While the nation is clearly past
the remnants
of a recession
and the
e c o n o m i c
recovery from the September 11, 2001
attacks appears to be completed, many
new challenges await the land
development industry in 2005. For a
second year, we will provide a
comprehensive look at the diverse
political and social issues that impact
those participating in the land
development process.

The Economy
The economy is only one factor
affecting the land development climate.
It does not always tell the whole story.
While the economic recovery of 2003
and 2004 has obviously been good for
the land development industry, there
isn’t an exact correlation between the
economy and land development activity.

Typically, economic growth is also
characterized by rising inflation, which
then is held in check by the Federal
Reserve raising interest rates. However,
inflation was virtually nonexistent in
2004. Rising energy prices have partially
countered the gains realized by many,
especially in the country’s cold-weather
climates. Look for high energy prices to
remain high and somewhat volatile—
especially in January and February—as
the elections in Iraq will certainly spark
increased pressures on oil prices.

One of our easiest predictions in 2004
was that “Interest rates will certainly rise
slightly in 2004.” With rates at record
lows for most of 2003, increases were
expected during last year. Even we were
surprised, however, as phenomenally low
rates continued through June.

There was sustained construction activity
through the first six months of 2004,
with a record $1 billion of construction
spending recorded in July.1 While the low
interest rates through the end of last year
will continue to help spur some further
economic growth opportunities, look for
a steady rise in rates throughout 2005 an
inflationary pressures begin to mount.

In fact, while we expect growth to
continue in the land development
market, we believe that 2005 will be a
transition year. Residential construction
numbers will continue a modest descent
as interest rates begin to climb.

Transportation and public works
projects are likely to start seeing a light at
the end of the tunnel, but that light will
not shine until 2006, since the legislative
calendars do not coincide with the 2005
construction cycle. Many other sectors in
the land development industry will start
gaining ground in 2005. Look for
commercial and multi-family units to
begin a strong resurgence. Mixed-use
activity will maintain its upward trend.

The lean years at the close of the last
millennium forced many architectural,
engineering, and construction firms to
trim personnel in an effort to reduce
overhead costs. Those keeping their jobs
were asked to do more, often for the
same salary and fewer benefits. As
business activity within the industry has
increased, so has employment activity.

One of the results of a growing
economy and lower interest rates is that
families feel financially safer and are
willing to take a few more risks.
Therefore, those professionals who had
been working harder for the past few
years started looking at new career
options in 2004. This occurred at the
same time that firms felt more
comfortable increasing their labor force.

As was clearly indicated through various
employment announcements placed wit
us since June 2004, the result has been
significant shuffling throughout the
industry. As fast as firms fill some
positions, new ones open up. In fact, we
expect this trend to continue through
2005.

Therefore, in addition to increased
energy costs affecting the bottom line,
employment costs, as a result of an
increased demand for services and
continued health care cost increases, will
see an uptick this year as well
And, while the economy is an important
factor, it is just one that will impact the
industry in 2005.

The Political Landscape
Ah, politics. While we would love to say
that politics will not affect our industry
this year, that would be ridiculous. At the
very least, the political ads are done…for
a couple of months anyway.

On the Federal level, with Republicans in
control of both the House and Senate as
well as the Executive Branch, there is
actually a chance for some progress in
land development legislation in 2005.
However, many experts believe
expectations need to be tempered due to
the growing budget deficit and President
George Bush’s indication that he intends
to curb domestic spending.

For instance, while the long-awaited and
debated TEA-21 bill should finally be
completed - maybe even before the
current extension expires in May, it is
unlikely to meet the needs many are
hoping it will address. Politics, and the
unwillingness for either political party toprovide the other with a “win,” were the
reasons this bill ultimately failed to pass
in 2004.

With that said, however, there are still a
few hurdles to overcome. So-called
“donor states,” those that send more
road-based taxes to Washington than
they receive in funding, have successfully
lobbied to receive a higher return in this
new legislation. The percentage,
expected to be within the 91-95% range
is still to be determined, as is the final
size of the bill.

Prior to the last extension, the House
and Senate had agreed on a $299 billion
figure while the President was still
holding the line at $256 billion. The new
dynamics of an increased Republican
majority in both houses, as well as
second-term presidency, will surely make
the discussion lively. But, even
Democrats, who may oppose
Republicans on many issues, want to see
this legislation passed.

Outside of the transportation bill, which
has been a focal point for over 12
months, there are many other political
issues that will affect the industry. On
the Federal stage, expect the bulging
deficit to be a loud rallying cry for many
on both sides of the aisle in 2005.
Typical positions will likely follow along
party lines. Some Republicans will want
to continue providing tax cuts and
related incentives while most Democrats
will argue that tax cuts with such deficits
are irresponsible. In turn, Republicans
will propose cuts in domestic spending
to reduce the deficit.

Nothing new, right? Well, in most
instances, little will change in 2005.
However, the ideological arguments and
decisions made in 2005 will undoubtedly
have an impact upon us in the land
development industry. With energy
prices rising, an ongoing war against
terrorism, changes in key Presidential
Cabinet positions (including
Department of Agriculture, Commerce,
Energy, Homeland Security), any
changes just may not affect us this year
at the national level.

