a development site, reactive/°!'
following a developer's interest or by developers to expe­
dite the approval process.
As well as identifying a site and a development proposal.
thi,s stage is also likely to include initial ideas about devel­
opment form and an outline financial appraisal. In essence.
this is a 'back of an envelope' -type analysis combining
a broad assessment of the likely costs and subsequent value.
with a more subjective judgement based upon experience
and feel for the market. If the proposed development is
worth pursuing further, the feasibility stage - the pipeline·
second side - develops this initial assessment in
more detail, which, in tum, determines whether it will
proceed.
Deve!opment Feasibi!ity
In the pipeline model, feasibility is tested in five specific
ways, each related to a particular set of influences or
constraints. If development is to occur, all five streams mUSl
be successfully negotiated. If the proposal is not feasible, it
must be changed or abandoned. Successful developers are.
nonetheless, skilled in confronting and overcorning
constraints.
Chapter 1 1 O The Development Process 271

-------------------------------------------, \
\
ECONOMIC CHANGE DEMOGRAPHIC CHANGE \
\
\
TECHNOLOGICAL CHANGE ENVIRONMENTAL CHANGE \
\
\
\
\
\
GOVERNMENT \
SOCIAL CHANGE
ACTION
EXISTING STOCK OF LAND
AND PROPERTY
UNMET DEMAND/NEED FOR DEVELOPMENT

LAND & PROPERTY REQUIREMENTS

INITIATION
Financia!
institutions

Construction
industry

Site ownership

Physical conditions

....
OUTLINE PROPOSAL COMMITMENT
Public procedures

pre-application negotiations
.•.
: Market conditions
. IMPLEMENTATION
FEASIBILITY . Project viability

FEASIBILITY STUDIES
'-"
L--------------------------• •••••••••••••••••••••••••
abandon or revise proposal

FIGURE 10.1 The Development Pipeline Model (lmage: adaptedfrom Barrett et al 1978). This model divides the development process into three broad
sets of events - development pressure and prospects, development feasibility and implementation and disposal - each forming one side of a triangular
·pipeline'. Externa! factors generate development pressure and prospects along the first side, culminating in the identification of specific sites at the lower
left hand angle. Development feasibility is tested along the second side. Construction and disposal - the third side - include both construction and
transfer of the completed development into its new use. Sites move around the pipeline at varying speeds and, at any particular point in time, siles with
development potential will be at different points. Operating as a spiral, producing a fresh pattem of land use at the end of each cycle, the model shows that
the development process is dynamic and cyclical

