External Benefits of Urban Real Estate Developments ERES Conference 2012

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technische universität dortmund

ERES 2012

External Benefits of Urban Real Estate Developments

ERES Conference 2012

14th June 2012, Edinburgh

Michael Nadler, Stefan Thiel

TU Dortmund UniversityFaculty of Urban & Regional PlanningChair of Real Estate Development


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ERES 2012

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Agenda

• EIBURS programme

UDFs in Europe: Opportunities, Structures, Operations

• Rationale for external benefits

evidence based planning, intertemporal allocation of funds, property-led development

• Goal structure for external benefits

General principles, objectives, indicators

• Systemisation of external benefit indicators

Systemisation, measurable vs. non-measurable, 3 level controlling

• Practical application

private urban development project: Le Quartier Central, Düsseldorf

• Conclusion and outlook

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ERES 2012

EIBURS: UDFs in Europe: Opportunities, Structures, Operations

Analysis of integrated planning instruments

Objectives of sustainable urban development planning (ex ante)

Indicators for sustainable urban development

Operationalisation methods for sustainability indicators

Project evaluation (ex ante and ex post)

Systematisation of economic, ecological and social objectives

Supranational, national, regional and project level indicator

catalogues

Direct versus indirect methods, quantitative versus qualitative

From Cost Benefit Analysis to anIntegrated Controlling

Methodology

MethodOur approach

Formal (legally binding) versus informal instruments

B

C

D

E

Step

A

Starting point: Requirements of the JESSICA Initiative

Art. 44 EC 1083/2006: „…urban development funds, that is, funds investing in public-private partnerships and other projects included in an integrated plan for sustainable urban development.”

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

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ERES 2012UDF-Projects should generate also an external/economic rate of return!Definition: external benefits = positive impact on welfare of 3rd partiesUDF-Projects should generate also an external/economic rate of return!Definition: external benefits = positive impact on welfare of 3rd parties

Financial returnsCapital contributions or provision of guarantees

Legend:

This could include

contribution of land and buildings

Leverage

Contributions from OPs of SFs

UDF investment

Citizens

External/Social benefits

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

EIBURS: UDFs in Europe: Opportunities, Structures, Operations

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ERES 2012

- Scientific-empirical foundation of decision-making in politics and planning

- Well-established in EU evaluation policy: indicator based empirical analysis, best-practice, major pre-requisite for funding

- evidence ex-post calls for consistent indicator set (comprehensive)

- External benefits in this context:

> knowledge of effects secures decision-making

- Scientific-empirical foundation of decision-making in politics and planning

- Well-established in EU evaluation policy: indicator based empirical analysis, best-practice, major pre-requisite for funding

- evidence ex-post calls for consistent indicator set (comprehensive)

- External benefits in this context:

> knowledge of effects secures decision-making

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Rationale for external benefits: evidence based planning

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ERES 2012

Initial case

- private investment project in the context of urban development, e.g. infrastructure or real estate

- Public interest, expectation of external benefits

Initial case



€+

-

planningplanning realisationrealisation commercialisationcommercialisation

Private perspectivePrivate perspective

Public perspectivePublic perspective

utilisationutilisation

external benefitsexternal benefits

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Rationale for external benefits: intertemporal allocation of funds

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Initial case



Initial case



€+

-

Private perspectivePrivate perspective

(Im-)material Public support* (Im-)material Public support*

> Selection of suitable private investment projects> Selection of suitable private investment projects

*consideration of mandatory EU state-aid regulation*consideration of mandatory EU state-aid regulation

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Rationale for external benefits: intertemporal allocation of funds

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ERES 2012

Property-led development is a concept that combines real estate development with sustainable (economic) urban development

- Private investment projects, mobilisation of private capital

- large-scale brownfield redevelopments (critical size)

- Creation of new markets

- Attraction of solvent households and solid companies

> Expectation of external benefits

Cooperation with public authorities:

- use of scope in land use planning settings, moderator/ promoter, investments in public infrastructure

- material and immaterial support of private investors

> Justification towards society

> Indicator based transparency, derived from certain objectives

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Rationale for external benefits: property-led development

