When Open Space Becomes the Asset

 Sara Gutterman talks with Curt Johansen, Development Director at Triad Development and the visionary behind Lagoon Valley, the Bay Area’s first conservation community, about rethinking the relationship between housing, land, resilience, and value. 

Transcript

SPEAKER_02 0:05

Welcome to the Valuation Metric, a podcast about the risks, rewards, roadblocks, and revelations reshaping the way that we measure worth. I'm your host, Sarah Getterman, CEO of Green Builder Media, North America's leading media company focused on green building and sustainable living. In California, the housing conversation almost always arrives pre-sorted into opposites affordability or open space, growth or conservation, more homes or less wildfire risk. We've been trained to treat these as trade-offs as if protecting land is something that you subtract from value and density is something you pay for in everything else that you love. My guest today has spent more time more than 35 years proving that framing is, in the most literal sense, an accounting error. Kurt Johansson is the development director at Triad Development and the forest behind Lagoon Valley, the Bay Area's first conservation community. It permanently protects 1,300 acres of open space. It includes an organic farm, nearly 400 acres of parks, and a championship golf course. It was recognized by the U.S. Green Building Council with a green building award for a nature-based community, and more than 130 homes have already sold. The last number matters because it answers the objection before it's even raised. This isn't a thought leadership experiment about what a better community could look like. It's a built, occupied, market-tested argument that open space wasn't the cost, it was the asset. Kurt, welcome to the valuation metric.

SPEAKER_00 1:54

Thanks, Sarah. Happy to be here.

SPEAKER_02 1:57

Thanks. Let's start with the premise of your whole career because it cuts against the industry's default math. For decades, development has been treat has treated conservation as a deduction. Acreage you give up, returns you forego. But Lagoon Valley permanently protects 1300 acres and has still sold more than 130 homes to date, and counting. When you're sitting across from a pro forma, how do you make the case that protected open space isn't a line item against value, but a multiplier for it?

SPEAKER_00 2:34

Oh, that's a good question. So, you know, my whole practice has been driven by my belief that um we are a biophilic species. So our connectivity to nature is just so inherent in who we are. And for thousands of years, of course, we were an agrarian society, right? Where we food was what land was for, and it also provided the connectivity to nature. Over the past couple of hundred years, uh industrial agriculture has changed all that as our population exploded, um, and industrial agriculture became the norm. Uh, family farms are few and far between, of course. But what that has done, particularly with the um last 75 years of sprawl, we've isolated people from their natural environments. Um they they it it's a it's a chore for people to get to places where they really want to be. And so because that's becoming more and more aware, people are becoming more and more aware of their own biophilic need for that connectivity. I've believed uh for many years that um there's no reason why we can't um create places that actually um conjoin nature with the built environment. And, you know, the approach is a little bit different than conventional development, where they try to cram every square foot they can with homes and buildings. Um our our approach is we take the most sensitive parts of a site that um are biologically and and culturally sensitive, um, and we designate those to be protected, and then we make the residential and commercial fit around it. So that's our approach.

SPEAKER_02 4:28

So tell us a little bit more about how you've done that at Lagoon Valley.

SPEAKER_00 4:33

Okay, well, so um we entitled the property 20 years ago, and um, you know, at the time it was very challenging for the city to understand what sustainable development looked like. And so there was a lot of education that went along with that. But the good news is there were enough people who were um interested in it that I was able to um take uh a specific plan of actually 2,400 acres and um start with that commitment to 70% of that specific plan land as forever uh permanently protected. The city um agreed, and uh we now have the ability to just gently um nestle sort of little little uh residential neighborhoods um and embed them in that experience. And so for a lot of people that come out here for the first time, to step out their door and be able to go right onto trails and right into open space is definitely different than what they've experienced. But we are so um we feel so encouraged because the response has been so positive. I mean, it's like, how did you do this? And you know, it's it's a lot of hard work, patient capital um to make the value proposition work. But underpinning it all is our belief that the root the most um the most intense value that both home builders and homeowners uh derive is from uh permanently protected open space. You can build amenities, we do, we build lots of amenities for residents, but the idea that they are embedded in nature has so much value to people that that's really the highest premium they'll pay. And they expect, hopefully, a lot of them will be lifelong residents, but you know, the value proposition of the home is tied to that. And uh the response has been really positive. So we're really encouraged.

