Real Estate Developer History

Commercial Real Estate Developers in the 20th Century

The methods and practices of real estate developers changed rapidly in the early 1900s - companies and individuals specializing in development and in commercial contracting lent their expertise and skills to the expansion and growth of the American economy. America was "built on commerce," but American commerce was built on factories, industrial complexes, office buildings, and other projects constructed by real estate developers and commercial contractors. The history of American business is as much a result of the growth of real estate development as a specialty as it does is on the growth of industry and commerce in general.

The typical city in the 1800s could be characterized as a "walking city": most residents walked or used horses for transportation, except in cities like New York City and Chicago, where elevated trains were developed to provide public transportation late in the century. The elevated train would quickly be replaced by the more efficient subway system. The first subway in New York City opened in 1905. As a result, real estate developers quickly focused their attention on properties adjacent to the subway line and more importantly to major subway stops. (The same pattern would logically follow in other cities around the country.)

Most cities were, as a result, densely populated - real estate developers and commercial contractors were constructing buildings and facilities in a tightly-packed area to ensure convenient movement of goods and people. Small and large retail stores also created tremendous opportunities for real estate developers, since they were also conveniently located in the downtown area of cities.

In the late 1800s different methods of transportation and communication served to decentralize the typical city. The streetcar was probably the first major decentralizing force; that trend continues today with telecommuting and affordable global communications. Another fundamental dispersing force was the growth in personal income that technological change promoted: As people became more prosperous, they could afford to spend more on housing and transportation. Increasing prosperity also led to a decrease in the length of the work week. The nineteenth-century industrial work week of six 10- or 12-hour days evolved in stages to today's 40-hour week, giving people more time for leisure and more time for travel to work. People began to move out of the city center and into the surrounding countryside, causing a demand for new housing, office spaces, shopping, and industrial facilities.

As a result, the role of the real estate developer and the scope of the real estate development business have changed drastically. In the 1800s a developer or contractor tended to focus efforts on one city or geographic area. Due to the explosive growth of cities, there seemed to be no reason to spread development or construction operations to other cities, and the problems of communication made it impractical for many to even imagine expansion to other markets. In later years, developers at minimum had to be able to take on construction projects in the surrounding areas of major cities, and many took advantage of their newfound ability to relocate workers and materials to create operations in other cities. The growth of national and international real estate developers and commercial contractors has its roots in decentralization of cities in the 1900s.

The automobile was also a tremendous disperser of population. The burst of suburbanization that characterized the 1920s is very closely tied to the beginning of the assembly line production techniques for automobiles in 1915. (Some of the largest industrial developments of the time were built by the Ford Motor Company - during the early 1920s Ford awarded more contracts to commercial contractors than any other company in the country.) By 1930, when the "roaring twenties" came to an end and the Great Depression began, there was approximately one motor vehicle in the United States for every five people. In a little more than a decade the automobile had gone from a luxury item to a standard possession of the middle class and the prosperous working class. (By the early 1990s there was on average a car in operation for every American old enough to drive.) The effect of easy personal transportation also quickly changed the role and the business model of major real estate developers and commercial contractors - they could no longer afford to focus on one city or geographic area, and many expanded operations to offer construction, commercial contracting, and logistical support to their clients..

The suburbanization of retailing, driven by the suburbanization of population and buying power was also accelerated by another invention: the shopping center. The invention of the shopping center is generally credited to the architect and planner Victor Gruen, who designed Northland, outside of Detroit, in 1951. Reacting to changing consumer tastes and needs, real estate developers have shifted the shopping center concept from being simply a number of stores in the same building that share a common parking area to a huge, climate-controlled mega-structure like the Mall of America south of Minneapolis.

Both the early versions and the more sophisticated modern version share some common features and effects. Because the shopping center requires a substantial block of land for stores and parking, it is much more easily built in suburban or exurban areas than in the city. To acquire a large enough piece of land in the city, the real estate developer must deal with many property owners and generally must spend large sums of money on land acquisition and the demolition of old buildings. Very often, city land is so expensive that structured parking rather than at-grade parking is required, which is another major expense.

One key to the success of a shopping center is quick and easy automobile access. Such access is generally more available in the suburbs than in the city. A few successful shopping centers have been built in dense urban areas, often with very substantial public subsidy and often as part of an urban renewal project. However, on balance, the invention and refinement of the shopping center has favored suburb over city. Not only has the suburban shopping center drawn the suburban customer away from downtown retailing, but it also draws automobile-owning city residents out to the suburbs to shop.

The rise of the modern shopping center signaled a change in other commercial development. With the growth of suburban retailing came the growth of wholesaling, for wholesalers necessarily follow their customers, the retailers, just as the retailers follow their customers. There is also growth in both business services and personal services as these activities, too, follow their customers to the suburbs. As a result, many major commercial contractors now offer a wide suite of construction services: warehouses, factories, retail spaces, shopping centers….

The movement of corporate headquarters from city center to suburban locations soon followed. To a great extent this is simply a matter of corporations following their labor forces to the suburbs. Then, too, the members of the board of directors, the vice president in charge of corporate planning, and other people in the organization who have a say in the matter are likely to favor a suburban location, in part because they live there. The desire for convenience to work, recreation, schools, and other amenities gave rise to suburban facilities, which in turn gave rise to properties and developments to support those facilities.

