Financing New Urbanism

Joseph Gyourko and Witold Rybczynski

Zell/Lurie Center Working Papers from Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania

Abstract: Over the last two decades, only a few New Urbanism projects have been built. These include Laguna West in California, Kentlands in Maryland, and Celebration in Florida. The question that arises is whether current lending and investment practices constrain NU developments. Leading developers, equity investors and lenders agree that NU projects are more costly and complex (therefore riskier) than conventional planned communities. Unless a project can generate sufficiently high cash flows in the early years it will not be perceived as financially viable. Neither Fannie Mae nor Freddie Mac currently plays a significant role in financing or securitization of mortgage debt on NU projects. NU developers could ease their financial burden by creating relationships with long-term equity players, such as pension funds and endowments. Documenting NU development over a full real estate cycle should help lower the level of perceived risk.

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