SPEAKER_02 6:39

Now, you entitled the property, as you said, 20 years ago. That's a really long-term vision, which is fantastic. But you didn't just have to believe all of this yourself. You had to convince four major home builders, a regulatory apparatus that let's say is not nimble, and a skeptical market. So three audiences that usually uh trust each other less than they trust you as a developer. So what was the hardest sell and what was the argument that finally moved them?

SPEAKER_00 7:09

Yeah, those are some uh great question. So, with the home builders, one of the advantages um of being in the industry for a long time is that you have the ability to develop a track record. And so with home builders, I have been able to build their trust that we will deliver on the promise. So that's helpful. Uh, you know, when I started out in the business um decades ago, it wasn't like that. I I mean, I couldn't, I didn't have the track record, so I would be promoting the same ideas, but it there was a lot of skepticism. Having been able to uh successfully achieve uh with each project, uh, moving the needle um further towards sustainable development, the builders believe that we will execute on that. So um that has helped me a lot with them. The regulatory side has been more challenging. So whether it's local or state or even federal, um, you know, there's they're those public servants that do work so hard in their jobs and don't get the acknowledgement they deserve, um they're trying to do the right thing. Introducing something really new takes a lot of education, it takes a lot of communication, and and not just initially, but it's reinforcing it as you go. Um, so uh a good example is we we wanted to create uh a 71-acre wetland on the property, and um we wanted to do it, we wanted to do it better than created wetlands typically work out because they they have a a checkered track record. You know, some work out better than others. We wanted to really do something kind of special. Well, we assembled a team, and what we found out is that we have a fairly high groundwater table. And if we actually create the wetlands so that we can allow uh the natural water to perkle up, percolate up from the bottom instead of depending on irrigation and you know, natural rainfall to try to help, um, that that might actually create a more natural-feeling wetland uh for wildlife. The state of California has already told us it's the poster child for how to do a created wetland. Um, it was a little more expensive to do it that way, but the wildlife that's out there, people are coming uh every day, just standing there and marveling at it. It's fenced off, of course. We have to, uh the state has told us take five years, let's make sure it's established, and then maybe we can put a uh a raised walkway through it. You know, people like they do in Florida with the Everglades and that sort of thing. Um, so everybody's anxious to get deeper in there so they can see what's going on. Um, but you know, that that approach is we we pay attention to those details and it really pays off in the long run. And you know, uh that's one of the most um delightful areas for our homebuyers. They they just love the idea that they live next to a a thriving um wetland preserve. So, you know, there's many more of those types of examples, but they, you know, I firmly believe that if you if your principles are aligned properly with um protecting the environment, um people get it. They understand that there's intrinsic value there. And by it might be hard to put a dollar value on it, it it definitely they feel it inside and they've expressed it to us.

SPEAKER_02 10:56

Let's follow up on this concept of value. I just love what you just said. Uh, you know, conventional builders will look at conservation communities, you know, land set aside, infrastructure, parks, open spaces, wetlands, and they see expensive full stop. When does that math and the mindset flip? How do you flip that? How do you change that?

