Last Harvest: From Cornfield to New Town Page 5
Philadelphia was then the federal capital, and Nicholson knew many of the political leaders of the time: Alexander Hamilton, Aaron Burr, James Monroe. Nicholson was a man of parts, a major financier, and a founder of the Bank of Pennsylvania. Charles Willson Peale’s portrait, painted about 1790, shows a calm and confident figure, slightly pudgy, soberly dressed, and surrounded by account books. His placid poker face betrays not a hint of the political turmoil that is swirling around him. Nicholson had associated himself with the Anti-Federalist cause. Unluckily for him, Pennsylvania politics were dominated by Federalists, whose stated aim was to unseat the powerful comptroller general. After several years of infighting, he was impeached. Following a twenty-three-day trial, the Pennsylvania Senate cleared him of all charges, but the House continued to insist on his removal. The governor, a Federalist but also a friend and business associate, dithered. Finally, after twelve years of service, Nicholson resigned.
He was now free to devote himself fully to his considerable real estate interests. Nicholson was clearly a bit of a rogue. His official duties had involved selling confiscated real estate and distributing land to war veterans, and he took advantage of inside information on upcoming land sales and on the availability of choice tracts to become a major land jobber. (Many veterans preferred cash to land, and Nicholson obliged.) Although he sometimes functioned as a speculator, buying and holding cheap land in the hope that he could later sell it at a profit, Nicholson was also an entrepreneur. Like a modern developer, he sought to increase the value of his properties by building improvements, in his case, turnpikes and canals. He was the early equivalent of a venture capitalist, developing an industrial town on the Schuylkill and investing in mills, copper mines, and ironworks. To promote settlement, he imported craftsmen from Europe. Since capital was scarce, like most American land developers, he looked for European investors. Through his agents James Monroe, then minister to France, and the statesman Gouverneur Morris, Nicholson sold 200,000 acres to French families fleeing the Reign of Terror.9 When the political situation settled down and the aristocrats returned home, Nicholson resold the land to an English group of Unitarians.
Nicholson’s chief business partner was Robert Morris, a prominent Philadelphia banker who had been a member of the Continental Congress and a signer of the Declaration of Independence. Morris is sometimes called “The Financier,” since during the Revolutionary War he was personally responsible for raising the funds that allowed George Washington to wage his successful campaign against the British. Morris’s patriotic service had not advanced his business interests, however, and he saw land development as a way to rebuild his fortune. One of Nicholson and Morris’s largest real estate deals was in the nation’s new capital. The federal government, which had an ambitious master plan but no funds, intended to raise money by selling individual lots. A public auction, presided over by Washington, Jefferson, and James Madison, was a dud; after three days, only thirty-five lots were sold. There was too little demand, and prices — $300 per lot — were unrealistically high. Nicholson and Morris, in partnership with James Greenleaf, a New England businessman, stepped in and made a bid for more than seven thousand lots. They offered hard terms: $66.50 a lot, payable over seven years, without interest.10 The strapped government accepted. What one historian has called the “greatest land-grabbing triumvirate that ever operated in America” founded the North American Land Company, whose pooled real estate holdings, extending from Pennsylvania to Georgia, amounted to more than 6 million acres.11
I can’t help but admire the scale of Nicholson’s ambition. I tell Joe Duckworth his story and ask what personal qualities he thinks a developer needs. “Perseverance is certainly important,” Duckworth says. “You also have to be ambiguity-tolerant and risk-tolerant. You must accept that you’re not really in control of anything. I’m not a gambler, I don’t go to Las Vegas, but I don’t mind taking a risk when the odds are on my side. Being your own boss is also a part of it. The developers I know are independent and don’t like the constraints of working in large organizations. And they are all extremely self-confident.” That is something that Duckworth and Nicholson have in common — not only personal ambition and the willingness to take chances but also an unalloyed optimism about the future. The desire to make money, while hardly unimportant, seems secondary.
