Unleashing Opportunity for Sustainable Development
I recently interviewed Mike Messner of Seminole Management Company about the company's involvement with Redfields to Greenfields.
BCLC: Can you describe the driving force behind Redfields to Greenfields?
Mike Messner: I've been investing for 25 years and realized that our country was substantially overinvested in real estate and that we desperately needed to find a way to disinvest. Now, vacant and excess buildings hurt our economy, neighborhoods, banks, businesses and homeowners. Banks’ capital is frozen in bad real estate and bad loans. Existing policies are attempting to mitigate or delay the effects of this problem without addressing its cause.
Our nation needs straightforward incentives to encourage redeployment of this unproductive capital out of vacant or underutilized real estate into land banks and other partnerships. These incentives would unleash entrepreneurs to remake our cities with immediate visible improvements, create jobs, unlock bad debt now frozen in our banks, and would position our country for sustainable future development. The incentives need not require major appropriations from Congress, but could include straightforward changes in existing policy. Some examples include accounting changes for banks, FDIC mandate change, Community Reinvestment Act modifications, and expansion of conservation tax credits.
With bad loans removed from their balance sheets, banks would make new, productive investments in the Internet-based, asset-light economy of the future. Liquidity would return to the real estate market and property values would stabilize.
BCLC: The concept sounds clear-cut, what are some of the challenges you face?
Messner: There are a number of challenges. Our country likes to build, and not tear down. This solution calls for outdated and underutilized developed real estate to be torn down and turned into green space … land banks and parks. When the economy recovers, new, appropriate construction could restart around new parks.
We can learn from the U.S. railroad industry: more assets don’t increase wealth. It’s the utilization of assets that increases wealth. This country has eliminated 55% of the track in the last 60 years, 200,000 miles worth, enough for 30 cross-country double track lines. Yet, rail tonnage handled is up 5.3x, resulting in a 12 fold increase in rail productivity. Railroads have never been more profitable and efficient than they are today.
So, we have to change our mind-set.
Another issue is that the real estate problem spans multiple government and private entities, from the Federal Reserve, Treasury, FDIC , HUD, and Interior, and involves banks, land-owners, and local governments. Creating a consensus on this concept has been difficult.
Finally, local banking has declined substantially. Now, property that could be eligible for conversion to green space has a loan controlled by a bank headquartered 2000 miles away. Coordinating all appropriate parties to encourage real estate to be restructured is very difficult in the age of securitization.
BCLC: How are you benchmarking the success of some of your pilot communities?
Messner: Georgia Tech Studies are demonstrating positive impacts in 11 cities. Georgia Tech is evaluating the potential impacts of a real estate restructuring program in 11 U.S. cities including Atlanta, Cleveland, Detroit, Denver, Houston, Los Angeles, Miami, Philadelphia, and Phoenix. These impacts were developed in partnership with a university partner in each city and with local business leaders and community stakeholders. Below are some examples of the findings:
Georgia Tech performed a “what if” study of Atlanta; what if $3 billion in financing or financial incentives was spent on a land banking program in Atlanta. The study concluded that 2,850 acres of green space could be created within the I-285 Perimeter (equivalent of over 15 Piedmont Parks) and 50% of the land currently for sale outside the Perimeter would be removed from the market to create over nearly 13,000 acres of green space. The Atlanta real estate market would be transformed. The proposed projects are technically feasible and shovel-ready, and would immediately create jobs. Initial research suggests the adjacent lands would benefit tremendously, and the projects are scalable on a national basis. Current Atlanta green space would be increased fivefold
Georgia leads the country in bank failures with 59 since 2008. Metro-Atlanta, a growth engine for the Southeast, has lost over 42,000 construction jobs and the real estate transaction volume has declined by 95% since the peak.
Cleveland has lost over 50% of its population since 1960 and, with over 20,000 vacant lots, is in need of jobs and rapid revitalization. A real estate restructuring program could remove over 1,850 acres of distressed real estate from the market, create over 120 miles of inter¬connected greenways, and transform Cleveland’s neighborhoods and waterfront.
In Detroit, preliminary findings from an industrial land inventory indicate over 11,000 acres of distressed real estate could be converted to create “Opportunity Corridors” that link job site locations with housing and transportation. Skill-based jobs exist in water and wastewater technology development, which focus on tools to conserve, treat, measure, monitor, reuse, recycle, and smartly manage water. Labor based jobs can be obtained through the expansion and attraction efforts aimed at water intensive industries such as agriculture, food, and beverage processing.
The Houston Parks Board has identified over 10,000 acres that could be restructured. Measurable results from the parkland acquisitions include increased property values for neighborhoods, creation of recreational opportunities, reduction of urban flooding, ecosystem protection, and economic impacts by the proliferation of businesses and homes where green space is located. Texas A&M and the Houston Parks Board report that scientific studies measuring the impacts of relatively large parks consistently show that approximately 75% of the premium they generate is likely to accrue to properties located within 500 feet of the park. In addition, a recent study projects that green space acquisition and trail development along 300 miles of Houston's bayous could have an annual benefit of $500 million to $1 billion.
Miami’s economy has been devastated by the real estate bust and the prolonged recession. A real estate restructuring program provides a framework for Miami to execute the City Master Plan today. An estimated 1,625 acres of additional parkland could be created that would link two U.S. National Parks (Everglades and Biscayne Bay). The tax base could be increased by an estimated $58.8 million per year by converting 312 acres of non-performing real estate to transit oriented development. Further, a real estate restructuring program in Miami could create 14,375 jobs per year for 5 years.