SPEAKER_00 11:23

Yeah, um, that's a yeah, that's a little bit challeng of a challenge because um most developers are sort of what I call single bottom line driven. So, you know, the environment and even um social responsibility aren't value ads for them. They consider those to be more of a kind of an organic process that will happen by somebody else over time. They want to get in and get out, get their profits as fast as they can. Um what we've explained to builders is that we will continue to create upside value for them as the community matures, not only through the things they're doing, but through the things we are doing. So we have a very robust approach to that. When people come to visit the the property, we sort of um we sort of uh capture them to go through our visitor center, which is a pretty elegant facility. Actually, we we believe strongly in in you know that introductory um meeting to uh prospective buyers that come out. And what we do is we it's it's both very high-tech, but it's also very um it's very personable because we have greeters that are very knowledgeable about the project. So the idea is to introduce people to all of these principles, these sustainable concepts, what conservation really means, all the wildlife habitat, and you know, how that gets stewarded over, you know, in in perpetuity, um all the stuff that's different about the community. And then we release them to go and figure out if they if they have a if they really want to buy a house, right? And so we kind of do a handoff to the builders. What we have found is that um, because we survey as much as we can um the process, what we have found is that a very high percentage of the people who end up buying homes here made the decision to live here before they went into a model, which that that's sort of validation for me that um people are as interested in a community and a lifestyle as they are about the four walls they're going to be living in. And so it's made the builder's job easier because a lot of their prospects come to them. They've kind of they drank the Kool-Aid, so to speak. And uh, you know, it's like, well, we have you know many of floor plans there, there's various neighborhoods, all that. But um, you know, because it's so different, we also believe that that introduction is important because we tell people this isn't for everyone. You know, we're very upfront about that. You know, if you're not a nature lover, you're not going to be happy here. I mean, that you just because it's everywhere. You can't really, you can't really isolate yourself from it. Um, so it isn't for everybody. But again, uh we're not trying to be everything for everybody. We're we we've got a very specific concept that we believe appeals to a lot of people, and it there's plenty of those people out there for this community. So we want a good fit. We want people that feel like they belong here.

SPEAKER_02 14:47

You know, Kurt, that leads me to a question that I'm curious about. This came up just uh as I was listening to you. I was going to ask um if you felt that uh the people who were inclined to live in a conservation community kind of came to you very open and kind of wanting to be convinced to live there versus other people who might not have that same set of values and priorities and they come and they don't necessarily, they're not open to uh that same level of um you know engagement and they don't necessarily want to be convinced. Would you say that the people who are already predisposed to live in a conservation community and already feel connected with nature, they're the ones that come with those, with that ethos? Or do you see people who might not you know have that prior say connection with nature? They come and they have this aha moment where they're like, oh, I want to live like this. So it's the what's the percentage, would you say? Yeah.

SPEAKER_00 15:55

That's that's uh interesting. I I would I would say it's probably 50-50. Interesting. Probably half of the people that um have chosen to live in Lagoon Valley, I would think uh came excited. You know, they they they've uh we we've had we've had lots of testimonials that where people just unsolicited, they just come and say, I've been waiting 30 years, 40 years to live in a place like that, right? So there's that group, but then equally large in number, I think, are the people who haven't been dreaming about anything like this. Um, they're just in the market for a new home. They have certain things that they're also looking for besides the home, whether it's, you know, uh amenities that make, you know, are particularly appealing to them. You know, we have the parks, we have the sports courts, the event center, we have the town center with the local neighborhood retail, all of that. Um I would say that that group um mainly comes in curious uh and and skeptical. I mean, there is there's a level of skepticism, right? Is like this might be a little too good to be true. Uh some of them want, you know, want to come out just to just to reassure themselves that this isn't really what it is. Um, but we haven't had many that come in. We have had some people that come in and go, I think this is a little too touchy-feely for me. You know, it's like, yeah, we have pretty strict CCNRs. In many ways, it's to protect the environment, right? It it ties into how people relate to the natural world that they're that they're embedded in. So for some people, that's a little bit, you know, um that's a little bit different than what they they were looking for. But again, um we're we're we've trained our folks to reassure those folks that this isn't a right or a wrong kind of thing. If it's not a if it's not doesn't feel like a good fit, uh there's nothing wrong with that. And our builders support that because sometimes uh some folks will come in and they will figure out how to bypass our visitor center, right? They'll just like I don't need I don't need to talk to anybody, I'm just going right to a model hole. And the builders, um they're of course they're very accommodating, but at the same time, they actually say, before you leave, go stop in and hear about the community, because you need to you need to feel good about what's going on here, that kind of thing. And so it it is a mix, um, but um again, I I think uh we're not that big of a project. I mean, at the end of the day, um we're we're just sort of a medium-sized planned community. And so we'll end up probably with around 3,000 people living here, and that's all um in a in a city of over 100,000 people. So, you know, it's it's it's not it's not as large as a lot of planned communities grow to be. Um, but again, that's driven by you know the commitment to um not developing on property that should have been protected. And we believe that's what we're doing.