(i) Ownership constraints
Prior to development, developers need to know
whether they will be able to acquire either the site for
the proposed development or rights over that site. The
availability of land is often restricted by planning,
physical, valuation or ownership constraints forming
obstacles to development (see Adams et al 1999). A
multiplicity of ownership rights, for example, often
exists in a single piece of land and the developer must
either acquire or respect all such rights. Land in
multiple ownership may require land assembly or
formation of a partnership or joint venture to carry out
development. Public sector compulsory purchase
powers may be used to facilitate land assembly.
(ii) Physical conditions
To determine whether the site can accommodate
the proposed development, the site's physical
conditions are assessed (e.g. ground levels, soil
structure, levels of contamination, etc.). The site's
capacity will also be assessed to determine whether,
subject to criteria of 'good' urban form and environ­
mental performance, the required or intended volume
of development can be accommodated satisfactorily.
The design proposals themselves will start as
a concept sketch, getting progressively more detailed
as the development proposal increases in certainty and
ultimately in sufficient detail for the development to
be built. Considerations of good urban form might
limit or determine density, massing and/or height.
These might be determined by the developer (e.g.
guided by concem to build a certain quality of
development). Most schemes have a client or project
brief setting out the design parameters, the gross floor
area (GFA) of different uses and the indicative budget.
272
TABLE 10.1 Development Process and Urban Designers
Urban Designer's Activities
Stage
Acting far devefoper
Development pressure • Spots 'opportunity'
and prospects • identifies suitable sites
• Provides 'vision'
• Prepares brief/masterplan for site
Development feasibility • Carries out feasibility study
• Provides advice
• Prepares design proposals
• Negotiates with planning authority
• Prepares and submits planning/development
application
lmplementation • Scheme quality may seal commitment with funders
• Ensures quality of development
• lnfluences management of development
Alternatively, limits might be imposed through plan­
ning policies, a zoning ordinance, a development
brief, an urban design framework or masterplan. As
physical constraints can normally be expressed in
terms of extra costs (i.e. additional preparation, design
or construction costs), they do not necessarily prevent
development.
In the early stages of the development process,
designs can be altered and amended with relatively
little cost. As the development process progresses,
however, the cost of design changes increases until
the cost of making changes is greater than the benefit
of those changes. T he opportunity for municipalities
to influence the design is thus greatest prior to this
point.
(iii) Public procedures
All legal and other public procedure issues relating
to the site and/or the proposed development must be
assessed, including, as necessary, the likelihood of
receiving planning/development consent (see Chapter
11). Permissions and consents may also be required for
a range of other issues - for example, land and prop­
erty ownership; conservation and/or historie preser­
vation consents; diversion or closure of rights of way,
light, and support; actions necessary to connect with all
main service and infrastructure provisions; etc. - all of
which may incur cost or delay to the process of
development. While not always affecting the principle
PART 1 111 lmplementing Urban Design
Acting far public sector
• Anticipates development pressure/opportunities
• Spots and promotes development opportunities
• Prepares planning policy framework
• Provides 'vision'
• Prepares development framework/development
code
• Prepares development brief for site/masterplan for
area
• Directs/attracts development to suitable sites
• lnfluences developer's brief for the site
• Negotiates with developer
• Provides advice
• Comments on design proposals
• Makes decision/recommendation on planning/
development application
• Ensures quality of development
• lnfluences management of development
of development, legal, planning and public policy
constraints usually affect design and layout.
In those countries with zoning systems (e.g. the
USA and many parts ofEurope ), provided the proposed
development is in accordance with the zoning ordi­
nance, there is automatic planning consent - although
sometimes a 'development permit' is required. Zoning
systems may also be supplemented by design review
panels focusing specifically on design quality.
In the UK, a discretionary planning system oper­
ates, in which acts of development, including so­
called material changes of use, require the planning
authority's formal consent. Development also needs
separate building regulation consent.
(iv) Market conditions
Appraising market conditions assesses whether
there will be sufficient demand for the proposed
development at the time of completion. Forecasting
future demand involves risk and uncertainty. As
market conditions may change rapidly during the
development process, it is a matter of risk whether
demand or completion will be strong enough to make
the development viable. To reduce their exposure to
risk, developers will often arrange a pre-let or pre-sale
tying in a future occupier or purchaser to the devel­
opment at an early stage. In a fragile market, devel­
opment is unlikely to commence without a pre-let or
pre-sale - which is often necessary to secure funding
Chapter 1 1 O The Development Process
for development. In markets with strong demand,
developers may be less concemed with securing a pre­
let because it could reduce their overall retum. Risk is
thus traded-off against overall reward.
Market conditions are monitored throughout the
development, so that, where possible, appropriate
changes can be made to maximise retum. In a difficult
econornic climate, design quality is often a casualty as
developers try to cut costs and pare back their
margins. Sorne developers, however, deliberately
invest more in their design during such periods to
differentiate their product. Conversely, in a devel­
opers' - as opposed to a buyers' - market, tenants
and purchasers (investors) often have to take what is
available and design issues may become less impor­
tant in their decision-making.
(v) Project viability
While a market appraisal assesses whether there is
an unsatisfied demand, project viability assesses
whether it can be met at the desired rate of profit. For
private sector development, assessment of project
viability includes analysis of the market (i.e. the
likely demand) for the proposed development and the
potential retums in relation to development costs and
risk. In the public sector, it assesses whether appro­
priate forms of cost recovery are available, whether
the development constitutes an appropriate use for
public money (relative to other purposes for which
the money could be used), whether it provides value
for money and whether it accords with cost yardsticks
or benchmark costs for similar developments.
Several methods of development appraisal exist,
but, in simple terms, appraisals consider four related
factors:
• End or expected value of the development
(development revenues).
• Land acquisition costs.
• Production costs (e.g. building costs, legal and
agents' fees, professional fees, costs of borrowing,
developer's profit).
• Developer's profit or required level of profit.
The latter is important because, if the developer cannot
achieve the desired level of profit, other sites and
developments may be more attractive or the developer
may pursue altemative investment opportunities. For
a development to be viable, its expected value must be
greater (at least, to the extent of the developer's required
profit) than the production and land acquisition costs.
A common method of appraisal is the 'residual
method'. At it simplest, this involves subtracting the
total projected development costs and the developer's
'reward' from the estimated end value to establish
a residual value - that is, what the developer can afford
273
to pay for the land to enable a sufficient retum. Alter­
natively, if the land price is held constant, the method
can be used to determine whether a target rate of profit
can be achieved.
Apart from shaving profit margins, developers
cannot absorb additional or unexpected costs. If the
additional costs create additional value, developers can
pass those costs on to the end purchaser or occupier
(provided they are willing and able to pay for the
additional value); if the additional costs do not create
additional value, then the developer must reduce the
price offered to the landowner. As landowners will often
refuse to sell their land at a lower price or the land price
already agreed or paid, the developer often has to find
development proposals offering a higher end value (for
example a different mix of uses or higher density
development); if they are unable to do so, then the
project becomes unviable.
For a variety of reasons developers frequently over­
pay for land (which often means they seek to over­
develop sites), and it can often be a case of 'lucky'
landowners rather than 'greedy' developers. But, as
Syms (2002: 7) points out, although landowners may
appear to be intransigent by holding out for maximum
payment for their land, they may in practice be trapped
by historie valuations on the basis of which their land
has been used for collateral against bank borrowings or
other loans. Once a 'hope value' has been established, it
becomes very difficult to shift.
The residual method has two basic weaknesses:
• By assuming costs are spread evenly over the
development period, it is not sensitive to the tirning
of expenditure and revenues. Cash flow appraisals
can overcome this.
• By relying on single figure 'best estimates', it hides
uncertainty and risk. Sensitivity analysis, which
looks at a range of possible outcomes and then
narrows them down to probable outcomes, can
remedy this.
The design and costing of development proposals occur
in parallel and in increasing detail as a scheme prog­
resses. Viability studies may highlight the need for
design modification to, for example, increase the land
uses likely to produce most revenue. To be financially
viable, a site may require a greater volume or intensity
of development than it would initially appear to be able
to accommodate. Urban design skills may be required to
put that volume of development onto the site in
a manner that does not diminish development quality.
Design is, however, intrinsically lirnited: disadvantages
of location or lack of (effective) demand for the
development cannot be totally overcome by design
(Cadman et al 1991: 19).
274
Developers rarely fund development entirely - or
even substantially - from their own resources and, if
development appears viable, funding must be obtained.
Project viability, thus, also assesses whether the devel­
oper can obtain the necessary funding and, if so, on
what terms. The terms involve certain risks for the
developer - for example, when funds are borrowed and
interest charged, steep rises in interest rates may cause
development projects to be postponed or abandoned.
Developers normally arrange two types of finance:
short-term finance - development funding - to cover
costs during the development period, and longer-term
finance - investment finance - to cover the cost of
holding the completed development as an investment
(whereby the developer becomes an investor) or, alter­
natively, a buyer (or investor) for the completed scheme
(see below).
To reduce exposure, help their cash flow and/or
acquire greater operational flexibility, larger develop­
ments are often phased so that sorne parts are finished
and earning income before the whole is complete.
Developments may also be designed so that non­
revenue-generating elements occupy the later phases. In
a residential development, for example, the developer
might build the houses first, leaving community facilities
and open space until later. This logic can also be reversed
where non-revenue-generating elements such as a high­
quality public realm help sell or let the revenue-gener­
ating elements, in which case they may be built at the
same time or befare the other elements (Figure 10.2).
If the initial phases of a development prove unsuc­
cessful, the decision may be taken to change the design
of the later phases, or even to halt or abandon
FIGURE 10.2 Brindleyplace, Birmingham (Image: Matthew Carmona).
Where non-revenue-generating elements enable early sales or lets of
revenue-generating elements, they may be built at the same time or in
advance of other elements. At Brindleyplace, the central public space was
completed before the surrounding office blocks
PART 1 111 lmplementing Urban Design
development. Equally, if the initial phases are success­
ful, subsequent phases may be changed in order to
maxirnise the more successful, and minimise les
successful, elements. Phasing considerations also affect
design: if the development is to be let or sold in phase
each must be designed to appear complete and tolerably
self-sufficient.
Construction, Marketing and Disposal
If a development passes all five streams of feasibility tests.
the decision will be taken to commence development, and
the developer (and other parties) commits to the scheme. So
begins the construction and disposal stage - the pipeline'
third side. The developer's ultimate aim is to produce
a marketable development - one for which occupiers and/
or purchasers (investors) are willing and able to pay the rene
and/or purchase price that at least covers the development
costs. The implementation stage is thus the development
process's final stage and includes the development'
construction, marketing and sale or letting. If the developer
retains the development for letting, then bis/her role
changes to that of investor (see below).
Once implementation starts, developers lose their flex­
ibility of action. The main task is to ensure the development
is carried out at the appropriate speed, cost and quality.
Developers are particularly reliant on their builders and will
also expect their professional team to monitor the builder's
performance and be concemed simultaneously about time.
cost and quality. In the short-term, time and cost can crowd
out concem for quality; over the longer-term, time and cost
recede in importance.
DEVELOPMENT ROLES
To more fully understand the development process, 1t 1s
necessary to identify the key actors and their relationships
with each other; to consider why they are involved in the
development process; and, more generally, why they rnight
pursue - or be persuaded to provide - higher quality. In
this and the following section, therefore, the evcnt­
sequence model is extended by considerations of 'agency'
and 'structure'. Agency refers to how development actors
define and pursue their strategies, interests and actions
(Adams 1994: 65). The behaviour of development actors is
also set within a broader context - usually known as
'structure' - that consists of the organisation of econornic
and política! activity and of prevailing value systems that
frame individual decision-making.
Different actors perform different roles in the develop­
ment process. For the purpose of analysis, these roles are
considered individually, though, in practice, a single actor
often performs severa! roles. Volume housing developers in
the UK, for example, typically combine the roles of
Chapter 1 1O The Development Process
developer, funder and builder. As well as identifying the
actors and the roles they perform, it is also necessary to
understand and appreciate why they are involved. Each
development role can be considered in terms of five
generalised criteria:
• Financia! objectives - whether the actor has a primary
concern for cost minimisation or for profit
maximisation.
• Time-span - whether the actor's involvement and
interest in the development is primarily short- or long­
term.
• Design: functionality - whether an actor has a specific
concern for the development's ability to serve its func­
tional purpose (e.g. to be used as an office).
• Design: externa[ appearance - whether an actor is
primarily concerned with the development's external
appearance.
• Design: relation to context - whether a development's
relation to its context is a primary concern to the
development actor (see Table 10.2).
While each actor will internally trade-off between these
criteria, the interactions and differential power of the
various actors will also mean criteria are traded-off between
actors. Achieving high quality urban design may not be an
objective shared by all the participants in the process - and,
in any case, may mean something different to each actor.
The objective can also be constrained by a wide variety of
factors, many lying outside the designer's or developer's
sphere of influence, such as:
• The requirements and preferences of clients/
customers, which may conflict with those of the wider
community.
• Market conditions.
• Limitations and costs imposed by the site.
• The need for various consents (legal, planning, devel­
opment, highways adoption, etc.), and, more generally,
by the public sector's regulatory and statutory
requirements.
• Limits on the rents/values achievable in particular
locations.
• The short-termism often inherent in investment decisions
(longer-term exposure increases the risk involved).
Toe following sections discuss the main development roles
and actors and are grouped into producers, consumers and
regulators.
Producers
Devefopers
Developers are many and various. The term embraces a wide
range of agencies, at a range of scales from, for example,
275
volume house builders to small local house builders and
self-builders, and with various levels of profit motivation,
from the most profit-driven prívate sector developers
through central and local government and other public
agencies to charities and non-profit organisations. Sorne
developers specialise in particular sectors of the market,
such as retail, office, industrial or residential, while others
operate across a range of markets. Sorne developers have
established a niche market, such as the conversion of
historie buildings. Sorne are strongly embedded in particular
places, concentrating on projects in or around a particular
town or city, while others operate regionally, nationally and
even internationally and have less allegiance to particular
places.
Based on how they operate, Logan & Molotch (1987,
from Knox & Ozolins 2000: 5-6) identified three different
types of developer:
• Serendipitous entrepreneurs who acquire real estate in
various ways (perhaps through inheritance or as a side
line to their regular business) and then find that it would
be more valuable sold or rented for sorne other use.
• Active entrepreneurs who anticípate changing pattems
of land use and land values, and buy and sell land
accordingly.
• Structural speculators who operate more strategically
and, in addition to anticipating changing patterns, seek
to influence or engineer change for their own benefit
(e.g. by changing the zoning ordinance or development
plan; influencing the route of a road or the location of
a public transport stop; encouraging public expenditure
in certain locations; etc.).
To these might be added social developers using charitable
or public funding to meet particular social needs; for
example, for social housing. Though not entrepreneurs in
a profit-seeking sense, these actors are still developers in
the sense that they develop, and need to compete within the
market to secure land, labour, materials and often finance
to secure their social ends. British Housing Associations
are of this type and will often be particularly concemed
with design quality as they have a long�term stake in
managing their products (i.e. they are developers and
investors).
Sorne developers operate primarily as land developers -
they acquire land, clean it up as necessary, obtain necessary
consents, instan infrastructure, sub-divide (parcel) the land
and then sell serviced plots (lots) to other (building) devel­
opers (or, more simply, builders). They may also exercise
control over the building developers by means of covenants,
design briefs or design codes (see Chapter 11). The sepa­
ration of land development and building development is
more common in sorne countries than in others. In northem
European countries, for example, the state often plays
a significant role in land development, while residential
276 PART 1 111 lmplementing Urban Desigll

