Inviting bankers to the table

Nothing can be built unless it is financed, and that is why it is urgent that lenders become educated about the New Urbanism. A Wharton School study (preliminary findings were reported in the last issue of New Urban News) identified significant obstacles to financing new urbanist projects, especially on greenfield sites. This is not surprising. Stories of how loans for new urbanist projects are rejected have become legendary. The main problem appears to be the mixed-use nature of the New Urbanism, which goes against the segmentation of the real estate industry in the last half century. Zoning maps strictly separate shopping, workplaces, and housing types, and bankers have responded by creating separate departments to handle each type of loan. Loans supporting suburban office parks, shopping centers, or single family homes can be standardized and bundled. new urbanism: more than the sum of its parts Mixing the uses and housing types together makes the loan more complicated. Although bankers equate complexity with risk, the New Urbanism is based on the premise that mixing uses, if done right, actually strengthens a real estate project. In well-designed urbanism, a symbiotic relationship exists between workplaces, shops, and homes, each helping to create demand for the other. In the world’s great mixed-use cities and towns, real estate value has endured over centuries and millennia. A 1999 study by George Washington University, which compared new urbanist projects to conventional suburbia, shows that this dynamic still applies. The new urbanist projects consistently demonstrated higher real estate values. The diversity of new urbanist projects theoretically makes them more resilient. Conventional real estate projects often consist of one building type. If the market for that building type changes, the entire project may fail. New urbanist projects often consist of six or more categories of building types. This type of complexity should appeal to prudent bankers. less formulaic But the New Urbanism, which is less formulaic than conventional real estate, demands judgment on the part of lenders. The success of a project depends on the quality of design, not just traffic counts and market analyses. Bankers are currently ill-equipped to make judgments on new urbanist design. Other professional disciplines and industries involved in the New Urbanism — planners, architects, builders, developers, traffic engineers — have benefited from ongoing educational efforts in recent years. Bankers have largely been absent from discussions on the art and craft of building neighborhoods and towns. A way must be found to bring bankers to the table, so that they can benefit from the New Urbanism. Until that happens, the success of this design movement will be limited.