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Chapter 1

Developer as Visionary

Buy real estate in areas where the path exists and buy more real estate where there is no path, but you can create your own.

—David Waronker, American real estate investor¹

Three Hills

In 1625 the Reverend William Blackstone, one of New England’s first European settlers, bought a large piece of land in Boston with three hills and pure springs, where he built a small cottage. The area soon began to attract other settlers and Blackstone, a recluse, decamped for Rhode Island in 1630. For the next century and a half, the area, called “Tri-mount” because of its three hills, remained a pastoral grazing common with only a few estates, pastures, and orchards.²

In 1795, a group of wealthy businessmen created a private company called Mount Vernon Proprietors for the purpose of developing housing in the area for the growing merchant class. In the same year they bought a south-facing, sloping pasture of eighteen and a half acres from the painter John Singleton Copley, in part because one of their partners, Harrison Gray Otis, had served on the town committee that had settled on the area for the site of a new state house. Copley later protested the sale on the grounds that Otis had inside information about the future value of his land, but Copley lost after a decade-long legal battle. At around the same time the Commonwealth of Massachusetts acquired a six-and-a-half-acre parcel from its first governor, John Hancock, and the new Massachusetts State House, designed by the architect Charles Bulfinch, was built on the site and completed in 1798.³

The Mount Vernon Proprietors got to work soon after, laying out streets in 1799. Next, they began cutting down the three hills and then regrading to create flatter and more developable land. The westernmost hill, Mount Vernon, was cut down first and the spoils were used as fill along the edge of the Charles River, creating more land and increasing the holdings of the Mount Vernon Proprietors. At the top of the steepest of the three hills stood a disused beacon that had been built during the Revolutionary War for the purposes of warning nearby towns in the case of enemy attack. That hill, which then stood sixty feet taller than it does today, was cut down and regraded as well but its name endured and over the coming decades the Mount Vernon Proprietors transformed Reverend Blackstone’s pastoral retreat into the area now known as Beacon Hill.⁴

Beacon Hill comprises three districts: the North Slope, the Flat of the Hill, and the South Slope. The North Slope was originally a seedy waterfront area called “Mt. Whoredom,” and the Mount Vernon Proprietors purposefully laid out the major streets in an east-west orientation to minimize connections to the area. Over time the North Slope became home to African Americans and abolitionists and then to Irish, Italian, and Eastern European Jewish immigrants. The Flat of the Hill, the filled area along the edge of the Charles River, originally housed both residences and businesses, including the blacksmiths and stables that served the residents of the South Slope. Over time the area grew and a vibrant business and retail district developed along Charles Street.⁵

But the heart of the Mount Vernon Proprietors’ plan was to build a new community for Boston’s wealthy on the South Slope, so they started with large mansions but soon realized that they could earn a greater return on their investment in the land by developing more densely, building a greater number of smaller homes, and selling in volume. The rest of the streets were laid out to accommodate brick row houses in the Federal style that Bulfinch helped popularize and in the Greek revival style that was also popular at the time.⁶

Few people in the twenty-first century would describe Beacon Hill as a highly speculative “real estate development” but in 1795, that is exactly what it was. A group of wealthy investors with a vision bought land; drafted a plan; completed earth works; platted, subdivided, laid out, and built streets; and built and sold houses designed in broadly popular styles. What is called Beacon Hill began as a simple land deal and a production housing development, although it took the better part of a century to fill in the entire area. More important, however, is that the vision of the Mount Vernon Proprietors long outlived its creators. Beacon Hill went from being a hilly pasture to becoming the residential heart of Boston, and the South Slope, with its red brick houses that exude class, taste, heritage, permanence, and inevitability, became one of the most desirable and expensive places to live in the United States.

Figure 3. The excavation of Beacon Hill in 1811. Lithograph taken from a watercolor by J. R. Smith. Courtesy Trustees of the Boston Public Library, Print Department.

Figure 4. Beacon Hill in 2006. Photo by Della Huff.