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ERES 2012

Relevant general principles

- Sustainable Development (superior concept)

- Urbanity

- Smart-Cities

- European City

Goal structure for external benefits: General Principles in Urban Planning

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

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The Smart Cities concept focuses on sustainable investments in

- Human and social capital

- Transport

- Communication (ICT)

- Low-carbon energy supply

Main objectives:

- High quality of life

- Intelligent management of natural resources

- Participatory governance

- Environment for innovations

- Attraction of solvent households and solid companies

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook


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Leipzig Charta 2007: Sustainable development of the European City

- Human and social capital

- Unique Cultural and architectural qualities

- Strong forces of social inclusion

- Exceptional possibilities for economic development

BUT

- Demographic problems

- Social inequality and exclusion

- Lack of affordable and suitable housing

- Environmental deficits

Main objectives:

> Economic prosperity

> Social balance

> Healthy environment

Instrument for implementation:

integrated urban development concepts + projects

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook


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ERES 2012

Deduction of goal structure according to general principles,

3 examplesUrbanity, Smart City, European City European City

Superior level Economy Ecology Society

Objective Strengthening the economical base of municipalities

Increase of environmental quality

Creation of equal chances

Subordinated Objective

Higher revenues from taxes

Improvement of soil quality

Strengthening of education

Indicator Municipal share of income-, business- and real-estate taxes

No. of de-contaminated sitesm³ of exchanged contaminated soil> real estate value

No. of welfare recipientsMunicipal expenditures for social welfare

Who? Municipalities CitizensLand owners

CitizensMunicipality

Where? Municipality SiteSite peripheryUrban district

Municipality

When? During investmentTime-delayed after investment

Directly after investmentTime-delayed

Time-delayed

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook


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ERES 2012

Application

Agenda

EIBURS

General Principles

Integrated Urban

Planning

Practical

Application

Conclusion and

Outlook

OBJECTIVE SUBORDINATED OBJECTIVE INDICATOR

Economyeconomical land management mixture of living and working

percentage of new soil sealing of the whole demand on sealed areasposition of the location in the settlement structureuse of Brownfields

strengthening the economical base of municipalities municipal investments in and conesequential costs infrastructuremunicipal costs for the modernisation of an area for a reusemunicipal allotment of income-, business- and real estate-taxessales revenue and increase in standard land values

improvement of the general conditions for companies use of the potential for innovative businesses (demographic development)impact of the use on the location-security of neighboured companiesnumber of new jobs

Ecologymaintenance of nature and environment removal of enviromental pollution by new use

maintenance, cross-linking and creation of habitatsmaintenance, cross-linking and creation of green spacesmaintenance and creation of private gardens

improvement of the municipal energy balance use of solar energy (on rooftops and free spaces)use of geothermal energy and biomassconnection to a district heating networkconnection to a local heating networkstrengthening of ecomobility

increase of enviromental quality low soil sealingprohibition of the drag-in of pollutantsexchange of contiminated soilsmaintenance of worth protecting soilsimpact of the use on (eco-)toxic immissionsimpact of the use on sound- and electromagnetic immissionsimpact of the use on emissions from freight transportmaintenance or improvement of areas of fresh/cold air development/aislesagglomeration of building development

Societyresource-friendly control of mobility connection to the municipal street network

connection to the local public infrastructureconnection of the bicylce network

high-quality living environment and neighbourhood impact of the use on local supplyimpact of the use on local leisure areasprotection of townscape's defining landmarks (including monument protection)impact of the on landscapeimpact of the use on image, quality and functionality of neighboured areas

strengthening of urban design and maintenance culture quality of urban development concepts as landmarksmaintenance and improvement of town scapeorientation on existent axes for important urban viewsconsideration of topgraphyconnection with existent neighbourhood by new waysquality of planned landscapeadaptation on neighboured building developmentorientation on bulidling linesurbanistic quality

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INDICATOR

PlaceFields of

application

TimeStakeholder

District

City

Region

State

District

City

Region

State

Before

During

After

Before

During

After

Investors

Citizens

Municipality

Politics

Stakeholder- Organisations

Investors

Citizens

Municipality

Politics

Stakeholder- Organisations

Target setting

Planning and rating

Funding decision

Ex-post analysis

Target setting

Planning and rating

Funding decision

Ex-post analysis

Cost Benefit Analysis

(CBA)