Changes, however, will continue to
happen at the state and local levels.
These could certainly impact many of us
—and within a short period of time as
well. Forty transportation initiatives were
approved at the local and state levels in
2004.

Land use, zoning, environmental, and a
myriad of other issues will impact the
industry this year through local politics.
Land Development Today will bring
those to you on a monthly basis, in print
and online when they happen.

The Societal Landscape
Leaving the societal differences between
individuals representing the opinions
and values of “red” and “blue” states
out of this discussion still provides a
number of variables to consider that will
affect our industry.

First, there are a number of basic issues
that most people can agree on. The
overwhelming majority of U.S. residents
want to reside in safe communities, live
in spacious conditions, drink clean water,
enjoy recreational activities, and provide
a better opportunity and living
environment for their children and
future generations.

If you look at that list again, you will see
objectives that are exactly what those of
us in the land development industry
aspire to provide each and every day.
The key, of course, is to balance these
objectives.

Like it or not, and there is really no
reason to fight it, “green” development
and sustainable design are here to stay.

Sure, environmentalists with a multitude
of agendas, including some that are
completely against developing any land,
started this movement. And, like almost
every group, there are radicals on some
issues who go to extremes.

However, through the diligence of
American ingenuity and entrepreneurial
spirit (and a dose of foreign idealism and
experimentation), science and
technology are providing the land
development community with a wide
variety of ways to implement sustainable
green products and design services. Not
only are these technological innovations
the “right” thing to do, they can be done
in a manner that is no longer cost
prohibitive. In fact, they are providing
early adopters of this practice with
exceptional marketing opportunities
which many are beginning to reap.

A residual benefit of the green
movement and new technology is the
reality that prime development in and
around urban centers is virtually
nonexistent. The future development
opportunities are in difficult areas
and/or require a complete change in
land usage. Many will require
redevelopment and/or remediation of
grey- or brownfields. The new
technologies, combined with
environmental and urban incentives to
 “fix” many urban areas, provide
additional opportunities for improving
current standards of living while also
providing a profit for those willing to
meet the challenges and implement
change.

As for individuals within the land
development industry, there need to be
some professional realizations. Project
responsibilities and communication
structures are no longer distinguished by
disciplinary boundaries. In the old
model, land development professionals,
whether they be surveyors, architects,
engineers, or contractors, did their
assigned task and then passed it on to
the next without much interaction. That
will not work today - at least, not if you
want to be successful.

True project teams are a necessity. This
is not just a “trend” or current fad. It is
a reality. The complexity of the political
and regulatory environment in which we
work helps frame the situation. But, in
addition, to be effective and efficient in
the development process, participants
must be effective and efficient users of
technology.

From a business management
perspective, we expect additional shifts
to take shape in 2005 as well. With the
economy stabilized and land
development industry prospects robust,
and the need for multi-disciplinary
expertise and collaboration, look for an
increased period of acquisitions and
mergers within the industry.

These factors, combined with the desire
of many baby boomers to “cash out” as
an exit strategy for retirement, will create
a challenging chapter of the industry
that will begin to take shape in 2005.

Summary
A common perception in our industry is
that land development activity lags
behind the economic gyrations by a few
months, up to a year or so. As we stated
last year, “The truth is that there is no
predetermined lag between industry
activity and the economy. It’s more
complicated than that.”

Rising interest rates, a large budget
deficit, and continued turmoil in the
Middle East (not only in Iraq, but also
with Israel and Palestine), will make for
another complex year. Many within the
land development industry are prepared
for another busy year.

It is our belief that the land development
industry in the United States, as a whole,
will continue to experience significant
growth in 2005.

Is this a lag? In our opinion, no. It is a
transition. A good economy and low
interest rates sparked a residential
housing revolution that this country
hasn’t experienced in decades. If yo
take a hard look at your circle of friends,
note the number who have moved or
built homes in the past two years. Those
who didn’t take that route likely
refinanced their mortgage - at least once!

The move to commercial and mixeduse
developments, along with
redevelopments, and resurgence in
multi-family building and design will
begin in earnest this year. The
sustainable design movement will be
expanding beyond environmentalists
and architects, who have carried the
banner for the past few years to
engineers, developers, and consumers.

As was the case last year, procuring
employees will likely cost more than in
the past. Plus, there is no sign that health
care costs are leveling off. Therefore,
increased business may be tempered
slightly due to higher personnel-related
expenses and the availability of
professional staff.

We also see the trend for strategic
partnerships to continue and take on
added significance this year, many
through mergers and acquisitions.

Regardless of the new challenges that
will develop throughout the industry in
2005, a few constants remain. Owners,
executives, and management must
continue to refine the vision, objectives,
and processes undertaken by their land
development firms. These, while rather
obvious tasks, are often buried under the
pile of financial statements, project
drawings, and regulatory notices and
forgotten.