Saturday, January 28, 2017

Socially Responsible Real Estate Development (Part II)

In my preceding blog post, I argued that socially-responsible real estate development can not be achieved merely by making philanthropic donations or branding efforts.  Direct engagement with a wide range of stakeholders, using the tools of Environmental and Social Impact Assessment, is required. And, the point of such interactions is not merely to minimize the adverse effects of what the developer wants to build; rather, the goal should be to meet as many of the interests of as many of the stakeholders (including the developer!) as possible.  In my new MIT MOOC,  the proper ways to use EIA and SIA are described. The MOOC is a five week, online course that will be offered for the first time in the summer of 2017. More information about enrollment can be found at the Samuel Tak Lee Real Estate Entrepreneurship Program at MIT (

While the United States and Europe have a long history of requiring EIA and SIA, they are mostly used to justify design and development decisions that have already been made, rather than as a means of engaging stakeholders with conflicting interests in joint problem-solving. Many developers view EIA and SIA regulations as nothing more than a nuisance.  They decide what they want to build, hire consultants to make sure all regulatory requirements are met, do their best to market a positive view of their project and (in the United States especially) go to court to fend off legal challenges from opponents. This completely misses the opportunity to discover low-cost ways in which a developer can simultaneously meet local needs and solve long-standing problems while earning public support for their project and even permission to adopt innovative practices that might otherwise be prohibited. EIA and SIA can be used to meet BOTH the interests of the developer and the people most likely to be affected by whatever new project is being planned.

In the MOOC we present a case study of one of the largest mixed use mega-projects currently being built in Asia. The goal is to construct housing for more than 700,000 people on reclaimed land just off the edge of a developed area. By some estimates, the project will cost more than $60 billion over a twenty year period. The developer sought at the outset to skirt long-standing EIA requirements. While land use decisions in this particular country are usually the exclusive domain of state and local governments, the federal government was forced to get involved in this instance because the neighboring country was worried that the project would adversely affect them. The project was put on  hold until the developer completed a detailed EIA.  The cost of halting development was substantial.  In the end, the project had to be scaled back by more than 20% and new plans had to be prepared.  Nearby fishing communities, adversely affected by the early work on the project, had to be compensated for their losses. Had the developer engaged the relevant stakeholders in an EIA and SIA before starting construction (and before locking in on a version of the project that showed little or no concern for the interests of others), they would have saved an enormous amount of time and money. Also, their reputation would not have taken the international hit that it did.

In the MOOC, in which anyone can enroll at no cost, participants will have a chance to (1) read carefully selected excerpts from relevant books and articles (with short commentaries explaining how and why EIA and SIA work); (2) view mini-lectures summarizing best practices around the world; (3) try to respond to challenging scenarios (to see whether they can apply what they have learned); (4) watch edited conversations with enrollees who have already taken the course at MIT and completed the scenario assignments;  (5) listen to short interviews with experienced real estate developers describing what they have learned about socially-responsible real estate development; and (6) test their knowledge by taking a short multiple choice quiz before and after the course.  In addition, there are short animations that summarize the most important points in each module.  All told, each of the five modules in the MOOC takes about 3 - 5 hours to complete (depending on your ability to read and write in English). Certificates of completion are provided by MIT.

In making the MOOC, we talked with a number of very experienced real estate developers who have undertaken projects all over the world.  We also made our way through most of the published work on EIA, SIA and what is called Collaborative Adaptive Management. I tried to incorporate some of the ideas contained in my earlier book (with Patrick Field) called Dealing with an Angry Public (Free Press, 2010). What struck me most is the maxim that developers "need to go slow to go fast." That is, many developers believe that speed is of the essence. They rush to get things built,  sell their product as quickly as possible and generate a positive cash flow to satisfy their investors.  Short-cuts at the beginning, however, including efforts to sidestep direct involvement of stakeholders in meaningful EIAs and SIAs, actually add to the time and cost involved in completing a project. Even more important, efforts to push through a pre-conceived version of a project miss the chance to "create more value" for both the developer and the community.  It turns out, socially-responsible real estate development is the most profitable kind of real estate development -- in both the short-term and the long-term.