A Brief History of Urban Real Estate Development in America

Real estate development has always meant the investment of capital into improving existing land and property by moving earth, providing infrastructure, subdividing the improved land into smaller parcels or lots, and constructing buildings, typically in order to increase use and density. Urban development in the United States from the seventeenth through the early twentieth centuries more often meant the development of new housing on large tracts of former agricultural land owned by a few individuals close in to the city—land with few neighbors and few problems. Some cities grew organically but in others visionaries with control over large land areas were able to produce grand plans that took centuries to realize. William Penn’s seventeenth-century “Greene Country Towne” vision for Philadelphia was based on a gridiron plan and five public squares. A century later Pierre L’Enfant followed with a plan for the new capital city of Washington, DC (at the time, swampland), which was based on a gridiron overlaid with diagonal avenues and circles at their intersections. Much like the Mount Vernon Proprietors, these visionaries first created a plan; they then cut down the trees where the streets would go, built the streets, and subdivided the land. Over time, investment and development followed the path of least resistance: those new streets that provided access to the parcels of land that were for sale.

The industrial era led to urbanization, as people from the countryside made their way into town looking for manufacturing work in the factories that sprang up around the road, rail, and maritime infrastructure that was concentrated within urban areas. Cities filled up with workers who lived in dense housing within walking distance of their factory jobs. At the turn of the twentieth century, public health problems in cities stemming from deplorable housing conditions, overcrowding, inadequate water and sewer systems, and the lack of light, clean air, and public space caused city leaders to begin planning again. The City Beautiful movement that followed resulted in grand plans for urban space and infrastructure. Plans were created for St. Louis by Harland Bartholomew, for San Diego by John Nolen, and for Chicago by Daniel Burnham, who was known for having said: “Make no little plans. They have no magic to stir men’s blood and probably will not themselves be realized.”⁷

Since the nineteenth century, suburban commuter towns had grown up around train stations but these stations became less important as the invention and improvement of the internal combustion engine led to rapid growth in automobile and truck use, initiating the “rails to rubber” movement. Henry Ford’s mass production of cheap automobiles accelerated this movement, opening up the entire countryside to a new form of suburban development while the influence of the railroads on development patterns continued to decline. Automobile use grew throughout the post–World War II era, and the Federal Aid Highway Act of 1956, a $10 billion-investment in more than forty thousand miles of interstate highways, further fueled this growth. These roads opened up access to the countryside and accelerated the exodus of people and industry to the suburbs, leading to the hollowing out of cities, which were often carved up by the new highways that cut through and isolated urban communities. The flight of the middle class left only low-income immigrants and African Americans in the urban cores of most cities.

In the 1950s and 1960s, the federal government attempted to stimulate private investment in America’s struggling inner cities by implementing big plans. While the majority of urban land in the United States is privately owned and developed, the Urban Renewal program of slum clearance and large-scale urban redevelopment projects put the government in the role of a visionary developer by combining federal funding with public planning and private development partners at the local level. Urban Renewal, however, was costly, had mixed results, and dislocated many of the low-income people left behind in the urban core whose homes and communities were bulldozed to make way for new, modern housing projects that generated new social problems of their own. In the 1980s Urban Renewal became a memory, city governments largely ceded responsibility for planning back to the private sector, and few cities possessed enough land, money, or political will to make any plans at all.

At about the same time, many formerly working-class industrial cities, which had suffered from population losses and the depleted tax base that resulted, started to implement a new economic development strategy. Recognizing the permanent loss of industry and blue-collar factory jobs, these cities sought to transform their downtowns and increase private investment and the tax base by attracting the “FIRE” businesses of finance, insurance, real estate, and other businesses that created white-collar professional jobs. These new workplaces, along with improvements to existing arts and culture institutions and tourist infrastructure, initiated the revitalization of the city as a cultural attraction and place to visit, if not a place to live. In addition to these cultural institutions, many higher education and medical institutions with historic roots and large campuses and specialized buildings in the city that could not be easily relocated began to reinvest in their facilities and surrounding communities. Together, arts and culture institutions and the “eds and meds” began to fill some of the gaps in the urban core and began to attract the middle and upper classes back to the city.