Nicholson saw a limitless future for the North American Land Company. He boasted to prospective shareholders that the company’s holdings, which were valued at fifty cents an acre, could be expected to bring in up to one hundred pounds an acre. A sales brochure made it sound easy:
The proprietor of back lands gives himself no other trouble about them than to pay the taxes, which are inconsiderable. As Nature left them, so they lie till circumstances give them value. The proprietor is then sought out by the settler who has chanced to pitch upon them, or who has made any improvement thereon, and receives from him a price which fully repays his original advance, with great interest.12
Nicholson and Morris, who eventually bought out Greenleaf, believed that they could corner the market in land. But America was simply too big. However many acres they owned, there was always more cheap land over the next hill. In addition, they were unlucky in their timing. Their grand scheme was predicated on substantial immigration, but the Napoleonic Wars, and the weak European economy, slowed the flow of settlers to a trickle. The Washington venture, too, faltered. Building a new city from scratch proved more difficult than they anticipated, and they were unable to meet even the minimal obligations that the federal government imposed.
A developer can make a lot of money, or he can go bankrupt, Joe Duckworth had told my students. By the end of the seventeen nineties, Nicholson and Morris were in serious financial trouble. The carrying charges on their lands — the taxes, surveying costs, and legal fees — turned out not to be “inconsiderable” after all. They had borrowed extensively to buy the land; soon they were paying creditors in company shares. In 1798 Robert Morris wrote to his partner: “My money is gone, my furniture is to be sold, I am to go to prison, and my family to starve, good night.”13 He spent three and a half years in Philadelphia’s Prune Street debtors’ prison — “the hotel with the grated doors” he called it — where he received many distinguished visitors, including George Washington. His friend Gouverneur Morris (no relation) arranged an annuity for his family, which did not starve after all.
Nicholson staved off financial ruin for two more years. Ever the optimist, he told a friend in trouble, “Where you have one demand against you, I have at least 900, yet I call in the aid of reason, and do not let my mind be unfitted for business at a time when it ought to be fitted.”14 Finally, in 1799, owing the spectacular sum of $12 million, with liens on his personal property and with 125 lawsuits against him, Nicholson declared bankruptcy and was sent to debtors’ prison. He died behind bars a year later, only forty-three.
Just before being sent to jail, Nicholson founded two more land companies. What appears to motivate developers, then and now, is the art of the deal. They see a difficult situation — empty back-lands in Nicholson’s case, recalcitrant municipalities in Duckworth’s — and devise solutions by their own wits. “I love the idea that the opportunities are out there for everyone to see,” Duckworth tells me. “For me, the deal is not simply I do this and you do that. It’s a chance to be creative, to get the other party to be satisfied in a new way. I like the challenge of getting novel kinds of entitlements, or convincing a builder to try something unusual. In a good deal, everyone is better off.”
*Following the Declaration of Independence, the Commonwealth of Pennsylvania seized the 22 million acres owned by the Penn heirs, paying £130,000 compensation, though only for the manors.
6
Joe’s Deal
From a developer’s point of view, the United States is divided into two areas, not rich and poor, or rural and urban, but pro-growth and anti-growth. The South, Southwest, Texas, and Florida embrace development, while the Northeas
t, Northwest, and California discourage anything that threatens change.
Tim Cassidy had given me driving directions to the Wrigley tract, which is only five minutes from his house in a place called Daleville. There is no sign, and I almost miss it. Daleville turns out to be a country crossroads with a battered telephone booth and a closed-up convenience store, whose large display window is curtained by a faded American flag. Across the road is the site: a mixture of cornfield and pastureland sloping down to a small woods. It’s a wonderfully bucolic scene. Chestnut Hill in 1880 must have looked something like this, but it’s still a surprise — I wasn’t expecting to be surrounded by open countryside.