TABLE 10.2 Motivation of Development Actors in the Place-Production Process

Factors of Motivation

Cost Design lssues

Development Externa/ Relation to

roles Time sea/e Financia/ strategy Functiona/ity appearance context

Supply-Side Actors - those who 'produce' developmentlplaces or contribute to their production

(lnitial) Transient Profit maximisation No No No
Landowner

Land developer Transient; Profit maximisation Yes, but only to Yes, but only to Yes, to extent there are
to completion financia! end financia! end positive or negative
of project externa! ities

Parcel/building Transient; to Profit maximisation Yes, but only to Yes, but only to Yes, to extent there are
developer completion financia! end financia! end positive or negative
of parcel externa! ities

Development Transient; to Profit maximisation No No No

funders completion
of project

Lenders of Long-term Profit-seeking Yes Yes Yes

patient equity

Builder Transient Profit maximisation No Yes No

Designer Transient Profit maximisation/ Yes Yes, to extent No

seeking externa!
appearance/design
reflects on them
and their future
business

Demand-Side Actors - those who 'consume' developmentlplaces

lnvestors Enduring Profit maximisation Yes, primarily Yes, but primarily Yes, to extent there are
(lnvestment as means to as means to benefits to making
funding) financia! end financia! end positive connections

Occupiers. Enduring Balance spaces cost Yes Yes, to extent Yes, to extent there are
against quality and externa! benefits to maki ng
contribution to appearance positive connections
business returns symbolises/
represents them

Adjacent Enduring Protect property No Yes, to extent new Yes, to extent new
landowners values development has development has
positive or negative positive or negative
externa! ities externalities

(Local) Enduring Neutral in principie; Yes, to extent that Yes, to extent it Yes
Community practice may vary buildi ngs are used by defines and
general public forms part of
public realm

Regulatory Actors - those who 'regulate' developmentlplace-production process

Public sector Enduring Neutral in principie; Yes Yes, to extent it Yes, to extent it forms
practice may vary forms part of a part of a greater whole
greater whole

Source: Adapted and extended from Henneberry (1998).

