A Holistic Place-Making Framework: 7 Types of Capital for Real Estate Development
Types of Capital for Real Estate Development
Hoffman Strategy Group
The U.S. Federal Reserve Bank started its first of 10 rate increases on March 16, 2022, in an effort to return the inflation rate from a year-over-year high of 9% in June 2022 to the fed’s target rate of 2% (BLS All Items).
Today, there is no doubt that the rate range of 5% to 5.25% has impacted the capital markets, home prices, construction activity, and various others aspects of the macroeconomy. The YOY inflation rate stood at 4% for all items in the BLS basket as of May 2023.
We will address the macroeconomic impacts on residential and commercial real estate investment, acquisition, and development activity in a future post. The purpose here is to take this opportunity to present seven types of capital that form a holistic framework for master planning, programming, and development.
This is an adaptation of community development research by Cornelia and Jan Flora at the University of Iowa. (Citation: Flora and Flora 2008)
Natural Capital: This includes the environment, rivers, lakes, wetlands, wildlife, etc.
Cultural Capital: Ethnic festivals, multi-lingual population, traditions, heritage, and strong work ethic. Cultural capital influences how creativity and innovation emerge and is nurtured.
Human Capital: The skills and abilities of residents as well as the capacity to access outside resources and knowledge to increase understanding and to identify promising practices (e.g., life sciences, biotech, adtech, software-as-a-service, etc.).
Social Capital: The connections among people and organizations or the social glue that makes things happen.
Political Capital: The ability to influence standards, rules, regulations, entitlements, zoning, and enforcement.
Financial Capital: The financial resources available to invest in economic and community capacity building, underwrite the development of businesses and real estate properties, support civic and social entrepreneurship, and accumulate wealth.
Built Capital: The infrastructure that supports the community, such as telecommunications, industrial parks, main streets, water and sewer systems, roads, etc.
The practical application to commercial real estate development is the capacity to create, curate, and cultivate businesses and industry clusters that support growth in and development of residential housing, tenants in office spaces, customers in grocery stores, specialty food businesses, restaurants, and specialty retail shops, guests in hotels, museum-goers, and other amenities that together form a sense of place.
Implication: Those type of outcomes yield better returns on capital investment in residential and commercial real estate development.