But cities still faced a big challenge, because the only property available for large-scale urban development after the 1970s was land abandoned by former industrial uses like factories, railyards, and waterfronts. Many of these sites were in great locations, close to the downtown core, but they often lacked traditional infrastructure and presented significant environmental challenges that together increased costs, risks, and liabilities to cities and private developers alike. Visionary developers and public officials began transforming these kinds of sites into communities in many cities, including Chicago and Portland, Oregon, as we will see. These sites were so large, however, that they took decades of building production and absorption to completely redevelop and in many places they were still being built out in the 2010s. Urban universities, colleges, and major healthcare systems were among the few remaining institutions that could still develop and build according to “master plans” but many of these had become increasingly landlocked too and had to resort to piecemeal infill planning and the replacement of existing facilities with higher-density development.

At a smaller scale, private property owners and developers were no longer converting agricultural land to whole new neighborhoods and commercial and retail districts, as the Mount Vernon Proprietors in Boston had done. Instead, they were replacing aged building stock and infilling smaller vacant parcels, often with new uses and at increasingly higher densities. But many of the parcels that were available came with the same challenges as the larger industrial sites. For example, cities were full of quarter-block parcels that once housed gas stations or laundromats that sat vacant atop contaminated soil that would be costly to clean up and that imposed risks and liabilities on new owners. Efficient development requires an area of minimum size, shape, and dimensions, so parcels that were oddly shaped or too small to accommodate marketable building types presented yet another set of challenges. In these cases a developer would have to buy up and “assemble” one or more adjacent parcels to create a single, large, contiguous parcel of the right size and shape to accommodate an economically viable development. But land assembly requires patience and entails significant transactional risks, because several if not many parties may be involved and a good development idea can be frustrated by a single landowner who does not want to sell, who wants to hold out for a very high price, or who wants to work with a competitor. And for those who control urban property at any scale, private development is no longer as private as it once was since the public has started to directly engage developers and the governments that regulate them after having lost trust in both.

Challenges of Developing in the Twenty-first Century

Developers like the Mount Vernon Proprietors operated with extraordinary freedom because there were few neighbors at the time who would have objected to the development of agricultural land, but cities have changed through urbanization, population growth, and other trends and forces. Four key movements that started in the 1960s increased the public’s skepticism of both private- and public-sector development and construction activities and led to the rise of “public participation.” First, in 1961, an observant Greenwich Village housewife named Jane Jacobs wrote the classic Death and Life of Great American Cities. Jacobs’s book was the first significant critique of the Urban Renewal program and the failure of its modernist planning efforts. Death and Life marked the turning point in how Americans thought about building their cities, and it has remained a classic and a largely relevant urban planning and design text today. Second, other classics soon followed, including Rachel Carson’s Silent Spring (serialized in The New Yorker and published as a book in 1962), which was widely credited as causing the ban of the pesticide DDT and launching the environmental movement. Third, the mass demolition of blocks of older buildings in city centers by Urban Renewal’s “federal bulldozer” culminated in the destruction of New York City’s magnificent McKim, Mead, and White–designed Pennsylvania Station. Its replacement with what many considered to be a soulless, modernist monstrosity sparked the birth of the historic preservation movement.⁸