Chapter 1 1O The Development Process
development in North America often involves separation of
land and building development. In the UK, volume house
builders are typically both land and building developers.
Developers (and investors) also have differing operating
characteristics - or, more formally, differing business
strategies with respect to rates of retum, project scale, areas
of operation, attitudes to risk, etc. These behavioural
differences may reflect structural and institutional differ­
ences (e.g. charities as developers usually have a more
favourable tax status; larger developers can often borrow
funds at lower interest rates; etc.), but they are not deter­
rnined by such differences.
Sorne developers, however, seem to 'care' more about
design than others, undertaking the development, for
example, that is closely tailored to the location, and is
respectful of, and enhances, the sense of place. Others
undertake less respectful development. These developer
types can be considered to be 'place' and 'non-place'
entrepreneurs, respectively (Table 10.3). This distinction is
best understood as a continuum from those entrepreneurs
more sensitive to the intrinsic value and characteristics of
the place, to those less sensitive.
In the prívate sector, as their primary concem is
a marketable product, developers (the supply side) must
necessarily consider and anticipate the needs and prefer­
ences of investors and occupiers (the demand side). In
principie, occupiers make demands of building owners
(investors), who make demands of developers, who - in
tum - set the brief for building designers. The possibility
of producer-consumer gaps, however, is discussed below.
Responding to and balancing the needs of investors and
occupiers, developers tend to see 'design' as essentially
a means to a financia! end rather than as an end in itself.
Their general design concerns thus include:
• Investor and occupier requirements, preferences and
tastes, and, in particular, the price they will pay for
a product responding to these.
• Flexibility of building and site layout to meet changing
circumstances.
• Buildability (including control over building costs).
• Cost efficiency and value for money.
• Visual impact (including image as an aid to sale or
letting).
• Management implications (including running costs)
(Rowley 1998: 163).
Madanipour (2003: 215-6) notes that, as development
companies have grown in size and complexity, small locally
based companies with links to local decision-makers have
increasingly given way to companies whose centre of
operations typically resides outside the locale. Sirnilarly, the
financing of projects and ownership of commercial
properties are increasingly the responsibilities of national
and multi-national companies. The result is a growing
277
TABLE 10.3 Typical Characteristics of Place and
Non-place Entrepreneurs
'Place' Entrepreneurs
• lndependent (non-corporate) operators - strong ties to
particular localities and often locally embedded
• Use financia! appraisals based on what will/might happen in
the future (i.e. seek growth)
• Work on intuition and experience (i.e. risk-accepting)
• Value diversity - 'everywhere different'
• Use strategies of design differentiation (i .e. to address risk)
• Gain significant psychic benefits from investment/develop­
ment (i.e. development of something to cherish) - strong
personal associations
• Possess (mainly) local knowledge and expertise
'Non-place' Entrepreneurs
• Non-local (global), corporate (institutional) operators - often
with weak tiesto particular localities
• Use financia! appraisals based on what has happened before
(i.e. seek stabi I ity)
• Work on past 'evidence' (i.e. risk-averse)
• Value homogeneity - 'everywhere the same'
• Use strategies of standardisation of design (i.e. to reduce risk)
• Few psychic benefits from investment/development (i.e.
development is merely a financia! commodity) - weak
personal associations with individual/firm
• Possess (mainly) global knowledge and expertise
disconnect between those responsible for development and
the locality: 'lf particular developments had some symbolic
value far their developers in the past, it is now more the
exchange value in the market that determines their interest.'
(Madanipour 2003: 216) - thus, the development becomes
a mere commodity. In such a climate, a safe return (the
investor's primary interest) will most readily be guaranteed
by responding to the needs of occupiers, while those of the
wider community will have a low priority. While investors
and occupiers are interested parties in any development, they
are not the only interested parties and there are others whose
interests should be considered, including adjacent owners
and the general public.
Developers' thinking is often broader than stereotypes
may suggest. Individual developers are often very con­
cerned with development quality, strongly supporting
design guidelines where their value in maintaining place
quality, and thereby property values, is clear (see Box
10.1). Sorne developers also look beyond immediate
market pressures, and consider broader civic responsibili­
ties and obligations. Many derive psychic benefits through
their close association with buildings and developments.
Furthermore, due to the discipline of operating in a market
economy, they may often have a greater awareness of
consumers' needs and preferences than many designers.
All developers are, nevertheless, motivated by the
opportunity to appropriate the development value of
278
BOX 10.1 Canary Wharf, London
Canary Wharf, London (Image: Matthew Carmona)
Canary Wharf is of particular note because it helped to
establish a new model of design-led (or at least design­
aware) development. In the early 1980s, development in
London's Docklands was jump started by the designation of
an Enterprise Zone on the lsle of Dogs and the establish­
ment of the London Docklands Development Corporation
(LDDC). The wave of development that followed was
characterised by a design and development free-for-all, with
the LDDC almost entirely devoid of any serious design
vision for the area beyond 'anything goes'.
With the arrival of Canary Wharf (10 million sq ft of
commercial offices and ancillary uses) from the mid-l 980s
onwards everything changed. Design was seen not as
a barrier to innovation and a cost on investment, but as
a means to establish a marketable sense of place. The urban
yet starkly prívate vision that resulted was fixed within
a detailed masterplan and series of design codes designed to
contrast dramatically with the surroundings - economically,
physically and socially.
History shows that the developer, Olympia and York,
over-stretched themselves and, when faced with a major
economic downturn in the early 1990s, were unable to let
enough space to service their spiralling debts. The scheme,
however, demonstrated the importance of the certainly (up to
a point) that goes hand-in-hand with a clear �rban design
framework - finding no such plan in place, the market
sought to create one. During the economic recovery from the
mid-l 990s onwards and ever since, the masterplan has
continued to deliver a robust place-based framework for
Canary Wharf, helping to safeguard the massive investment
that continues to be made in the area by the development's
current owners, Canary Wharf Group (see Carmona 2009c).
particular sites. This is a function of the gap between the
value of the property and/or land in its existing use and its
value in a 'higher-and-better' use, less site acquisition and
production costs. Rather than being fixed to a particular site
. •
' •' '
PART 1 111 lmplementing Urban Desig
or piece of land, development value often 'floats' ove=­
a wider area and may also 'shift' from one site to another_
As Reade (1987: 16) notes, if a steadily expanding city is
surrounded on all sides by agricultural land, all owners ma�
hope to sell land at a price higher than its value in agri­
cultural use (i.e. there is hope value). In practice, however_
only a relatively small proportion of owners will (at this
point in time) be able to sel! their land for developmenL
Thus, while development value floats over an extensi,·e
area, it settles on only a small part of it. Similarly, while
there might be several possible sites for a multi-scree
cinema complex within a particular city centre, the de el­
opment value may largely be appropriated by the fus¡
development to be completed, with any subsequent de el­
opments having to compete with the first complex. e
infrastructure or development also shifts value from one
site to another. Planning controls also shift value by givin.:
the land a particular designation (e.g. housing or agricul­
tura!) and, in discretionary planning systems, by decisions
on planning applications (see Box 10.2).
In general, the develope'r aims to appropriate the
development value by meeting unmet demand. For office
development, for example, this might derive from shortages
of certain sizes of office suites, shortages of office space ·
certain locations, or buildings able to accommodate state­
of-the-art user requirements. Developers, therefore.
orchestrate the assembly of inputs (sites, finance, profes­
sional advice, construction, etc.) and seek to make a pro
by selling the completed development at a price greatcr
than the cost of producing it. Given that a calculus ,;
BOX 10.2 The Origin of Land Value
Land value derives from two sources - the land itself and the
capital improvements upon that land. The former results from
the land being in a specific geographical position relative to
infrastructure networks (roads, water and electricity supplies,
sewers, etc.), physical amenities (schools, shops, hospitals,
housing, etc.) and natural amenities (beaches, forests, open
countryside, etc.). The latter results from buildings, roads,
fences, etc., constructed and sited on the land itself. A ke
point is that through unilateral action the landowner can only
change the value of the capital improvements; the value of
the land itself can only be changed by the actions of the
community at large.
Economic value in real estate thus derives from two
sources - socially or 'community-created' value, which
resides in the land, and 'owner-created' value, which resides
in capital improvements upon that land. The former is often
so extensive that Rypkema (2001: 21O) argues the primary
source of value in real estate is 'largely externa! to the
property lines'. This also means that the value of a building
derives in substantial part from its surroundings, which, in
turn, explains why real estate owners are very concerned
about what happens on neighbouring sites.
'.:
_,- ·= ... ..
� ,�.6 � - :· ,.,,.. �
···•1,1.�
Chapter 1 1O The Development Process
reward mediated by the risk of achieving that reward drives
the process, then, in the main, developer's objectives are
short-term and financial.
Landowners
Land is power in the development process: development
cannot happen without it and control over land development
may be a more useful tool than public planning controls. Land
(and property) is also heterogeneous. While other parcels
may be similar, they are never identical, and every parce! of
land is, thus, unique - at least by dint of its location if nothing
else. As the location of land is fixed, its ownership is a source
of power, particularly where spatial monopolies can be
created. Housing developers, for example, compete for land
in particular locations. In areas where readily developable
land is in short supply, once a developer has acquired the land
or purchased an 'option' - an agreement to buy the land at
a specified price before sorne future specified date or upon
sorne specified event occmTing - and subsequently gained
consent for development, they effectively have a local
monopoly. Anyone wishing to buy a house in that location has
to buy from them, thereby providing greater freedom to set
quality levels and prices in their own interest.
As real estate is not physically moveable and property
interests are tied to locations, this affects the behaviour of
real estate owners. If they can move their investments from
one property to another (or out of property altogether and
into another asset class), their decisions in aggregate and
when spatially concentrated can trigger a tipping point
resulting in widespread abandonment. Conversely, if they
cannot - or do not want to - move away, then they are
likely to take actions to restore demand. As Beauregard
(2005: 2434) observes:
'Property owners cannot easily move their investments nor do they
always want to do so. As a result, any decline in demand for the
property or in property values instigates attempts to reverse the
blight. Without these frictions to spatial mobility, it is likely that
many fewer downtown business coalitions would have formed.'
Landowners own land prior to the commencement of
development; during the development process the devel­
oper holds the land. With the exception of those holding
land with the expectation of subsequently developing it
(e.g. builders or developers with land banks), landowners
do not normally take an active role in the development
process and simply release land for development when
offered a sufficient price. Their objectives are, thus,
usually short-term and financial.
Landowners (and developers holding land) influence the
development process in four broad ways:
• By releasing or not releasing land: Adams (1994)
makes a distinction between 'active' and 'passive'
landowners. Active landowners are those who develop
279
their own land (i.e. they become developers), enter into
joint venture developments or make their land available
for others to develop. They may also seek to overcome
site constraints to make their land more marketable or
suitable for development. Passive landowners, by
contrast, take no particular steps to market or develop
their land, rarely attempt to overcome site constraints
and may - or may not - respond to offers from
