The Future of Smart Growth Charlie Hewlett, Managing Director RCLCO (Robert Charles Lesser & Co., LLC)

1. The Future of Smart GrowthCharlie Hewlett, Managing Director RCLCO (Robert Charles Lesser & Co., LLC) Delaware Valley Smart Growth Alliance- Philadelphia | March 12, 2010

2. AGENDA OUTLINE Changing Consumer Preferences for Smart Growth

3. FROM METROPOLITAN TO MEGAPOLITAN100 MM NEW PP IN U.S. BY 2040 – 60 MM IN 22 MKTS

4. > 85% GROWTH IN HOUSEHOLDS WITHOUT CHILDREN DIFFERENT HOUSEHOLD LANDSCAPE BY 2025 Absolute Change in Households, United States 1980–2005 SOURCE: US Census

5. DEMOGRAPHIC TRENDS TO WATCHBOOM BOOM SOURCE: Claritas, National Center for Health Statistics, US Census

6. LIFE STAGE INFLUENCES HOUSING CHOICEGEN Y MOVES TO HOME OWNERSHIP IN NEAR FUTURE

7. DEMOGRAPHIC SHIFTS AND HOUSING DEMANDBUILT-IN DEMAND FOR HIGHER-DENSITY LIVING Projected Total Population Growth Rate by Age 2010–2020 Apartments and Condos: Entry-Level and First Move-Up Condos, TH First time SFD Luxury townhomes and condos Luxury single family TND and clustered, smaller lot single family Senior Living SOURCE: U.S. Census Bureau

8. CHANGING CONSUMER PREFERENCESINCREASED PREFERENCE FOR DENSE PRODUCTS Existing and Preferred Housing Type by Household Type RCLCO data, shown in blue, suggests that across household sizes, expressed preference for high-density housing types (defined as units with five or more units per structure), is greater than data describing currently-occupied units, shown in yellow. This suggests that existing supply of higher-density product types has not kept pace with demand for these product types. 85% SOURCE: RCLCO Consumer Research

9. GEN Y MAKING ITS MARK TODAYSHAPING POST-RECESSION PLACEMAKING EFFORTS RCLCO Consumer Research shows: • 41% of Generation Y plan to rent for at least three years • 77% of Generation Y plan to live in an Urban Core • Largest group began graduating in 2009 – Greatest demand for rental housing in this period • If this group rents for at least three years, there will be more first-time homebuyers in the market in 2013-2018 than ever before NOTE: Number of 22-year olds is based upon birth rate and does not factor in death rates and migration. SOURCE: U.S. Centers for Disease Control and Prevention

10. 86% OF GEN Y RENTERS ARE MOVINGMOSTLY GOING TO WALKABLE LOCATIONS Movement of Gen Y Renters (%) Rural Suburban Not Moving Urban Move within Current Metro Close-In (Urban-Lite) Move to Another Metro Where They Will Move Source: RCLCO Consumer Research

11. THE “SMART GROWTH GENERATION”GENERATION Y MAKING WALKABLE HOUSING CHOICES Generational Tradeoffs (%) SOURCE: RCLCO consumer research

12. GEN X AND GEN Y SHOWING PREFERENCE FOR LOCATIONS THAT OFFER ACCESS TO TRANSIT Percent of Workers by Age Taking Trolley, Railroad, or Streetcar to Work 5-County Philadelphia Metro Area, 2007 SOURCE: 2007 American Community Survey

13. THE “SMART GROWTH GENERATION”GENERATION Y MAKING WALKABLE HOUSING CHOICES Product Type Preference Gen X vs. Gen Y % For single-family products, preference for smaller lot homes and high density SFA in concert with local variations will influence design. Alley-loaded parking becomes a safety issue – must be mitigated with a reimagining of the alleyway SOURCE: RCLCO Consumer Research

