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External Benefits of Urban Real Estate Developments ERES Conference 2012

technische universität dortmund. External Benefits of Urban Real Estate Developments ERES Conference 2012 . 14th June 2012, Edinburgh Michael Nadler, Stefan Thiel TU Dortmund University Faculty of Urban & Regional Planning Chair of Real Estate Development. Agenda.

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External Benefits of Urban Real Estate Developments ERES Conference 2012

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  1. technische universität dortmund 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

  2. Agenda • EIBURS programmeUDFs in Europe: Opportunities, Structures, Operations • Rationale for external benefitsevidence based planning, intertemporal allocation of funds, property-led development • Goal structure for external benefitsGeneral principles, objectives, indicators • Systemisation of external benefit indicatorsSystemisation, measurable vs. non-measurable, 3 level controlling • Practical applicationprivate urban development project: Le Quartier Central, Düsseldorf • Conclusion and outlook Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook

  3. EIBURS: UDFs in Europe: Opportunities, Structures, Operations 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 andOutlook Step Method Our approach A Analysis of integrated planning instruments Formal (legally binding) versus informal instruments B Objectives of sustainable urban development planning (ex ante) Systematisation of economic, ecological and social objectives C Indicators for sustainable urban development Supranational, national, regional and project level indicator catalogues D Operationalisation methods for sustainability indicators Direct versus indirect methods, quantitative versus qualitative E Project evaluation (ex ante and ex post) From Cost Benefit Analysis to an Integrated Controlling Methodology

  4. EIBURS: UDFs in Europe: Opportunities, Structures, Operations Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook UDF-Projects should generate also an external/economic rate of return!Definition: external benefits = positive impact on welfare of 3rd parties

  5. Rationale for external benefits: evidence based planning Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook • - 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

  6. Rationale for external benefits: intertemporal allocation of funds Initial case - private investment project in the context of urban development, e.g. infrastructure or real estate - Public interest, expectation of external benefits Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook Public perspective external benefits Private perspective + € - planning realisation commercialisation utilisation

  7. Rationale for external benefits: intertemporal allocation of funds Initial case - private investment project in the context of urban development, e.g. infrastructure or real estate - Public interest, expectation of external benefits Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook Private perspective + € - (Im-)material Public support* > Selection of suitable private investment projects *consideration of mandatory EU state-aid regulation

  8. Rationale for external benefits: property-led development Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook 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

  9. Goal structure for external benefits: General Principles in Urban Planning Relevant general principles - Sustainable Development (superior concept) - Urbanity - Smart-Cities - European City Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook

  10. Goal structure for external benefits: General Principles in Urban Planning • 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 andOutlook

  11. Goal structure for external benefits: General Principles in Urban Planning Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook 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

  12. Goal structure for external benefits: General Principles in Urban Planning Deduction of goal structure according to general principles, 3 examples Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook Urbanity, Smart City, European City European City

  13. Application Agenda EIBURS General Principles Integrated Urban Planning Practical Application Conclusion andOutlook

  14. Systemisation of external benefits indicators Target setting Planning and rating Funding decision Ex-post analysis Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook District City Region State Fields of application Place Cost Benefit Analysis (CBA) INDICATOR Stakeholder Time Investors Citizens Municipality Politics Stakeholder- Organisations Before During After

  15. Systemisation of external benefits indicators: quantification Measurable vs. not measurable indicators Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook Objective measurable not measurable monetary not monetary qualitative direct indirect • 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 • … • Tax revenues(e.g. business-tax) • Market prices(e.g. CO2 emissions) • …

  16. Systemisation of external benefits indicators: 3 level controlling 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 perspectiveCBA needs to be enlarged to an integrated three-step- controlling approach. Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook number of projects learning-effect analysis of cash-flows and risks screening Scoring (ranking) Monitoring / reporting asset-allocation (UDF-portfolios) financial- engineering 1. Planning & rating pro-jects by (non-monetary) sustainability indicators 2. Ex ante monetary analysis for funding decision support (internal & external monetary effects) 3. Ex post deviation analysis

  17. Practical application: Le Quartier Central Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook • 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 processDGNB certification of sustainable urban development

  18. 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 base Pre-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

  19. 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 base Pre-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

  20. Practical application: Le Quartier Central Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook • Results from the municipal perspective > during project development > after project development

  21. Practical application: Le Quartier Central Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook • Results from the municipal perspective > fixed municipal expenses during project development > cash-flow shows break-even in 2017

  22. technische universität dortmund Conclusion and Outlook Agenda EIBURS Rationale Goal structure Systemisation Practical Application Conclusion andOutlook • 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 Thank you very much for your attention ! Univ.-Prof. Dr. Michael Nadler Chair of Real Estate DevelopmentTU Dortmund University August-Schmidt-Strasse 6D-44227 DortmundPhone +49/231/7557906Fax +49/231/7552415michael.nadler@tu-dortmund.dewww.immo.tu-dortmund.de

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