The fourth movement began in 1978 with the passage of the popular ballot initiative Proposition 13 in California. “Prop 13” limited the California state government’s ability to increase property taxes in California, initiating a “taxpayer revolt” and ushering in the era of “no new taxes” throughout the United States. One effect of the antitax movement was that cities began to seek alternatives to using general-fund tax revenues for needed public infrastructure projects. The public-private partnership, or PPP project model, an alternative financing method introduced in the early 1980s, quickly proliferated around the United States and the world and has continued to dominate in the twenty-first century. These projects are legal and financial partnerships between private developers and governments—usually city governments—who offer to support a private project financially with public resources such as low-cost land, environmental cleanup grants, low-cost money in the form of tax-exempt debt, and future tax revenues (tax abatement and tax increment financing, or TIF). Policy makers hoped that the use of public resources to reduce the costs and risks for developers working in unproven urban areas would stimulate the market and “prime the pump” for future private development and reinvestment in the city that would not require subsidies. In exchange for these resources, the public would obtain benefits or amenities as a part of the project, ranging from streetscape and sidewalk improvements to public plazas, parks, green roofs, and parking facilities. Often, however, the public benefits seemed sparse or not very public and the subsidies were viewed as payments that lined the pockets of private developers while moving a large share of the risk onto the public partner. At the same time subsidies became a normal expectation from developers in many cities where elected officials wondered when the pump would finally run by itself.

For all of these reasons, by the 1980s, public confidence in local government’s ability to fairly represent the public’s interests in its regulation of private real estate development was very low. Americans increasingly insisted on having a voice in projects and developments in urban areas that would affect them in the areas of property rights, social equity, and the environment. The public’s growing suspicion and distrust of government officials and the private developers they regulated led to ever-increasing scrutiny of development proposals, outright opposition to many, and a general fear of change as exemplified by the term NIMBY, which stands for “not in my backyard,” or, worse, BANANA, which means “build absolutely nothing anytime near anything.” In this atmosphere of distrust, by the twenty-first century, even traditional private development projects that received no public subsidy had effectively become “public-private” projects in character by the time they had wended their way through long, complex, uncertain, and often-fraught public review and approval or “entitlement” processes. Virtually every urban project required the developer to work with neighbors and the community in addition to the usual approval bodies such as planning, zoning, and heritage preservation commissions as well as the city council. Indeed, by the start of the twenty-first century, being a real estate developer had become more difficult than ever before, in large part because of the public’s fear of change and distrust of developers.

By the 2000s and 2010s—and after more than a half-century of residential abandonment—cities had started to become attractive places for middle-class people to live again, as population growth had caused suburban sprawl and congestion while higher gas prices started to make longer commutes increasingly costly in both time and money. These negative push forces, in combination with the pull forces of improved public safety, access to arts and culture, and the rich sense of community that exists in urban areas, began to drive people back toward the core in search of a better quality of life. Demographics played a key role too, as both the baby boomers and their children, the millennials, began to prefer urban living over the suburban single-family homes they were raised in, and this continued to play an increasingly influential role in urban real estate development as the flight to the city took off.

By the 2010s, the question had become how to address this growing demand for new development in cities if each project would be exposed to the kind of opposition that the developer Neil Ornoff had faced in Evanston. The answer lies in coming to a better understanding of developers.

What Are Developers and What Do They Really Do?

There is no one route into the real estate development business. It is not a legally recognized profession like architecture, engineering, or law, which requires specific academic degrees and work experience to obtain licensure. A handful of American universities have offered formal degree programs in real estate in the past and a number of new programs were created during the building boom of the 2000s but even so, relatively few developers are graduates of those programs. The developers profiled in this book who did attend college obtained degrees in everything from architecture, business, and law to art history, music, creative writing, and cooking. States do not license or regulate developers, although many developers are licensed real estate brokers or agents, some are licensed as contractors or homebuilders, and some do hold licenses to practice other professions such as law, architecture, and engineering. Many developers belong to and participate in industry trade organizations such as the Urban Land Institute; NAIOP, the Commercial Real Estate Development Association; and Lambda Alpha International, the honorary society for the advancement of land economics. The U.S. Bureau of Labor Statistics classifies developers as “land subdividers,” because they buy land and increase its value by subdividing it and building higher-density uses on it. There are many different kinds of developers, and they each specialize in different product types, work in different geographic areas and contexts and at different scales, and range in organizational size from solitary individuals to national and multinational corporations.

The one thing all developers have in common, however, is that they make their money by buying a piece of land or a building or a complex of buildings and then increasing its value. They do this by investing in capital improvements such as renovations or the construction of new buildings, by improving operations, or both. If a developer is successful, rents or sale prices can be increased, the final value of the asset will be greater than the cost of acquisition and improvement, and the developer will realize the difference between costs and value as profit.