14. BAMBOO SHOOTSSMART GROWTH IS EXPECTATION, NOT JUST ASPIRATION More driven by “me green” than “we green”… • Bamboo Shoots are… • Young with the heaviest concentrations in the 20-29 year old age cohort • Well educated and likely to have at least a bachelor’s degree if not a masters or other professional degree • Looking for urban locations and especially ones with walkability and/or proximity to public transportation • Prefer high-rise or mid-rise products, in-line with their urbane lifestyles • Passionate about the environment, but only willing to pay for “me green” Unwilling or unable to pay “green premium”… Hot Button Issues: Physical fitness, reducing automobile trips, walkability, access to direct sunlight, “organic” products

15. GEN Y WILL PAY FOR WALKABLE, MIXED-USECHALLENGE IS PROVIDING PRODUCT THEY CAN AFFORD • Driven by convenience, connectivity, and a healthy work-life balance to maintain relationships • 1/3 will pay more to walk to shops, work, and entertainment • 2/3 say that living in a walkable community is important • More than 1/2 of Gen Y would trade lot size for proximity to shopping or to work • Even among families with children, one-third or more are willing to trade lot size and “ideal” homes for walkable, diverse communities SOURCE: RCLCO Consumer Research

16. TWO TYPES OF REAL ESTATESHIFT FROM SUBURB TO WALKABILITY, NATURE PRESERVE 68 % of respondents indicate that they currently live in a traditional suburban neighborhood, but only 50% indicate that they are most likely to choose type of neighborhood in their next home purchase Instead, response data suggests increased preference for: • “Traditional Downtown” • “Traditional Neighborhood Development” • “Nature Preserve” 23% of 55+ respondents favoring small-lot single family detached

17. DEMOGRAPHIC SHIFT + PREFERENCE SHIFT =POTENTIALLY MUCH HIGHER DEMAND FOR DENSITY 140% SOURCE: RCLCO Consumer Research

18. NOT ALL GEOGRAPHIES ARE CREATED EQUALSOME BETTER-POSITIONED TO ABSORB DEMAND Philadelphia • Availability of land & appropriate zoning • Presence of existing & planned transit • Increasing commuting time • Higher-density housing as % of total • Public transit ridership SOURCE: RCLCO

19. What about the “Green Building” Movement?

20. RESIDENTIAL IMPACT AWARENESS GAP MOST OWNERS DO NOT CONNECT HOME, ENVIRONMENT What impact do you think your home has on the environment?

21. 32.3% 21.0% 18.1% 11.1% 8.6% 4.6% 4.3% Have no Impact Some Impact, Acceptable Significant Significant Don't Know Don't Care Lower than Auto Impact Impact, Impact, Related Emissions Unrelated to my to my Housing Housing Choice Choice RESIDENTIAL IMPACT AWARENESS GAPNEIGHER DO MOST RENTERS What impact do you think your home has on the environment? 21

22. “GREEN” COMPETES IN A CROWDED FIELDSCHOOLS, SPACE, SIZE STILL MOST IMPORTANT FACTORS Most Important Factors When Choosing a New Home At a macro level school quality is remains the single most important variable for a large segment of homebuyers. “Seclusion and space” are also important, suggesting that suburban lot planning should accommodate more than just dense TND to maximize market capture. In the “green” context perhaps that can be accomplished with areas of open space preservation. N=1,011 SOURCE: RCLCO Consumer Research

23. VARYING IMPORTANCE OF “GREEN” BENEFITS“ME GREEN” VS. “WE GREEN” “Me Green” “We Green” 23

24. BUT WHAT’S IN IT FOR ME? HOOK TO SELL SMART LOCATIONS IS “ME”, NOT “WE” If their investment pays them back over time, buyers are willing to spend more money on their home if…. If their investment may not pay them back over time, buyers are willing to spend more money on their home if…. If It Saves Energy If It Provides Health Benefits If It’s Good for the Environment

25. Is There a Smart Growth Premium?

26. SMART GROWTH PREMIUM? WHAT OTHER RESEARCHERS HAVE FOUND… Matthews and Turnbull (2007): • Smart growth owners pay a walkability premium to retail, which peaks at 560 feet and disappears at ¼ mile Song and Knapp (2003 and 2004): • Smart growth owners pay a 14% premium for a set of six smart growth characteristics Eppli and Tu (1999, and 2001): • Smart growth owners pay on average an 11% smart growth premium, with a range of 4-25%

