The right demographics
Planning projects based on a customer profile can help all project managers—especially those in real estate development—pinpoint opportunities and mitigate risks.
BY LORNA PAPPAS
It's every business' primary objective: Recognize the needs of a marketplace and create a plan that fulfills those needs. In real estate development, lenders, equity partners, architects, engineers, land planners, attorneys and all other project participants must have a precise understanding of the target group that will use the project, then synchronize their work to meet the group's specific lifestyle requirements. If those needs aren't identified upfront—and accurately—the project will be built in a vacuum.
Gathering and analyzing demographic data is crucial market research toward determining project feasibility and is an integral part of real estate development planning efforts. Few, if any, successful commercial real estate projects have gone forward in recent years without an in-depth prestudy of the submarket's characteristics to evaluate the risk, return and overall viability of the venture's investment and development.
A major difference between the demographic research studies of yesterday and today is the amount of information available for analysis. “The quantity of census data released this period is just staggering, with data down to the individual block level for 6 million U.S. blocks, which can be sliced numerous ways each by age, income and ethnicity, now with 126 different racial variations, housing type, presence of children, etc.—that's millions of data combinations for a single neighborhood block,” says Tom Spencer, vice president and senior practice leader of Claritas' Retail, Restaurant and Real Estate Group, a leading data provider based in Atlanta, Ga., USA.
In a recent direct mailing handled by The Meranth Co., a real estate development and investment advisory firm in Deerfield Beach, Fla., USA, targets were identified on a house-by-house level, complete with addresses, based on a demographic profile of specific household configuration, income and age. “When developers approach Chase Manhattan, Citigroup, Goldman Sachs or other financial sources, they'll find these bankers on the cutting edge of data accumulation—and expectant of developers to be as smart,” says Meranth's President Anthony Trella.
Goodkin Consulting employed extensive demographic analysis to create a buyer profile for the Fontainebleau Hilton, a Miami Beach, Fla., USA condominium hotel resort. Examining the demographics of the Miami Beach tourism market and the buyer characteristics of other condominium hotel projects in the area created a knowledge base for design, marketing and pricing.
SOURCE: GOODKIN CONSULTING
Software programs, Internet search engines and specialized Web-based solutions make today's deluge of demographic data easier to access, theoretically leaving more time for analysis and interpretation, resulting in minimized risk. “The access, communication, organization and manipulation of demographic data—along with the availability of more databases—have enhanced the management, extraction and thoroughness of reports that support, or contest, real estate project management decisions,” says Ed Lubieniecki, west coast consulting lead for Grubb & Ellis.
Chris Steele, a project manager and senior supervisor in charge of real estate advisory services for Ernst & Young in New York, concurs: “Some data providers have integrated geographic information systems into their own front-ends or at client sites, with tremendous impact particularly on site selection, market analysis, property management and portfolio management applications.”
Leading the Charge
More progressive and effective information companies draw the data, interpret what the market looks like, then assemble a theoretical construct, such as a pseudo-professional household, to determine how relevant a market is to the project. An overall analysis of a mixed-use, office or residential demographic study conducted by Goodkin Consulting Corp. of Miami, Fla., USA, for instance, entails census data as well as regular updates and forecasts; weekly and monthly economic reports, such as those available from the Internal Revenue Service; original research, like internal competitive audits and analyses; and other incredibly valuable sources of information, says Lewis Goodkin, president of Goodkin Consulting.
Project managers can look to a variety of data sources not necessarily designed to support development decisions. At Grubb and Ellis, information purchases from media-buying firms have enhanced and refined census data for specific applications. “In a recent site selection for a call center project, the entire targeted work force had to be bilingual—not just English-speaking or Spanish-speaking only, but both,” says Lubieniecki. As a result, the analytics had to recognize a potential employee base with certain criteria, such as high school education, plus bilingual capabilities. We found that specialty media-buying firms had the best information for this application, which we supplemented with census data to identify the best geographical areas for this client's project.”
At Ernst & Young, Steele effectively uses a nontraditional source of demographic support data to assess corporate behavior for corporate site selection, development and space demand applications: monster.com, hotjobs.com and similar job-related Web sites. “These sources offer excellent real-time salary and background information for various labor markets,” he says. “In a recent site-selection project, we were evaluating a specific town that showed a heavy technology component. However, when we went into monster.com, we saw several hundred open job positions for various IT positions, so began looking elsewhere for this corporate client.”
In Hong Kong, Stephen Chung, executive director of Zeppelin Real Estate Analysis Ltd., sees no major difference today between the basic Asian and American approaches to assessing demographic data. He notes, however, that in most emerging economies data and information should be scrutinized carefully and discreetly applied, due to a higher potential for errors. Zeppelin Real Estate Analysis Ltd., is part of The Zeppelin Group, a real estate development, investment and management firm.
