I recently read an interview in the Atlantic in which author Julia Levitt talks with local developer Liz Dunn about here theories on development and the “urban grain”. In the interview, Ms. Dunn encourages fine-grain development. As someone who works in a development shop that specializes in complex infill sites in dense urban neighborhoods, the article got me thinking about why there are not more groups or individuals doing what we are doing.
For the sake of this discussion, let’s look at the $8 million project and compare it to the $55 million project. The former is the 30-40 unit mixed-use project on an infill site in Capitol Hill – the type of surgical infill that Ms. Dunn talks about in the interview. The later is the 250-unit project that takes up the entire block. What barriers do small-scale of developments have to overcome to become more common in Seattle in lieu of the larger behemoths?
Access to Capital
To secure the capital necessary for an $8 million project many developers turn to “friends and family” – the old-fashion version of Fundrise – as equity investors. This may be appropriate for the one-off development, but it is hard to develop a long-term development company based solely on friends and family. There are only so many friends and so many family members in a developers network. If we truly believe our cities will be better off with an infusion of smaller projects, we need to cultivate a network of private capital that is interested in raising funds for projects of this size.
Right now, it seems the allure of a 250-unit project is greater than a 40-unit infill project for most contractors. This is evidenced by the fact that 40-unit projects struggle to get construction pricing that is competitive with the 260-unit project. As many contractors focus their efforts on winning the bigger projects, there is a void in competition at the smaller scale that drives prices up. In other words, there is not a lack of talent; rather, there is a lack of interested talent for these projects. Seattle must to grow its pool of interested builders in order for these projects to secure competitive pricing.
Scalable Design Review Process
Many of the costs associated with development are scalable with the size of the project (i.e. design fees, excise taxes, permitting fees, etc.). However, the Design Review Process in Seattle presents a large cost that is not scalable. For example, the resources needed for an Early Design Guidance (EDG) meeting are basically the same for a 40-unit project and a 250-unit project. This stands as a major hurdle for small-scale development, and I think the city needs to consider having tiered expectations for these meetings based on the size of the project. Practically, the city could consider allowing projects smaller than 100 units to go through an administrative review after EDG rather than the full-blown Recommendation meeting that is currently required.
I’m sure there are many other hurdles standing in the way of thoughtful, small-scale development in Seattle; however, these are the three major huddles I have witnessed during my brief time in the industry. Essentially, it boils down to interest – from capital, builders and the city.