For the sixth time we are providing an outlook for the land development industry for the upcoming calendar year. When you look back at the 2005 and 2006 outlooks and compare them with 2008 and 2009, the change that has taken place in land development during this relatively short time has been pretty dramatic. There have been extensive shifts, with significant opportunities and challenges. In other cases though, much has not changed – to the extent that it must – to enable more effective and quality development to occur.

In one aspect, predicting what will occur in 2010 for our industry is easy. There isn’t much doubt that the trend will be improving – only because it ­cannot get much worse. However, the other side of the coin is that the circumstances that put us where we are today are so diverse, different, and complex that it is ultimately difficult to nail down what lay ahead for the land development industry.

We have stressed for years that the success and long-term benefits of land development require an integrated and balanced triple-bottom-line approach and strategy. Yet, it is clear that many in our country and world have much to learn from all of the various professionals and stakeholders involved in the development process.

One of the realities is that we all have much to learn because of the ever-changing innovations in technology and research that can improve the efficiencies of the process to the betterment of our people, planet, and profit. While obviously deeply intertwined, let’s take a brief look at these three components – social concerns, environmental stewardship, and economic development – separately as we enter 2010.

Social Outlook
While it is clear that the economy tops most of the concerns within the industry, it would be naïve to think that social factors are not important as well. It is also true that many of these are influenced by financial realities.

First, there is an indisputable drive by the general public (consumer) for innovations that result in energy savings, reduced environmental impacts, and less waste and more efficiencies – which are commonly referred to as “green” and/or “environmentally sustainable.” As we have stated in past outlook articles, this is not a fad. It is here to stay.

The primary reason that this desire is not going to fade is that while the initial motivations were often singularly ­focused on environmental goals, today’s reality is that advancement and support of these innovations has now made them financially feasible as well. That is a win-win.

Adding to the successful advancement, colleges and universities are adding programs to share knowledge and information to help educate students on sustainable principles. As an example, University of California, Irvine Extension announced in mid-December the addition of new courses to its Sustainable Leadership Certificate Program. The program is designed for professionals tasked with implementing sustainable and green practices into business approaches and strategies.

“These new courses are geared toward the business professional who is focused on leading the way in sustainability efforts and climate change,” said Kirwan Rockefeller, Ph.D., director of Arts, Humanities, Social Sciences and Sustainable Studies at UC Irvine Extension. “As the issue of ‘going green’ is increasingly on the public’s conscience, we are pleased to offer new courses in sustainability that address these issues from a local government and business standpoint.”

A new online course “Introduction to Renewable Energy: Sustainable Energy Concepts” will educate students on the need for renewable energy resources and provide an overview of the benefits of increasing renewable energy. Course instructor, Brandon H. Tanner, M.B.A., M.S., FMP, a Manager of Capital Projects for Southern California Edison, will share with students the skills needed to identify common types of renewable technologies and evaluate the application, feasibility and limitations of renewable energy growth.

There are similar courses and programs offered at big and small schools all over the country. This is a great indicator – and proof – that sustainability is not a concept that is going away.

There are still challenges though. Many technological advancements promoting sustainability have been accomplished with the support of financial assistance from either private venture capitalists, entrepreneurs utilizing their own credit resources, or public funding via grants, loans or tax credits. As we are all aware, these sources of funding are limited with our current economic recession. This could hinder or delay further development of sustainable innovations.

Compounding the situation is the ever-present political battle in the U.S. While the presidency of Barrack Obama is certainly secure, the battles over health care, cap and trade, and further economic stimulus plans as well as a new budget, all linger on the horizon. These issues set the stage for a lengthy and vitriolic nine months as the mid-term elections will prove to be contentious and greatly impact the national psyche.

With one-third of U.S. Senate and all 435 House seats on the ballot, the election – while obviously a critical and vital component of our uniquely-structured government – will serve as a distraction to the many other problems and solutions facing our society. More than likely, this will delay any significant legislation that is not finalized in the first quarter of 2010, as was the case in 2008 during the presidential campaign.

Not coincidently, the concern of ethical practices in the financial industry have increased. This joins the list of ethical concerns that already impact lane development. The need to really know, understand, and share the details of projects with and all business partners and stakeholders can save on development costs associated with ethics and trust.

Additionally, expect that new technology will continue to improve access and the exchange and sharing of information throughout the industry – as well as to the general public.

And, for the first time in decades, new planning concepts are starting to gain traction within the United States. Two recent books illustrate concepts that result in a more sustainable approach to neighborhood and community development. Behavior-Based Land Planning, authored by Donald R. Chance, Ph.D., details ­incentive-based strategies for the achievement of sustainable growth management in the U.S. Another publication, Prefurbia, is the life’s work of Rick ­Harrison, and is full of illustrative ­examples and plans of community and neighborhood designs that meet the need of consumers and communities while also providing economical benefits to the developer and design team.

