REAL ESTATE DEVELOPMENT

By Christopher B. Leinberger
Professor of Practice
Director of the Graduate Certificate in Real Estate Development
at the University of Michigan

Real estate, or the built environment, is one of the largest asset classes of the U.S. economy, comprising between 33% and 40% of the country’s wealth. Yet the field is still poorly understood and only within the past decade has it become a specialty at the graduate level of higher education.

Real estate shapes our physical environment and to a large extent determines how we all live, work and play. It also directly or indirectly affects energy consumption, global climate change, social relations and equity, public finance, foreign policy, capital markets and personal and corporate wealth creation. Long a consumer of locally generated finance, it became the newest global financial asset class in the 1990s, joining stocks, bonds and cash. For example, American commercial real estate mortgage-backed debt was larger than all corporate debt issued in 2004. Residential real estate mortgage debt issued in 2004 was even larger.

As a result of the increased interest of Wall Street and the Federal Reserve in this new asset class, real estate has become commodified and narrowly defined as a series of standard product types. This commodification of the industry is thought to be necessary to facilitate its trading in large volumes that financial markets require. Most of these standard products tend to be built in a low density, sprawling fashion. They are generally exclusively served by automobile, and their form is largely determined by parking and access by the car. Most zoning ordinances legally mandate this form of development. The real estate industry, including developers, bankers, investors, and consultants, has all been trained in this approach, which generates the conventional U.S. development pattern, that is more and more emulated world-wide. Low-density conventional development is, for some, at the core of the current American Dream. However, it has been shown to spawn many unintended negative social, economic, fiscal and environmental consequences.

The University of Michigan Real Estate Program is committed to the next American Dream: a progressive approach to developing real estate and the built environment. The program recognizes the efficiency and scalability of conventional development but is focused on broadening the palette beyond the standard real estate product types. Alternative approaches include downtown revitalization, smart growth, new urbanism, suburban town centers, transit-oriented development, green buildings, and conservation development. The focus is on creating special places that have many uses within walking distance of one another. It is about building sustainable places that minimize the ecological footprint of the built environment. It is also about building a sense of place that encourages housing for all income levels. And it is about creating long-term wealth to motivate investors to care about the quality of the built environment. Ultimately, it is about building places that we can, at many levels, feel proud of our role in creating.