potential developers. Where public authorities are
involved in or support the principie of development,
powers of compulsory purchase or 'vesting' can be used
to enable land assembly, though this is typically time­
consuming and costly. When land for development is
not freely available, it may result in 'scattered' growth,
where - rather than incremental and generally outward
growth from a centre - development leapfrogs or
bypasses land not available for development. Shoup
(2008) suggests a method of encouraging voluntary land
assembly. Graduated density zoning allows higher
density on larger sites and thus increases the incentive
for owners to cooperate in land assembly that creates
higher land values. It does not eliminate the incentive to
hold out, but creates a fear of being left out because
holdouts left with sites that cannot be combined with
enough contiguous properties to trigger higher density
lose a valuable econornic opportunity. A consolidated
land holding also enables the exercise of greater control
over the development of the land.
• Through the size and pattern of land parcels released:
Knox & Ozolins (2000: 5), for example, contrast the
large ranchos and rnission lands around Los Angeles
that formed the basis of extensive tracts of uniform
suburban development with East Coast cities where the
early pattern of land holdings was fragmented and
subsequent development more piecemeal. The land
rnight also be sub-divided and then released for devel­
opment. Platting or sub-division of land for the purpose
of sale or development has a major influence on
subsequent development. Simpler sub-division/land
release strategies are where either the street blocks are
the development parcels or the street blocks are sub­
divided into development plots (Figure 10.3). More
complex strategies may involve development parcels
consisting of (say) two parcels facing one another across
a street or a single parce! containing a street element
(Figures 10.4 and 10.5).
• Through conditions imposed on subsequent develop­
ment: Landowners can attach contractual provisions or
restrictive covenants lirniting the nature of subsequent
development to land transfers (Knox & Ozolins
2000: 5). Landowners can also have an important role in
setting down a site plan (in two dimensions) or a design
framework (in three dimensions) to control the subse­
quent development of the land.
280
D D D11 D D
R1111R R R R
�, is
�
Plot-based Jand release
�:.
Block-based land release
................................)�
[QJITDC]J
Street parcel land release
: ..................................... ·
FIGURE 10.3 Land release strategies. The upper part of this diagram
shows a plot-based land release. This is corrunon in sorne countries with
regard to residential development, where a land developer provides house
builders with serviced plots. House builders either commission bespoke
designs for those plots or purchase standard plans. The plots might also be
sold to investors who commission designers and employ house builders. To
ensure variety in the street scene, limits may be placed on the total number
of plots and/or the total number of contiguous plots on a single street block
that a single house builder can purchase. The middle part illustrates land
release on a block-by-block basis - each development parce] consists of
an entire street block. The lower part shows land release on a street parce]
basis, where each development parce! includes parts of two street blocks
and the street space between them. The latter approach enab]es a single
designer to design both sides of the street, thus enhancing visual coherence
and a positive focus on the space as the centre rather than the edge of the
development parce]
• Through leasing rather than selling land: Due to their
long-term interest in the land, freeholders granting leases
are concemed with the quality of what rnight be built on
their land. As Sudjic (1992: 34-5) observes, in this sense
development is closer to farrning than trade. Airning to
FIGURE 10.4 Block-by-block parce! sub-division
Manchester (lmage: Steve Tiesdell)
PART 1 111 lmplementing Urban Design
D
R
FIGURE 10.5 Plot-based development - Borneo Island, Amsterdam
(lmage: Steve Tiesdell)
produce a regular income, rather than to accumulate
capital by selling assets, this entails taking a longer-term
view on the econornic health of the properties and the
careful management of tenants and the uses to which they
put their prernises. The intention is also to build
a continuing relationship rather than one-off transaction.
Contractual provisions in leaseholds, for example, were
responsible for the form of much of Georgian and
Victorian London, Edinburgh and Glasgow.
Development funders (financia! capital)
Rarely using their own capital to undertake development
developers arrange finance on the most favourable terms
available with regard to cost and flexibility. When borrowing
money, developers have to take lenders' concems into
consideration - in other words, the funds come with strings
attached. Those investing in urban development do so for their
own purposes, which are usually concemed with making
profits. If acceptable profits are not achieved, they will inve t
elsewhere. Developers are normally concerned with arrang­
ing short-term finance (development funding), discussed here.
and, in subsequently, longer-term finance (investmem
finance) (see below under investors).
Short-term finance - developmentfunding - is needed
to cover costs during the development period (i.e. the costs
associated with land acquisition, construction and variou
professional services). The principal short-term funders are
clearing and merchant banks. On completion, when long­
term finance is raised, the development finance is repaid.
Funding for a specific development is typically raised
through a combination of equity and debt finance.
Debt involves loans, mortgages or bonds. Lenders of
debt finance have the right to be repaid with interest but do
Hulme, not normally have a legal interest in the project (except as
security in event of default) nor any entitlement to share in
Chapter 1 1 O The Development Process
development profits. Debt is also first in line to be repaid by
a project or company; due to this first position it involves
the least risk and thus charges the lowest relative interest
for the money invested (Leinberger 2008: 197).
Equity is cash, land, an existing building, professional
fees, shares, etc., invested in the project. Paid off after debt is
serviced on an annual basis, equity is at much greater risk and,
as a result, has much higher retum expectations than debt
(Leinberger 2008: 197). Lenders of equity finance participate
in the risks and rewards of development, are entitled to a share
in developrnent profits and have a legal interest in the project.
Patient equity (capital) is another name for long-term
capital - that part of the development financing structure
that does not have a defined payback period. With patient
capital, the investor is willing to invest in a project with no
expectation of turning a quick profit. lnstead, the investor is
willing to defer any retum for an extended period of time.
By foregoing any type of immediate retum, the investor
anticipates profits down-the-road being more substantial
(Figure 10.6).
The terms on which development finance is made
available reflect the characteristics of both the project (e.g.
if the investor considers the development high risk, then
funds will be made available on more exacting terms) and
the borrower (e.g. developers with track records of
successful development will be able to borrow funds on
more favourable terms). As Leinberger (2005, 2008)
explains, to enable it to more easily fund and trade devel­
opments, Wall Street commoditised US real estate into
a small number of standard products (see Box 10.3 and
Table 10.4). As Kelbaugh (2008b: 42) describes, the
consequence of this 'sanctioning of diminished variety'
coupled with a short-term investment mentality 'blind to
financia} retums beyond the first five to seven years' is an
'architectural dumbing down' of the built environment.
To assist their funding package, developers sometimes
seek - or are offered - public subsidies. Public redevel­
opment and regeneration agencies may provide funding for
development projects in the form of low-interest loans,
grants or subsidies or - less commonly - through joint
ventures. As grants and subsidies are typically used to make
socially desirable but economically marginal projects
viable, eligibility for support is usually couched in terms of
various 'social' rather than 'economic' objectives.
Providing subsidies also gives agencies leverage to seek
design improvements. Although developers are often astute
in making arguments that their projects are both socially
desirable and would not be viable without gap funding, the
intention is to provide just enough subsidy to make the
project viable while not subsidising the developer's profit.
Rather than reducing production costs, however, subsidies
might simply be capitalised into higher land prices.
Development funders' objectives are typically short­
term and financial. Their interest in design is primarily
281
5 12 20
Time (years)
FIGURE 10.6 Hypothetical financia! characteristics of walkable (blue)
and drivable suburban (red) development (Image: Redrawn from Lein­
berger 2005). The graph shows a gap between the returns from driveable
suburban and walkable urban development in the initial five to seven year
period. Leinberger argues that a way to resolve this and to make driveable
urbanism more viable is to increase the amount of equity investment in the
project. He estimates that, in conventionally financed real estate devel­
opment, equity represents about 20% of the total money invested in
a project, while debt is about 80% (Leinberger 2008: 197). One of the
reasons why drivable suburbanism loses value and walkable urbanism
gains value in the longer term is that, in the former, more development is
worse (i.e. it creates congestion and reduces privacy and exclusivity),
while, in the latter, more is generally better (i.e. it creates greater demand
and greater footfall, resulting in more amenities and facilities within
walking distance). As developer of I'On (Charleston) and New Point
(Beaufort), for example, Vince Graham argues, where people want
'exclusivity-and-privacy' then more is always worse, but where people
want 'community-and-sociability' then more is better
a means towards a financia} end. Lenders of equity finance
will, however, have a greater interest in the totality of the
development, including its design, than lenders of debt
finance. Providers of patient equity will have a long-term
interest in the development and a keen interest in its design
quality.
Development agencies
Also active in the development process are various public
sector development or regeneration agencies, which may
include the municipality itself, arm's length companies
formed by the municipality or companies and agencies
formed by national, central or state/regional govemment.
These may also be the executive body of various types of
public-private partnership. These bodies seek to assist
and support development either across the whole of
a govemmental district or within a designated target area.
Sorne such bodies are executive and carry out physical
development, such as building houses, factories and roads.
Others are facilitative and operate by enabling develop­
ment, through preparing land for others to develop,
preparing development frameworks and masterplans,
operating more 'relaxed', entrepreneurial planning and
development controls, and/or by providing finance,
advice, etc.
282
BOX 10.3 The Power of Finance
Leinberger (2005: 24) asserts that: 'The best design ideas are
worthless unless money can be raised to build them.' He
explains how the American - and increasingly the worldwide
- real estate finance system operates according to well­
understood decision-making rules; rules that once produced
older suburbs, but now produce lower-density development on
the urban periphery (Leinberger 2005: 24). Ellin (1997)
describes it as 'form follows financing'. As Leinberger (2005:
24) argues: 'Learning how this system works, and how it may be
influenced to accept different models, should be one of the top
concerns of advocates of change.'
A major problem for investors has always been that real estate
is an illiquid asset class, making it difficult and time-consuming
to buy or sell. The emergence of real estate investment trusts
(REITs) and Commercial Mortgage-backed Securities (CMBS)
eased this problem. REITs owned large stocks of real estate
properties, but, rather than buying and selling individual prop­
erties, investors bought and sold shares in the REIT through
public stock exchanges, generally the New York Stock Exchange.
As Leinberger (2008: 48) observes, the public market prefers
to trade 'like-for-like' and, for trading efficiency, real estate had
to be commoditised (i.e. made identical). The industry did this
with what it knew how to build then: drivable suburban prod­
ucts. Commoditisation resulted in what are known as the
'nineteen standard real estate product types' that Wall Street
knows and understands, and that can be traded in large quan­
tities. Any deviation created a 'non-conforming' product -
which Leinberger (2008: SO) notes was a 'term-of-art' on Wall
Devefopment advisors
Providing professional services to developers and to other
development agents, development advisors include
marketing consultants, estate agents, solicitors, planners,
architects, landscape designers, engineers, facility
managers, site agents, quantity surveyors, cost consultants,
etc. As most advisers earn one-off profits in the form of fees
TABLE 10.4 The Nineteen Standard Real Estate Product
Types (2006)
Office Apartment
• Built to suit • Suburban garden
• Mixed-use urban • Urban high density
• Medical Miscellaneous
Industrial • Self storage
• Build to suit • Mobile home park