Environmental Outlook
There is little argument that the land development industry must increase and improve its environmental stewardship efforts. For the past decade there have been positive advancement, many have been forced as a result of government mandates.

With that said, organizations like the U.S. Green Building Council, in concert with the American Institute of Architects, were early and effective promoters of green building. Much progress has been made since then with many other professional organizations within the land development industry focusing on the greening of buildings and developing sustainably.

In reality, though, there is much, much more we can do.

As Sustainable Land Development ­International (SLDI) has relayed through its magazines, conferences, workshops, newsletters, products, and websites, the concept of “green” and “sustainability” goes far beyond buildings. It must include the infrastructure, and the various systems such as stormwater, wastewater, energy, ecosystem, etc.

There are still advancements on the horizon that can provide significant environmental benefits without breaking the bank of builders and developers or consumers. For instance, as solar, wind, and geothermal energy options continue to be developed and implemented, there are others like bio-oil and bio-char.

Researchers worldwide have been trying to economically convert cellulosic biomass such as corn stover into “cellulosic ethanol.” (Stover is made up of the leaves, husks, cobs and stalks of the corn plant, and could provide an abundant source of feedstock for cellulosic ethanol production after the grain is harvested.) But Agricultural Research Service (ARS) scientists have found that it might be more cost-effective, energy-efficient and environmentally sustainable to use corn stover for generating an energy-rich oil called bio-oil and for making biochar to enrich soils and sequester carbon.

The latest news shared at the 2009 Bio eConference Growing the Bioeconomy: ­Solutions for Sustainability – an event supported by a12-state alliance - promoted multi-cropping by mixing corn crop with some rows of perennial grasses in the least productive areas (like buffer zones near streams and high slope areas) such as switchgrass. In addition to creating new use for plant material that has long been considered waste, the grasses are showing significant success in reducing erosion.

John Holzfaster, Chairman of the National Corn Growers Association’s Ethanol Committee, explains that this new development could provide immediate benefits to the environment because it would allow for implementation on a farm-by-farm basis.

“The logistical challenges of ­transporting biomass for the production of cellulosic ethanol has always been a difficult factor to overcome,” said ­Holzfaster, due to the energy it would take to haul the vast quantities of material to be taken to a processing plant site. “The ­exciting thing to me is that bio-oil and biochar accomplishes and answers the logistical questions because they can be processed at the farm. The biochar can even be re-applied right back in to the field to replace all of that organic ­matter.”

Holzfaster mentioned that even the bio-oil would save energy and money because hauling one tanker of bio-oil from a farm would be a lot less than dozens of truckloads of biomass.

The point of this is that research is still being conducted that will assist in the land development process. The technology gains from the study of bio-oil and biochar – like many others – will have transferable applications in our industry as well. There have been many discussions between SLDI representatives on how advancements such as these can be utilized to not only mitigate environmental concerns, but also restore the ecosystems in some instances.

Our industry must remember that the cost of new innovations and technologies goes down with acceptance and usage like in other industries. It was not that long ago that large-screen HD TVs cost multiple thousands of dollars. This Christmas it was not uncommon to find them for under $500.

Too many professionals in the land development industry still bristle at words like “environment” or “green” when discussing their projects because they mistakenly equate them with higher costs. This magazine contains ­advertisers, product manufacturers, and service providers that are continuously working to provide the industry with cost-effective methods of environmental stewardship. They are working to bring projects to a sustainable level by balancing the needs of people, planet, and profit.

Economic Outlook
Virtually all economic experts are ­saying that U.S. economy has started its rebound. They are basing this on the fact that the domestic housing market hit bottom in 2009. The general economy typically follows the construction and land development market.

History also indicates that the ­construction industry has a systematic pattern as well, with the residential housing market typically providing the leading indicators. The last half of 2009 illustrated a stabilizing of the housing market. That is the good news. The concern is that stabilization may only be a result of the tax credit and the extreme buyer’s market that has existed.

Federal Reserve Chairman Ben Bernanke indicated last month that he will keep interest rates at record lows, probably even through the March meetings. This is good for consumers and should make purchasing homes possible for many.

Fitch Ratings, a global rating agency with 50 offices worldwide with headquarters in New York and London, is forecasting a stronger economy in 2010, although still noticeably below the ­historical trend line. Real GDP is projected to grow 1.8%. Consumer spending and government spending are forecast to expand 0.3% and 10.8%, respectively. Investment should fall 4.9%, while inflation is expected to be about 0.8%.

Total and single-family housing starts are forecast by Fitch to grow 15.1% and 18.6%, respectively, in 2010. New home sales should expand approximately 20%. Existing home sales should increase about 7.5%. New home prices could average 2%-to-3% higher in 2010.

There is still the basic supply-versus-demand situation. While new home inventory has been reduced over the past 18 months as builders slowed or stopped new developments, it is expected that foreclosures will continue adding a significant inventory to the market while also keeping home prices low. Added to the mix is an unemployment rate in the 10 percent range. Most experts predict the rate to remain in double digits for the majority of 2010, thus limiting consumer confidence as well as the demand of new home buyers.