SPEAKER_02 19:25

Now let's switch gears for a minute and talk about wildfire risk mitigation because we're having this conversation at a moment in time when wildfire risk is repricing entire California markets. Insurance is being pulled, lending is tightening, resale assumptions are just breaking. So, does conservation-anchored design and community development change the underlying risk profile of a community with respect to wildfire? And is the market starting to pay for that level of resilience?

SPEAKER_00 20:00

Yeah. Um, so that's great question. So um climate resiliency is one of our core principles that we we we pay attention to that all the time. And wildfires, of course, are a way of life in California. So um one of the things we we've made uh essential in our planning efforts is, and the city cooperated with this, is to create um significant buffers from wildfire areas um that sometimes are six, seven times what normal buffers are. I mean, there's always regulation that says you got to set back and keep, you know, uh growth down, vegetation down. Well, for us, it's it's it's a much bigger irrigated area that we like to buffer the community from. The fire department loves that. I mean, we we built our our on on-site fire station before the first person moved into any home here. And it's a full service 24-7 station, wonderful uh fire department here. And they love that concept because it it really gives them it's it's an added um it's an added level of protection for them um if if something happens. And we all have had wildfires affect our lives, so it's not going away. So that's important to us um on that that buffering um from wildlands which are susceptible to that. Um climate resiliency for us, though, is also the sort of the uh companion piece to that, which is flooding. So uh flood protection uh is really important to us. We're in a valley where historically, um at the other end of the valley, we've had private property arrows um. Had flooding occur a lot because, you know, infrastructure was never put in place to actually control that. And, you know, a lot of people who built many, many, many years ago fall victim to that. So what we did was we it we had the advantage of all the open spaces and recreational areas. So we used those areas also to create 156 acre feet of stormwater detention basins, which for your uh listeners who don't deal with acre feet at uh uh on a normal basis, that's the equivalent of 1.3 million uh bathtubs full of water. It's a lot. Yeah, it's a lot. And so those basins, um, they are remain dry. And when rains come, and they can come pretty intensely um in the winter, particularly, um it's it's a filtration system to clean the water, but it also allows the water to um fill up and then be let out very, very slowly, so that by the time it gets to the other end of the valley, it's a manageable uh runoff. And so um those two pieces kind of go together for us. And we've one of the value propositions, and I I I love the kinds of questions you ask, Sarah. How is that valuable? Well, the value to the homeowners is that they feel much more secure that they have protection against wildfire than in in many other communities, but that they are that we're also very sensitive to using all of the property we have for other climate resiliency issues. And I haven't heard whether or not they're getting lower premiums on their fire uh insurance, but I can tell you this, we have had no issues with anybody getting fire insurance here. It's been no problem at all. And I I I suspect that some of that is is uh due to the way the community has been created. Um, and I know some other other areas are definitely struggling with getting any fire insurance. Forget the cost, right? They're just uh so I I think I think it is being noticed. I think people do pay attention to that. And again, the the key to that is is to the the art of it, if you will. It's it's a balance of art and science. The art of it is how do you use the land sensitively to address these uh resiliency issues at the same time uh leaving some room for the built environment and then also keeping in priority uh the natural environment. I mean, it's it's a bit of a balancing act, but um, when you've done uh a few of these, you kind of learn stuff as you go. And so I would love to think that I knew what I know now 40 years ago, but I didn't. So it's you know, you have to be around and have have tried things. This this stuff I've tried over the years that didn't work. You know, you learn from what you what didn't work uh a lot. Um, so um that's been helpful to me.

SPEAKER_02 25:26

That actually leads me to my next question, which is what didn't work? And uh, I know a lot of builders and developers are looking to people people like you, developers like you, communities like Lagoon Valley as a model for kind of the next era of what housing and communities can look like. So, what are some tips uh that you would give to your peers that are maybe starting out now on conservation communities so that you know they don't have to live the past 20 years of uh you know, kind of groping around blindly in the dark?