At first, the movement of corporate headquarters to the suburbs was slow because it was hard for the headquarters to leave the web of face-to-face contacts that the city location could provide. They needed to be near their bankers, their legal counsel, their consultants, and their advertising agencies. But as the suburban business community grew, more and more business services located there. Due to extensive development, the business establishment that was in the central city has been replicated in the suburbs. In fact, for many companies the suburban business establishment is often larger and more complete than the one that remains in the city - many large corporations retain sales organizations in major cities, shifting administration and production facilities to suburban areas.

While the average American company was moving to the suburbs, in many cases simply to take advantage of lower land and construction prices, another construction trend began in the early 1900s: the birth of the skyscraper. The first tall office building to gain worldwide attention, and as a result to launch the careers of a number of real estate developers and commercial contractors, was the Fuller Building in New York, more commonly known as the "flatiron building." A triangular building twenty stories high, it was for a time the most famous building in New York. Painters, photographers, and writers spread its fame across the world - at one time a postcard of the flatiron building was the most popular postcard available.

As a result, big businessmen came to believe that their corporate headquarters should be physically located in and symbolized by buildings that were technologically innovative, mirrored their prestigious commercial enterprises, and arched as high as possible into the sky. As office buildings became statements as well as functional structures, architectural firms sprang up to work hand in hand with real estate developers and commercial contractors to meet the demand for large buildings in downtown areas of major cities. It's very possible to trace the origin of buildings like the Empire State Building, the Sears Tower, and other major corporate structures to the Fuller Building - in the early 1900s construction companies and developers began to be concerned with form as well as function in order to complete a successful project.

Aside from changes in transportation and communication methods, and the focus on the form of a construction project as well as its function, the other key factor behind today's real estate development climate is public financing. In the early 1900s, most companies or individuals financed their projects privately, or through pledging assets from existing operations as collateral. Few banks or lenders made loans to developers based on calculations of future return of a specific project. For example, the Chrysler Building was built by Walter Chrysler and his Chrysler Motor Car Company - he financed the project through the car company, leasing office space to recoup a part of the investment. Real estate developers tended to speculate with their own money, or with money held within the corporation; while many constructed heavily-leveraged projects, few did so with largely public financing.

As commercial real estate ventures became more successful, and changes in corporate structure occurred, banks and other lenders saw real estate developers, construction companies, and commercial contractors as safe investments and began to offer more liberal financing. Liberal financing led to projects like the Rockefeller Center, the Empire State Building, the Sears Tower, and recent projects like the First Interstate World Center in Los Angeles, currently the tallest building west of Chicago.

The economic boom that began in the mid-1990s saw the fortunes of real estate developers and commercial contractors rise to new heights. Population increases in the southern and western U.S. fueled major commercial construction contracts, and real estate developers quickly moved to fill the demand caused by the economic turnaround. Lower interest rates have made capital easier to acquire, and companies who had previously downsized began to build new office complexes and expand production and warehouse facilities. The residential construction boom of the early years of the 21st century was mirrored by a commercial real estate boom in many parts of the country.

Ironically, decentralization has in many cities caused older warehouses and office buildings to sit vacant and in disrepair. In many cities real estate developers have seen an opportunity where others saw decay; a rapidly growing sector of real estate development is renovation, rehabilitation, and re-purposing. Warehouse facilities constructed in the early 1900s have been converted to office buildings, apartments, and condominiums. Developers take advantage of unique architectural features while upgrading and enhancing the building to create modern structures retaining a historical character and flavor. Some developers and commercial contractors specialize in historic renovation; in Richmond, VA, for example, developers have revitalized the Shockoe Slip and the historic Fan district, turning abandoned warehouses and factories into apartments, shopping areas, and professional office space.

Another real estate development trend that began in the early 1990s is the revitalization of a city center through the construction of a major sports complex. The construction of stadiums like Camden Yards in Baltimore, Jacobs Field in Cleveland, and the MCI Center in Washington, D.C. have revived the business and social climate in the surrounding areas. Developers not only create stadium plans - they ensure the effective development of transportation, shopping, and restaurants adjacent to the stadiums. The net effect is hugely positive in most cities; cities seek to attract major sports teams, or entice sports teams to stay, by helping developers finance new stadiums. The economic advantages are far greater than simply the benefit to the team; surrounding businesses and the city government benefit as well. Many developers have also helped to revitalize inner cities by creating historic districts for shopping and housing, or through projects like the Inner Harbor in Baltimore, MD, which combines hotels, shopping, aquariums, and museums and historical attractions to create a destination for shoppers and travelers. Over the course of twenty years the Inner Harbor has been completely transformed through innovative development and planned construction.

Starting in the late 1900s, many real estate developers began bringing project ideas to local and city governments - ideas for new shopping areas, downtown revitalization, innovative housing facilities… all in an effort to meet both business and community needs. Today's developer not only considers the needs of his current or future clients; he or she also ensures the development meets the needs of the community at large. Developers are environmentally conscious, take into account the historical significance and value of their properties, and work hand in hand with commercial contractors to complete efficient, convenient, affordable, and aesthetically innovative projects.

While the real estate developer of today may not be familiar with many of the business practices of the early 1900s, he would certainly recognize and respect his counterpart from the turn of the century. Real estate developers, commercial contractors, and construction companies have changed greatly over the last one hundred years, but the basic business practices have remained the same. While a developer from the early 1900s would be amazed by the skyline of major cities today, he would also be gratified to know that today's real estate developers continue a tradition of excellence he helped create.