27. SMART GROWTH PREMIUM? KENTLANDS AND LAKELANDS CASE STUDIES… Does a smart growth premium exist? Yes • 21% for Kentlands • 18% for Lakelands Is the smart growth premium sustained across time? Yes • Kentlands premium is maintained or grows across time • Lakelands premium is maintained or grows across time Is the smart growth premium sustained in a competitive smart growth market? Yes • The Kentlands smart growth premium was positive during the period 2000-2002 when 996 Lakeland houses were sold. Does the smart growth price premium hold in a housing downturn? Yes • Kentlands premium is maintained or growing • Lakelands premium is maintained or growing Source: Mark J. Eppli (Marquette University) and Charles C. Tu (University of San Diego)

28. SMART GROWTH PREMIUM? CLOSE IN VS. DISTANT NEIGHBORHOODS…

29. SMART GROWTH PREMIUM? IT PAYS TO WALK…

30. TRANSIT-PROXIMITY CREATES VALUE SOURCE: Reconnecting America

31. VALUE INCREASES FROM STREETCARLARGE VALUE-CREATION POTENTIAL CONFIRMED

32. NEW TRANSIT INCREASES PROPERTY VALUESPORTLAND, OR Original cost - $54M Catalyzed Investment - $3.8B Multiplier – 74X SOURCE: Reconnecting America

33. NEW TRANSIT INCREASES PROPERTY VALUES SEATTLE, WA AND TAMPA, FL SOURCE: Reconnecting America

34. THE PHILADELPHIA MODELVALUE CURVE FOR REAL ESTATE DEVELOPMENT Current RCLCO research estimates value increases of between 6% and 30%, depending on the existing and future land uses.

35. SUMMARY • Demographic forces driving demand for smart growth environs • 60% HH growth concentrated in just 22 “Megapolitan regions” • Smaller, non-traditional households represent majority of growth • Boom -Boom preferences for higher density housing, urban and transit locations • Mismatch between existing housing stock and preferences = pent up demand for Smart Growth • Residential product types likely to be smaller, increasingly rental and more affordable – focus on location and design over size • What’s outside the box as important as inside - – diversity, walkability and proximity to jobs key • Transit is crucial – both transit-oriented and transit-ready • Continuing upward trajectory for downtowns, inner suburbs and “urbanizing suburban” locations • Hook to sell “Smart “ locations is to focus on “Me” hot buttons • Energy savings & “healthy homes” are critical success factors - consumers don’t want a dumb home in a Smart Growth location • Bolt together Smart Growth with nature preserve/conservation communities • There is a clear and quantifiable Smart Growth premium • Need to figure out how to leverage value creation in these locations to fund infrastructure, transit, and walkabilithy that makes Smart Growth possible

36. CONTACT US ATLANTA 999 Peachtree Street, Suite 2690 Atlanta, GA 30309 (404) 365-9501 LOS ANGELES 1880Century Park East, Suite 250 Los Angeles, CA 90067 (310) 914-1800 AUSTIN 106 E. Sixth StreetSuite 900Austin, TX 78701(512) 215-3156 Phone Charlie Hewlett- chewlett@rclco.com ORLANDO 100 East Pine Street, Suite 302 Orlando, FL 32801 (407) 515-6592 WASHINGTON, DC 7200 Wisconsin Avenue, 7th Floor Bethesda, MD 20814 (301) 907-6600 WWW.RCLCO.COM

37. ABOUT OUR FIRM RCLCO a land use and real estate economics firm providing market intelligence, strategy, and implementation solutions Services • Downtown/Corridor Revitalization • Affordable/Workforce Housing • Public/Private Partnership Structuring • Transit-Oriented Development • Economic & Fiscal Impact Analysis • Smart Code Review • Regional Visioning • Consumer Research • Campus Strategy Planning and Development 37