Land developers, for example, buy suburban or rural land at agricultural prices and then obtain zoning approvals for a subdivision of new homes or an office or industrial park. Once they have received their approvals, they regrade the land and provide the sewer, water, storm water, power, and road infrastructure that will make the land developable. Then they sell the lots or building pads to a homebuilder or to a developer of office or industrial buildings. Land developers make money by selling the improved land for a price that is greater than the combined costs of buying the agricultural land, getting the approvals, and providing the infrastructure. The difference between these costs and the sales price is their profit.

Many commercial office developers and production homebuilders are also land developers who plan for and develop office parks or communities of single-family homes or townhomes on the land they have improved. These developers can also speed up or slow down land development, infrastructure provision, and building production. This flexibility allows developers to match their rate of delivery with market demand and rates of product “absorption”—the speed at which they can sell or lease their buildings. With this incremental approach, these developers can also use anticipated income from the rental of completed offices or proceeds from the sale of completed homes to pay the costs of development related to those buildings or units without having to develop more land than needed at any one time.

Most developers specialize in one of the four traditional rental real estate product types: commercial office space, warehouse and light industrial facilities, retail strip centers and malls, and multifamily housing or apartments. Some developers specialize in variations on these product types, from hotels, casinos, entertainment centers, and mega-malls to senior housing, student housing, and mixed-use development. Finally, some developers specialize in for-sale housing, which includes single-family homes, townhomes, condominiums, and cooperatives.

Developers generally work in either the suburbs or urban areas. Suburban development is typically lower density and less risky in terms of the politics of the approval process. In the suburbs, land is more plentiful, uses are separated, interest group politics are weaker, and people and buildings are farther apart, as are any affected neighbors. At the same time, suburban cities have smaller staffs and less capacity to evaluate development projects. In larger cities, however, there are many more neighbors who are close by and vocal, there are large planning and development staffs, and there are interested politicians who must listen to their constituents as they evaluate proposed projects. And because urban land is scarce and more costly, density is important because it directly influences the value of land. Urban sites also come with more unique constraints from geography and geometry to complex zoning codes and unique local and neighborhood politics. Thus each project is uniquely fitted to its site, unlike a typical template-based suburban subdivision built on agricultural land by a national homebuilder that offers the same ten unit plans across the country. All developers—urban and suburban—innovate constantly at the margins but suburban developers are more able than urban developers to replicate their products. For these reasons, urban development is generally understood to be riskier, more uncertain, more time-consuming, and more costly, so developers who work in cities expect a higher profit margin than they might receive from a relatively simpler office park or subdivision of production homes in the far exurbs.

Developers can be either private, for-profit companies or nonprofit organizations, such as the many community development corporations in the United States that provide affordable rental housing in urban areas. A private developer can be very large or very small, from a single individual with some capital and a good idea to large companies such as Hines Interests, Trammell Crow Company, or the Trump Organization, with many divisions and projects and hundreds or even thousands of employees.

Entrepreneurial people who seek large profits and who have access to capital choose the real estate development business because it can be lucrative and the barriers to entry are low. Smaller and medium-sized private developers—firms of between one and twenty people who are led by one or two visionary and entrepreneurial individuals—undertake an enormous share of the development in cities. Unlike their larger corporate and institutional peers, who often labor under more bureaucratic organizational structures and have less of an equity stake in their projects, these people run efficient organizations and risk their own cash—and that of their investors—on their own creative visions. And while some people go into development during boom times with the hope of earning a quick profit and then getting back out, many others commit their careers to development. These people acknowledge that development can be both rewarding and difficult, that it is risky, and that, like anything else, becoming good at it requires practice. The context within which development occurs has changed since eighteenth-century Boston but developers still conceive and execute grand visions. Some go well beyond being mere “land subdividers,” and the most imaginative developers create the world we live in.