• Warehouse Housing
Retail • Entry level
• Neighbourhood centre • Move-up
• Lifestyle centre • Luxury
• Big-box anchored • Assisted living/
Hotel retirement
• Business and luxury hotels • Resort/second home
Source: Adapted from Leinberger (2008: 51).
PART 1 111 lmplementi n g Urban Desig
Street. Non-conforming products either did not get financing or
did so on far more unfavourable terms, while developers,
traders and financiers increasingly specialised in one product
type only, with little interest in other types or in combinations of
the individual products.
The following are the characteristics of one of the nineteen
standard real estate products - those of a standard neighbour­
hood retail centre:
• Twelve to fifteen acres of land on the going-home side of
a four-to eight-lane majar arterial road with at least 25 000
cars per day.
• Market draw area of at least 25 000 customers within three
miles, preferably with above-average incomes.
• Twenty percent of the site covered by one-storey buildings,
set back from the street by 150 feet.
• Remainder of the site paved with asphalt for parking at the
front and a drive at the rear where deliveries are made and
trash is removed.
• A 50 000-60 000 sq ft grocery store with a superior credit
rating at one end of the centre.
• A 20 000-25 000 sq ft drug store with a superior credit
rating at the other end.
• In between national and regional chains or franchises, plus
a couple of out parcels for fast-food chain restaurants or
banks.
• Drug store, bank and fast-food restaurants will all have
drive-up windows.
• Virtually everyone will get there by car.
paid for their services related to particular aspects of the
project, their objectives are typically short-term and
financial. Sorne advisers - such as management agents oí
investment properties - eam fees for continuing involve­
ment and their objectives are typically long-term, financia]
and functional. Other advisers - architects, other
designers, urban design practitioners - eam one-off profits
in the form of fees paid for their services but may also use
the completed project to advertise their services. They al o
derive significant psychic benefits from their involvemem
in the project. Their objectives are typically long-terrn.
financial and design-related. Sorne designers also engage in
development and thus operate as designer-developers.
using their design skills to add value unhindered by tbe
mediation of a developer.
Builders (industrial capital)
Builders - or contractors (and sub-contractors) - seek to
make a profit by constructing the development at a co t
lower than the price paid by the developer for the work and
materials involved. Their objectives are, thus, primarily
short-term and financia!. As builders may also use the
development as an advertisement for their services, they
have an interest in its construction and design quality. Many
Chapter 1 1O The Development Process
builders also engage m development, thus operating as
builder-developers.
Consumers
lnvestors
In contrast to short-term development funding, investment
finance is longer-term and covers the cost of holding the
completed development as an investment. Investors are,
thus, the purchasers (and subsequently sellers) of
completed schemes. As investment essentially requires
foregoing the current use of resources for an enhanced
benefit at a later date, investors in real estate are primarily
interested in the (potential) income flow from user rents
now, which is capitalised into the property's exchange or
investment value, which may be realised at a future point in
time. For commercial and industrial development, the
principal investors are insurance companies and pension
funds. For residential development, the principal investors
are owner-occupiers, prívate and social landlords.
lnvestors generally look for investment opportunities
satisfying the following criteria:
• Security of capital and income (low risk) - in general,
the more secure an investment, the lower the risk that
the capital invested will be lost or that the expected
income will not arise. Investors may also look to
diversify their investment through the development of
portfolios that balance investment risk.
• Potential growth of income and capital (high retums) -
although high retums may be achieved through either
income or capital growth, or both combined, capital
growth and high overall retums ultimately depend on
the prospects for income growth (i.e. from user rents).
• Flexibility (high liquidity) - commercial investors (and
to a much lesser extent residential ones) will look for the
ability to change their investments to produce the best
retums. Liquidity depends on such factors as the exis­
tence of potential purchasers, transfer costs, the
investment's overall size and its capacity for sub-divi­
sion. The more liquid an investment, the easier it is to
sell, either in whole or in part (Adams 1994).
In practice, no single investment offers complete security,
perfect liquidity and guaranteed profitability. Each invest­
ment thus represents a different combination of these attri­
butes, with investors trading off among them and/or creating
a portfolio of properties/investments. Higher expected
retums are required from higher-risk investments - the
investor sacrificing security in pursuit of greater retum.
Institutions have traditionally adopted a risk-averse
approach to property investment and have concentrated
their funds on the most secure, liquid and profitable types of
property, usually terrned 'prime property' - property in the
283
best locations, let on long leases to tenants of 'unquestion­
able' covenant.
As a type of investment opportunity, real estate has
particular characteristics distinguishing it from other forms
of investment, such as stocks, shares and govemment
bonds. Real estate investments are, for example, fixed in
their location (not moveable), heterogeneous, generally
indivisible and entail inherent responsibilities for
management (e.g. collecting rents, dealing with repairs and
renewals, and lease negotiations). The total supply of land
(and property) is also fixed, and although the supply in
a particular land use can change, it is relatively fixed in the
short-term. It takes a large amount of capital to buy a small
amount of real estate and there also tend to be high trans­
action costs involved in the transfer of real estate holdings.
Real estate investments are, nevertheless, generally durable
and typically provide a source of income.
lnvestors often use yield to gauge investment perfor­
mance and to balance risk with return. In markets exhib­
iting significant uncertainties, investors will generally
seek developments delivering a high yield and a quicker
tum around on their investments. In buoyant markets,
however, where there is significant competition between
investors for investment opportunities, yields will gener­
ally fall. A low yield thus indicates a healthy investment
market and high capital values, and that profits will
increase in the near future as rents rise to reflect new
capital valuations.
As their retum takes the form of present and future
rental income and capital appreciation, investors' objec­
tives are typically long-term and financia!, and their
interests in design are as a means to a financia! end.
Acquisition policies of large property investrnent compa­
nies, for example, tend to be risk-averse - that is, they seek
properties that will minimise their risk (i.e. the risk of not
being able to dispose of a property at a target price and/or
not being able to let a building at a target rental level) by
focusing on properties acceptable to a large number of
similar institutions. The properties they seek therefore need
to produce an increasing rental income over a long period
of time; be flexible and easily adapted to alternative
occupiers; be acceptable to tenants with sound credit
ratings; and be acceptable to other investing institutions
(Rowley 1998: 164).
Adjacent landowners
Owners of sites adjoining or within the immediate area of
a development site will seek to ensure development on that
site does not reduce, and hopefully increases, their property
values. Similarly, as landowners may sell only part of their
holding at a time while retaining adjacent sites, they have
a strong interest in what happens to the land they sell. A
building's relation to its context - and, indeed, its extemal
284
appearance - can be considered a spill-over effect. As the
potential use and value of any parcel of land are directly
affected by activity taking place on neighbouring land,
buildings are interdependent assets: their value is in part
a function of the value of the neighbourhood, while the
value of the neighbourhood derives - again, in part - from
the value of that particular building. All developments
contribute to a neighbourhood's composite value. As there
can be positive neighbourhood effects (i.e. where the value
of neighbouring buildings increases the value of a property)
and negative neighbourhood effects (i.e. where it reduces
the value of a property), new developments either enhance
or detract from the neighbourhood's composite value.
Adjacent owners' objectives are, thus, long-term, financia!
and design-related in terms of externa! appearance and
relation to context.
Occupiers and users
Occupiers or users - those who rent or buy space in the
user market - derive direct use and benefit from build­
ings. They are primarily interested in a building's use
value, especially in matters affecting business produc­
tivity and operating costs, such as appearance, comfort,
convenience and efficiency. Their objectives are typically
long-term, financia! and design-related with respect to
functionality and perhaps also to externa! appearance
(see below).
As the use of buildings depends on both price and
physical qualities, occupiers trade-off between financia!
(rent levels) and physical (the quality of the space, its
character, its location, etc.) attributes. Although occupiers
normally treat the space they rent as one of the factors
necessary for the production or delivery of their goods or
services and assess its contribution to this wider aim, they
may also be concerned with what the building symbolises
to consumers and the general public (i.e. status, solidity,
quality, etc.). To communicate certain messages, compa­
nies may comrnission 'trophy' or iconic buildings. Certain
companies will also seek out existing buildings and/or
locations based on the image of their firms and the self­
images of their staff and potential staff. While the devel­
opment's image (as principally connoted by its externa!
appearance) might be important to a particular occupier or
investor, its value is relatively intangible and difficult to
price. Furthermore, although a company's buildings might
at one time have been an element of its marketing strategy,
as the scale of markets increase, that element becomes less
important.
Although a company's buildings may be considered less
important than its website, major firms continue to invest in
high-quality buildings, often by comrnissioning their own
buildings, which in turn gives them a more commanding role
in the development process (see Box 10.4 below). While, in
PART J 111 lmplementing Urban Design
part, this is a strategy to reinforce brand identity, it is also
a means of attracting and retaining key workers by providing
working environments that inspire creativity and reduce
absenteeism. This suggests recognition of building quality as
a contribution to employee satisfaction and performance, and
reductions in absenteeism and sick leave - that is, concem
for the building's functionality. The concem may also extend
to the spaces surrounding the building. Research by Carmona
et al (2001), for example, identified strong occupier-driven
demand for better-quality environments.
The general public - the community
The general public - in the form of households, industrial­
ists, retailers, etc. - consumes the products of the develop­
ment process directly and indirectly (i.e. to the extent that
the development is visible from, or is itself part of, the public
realm). The general public thus represents a further part of
the demand side of the development process. As it consumes
developments in aggregate (i.e. across property lines), its
concem is with each individual development's contribu­
tion to a greater whole. The general public's objective
are, thus, typically long-term and design-related in term
of externa! appearance and contribution to context.
As well as being (passive) recipients of the products of
the development process, the general public may also
actively affect the development process through, for
example, protests over specific development projects.
participation or consultation on particular projects (see
Chapter 12), and/or involvement in amenity and conser­
vation groups and pro- or anti-growth organisations.
Through the democratic process, they also - indirectly, in
aggregate and perhaps in principie only - control the
regulatory side of the development process.
Regulators
The Public Sector
The public sector (in the form of government bodies.
regulatory agencies and planning authorities) seeks to
regulate the development and use of land through the
planning or zoning system, and through other means of
regulation. This regulatory role complements its develop­
ment role outlined above - though, because regulation and
development stimulation functions may be undertaken b
different public agencies or different departments within
the same municipality, developers may seek to play one off
against the other.
In general, the public sector does not act directly on
private sector actors: in most circumstances, for example, it
cannot compel a prívate sector developer to undertake
development. It <loes, however, establish the public policy
and regulatory framework, which, in tum, provide the
context for private sector decision-making, especially
Chapter 1 1 O The Development Process 285

