Value-Based Land Planning

[Rick Abelson]

A few years back, I was involved with helping a land owner master plan a 30-acre parcel in Las Vegas just off the Strip, near the MGM Grand Hotel. The parcel was zoned for casino uses and also had potential for hotel, residential towers and other retail uses. The land owner paid about $9 million for the underutilized and nearly vacant property and received minor residual income for lower intensity uses that were currently operating on the site. Initially, the land owner tried to flip the land using a prestigious national real estate brokerage that marketed the property with a glossy aerial photograph, a large red line outlining the parcel for sale, a few ground level photographs, zoning information, a list of permitted uses, allowable FAR and the new price - $35 million.

After several months and no interest from investors, the real estate brokers contacted us to develop a few simple plans and sketches of what the property might look like to support their sales and marketing effort. Our budget was fixed and not to exceed $7,000. In about two weeks, we were completed. Our effort consisted of visiting the site, contacting the City Planning Department, creating hand-drawn site layout options for the land owner to review and select a reasonable direction, some relevant precedent images showing what the site might look like when completed and an illustrative 3D computer study showing the overall project massing and urban form. Everything was put into a simple 11x 17 booklet with a front and back cover totaling eight pages. Now, here’s where the story gets interesting.

Upon review of the master planning work, the real estate brokers in charge of the sales and marketing effort, decided to option it themselves from the land owner and using the booklet that was created, quickly sold the property for just under $90 million to an local investment group. The land owner was compensated with a profit and the brokers left their firm and eventually retired. Our cut of the deal was .00007% of the total land transaction. A few weeks later, we protested and were able to negotiate $350,000 by imploring to our client about respect for our profession and just common decency to do the right thing by compensating the people that helped them.

I will never forgot this project because after nearly twenty-five years of master planning throughout the world, here was another classic example of how a strong vision, coupled with storytelling and simple, clear graphics created by planning professionals can actualize substantial value. It also taught me a lesson that our ‘professional fee for service’ approach is not always the best method for architecture and planning firms to be compensated.

A Chance to Change the Rules.

Stimulus money or not, it appears that architectural building projects will be set aside for the foreseeable future as the economy recovers and work force transformation takes place. If and when building design does commence again, a sobering architectural fee structure is now being created that leaves only the concept phase through the initial stages of the design development phase to be reserved for specialized architects. Typically, architects negotiate total fees in a range of between 4-7% based on the total construction cost of the future building, depending on its use. Therefore at most, this will now only be calculated at no more than 40%. The remainder of the design work and potentially 60% of the fee that architects usually count on to keep people employed and offices profitable will permanently be shipped overseas for the construction drawing phase, saving the developers even more money. A small fee percentage may be reserved towards the end of the project for the architect to participate during the bidding and construction phases to ensure design intent and quality.

Therefore, master planning is becoming an even more important revenue source for architecture, planning and now, engineering firms. This discipline can no longer be considered a business development function or a ‘lost leader’ that can be amortized later into future building design opportunities. With commissions becoming harder to guarantee and client loyalty at an all time low, master planning is now a value-based proposition that should be used to generate substantial fees using a new business model. One predicated on a percentage of the price of the land once the client decides to develop or sell - partly due to the vision we help create.