City Builders and Creators of Culture

Developers build our cities. Others, from architects, city planners, and elected officials to preservationists, environmentalists, other special interests, community members, and nearby neighbors, play a part in the private development process. Governments build major facilities, public streets, and parks and plazas, and they regulate growth and development through planning and zoning functions and the management of public participation processes. But throughout the history of the United States, where the great majority of land is privately owned, the buildings that make up American cities have been planned, designed, and built almost entirely by developers, using private capital, one project at a time. This incremental process of development—and all of the individual large and small projects that result from it—continues to give shape to cities today.⁹

Developers create the buildings in which we spend much of our lives. We work in their office buildings and we shop at their retail centers, mega-malls, and lifestyle centers. Their light assembly, industrial, and distribution centers store the food we eat and the goods we buy, from furniture and electronics to clothes and appliances. When we travel we stay in hotels, eat at restaurants, and visit entertainment and cultural attractions built by developers. Finally, most Americans grow up living in single and multifamily rental properties and for-sale homes that were mass-produced by developers. The work of developers makes up a large share of what we call the “urban fabric” of the city, from the exterior façades of their buildings to the land in between. More important, developers influence our basic conceptions of home, work, and life, from the high-rise office buildings of the early twentieth century, the suburban tracts of the post–World War II era, and the regional malls of the 1960s and 1970s, to the more recent warehouse-to-loft conversions, high-rise condominiums, and luxury apartments of the city.

All new real estate products begin as innovations to existing products. For example, from the downtown department store to the suburban strip center, regional mall, mega-mall, and entertainment center, each grew to become a reality that felt inevitable. But they each began as an untested incremental improvement on a former product. And for each one, a developer had a vision that became a real part of the world and of life for many people. In the next section, a Chicago developer named Gerald Fogelson will explain how vision and several other traits were central to his success in transforming an old railyard into a new urban community.

Seeing What Can Be

In 1988, Gerald Fogelson had a vision of his own. In place of the old, abandoned, sixty-nine-acre Central Station railroad yard on the south side of Chicago that he could see from his office window, Fogelson saw a new and vibrant residential community. He took his vision to Albert Ratner of the Cleveland-based national development company, Forest City, and Ratner agreed to partner with Fogelson on the acquisition and development of the Central Station property.¹⁰

Fogelson also had tenacity. He first developed townhomes on the land and then other developers saw the promise of his vision and began to partner with him to develop more housing. By the end of the 2000s, the area was home to fourteen million square feet of new real estate and more than five thousand people called the area, now known as Central Station, their neighborhood. In 2014 Fogelson was eighty, the redevelopment of Central Station had been under way for nearly three decades but was still not complete, and he still worked on it from his office on Michigan Avenue, in the heart of the area. But how did it all start?

Figure 5. Model showing the Central Station development as of 2010. The dark buildings are part of the Central Station development, which started with low-rise townhomes to the south in the late 1980s (right, in this photo) and then was built up to midrise and high-rise towers on the north, facing Millennium Park. Photo by author.

Figure 6. Central Station in 2010, with the Museum Park towers at the northern end, facing Millennium Park. Photo by author.

I Was Hooked

Gerald Fogelson’s Russian father came to America in 1908 only to find that the doors to traditional professions and businesses were closed to him. Like many other members of ethnic immigrant communities—Jews, Greeks, Italians, and others—he saw that the barriers to entry were lower in other industries like construction, clothing, movie making, and retailing. So he opened a shoe store in the small town of Dover, New Jersey. Fogelson worked there from the time when he was very young and learned the importance of understanding one’s buyer. “One day I said to my father, ‘These are the ugliest shoes I have ever seen and I don’t know why anyone would buy them.’ So my father told me, ‘These are not the shoes your mother or sister would wear but a good marketing person—a good buyer—knows his customer, so the reason that I buy and sell these shoes is that I have my customer in mind and I know what they like.’ His point,” says Fogelson, “was that you have to take your own personal tastes out of the equation, and this has stuck with me. I have always understood my buyer intuitively through all of the many different stages of my life and career even as I have developed different product types.”