prívate sector investment decisions (i.e. the decision

BOX 10.4 Consumer-Producer Gaps in the
Development Process
Example One
A company builds an office building from its own resources
far its own occupation. A single actor performs the roles of
developer, funder, owner and occupier. The costs and
benefits of higher-quality features/higher-quality design thus
fall on a single actor. Hence, as a single actor combines
several development roles - developer/funder/owner/user -
the conflict between different objectives and motivations is
interna/ised and traded-off to produce the most optimal
environment).
As well as meeting the planning authority's basic
requirements (i.e. those that are non-negotiable), there will
often be scope for negotiation and perhaps bargaining. The
planning authority rnight require certain 'planning gains'
(public open space, contributions to infrastructure, etc. -
though strictly these are not gains and are means of offsetting
or redressing the public costs imposed by the development).
The developer may also offer certain incentives to make
the scheme more acceptable to the planning authority and/or

••
outcome subject to budget constraints. the local community. In sorne countries such planning gains
are a legal requirement (e.g. through exaction fees), the in­
tention being to compensate the local cornmunity for the pro­

.. .
posed development's negative spill-over effects, to recover
the cost of public infrastructure that benefits the develop­

---------
: '

••
SUPPLY
(producers)
DEMAND
(consumers)
: .. . .
Example Two
A developer builds an office, funded by and pre-sold to an
investor (i.e. funder and investor) who intends to rent it to -
as yet unknown - tenants (i.e. occupiers). The funding!sale
arrangement reduces the developer's risk, while the funder's
long-term outlook/preferences influence the building's
design. Although the costs and benefits are distributed
among the developer, investor and future occupier, the future
occupier is unknown and does not have a direct influence on
building design and specification. While the developer and
the investor/owner must anticípate and provide far the
occupiers' needs, the likelihood of more costly features
beneficia! to the occupier being included is reduced. Hence,
while a single actor combines the roles of funder and owner/
investor, there are gaps between this actor, the developer and
the occupiers and another gap between the developer and
the occupiers. Development quality falls through these gaps.
• ment, and sometimes to provide a fund for future infra­
structure of benefit to the development and/or cornmunity.
As refusal of planning/development consent and the
probable need to go to appeal costs the developer time and
money, it is extremely undesirable. If the system allows
•
(see Chapter 11), developers will thus negotiate with the
planning authority to ensure consent is likely. Sirnilarly, the
planning authority is able to encourage developers to make
changes to the scheme at risk of not receiving planning
consent - this empowers the planning authority's devel­
opment controllers and urban designers in their negotia­
tions with developers. The negotiation process thus
provides opportunities for urban designers on both sides of
the development process to influence the design and quality
of the proposed development - by, for example, encour­
aging and/or requiring the developer to invest more time or
money in improving development quality.
Planning and design controls are often seen as unnec­
essary constraints on development - more is heard, for
example, about the cost of regulations and much less about
the benefits (Van Doren 2005): the costs, however, are often
immediate, tangible and imposed directly on the developer;
and the benefits are less tangible, will occur at sorne future

�-
time and will benefit a wider range of people. Nevertheless,
GAPS while controls and restrictions may reduce the return from
development of any particular site, they protect the