Systemisation of external benefits indicators

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

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ERES 2012

Objective

not measurablemeasurable

monetary not monetary

direct indirect qualitative

•Tax revenues(e.g. business-tax)

•Market prices(e.g. CO2 emissions)

•…

• opportunity costs(e.g. reduced transport costs)

• hedonic prices(influence of independentvariables on pivat priceof goods, e.g. noise)

•…

•Quality of life

•Perception of environment

•…

Measurable vs. not measurable indicatorsAgenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Systemisation of external benefits indicators: quantification

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Controlling is a method to assure logical reasoning in management decision through identification, reduction and elimination of deficits in skills or motivation of managers (Juergen Weber).> From our perspective CBA needs to be enlarged to an

integrated three-step- controlling approach.

screening Scoring (ranking)

analysis of cash-flows and risks

financial- engineering

asset-allocation (UDF-portfolios)

number of projects

Monitoring / reporting

learning-effect

3. Ex post deviation analysis

2. Ex ante monetary analysis for funding decision support (internal & external monetary effects)

1. Planning & rating pro-jects by (non-monetary) sustainability indicators

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Systemisation of external benefits indicators: 3 level controlling

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Practical application: Le Quartier Central

• Private investment project:

Le Quartier Central, aurelis Real Estate GmbH und Co. KG

• CBA (ex-ante) elaborated by BDO during project development

> good database in regards to overall project costs

> contract fixed the municipal cost share for the project

development

• Focus on infrastructure follow-up costs and long-term fiscal benefits for the

city of Düsseldorf

• Economic analysis was a pilot within a certification process

DGNB certification of sustainable urban development

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

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Transformation in a theoretical base: Theory of property-led development

1. Structure of research approach

2. Analyses on Level 1 (macroeconomic)

3. Analyses on Level 2 (microeconomic)

Rationale for external benefits

Transformation in a theoretical basePre-Condition for further analysis

Goal structure for external benefits

Systemising external benefit indicators

Applying external benefit indicators

Consequences for Project Evaluation

4. Outlook on Further Research

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ERES 2012

Transformation in a theoretical base: Theory of property-led development

1. Structure of research approach

2. Analyses on Level 1 (macroeconomic)

3. Analyses on Level 2 (microeconomic)

Rationale for external benefits

Transformation in a theoretical basePre-Condition for further analysis

Goal structure for external benefits

Systemising external benefit indicators

Applying external benefit indicators

Consequences for Project Evaluation

4. Outlook on Further Research

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ERES 2012

• Results from the municipal perspective

> during project development

> after project development

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook


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ERES 2012

Le Quartier Centraldiscounted cumulated fiscal effects for the city of Düsseldorf

-10.000.000

-5.000.000

0

5.000.000

10.000.000

15.000.000

20.000.000

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

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14

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15

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Le Quartier Centraldiscounted cumulated fiscal effects for the city of Düsseldorf

-10.000.000

-5.000.000

0

5.000.000

10.000.000

15.000.000

20.000.000

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

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• Results from the municipal perspective

> fixed municipal expenses during project development

> cash-flow shows break-even in 2017

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook


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Conclusion and Outlook

• Project is a perfect case-study for the enhancement of the CBA method

• Ex-ante assumptions will be checked

• Indicator set will be enlarged (Ecology, Society)

• Concentration on broad and integrated approach

> quantification of benefit indicators

> analysis of interactions

> I-CBA

Univ.-Prof. Dr. Michael Nadler

Chair of Real Estate DevelopmentTU Dortmund University

August-Schmidt-Strasse 6D-44227 DortmundPhone +49/231/7557906Fax +49/231/[email protected]


Thank you very much for your attention !Thank you very much for your attention !

Agenda

EIBURS

Rationale

Goal structure

Systemisation

Practical

Application

Conclusion and

Outlook

Documents

External Benefits of Urban Real Estate Developments ERES Conference 2012