SPEAKER_00 26:04

Well, that's uh yeah. Uh I'll I'll share what I heard. I think is valuable. Um, you know, one of the biggest challenges with this is uh a failure to estimate the front-end costs of these types of projects. They are high. So, you know, single bottom line development would say, as you mentioned in your introduction, you know, it's it's uh it's a liability, right? So push it on to someone else and let them deal with it, right? And so the nonprofits, you know, the hope is that the nonprofits will come in and they'll raise some money and they'll go buy a piece of land and then they'll protect it. And and oftentimes it's not even open to the public because they don't have the funds to make it accessible to the public. And then, you know, just just the the stewardship of those parcels makes it very challenging because it's it's so divorced from where people can benefit from it. So in our case, we have so many systems set up so that the residents are completely involved in that whole process. And so there is more front-end work involved in that. And so I I my advice there is um don't be shy about doing a couple of things, which is put a performer together that doesn't try to overlook those those systems that you're gonna need in place, right? Who's gonna be who's gonna be your conservation manager, right? Um, you're gonna need one. You're gonna need, and you're gonna need some funds for that. Um, you know, who's who's gonna actually um you know maintain those those storm drainage basins, right? Who's gonna do that? Is the city gonna do that? Well, they don't really want to, they want someone else to do it. But I think the point is that the pro forma that you set up for a community like this needs to be set up in a way that you're attracting patient capital, uh, whether it's debt or equity or both, uh, and understand it's a long-term proposition. And that means that, you know, just like anything else, it's not for everybody. There will be people who go, no, we don't do that. That's okay. There are people who do. There are, there are, there is capital out there that tries to find a balance between they want returns on their on their capital, then no question. But returns on investment is is essential to the industry. Um, but they also want that to be um gently balanced with doing something that's responsible, something that makes them feel good at the end of the process, as opposed to, hey, I made a 20% return on that project, couldn't wait to get out of it, and I don't care what's going on with it now. Who cares? You know, this is the type of community where not only do you have to care how it's going to live after the developer's gone, but you have to also be willing to stay with it to complete it in such a fashion that um, you know, uh all of those what I call systems are in place, they're operating well. Um, you've done the best you can do. And then for me, when I go back to projects I've done in the past and see them um still thriving, you know, with people who love living there. And that to me is you can't put a value on that. You it's priceless to me. I mean, because at the end of the day, it's it's it's my art, it's what I do, and I have to feel good that it's benefiting people, otherwise I would go do something else. And so seeking out partners, lenders, investors who actually have an ethic, a land ethic, if you will, um, to balance with the returns that they expect. Um the returns can still be there. It just it just needs to, they just need to be patient and understand the process may take a little bit more time, but the rewards are are wonderful at the end. Um so that's my belief. And so far I very feel very fortunate because I've been able to find those those types of partners that have helped me um achieve what I'm hoping to achieve.

SPEAKER_02 30:38

Do you feel that there are more aligned partners now in terms of those patient lenders and investors? Or do you feel like, given you know, kind of political headwinds around sustainability in general, that um those partners, lenders and investors, are more focused on reducing risk in other ways?

SPEAKER_00 31:03

Well, yeah, I know politically um things ebb and flow, right? And um, you know, here in California, um we feel it's a little different than in other parts of the country, um, because California is so big and can you know do things that I don't know, somebody told me we're the fourth or fifth largest economy in the world. I don't know how that works, but yeah. It's pretty big. Um, but I think um I think the idea is that um there's there's uh more and more pressure that has been brought to bear by society, regardless of what's going on with the federal administration. It'll come and it'll go, it'll change and you know whatnot. Um society overall has continued to put pressure on uh corporate America to pay more attention to sustainable development, to be more uh mindful of doing things, um, so that at least there's uh uh not a greenwashing attempt, but a genuine attempt to um you know reduce our footprints. Uh you know, we we've got generations of kids and grandkids and coming that um deserved that we did the best we could do. And my generation, my uh baby boomer, uh we didn't do that. I'm I I think I'm just trying to do penance for all those years. I mean, it's kind of like I'm a baby boomer, and we were as materialistic as they come and not thinking past you know the next month for ourselves. And so I I think uh the younger generations now are definitely more in tune with it. And um that I think that's not going to reverse as a societal thing. And so even as the as the development industry kind of consolidates, so I'm a little bit of a dinosaur, or maybe a lot of a dinosaur, because it's hard for small to medium-size um companies to take on big projects because the cost is so high, right? So the bigger players tend to be the ones who by default do it. Um, but I think even they feel the need to become more aware of this because um I wish I could duplicate uh myself 10 times and have 10 of these going at the same time. I can't. But fortunately, we have other people in the country who are doing it and doing it really well. I mean, I have I have spent time at conservation communities where I've just just been blown away at the at the commitment and and the result and when they're built out, how how marvelously they operate. And so it's been inspiring to me about uh learning from others over the years.