SUPPLY
DEVELOPER
Smith Ltd - .. : �
composite property values and amenity of the area or
neighbourhood, and thus provide a more secure investment
----
-i--X-i--
•
(producers) GAPS environment. Typically developers favour planning
controls but, to reduce their development risk, often want
DEMAND
(consumers)
greater certainty and clarity in their operation. As Barnett
(2003: 44) explains:
e
USER
Unknown
'The real estate marketplace, far from being an uncontrollable
GAPS force, is made up of conservative institutions that look for as much
certainty as possible. Developers may argue against a specific
rule that applies to their individual project, but they favour
Source: Adapted from Henneberry 7 998.
a system of ground rules that apply to others.'
286
The advantages of masterplans, frameworks, codes, etc. to
developers are to ensure and hopefully enhance the
composite value of all investments in the area, to reduce
development risk and to create a more secure investment
environment. These also provide incentives for developers
to accept the necessary constraints on their freedom of
operation. These are necessary but not sufficient condi­
tions, however: 'good' urban design frameworks are also
needed, together with sufficient consensus about what
constitutes a 'good' place and 'positive context', and
commitment to achieving it. This also provides a justifi­
cation for public intervention into the prívate develop­
ment process. The role of the public sector is discussed
more fully in Chapter 11, but, in relation to any particular
scheme, the public sector's objectives are typically long­
term, functional and design-related.
DEVELOPMENT AND PLACE QUALITY
The quality of contemporary development, and the associ­
ated challenge for developers, is an important policy issue.
There is nonetheless a conceptual problem relating to what is
meant by 'higher quality' and 'better design' (see Carmona et
al 2002). Three interrelated notions of design quality can be
identified and, while criticisms of a lack of design quality
may be directed at any or all, for analytic tractability it is
important to see them as conceptually distinct:
• Physical/construction quality - this refers to the quality
of materials used and how well these are assembled.
Achieving higher quality here will usually directly
increase production costs, but should be recompensed
by increased development revenues (where these can be
achieved).
• Intrinsic building/architectural design - this relates, in
essence, to the familiar triad of 'firmness, commodity
and delight' (plus economy) (see Chapter 7). In the
short-term, this includes such considerations as 'kerb
appeal' and, in the longer-term, the development's
overall functionality and appeal. Improving building
design quality will generally increase design costs (at
least in terms of professional fees), but increased
development revenues or reduced production costs
should offset this.
• Place quality - that is, the overall quality of the
development within 1ts wider context. This includes,
inter alia, the design quality of the public realm and the
provision and quality of amenity spaces and facilities.
More fundamentally, however, it is about synergy and
the individual components of development contributing
to a larger, more integrated whole. Improving overall
place quality may, but frequently does not, increase
production costs and should also be offset by increased
development revenues.
PART 1 111 lmplementing Urban Design
Developments actors are each more, and less, concemed
with each of these aspects of quality and, in considering
development quality, it is important to consider the rela­
tionships between different actors. In most economies they
are related through market processes and structures. Given
the discipline of a market economy, development actors
only become involved in the development process to the
extent that it contributes to the achievement of their basic
objectives. Two issues follow from this: (i) the character­
istics of a proposed development will be assessed according
to the degree to which they contribute to each actor'
objectives and (ii) as the various actors may have different
objectives for the same development, there will inevitabl
be conflict and negotiation between them (Henneberry
1998). From these, three key issues arise: (i) a gap - and.
indeed, gaps - between the producer and consumer sides of
the development process; (ii) the role of the urban designer
within the producer side of the development process; and
(iii) considerations of place quality over and above those of
construction or architectural/design quality.
Producer-Consumer Gaps
The costs and benefits of any particular feature or element
of a development project are not neutral in their (perceived)
impact on the different development actors. Thus, for
example, while high-quality, low-maintenance material
increase initial development costs, reduce long-term
occupation costs and enhance long-term functionality, the
costs are borne by the developers but the benefits accrue to
the occupier. To the extent that increased costs are passed
on in the purchase price, investors bear higher costs, whicb
tbey recoup from occupiers through higher rental levels. To
the extent that lower occupation costs and greater func­
tionality increase rental and capital value, higher returns are
achieved. What is significant in Table 10.2 is that supply­
side actors tend to have short-term and financial objective
(where the development is simply a financial commodity)
(the notable and significant exceptions are lenders of
patient equity), while demand-side actors tend to have
long-term and design objectives (where the development is
an environment to be used).
Where differing objectives and motivations have to be
traded-off between roles effectively played by a single
actor or organisation (i.e. where a single actor is developer.
funder, investor and occupier), conflict is internalised and
can be traded-off to produce the most satisfactory outcome
subject to budget constraints. Where differing objectives
and motivations have to be reconciled externally (through
a market process), there is scope for a series of mismatches
or gaps between supply and demand (a producer-consumer
gap) (see Box 10.4).
As the user/owners are unknown and unable to
directly inform the design and development process,
Chapter 1 1 O The Development Process
a producer-consumer/user gap is a structural feature of
speculative development. The lack of direct consumer
input, combined with situations where consumers effec­
tively have to buy what is offered for sale (e.g. where
demand exceeds supply), means producers are able to
produce 'poorer-quality' development serving narrower
financia! purposes only. Thus, although the supply side (the
developer) has to anticipate the demand side's needs and
requirements (the needs of the consumer or user), it also
tends to produce, where and if at ali possible, a product that
suits its own objectives. In general, better-quality devel­
opment is more likely to occur when development roles are
combined in ways bridging the producer-consumer gap.
Although professionals, such as real estate agents, often act
as proxies for the real occupiers, this may present problems
because the interests of the proxy can never correlate
exactly with those of the actual occupants.
Where producer-consumer gaps occur, the balancing
of costs and benefits among ali actors is critically depen­
dent on supply-side actors being convinced - and acting on
that conviction - that providing benefits will result in
higher prices/values or, at least, enable cost recovery. If
occupiers do not recognise the benefits of including
particular features in buildings by being prepared to pay
higher prices/rents (paying more for buildings with these
features than for those without), then developers (espe­
cially) and funders/investors (generally) are unlikely to
provide or fund them. Furthermore, developers tend to
prefer the 'certainty' of reduced production costs now
to the 'promise' of enhanced - but uncertain (and thus
risky) - development revenues later.
This issue can also be considered in terrns of 'appro­
priate quality' and 'sustainable quality'. In theory, 'good'
design should add value to real estate development, but, as
Rowley (1998: 172) argues, in the UK at least, the notion
that 'better buildings mean better business' has been a
matter of debate:
'The dominant attitude in private-property decision making is
still the "appropriate" quality view: this holds that high­
quality development, however defined, is unnecessary so long
as there is sorne sort of market far the development at a lower
standard; which may be easier to maintain, at least in the
short-term; which may demand less skill and care to produce;
Sustainability lnsert 7 - Resource Efficiency
Prudent use of finite resources underpins ali notions of envi­
ronmental sustainability, implying care in the use of energy and
care in the use of non-renewable or environmentally destruc­
tive materials. For urban design this implies concern for the use
of both energy and resources in and by the fabric of the built
environment, and, at the larger sea le, an increasing concern for
energy use by preventing unsustainable spatial patterns of
287
and which, it is assumed, can be delivered at a lower initial
cost. . . . The opposing attitude is that high quality helps
generate long-terrn commercial success: this is termed the
"sustainable" quality view.'
If a developer creates a higher quality building than
occupiers and investors require - and, more impor­
tantly, are prepared to pay for - then the extra costs (i.e.
of producing the level of quality over and above that
which consumers are prepared to pay) have to be met by
the developer. In short, there is an over-specification.
Prudent (profit-maximising) developers, therefore,
attempt to match closely the quality sought by the
consumer with the quality of the product supplied: in
other words, they build developments at sufficient or
appropriate levels of quality, where 'sufficient' and
'appropriate' are judged against short-term criteria.
Developing buildings with higher specifications - and,
therefore, higher costs - increases the risk that buyers
cannot be found at the higher price required to cover the
additional costs. The aim of achieving 'appropriate
quality' persists, therefore, on the basis that higher­
quality development is unnecessary provided there is
a market for the development at a lower standard
(Rowley et al 1996).
This argument, however, assumes additional costs
are involved in producing higher-quality developments.
This may be true where better 'design' is seen primarily
as a function of higher specification or better-quality
materials (see Sustainability Insert 7), but is less true
where better design relates to place quality - for
example, different layouts and configurations of build­
ings and spaces providing better connections with the
surrounding context. In these respects, better urban
design may involve no additional costs (see Carmona
et al 2001b).
Producer-consumer gaps can be closed or narrowed
by coercive means (i.e. through regulation, developers
have to provide better quality development), through
remunerative means (i.e. developers calculate that it
is worth it (financially beneficial) to provide better
quality development) and through normative means (i.e.
developers want to provide better quality development).
building and their implications on energy consumption through
travel demands (Thorne & Filmer-Sankey 2003).
Mainstream technological means now exist to reduce much of
the current resource profligacy - in the use of more sustainable
building materials; in designing for natural light, sun and air and for
solar gain; in more efficient heating and power systems; and in
more efficient use of existí ng infrastructure (Mandix 1996). Many of
(Continued)