The Wrigley tract is the smaller of two adjoining farms that once belonged to Wayne Wrigley, a local farmer who bought them in the nineteen thirties. When he retired, in 1964, he sold the larger, 175-acre parcel to his elder son, Marvin, and moved to the smaller farm. After Wrigley’s death, this passed to his younger son, Wayne Jr., a radiologist. When Dr. Wrigley, who divides his time between Daleville and Tampa, retired, he put his 90-acre farm up for sale, keeping only the house and some surrounding land. That’s where Dick Dilsheimer came in.
What is the value of the Wrigley tract? According to Joe Duckworth, as a cornfield it’s probably worth about $300,000. Since the zoning allows residential use, a developer might pay between $600,000 and $1 million, which could be said to be the current market value. Dilsheimer has offered considerably more than that — $1.88 million. His offer is contingent on the township granting permission to build within two years; otherwise the agreement will be void and the seller will keep the $60,000 deposit. Duckworth calls the difference between the market value and $1.88 million a risk premium, that is, in return for the extra payment, Dilsheimer has a two-year option on the land.
According to Duckworth, the economics of land development are simple: “You spend money buying and subdividing land, then you make money selling lots.” His back-of-the-envelope calculation for the Wrigley tract is equally straightforward. He figures that in the current market he will be able to sell house lots to builders for about $60,000 each. On the debit side, he will have to pay $1.88 million for the land, and probably something to Dilsheimer as a finder’s fee. Duckworth estimates that the infrastructure will cost $30,000 per lot and that the entitlement process, with its consultant fees and permitting costs, will add another $5,000 per lot. Typical profit margins for this kind of development are between 15 and 25 percent. To make a conservative profit of, say, 17 percent, Duckworth calculates that he will have to sell at least 125 lots, rather than the 86 that Dilsheimer planned.
“We’ll do more accurate estimates later,” says Duckworth. “Business plans are never right on, they always tend to be low. But the bottom line is probably right.” He gives me a brief explanation of land development economics. From a developer’s point of view, the United States is divided into two areas, not rich and poor, or rural and urban, but pro-growth and anti-growth. The South, Southwest, Texas, and Florida embrace development, while the Northeast, Northwest, and California discourage anything that threatens change.1 “Considering that Philadelphia is growing very slowly and Atlanta is booming, which area do you think has higher new-house prices?” Duckworth asks. “Conventional economic theory would say Atlanta, but prices of new houses in Philadelphia are twice as high. You can see the same difference between metro Detroit and metro Dallas. The explanation is the permitting process. In the South it takes two to three months to get a permit, while in the Northeast it takes two to three years.” So why aren’t you in Atlanta, instead of Philadelphia, I ask. “In Atlanta, competition is fierce, so profit margins are lower,” Duckworth explains. “In the Philadelphia area, entitlements are so hard to get that, when you do get them, you know that you won’t have a lot of competition. Supply is constrained, and builders are desperate to find permitted land. So, the price of lots is almost guaranteed to keep going up.”
That’s why Duckworth expects that, although his costs will eventually be higher than the first estimate, by the time the project is built, land prices also will have gone up. If they rise enough, he may even increase his profit margin, but he isn’t counting on it. For the moment, assuming things go smoothly, the Wrigley tract, while not promising a windfall, looks like a reasonable bet. There is a major obstacle, however. The current zoning allows a maximum of ninety-seven single-family houses on half-acre lots. Duckworth needs to sell more lots, and he wants to make them smaller, to create the feeling of a village. Before finalizing his deal with Dick Dilsheimer, with whom he has a handshake agreement, Duckworth must be sure that the township will approve such a major zoning change. To do that he needs a plan.
The person responsible for planning Duckworth’s new community — laying out the streets, lots, and open spaces — is Bob Heuser. The city planner is a large, easygoing man in his early fifties, with swept-back, prematurely graying hair and a bushy mustache. He works in an office in his home in suburban Philadelphia. The large room overlooks a steep wooded slope. “Everyone’s on lunch break,” he says, pointing to the empty work area. He’s joking — Heuser works alone. The airy room contains a small conference table, a secretarial desk, large flat drawers for filing drawings, and an old-fashioned drafting table. Heuser does not design on a computer. “I enjoy drawing,” he says. “I work things out in my head, and my hand just follows along.”