SPEAKER_02 34:09

What are some of your other favorite conservation communities that you visited?

SPEAKER_00 34:14

Well, um, so if I had to pick a couple, I would say um Prairie Crossing is one. Prairie Crossing is about 40 minutes north of Chicago. So uh any of your listeners who happen to be in that area, you can jump on the train from downtown Chicago and be there in 40 minutes. The train stops right there. Um, so you don't even have to drive. Uh it's a marvelous conservation community with uh farming is such a big part of what they do. They they have a hundred acres devoted to organic farming, but it's also a teaching farm so that they actually lease out five-acre plots to people who want to actually get into family farming. Um and open space just is is is so important there. But their attention to sustainable details on infrastructure, all their infrastructure is so green. Um, the homes are so energy efficient. I mean, they've done everything really, really well there. Another one is uh charming uh conservation community, it's just um about 30 minutes south of Atlanta in Georgia. Uh it's called Serinbi. Uh that's S-E-R-E-N-B-E. And I'm very close with the developers there. They've done just amazing work um in that community uh to promote the same kinds of sustainable um ideas. And the response that both of those projects have had from the buyers has been uh extraordinary. And so uh when I see examples like those two of how people made the commitment, stayed with it, got it done, and the level of tranquility and happiness in the people who live there. That's that's one of the most important things to me is you know, people, life is stressful. People are are struggling more and more with all the turmoil that's going on in the world. I think more than ever, they seek tranquil places. And, you know, being embedded in nature creates a sense of tranquility for people because it reminds us through biophilia that we're all connected and that you know we're just a small part of a much bigger, much bigger enterprise. And it's it's humbling, it it and relaxing at the same time. It actually allows you to feel less stressed, and people um just seem happier in those types of communities. So again, I wish we had more of them. I'd I'd say altogether, there's probably about 300 uh across the country and various sizes. Some of them get very small, some of them get large, but they're just so open space dominated that there's very little housing. Uh, mine is more of a trying to balance it a little bit more because the housing crisis is a very real problem here in California. So I'm trying to do my part to also create some diversity of housing. Um, you know, we have affordable housing, we have age qualified housing, we have so much differentiation in what we're doing, and our market is very diverse, our buyers very diverse, um, which I'm very happy about. It's it's wonderful um how that's working out. But we um strongly encourage our builders to do uh designs that include ADUs so that it's multi-generational living here, which has been very, very helpful because uh that's that's very that's very appealing to a lot of buyers uh in in this area.

SPEAKER_02 37:55

Wonderful. So, Kurt, if people are in the Bay Area, what's the best way to access Lagoon Valley? And if they're not, how do they get more information about the community?

SPEAKER_00 38:05

So um I think lagoonvalley.com is our sort of default um uh way to uh start to get into the process. Um we do have a couple of other um we do have a couple of other websites, but they can all be linked together. So I think if anybody wants more information, start there, and then there'll also be contacts for people that they could reach from lagoonvalley.com. And um there's a there is a wealth of information on um that um that basic website and then other websites connected to it. But I would also encourage anybody who wants to just visit, to just visit, because a picture is worth a thousand words, but when you're actually here, it's palpable, you feel it. And so we would love to host anybody who wants to come out and take a look.

SPEAKER_02 39:01

Wonderful. Well, Kurt, this has been a pleasure talking with you today. I really appreciate your perspective and thank you so much for your long-term vision on Lagoon Valley. Clearly, you are creating a model uh that others should replicate. Um, so again, thank you for being on the valuation metric. Thanks to everybody who has listened to this episode. I'm Sarah Gutterman reminding you to value what matters, because when we do that, we can build a more meaningful and better world.

SPEAKER_01 39:32

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