Fitch Ratings concurs. “With various macroeconomic housing and related statistics bottoming about mid-year 2009 and subsequently moving forward in fits and starts, a four-year downturn has evidently come to an end for U.S. homebuilders,” said the company in its outlook report for the sector.

While Fitch “maintains a negative outlook for U.S. homebuilding in 2010, the expected conclusion of the national housing credit has positively influenced housing data over the last few months. Pending home sales, existing home sales, single family housing starts and single family new home sales have been generally showing improvement after bottoming out earlier this year. The same holds true for new home inventories, home pricing and consumer and builder sentiment. Importantly, the U.S. economy apparently moved from recession to expansion in third quarter-2009 (3Q’09). However, challenges remain, especially the expected upcoming surge in delinquencies and foreclosures.”

“The continuation and expansion of the national housing credit should partially help offset expected seasonal declines during the winter months through the spring of 2010,” said Fitch Managing Director and lead U.S. homebuilding analyst Robert Curran. “The federal government’s continuing efforts to moderate foreclosures may also show some success in 2010.”

As mentioned earlier, the residential market is usually an indicator for the other land development categories. This has held true. McGraw-Hill’s 2010 Construction Outlook predicts Commercial buildings will drop 4% in dollars next year, even after a steep 43% drop this past year.

Making it doubly difficult for professional firms and builder and development companies is the continued expectation that credit opportunities will be limited. Tight credit is clobbering small businesses, normally an engine of job creation during economic recoveries. It is crimping their ability to hire and expand because many small businesses rely on smaller banks for credit. However, troubled commercial real estate loans are concentrated at those banks and that has hobbled the flow of credit.

In response to urging from President Barack Obama at a White House meeting in mid-December, top bankers pledged to increase lending to small businesses. Still, it won’t be a complete recovery for homebuilders in 2010.

Fitch expects that the public builders will “stabilize their aggregate land ­positions over the next 6-to-12 months or selectively add to owned, developed lot holdings. The still irregular flow of appropriately priced land from banks and others tends to support this conclusion.”

Curran believes that with “operational and financial pressures ­moderating to some extent, most public homebuilders have to operate successfully within this still challenging ­environment or wither away. Companies have to at least maintain current cost profiles or continue to downsize to the point where they can remain/be profitable (excluding nonrecurring real estate charges). That means possible further moderate cuts in staffing and other overhead, as well as other cost reductions.”

According to Fitch’s analysis “the public homebuilders cannot significantly influence revenue trends and profitability at present, but they can ­manage their balance sheets and their liquidity. In a period when ­liquidity is still an issue for all U.S. companies, o­verall, the U.S. homebuilding sector has ­adequate liquidity.”

“However,” says the Fitch outlook, “some weaker companies face greater liquidity risk. Many companies in this sector have generated meaningful free cash flows (FCFs) over the past 12 months while terming out borrowings, and for some maintaining access to committed bank facilities, which together provide room to handle maturities and fund working capital needs over the next year and beyond. Admittedly, most facilities have been substantially slimmed down as builders sought covenant relief in amendments.”

“For certain builders, cash flow has been enhanced by relatively recent debt offerings, large land sales, tax refunds, and even some public equity offerings (e.g. Meritage Homes Corp.; Hovnanian ­Enterprises, Inc.; Lennar Corp.; M/I Homes, Inc.) or other external cash infusions (Standard Pacific Corp.). Recently passed legislation that extends the net operating losses (NOL) carryback to offset -taxable profits from the previous five years will result in meaningful tax refunds for most public homebuilders early in 2010 further enhancing liquidity and tangible net worth.”

McGraw-Hill Construction anticipates that stimulus funding will continue to boost public works ­construction another 14% in 2010. Other highlights of the 2010 Construction ­Outlook Report include that institutional building will begin to stabilize after ­losing momentum in 2009; manufacturing building will drop 14% in dollars and three percent in square feet; and, electric utility construction will slip three ­percent.

Additional SLDI research indicates that the sun is indeed rising again to shine on the land development sector. Optimism is tempered, however, by the many variables, such as unemployment, access to capital, inflation, and domestic and international politics, which are still teetering between recovery and ­retraction.

There are many encouraging opportunities for development professionals. Industry leaders should work toward a sustainable approach to future endeavors by utilizing best practices in all phases of the development process. This includes detailed business plans, thorough research of the market as it relates to community opinions and environmental realities, and a knowledge of new innovations and technologies. SLDT

About the authors: Greg Yoko is the ­President of Industry Relations with SLDI and the Managing Editor of Sustainable Land ­Development Today. Tony Wernke, SLDI ­President of Business Development, and
Terry Mock, SLDI Executive Director, complete the SLDI Executive Management Team. For ­information on SLDI’s Best Practices System, contact SLDI at 563-690-2020.