“The quality and accuracy of demographic data and information obtained in Hong Kong from consultants and government sources is acceptable, though one may need to abstract and rearrange the data for use on specific projects,” Chung says. “Attention is paid to the methodologies with which the information has been collected and compiled, and specific adjustments may be made. Where possible, we may crosscheck some of the data, sometimes by actual site visits. If and when necessary, we seek assistance from relevant experts, such as university professors, to help us with evaluating and analyzing the data and information or to perform some of the sophisticated economic modeling for our real estate clients.”
The situation is improving, as some city data are beginning to appear on the Web, occasionally with details on individual real estate transactions and a buyer's profile, albeit for a fee. Chung says that although the quality of the demographic information in Asia overall is not on par with that found in the United States, the point is to use the data appropriately. “Also, project managers should read definitions carefully, since, for example, ‘vacancy rates’ in China may be defined as the ‘unsold’ percentage of newly completed real estate floor space rather than the unused portion in the overall real estate stock. And, ‘living space’ may refer to ‘bedroom space’ only.”
Beijing Project Scenario
Chung points to a specific project that illustrates the ways in which the rapidly changing market and demographics of the region required fundamental changes to the project mid-stream. The 645,600-square-foot office building developed in Beijing was a joint venture between Hong Kong and mainland China companies. Construction began in 1994 and lasted until 1997. Originally, the building's design and style were to be institutional-looking and classic, since during the planning and conceptual stages in the early 1990s, there was a huge shortage of good-quality office space in Beijing, and good quality might imply a “serious and sturdy” classical appearance. In particular, the market study showed most tenants to be traditional services companies, such as engineers, construction companies and financial services.
However, when actual leasing began, the market had changed for the worse; not only was there an oversupply of offices, but the targeted services companies did not appear in sufficient quantities. Fortunately, demographic studies showed many hightech companies beginning to emerge, and several changes were made to cater to these new companies: The building was furnished to offer a modern feel, additional building services were installed, and other changes were executed.
The new strategy was successful and the building quickly filled to over 90 percent. Also, several multinational IT firms, including Sun Microsystems, Lotus and Cisco, took significant floor space.
The quality and accuracy of demographic data and information obtained in Hong Kong from consultants and government sources is acceptable, though one may need to abstract and rearrange the data for use on specific projects.
EXECUTIVE DIRECTOR, ZEPPELIN REAL ESTATE ANALYSIS LTD.
Interestingly, in rare cases, the project itself can be of such significance that its development actually shifts the area's demographics. Such is the case along the western rim of the Las Vegas Valley, where Howard Hughes Corp. is developing Summerlin, a mixed-use, master-planned community on 22,500 acres, with build-out anticipated for 2015.
When the project commenced in 1988, the west side of Las Vegas, Nev., USA, was completely undeveloped and not available on a large scale to developers, primarily due to the huge equity required to obtain financing in what then was a low-demand area. Because of its vast amount of equity, Howard Hughes Corp. obtained the financing to develop the area and is creating an infrastructure that has leap-frogged the raw land into one of the country's best-selling and fastest-growing master-planned communities to date, with a projected population of 160,000 when complete. As of January 2002, development was less than 50 percent complete, with 28,203 dwelling units established of the 64,000 planned, and a population of 60,535.
“Summerlin actually triggered a growth corridor from the east to west side of Las Vegas,” says Reggie S. Smith, president of R3 Companies, Orlando, Fla., USA, a real estate development consulting firm involved for several years on the project. “It takes a big bang to shift a major city's demographics. You won't see this happen very often.”
In-depth demographic studies validated upfront the theory that people would migrate to a mixed-use, integrated community on Las Vegas' west side, just as a prestudy of a market and its needs must precede every aspect of a real estate development project to determine its viability. PM
Editor's Note: Readers wishing to review a comprehensive report, “Real Estate Development, Investment Analysis, Project Management and Architectural Design Practices in Hong Kong/China/Asia” prepared by Zeppelin Real Estate Analysis Ltd. specifically for PM Network should visit www.real-estate-tech.com/PackageMar1502.PDF.
Lorna Pappas is an Andover, N.J., USA-based freelance writer who has written for Real Estate Portfolio, National Real Estate Investor, Midwest Real Estate News, realestate.com and Shopping Center World.
Zeppelin Real Estate Analysis Ltd.'s Canway Building in Beijing, China, benefited from customer profiling. Several changes were made mid-stream, and the building quickly filled to more than 90 percent of its capacity.
SOURCE: ZEPPELIN REAL ESTATE ANALYSIS LTD.
PM NETWORK | JUNE 2002 | www.pmi.org
JUNE 2002 | PM NETWORK