After graduating high school, Fogelson attended Lehigh University, in Pennsylvania, where he studied business and majored in marketing. When he was a second-semester senior, Xerox and IBM and other companies came recruiting on campus. “I did not think much of the kinds of jobs and salaries they were offering,” said Fogelson, “because I had been taught that it is better to make a dime for yourself than to make a dollar for someone else.” Then his father came home one day and said, “There is a guy who lives in the next town over who is building houses and doing well, and if he can build houses, you can build houses, because after all, you are graduating from college and you know everything.” So in the middle of his senior year, Fogelson and his father went into business together and bought two small lots in Netcong, New Jersey. “We built two small houses and from that point on I was in the business and I was hooked. I knew literally nothing, of course, and in fact, the only subject in school I didn’t do well in was shop and to this day I can’t draw a straight line. But I had an instinct.”

Fogelson sold the first of those two houses for $9,900 in 1955.¹¹ For that first year everything he touched was a success and he made more money than his parents or anybody else they knew. “I thought I was something special and in hindsight, I became arrogant, because I had a lot of success really soon. But life isn’t like that and it all came screeching to a halt in 1956 when I received a two-week notice that I was being drafted into the army for two years.” Fogelson went from being “somebody” to being reduced to a buck private who was just another number doing K.P. and guard duty. He also realized that since joining the army his income had stopped, he had no income-producing properties, and he was “like a salaried guy.”

Back to School

In the late 1950s a new real estate product—the farmer’s market—began to emerge. Developers were buying old mill buildings in New England towns, dividing them up, and renting stalls out for farmers who sold meat, fruit, and vegetables and for other vendors who sold dry goods like linens and sundries. Fogelson thought this idea was going to be the wave of the future so he used his weekend passes to visit a couple of them. Although he could not have known it at the time, Kmart, Wal-Mart, and Target would all be founded in 1962. He was a company clerk in the army, which allowed him to resume his real estate business in his off hours, and by the time he was discharged from the army in 1958 Fogelson, his father, and a cousin had purchased a site outside of Chicago together to build a farmer’s market. “And that is what brought me to the middle west—I liked it, got married, and stayed.”

The project was successful, but Fogelson did not like the farmer’s market business. “I liked building the buildings and leasing up the space, but I did not like the operations side of the business—it was like being a shepherd.” More important, Fogelson really wanted to get back into homebuilding but he also knew that he needed to learn the business. He was self-taught and had only built houses in New Jersey—“you know, ten there, five here”—using conventional financing. He didn’t know anything about developing large-scale subdivisions or the mortgage programs that were being offered at the time by the Federal Housing Administration and the Veterans’ Administration.

So Fogelson applied for a job with a large company in Indianapolis and was hired as a salesman. “I didn’t care what they paid me because I was getting paid to learn. I became vice president of sales, then I took over the mortgage department, and within a year sales had increased by 150 percent. I worked seven days a week for a year and that was a cram course in all aspects of subdivisions.” When he first took the job, Fogelson told the company that he would stay for one year and that if they didn’t give him equity then, he would leave. When that year was up he was not granted equity, so he went out on his own. “And that was the only year in my life when I have worked for somebody else.”

Fogelson went on to build garden apartments at a time when there was no alternative minimum tax. “They would throw off cash flow and tax losses and then I would build houses that would throw off tax-sheltered profits, and so I was able to build up equity and cash flow.” As his subdivision projects grew larger, “there was always a leftover corner here or there that could be developed for a gas station or shopping center,” so over time Fogelson learned these other businesses too. “It was almost like being bilingual because I could talk the talk in retail, office, industrial, for-sale and rental residential, and land development. But what I got really good at was land—property.

“So that is a short version of how I got into the real estate development business—it wasn’t some brilliant master plan, that is just the way it evolved. I liked it and I became addicted to it. And the reason that I liked it is because you can see what you have done—those little houses I built back in New Jersey and everything else I have built since. I like it that my children—and now my five grandsons—can see it and I know they get a kick out of driving by $4 billion worth of work and saying ‘my grandfather did that.’”