Heuser’s clients are mainly suburban developers. One of his regulars is Dick Dilsheimer, who hired him to plan the Wrigley tract. “The first time I met Dick was on a project where he had been unsuccessfully trying to get township permission to build a hundred town houses on a piece of land for twenty-five years,” Heuser says. “He’s a patient man. But after only a few months working on the Londonderry project, I could see that he was getting nervous. Then we heard that the township might be open to a village-style plan.” Heuser had designed many projects for Dilsheimer over the years and knew that his cost-conscious client was not interested in radical planning innovations. “His philosophy is ‘People want Buicks, we make Buicks.’” Heuser designed what he calls a faux-village plan: the same number of houses but on slightly smaller lots. The reaction from the Londonderry planning commission was lukewarm. “So I came up with a suggestion,” he says. “I told Dick that he should contact Joe Duckworth, who I knew was interested in unconventional projects. A short time later, Dick called me and said, ‘Bob, you may have a new client.’”
Heuser has known and worked for Duckworth for more than thirty years. “Joe is an interesting guy,” he says. “He really believes in the neotraditional concept, people-friendly environments, walkable communities, and the like. But he’s also a developer. He knows that to stay alive he’s got to make money.” Heuser has thought a lot about traditional neighborhood development. “I would say that about fifteen percent of my projects now fall into this category.” He has not been to Seaside, but he has visited similar projects. Recently, he has been working on several neotraditional plans with Tom Comitta. While he appreciates Comitta’s enthusiasm, Heuser isn’t ready to buy into the neotraditional neighborhood philosophy. “Right now it’s the flavor of the month,” he says. “I come at the subject from a different perspective. I’m an advocate of livable communities, but they don’t necessarily have to be in the neotraditional mold, as long as they’re pedestrian-friendly and well-planned.”
Heuser shows me his new plan for the Wrigley tract. He has designed several neotraditional projects for the Arcadia Land Company, so he knows what Duckworth wants. He has laid out 135 small lots, each only five thousand square feet in area, fifty by one hundred feet, less than one-eighth of an acre. Instead of the seventeen acres of open space in Dilsheimer’s project, there are now more than fifty. The houses are grouped together, with rear garages and lanes. Some of the lots back onto the old Wrigley farm, now owned by Charlotte Wrigley, Marvin Wrigley’s widow. After her husband’s death in 1977, she and her two sons granted an agricultural easement on their farm, which e
nsures that the 175 acres will remain undeveloped in perpetuity. Heuser figures that these perimeter lots will sell at a hefty premium. “Joe calls it the rural equivalent of an ocean view,” he says.
When Duckworth first presents Heuser’s plan to Londonderry Township, the planning commission likes the additional open space but is concerned that farm operations and residences will make poor neighbors. People like the idea of living in the country, but they complain about farmers spreading fertilizer or working late at night. The commission asks to see a plan with the houses relocated on the eastern side of the site. This doesn’t appeal to Duckworth. Most prospective buyers will approach the new development from the east, so having an attractive open space on that side makes marketing sense. He suspects that the change in location has something to do with Charlotte Wrigley, who happens to be the township secretary, wanting the development as far away from her farm as possible. Nevertheless, he instructs Heuser to go along with the suggestion. He also agrees to a request to reduce the number of houses to 125 — which is the number he was aiming for anyway. The important thing is that the planning commission seems to have accepted the general idea that there are going to be more houses on smaller lots.
Heuser makes a second plan. Nobody likes it. Not only is it less attractive — actually, the way he has drawn it also looks less attractive — than the first version but the houses are now close to Route 796, a busy country road. The commission asks Duckworth to go back to the first plan but to create a buffer of open space between the houses and the Wrigley farm. He happily agrees. A final version of the plan takes shape on Heuser’s drawing board.