Three Traits of a Developer

Fogelson has been in the real estate business for more than five decades and he has also helped to start up and shape the curriculum for the School of Real Estate at Roosevelt University, in Chicago, where he endowed a professorship. But with all that experience, when asked what the characteristics of a developer are, Fogelson lists just three: vision, tenacity, and the ability to reconcile many voices and make a good decision.

First, developers must have vision. “One of the characteristics that a developer must have is the ability to visualize what can be. If I were to have a self-evaluation that was as objective as I could make it, it would be that I have the ability to visualize things much more so than most people. I understand land and property, how to assemble it, how to buy it, how to sell it, and how to zone it. I can see what can be.”

Second, developers must be tenacious. “For example,” says Fogelson, “you just can’t take a rejection as a flat rejection, because ‘no’ doesn’t necessarily mean ‘no,’ and sometimes ‘no’ may mean ‘yes.’ You have to be persistent and determined, you need to hang in and hang on, and you need to believe in what you are doing, because if you are not persistent and determined, you will get knocked off too many times. McDonalds founder Ray Kroc said it best: ‘Persistence and determination are omnipotent.’”

And, third, the developer must be able to reconcile the objective facts of the project—“the pieces of the puzzle”—with the vision or “mystery” of what he or she is going to do with it. “On the one hand, you must consider all of the physical characteristics of the property—the sewer, water, soil capacity, topography, etc. On the other hand, you must be looking at potential uses, product type, absorption rates, and what you would do with the property if you had it. For example, the highest and best use for a piece of property may be retail shops, but you must ask yourself whether there is really a market for that product. When you have those two sets of information on the table then you can make a decision about whether you want to pursue this property or development project or not.”

But more important than reconciling these two sets of information is reconciling what Fogelson calls “the subconscious voice and the conscious voice.” “You may lay a set of facts on the table, look at them consciously, and it all makes sense and adds up but if it doesn’t feel right in your gut—if you instinctively have reservations about it—then don’t do it. On the other hand, if your inner voice tells you ‘Boy, this is the greatest thing since sliced bread’ but you can’t make it work with the objective facts, then you shouldn’t do it then either. You should not go ahead with any deal until your inner voice and your outer voice are in harmony because if you do, you will decrease your chances of being right.” But there is a better reason for waiting until the inner and outer voices are in harmony, says Fogelson. “The chances are, you will run into problems, and when you do, if your inner voice had doubts, then it will say to you, ‘See, I told you not to do this,’ and, now, when you have got to have that extra conviction required to push through and do it, it won’t really be there, because you will be thinking, ‘I should have listened in the first place.’”

Like orchestra conductors and movie producers, developers are generalists who bring a lot of other people together to create something. “And at the end of the day,” says Fogelson, “when you put together a development you have to think about all of the people who are going to be around the table—the architect, the land planner, the construction people, the marketing people, the finance people, and all of the others. They are all coming at things from their own perspective or point of view, pushing for what they think is going to be best for the project based upon their own role or persuasion. But the developer is the one who is sitting there at the head of the table, and he has to sort through all of the information and all of the voices and make a decision.”

Gerald Fogelson’s story acts as a bridge between the stories of Beacon Hill and Evanston, showing how long-range vision and tenacity together can shape a place. His summary of the traits required of a developer is just one opinion but in this case, as in all of the stories that follow, his words, views, and ideas closely reflect those of many other developers. Indeed, while each of the stories in this book illustrates specific ideas, in fact the similarities between developers and their stories far eclipse their differences.

Real estate development is an entrepreneurial pursuit, and the qualities that Fogelson describes as being critical to his success—vision, persistence, and tenacity, along with his obvious self-confidence and optimism—are the qualities required of any successful entrepreneur. In the next chapter we will go back to the beginning and look more closely at ideas about the entrepreneur—from the origin of the word itself and the personality traits entrepreneurs have in common to how they think about making money and how they use social and political skills to carry out their work.