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Ever wonder why so many recreational facilities at condominiums, housing projects, mixed-use developments, and resorts suffer low usage, are poorly managed, and badly maintained?

What is ‘amenity-oriented development’? Applied to real estate, this is a broad concept that can include any feature that is attractive to a project’s chosen market and thus adds value to the land.

Many amenities are integral to a site, such as a splendid view, convenient access, or even the climate and local culture. In an urban environment like Bangkok or other major cities in South East Asia, or a seaside resort environment, natural amenities are often recognized as the key drivers of both commercial and residential real estate development. However, integral amenities can also be those that are man-made.

As developers, when we consider man-made amenities, we usually mean a recreational, hospitality, leisure, or social facility that is developed as part of the core project such as a tennis court, fitness facility, restaurant, lounge, full facility private athletic club, or a golf course or marina. The basic assumption is that man-made amenities complement the core real estate project. Nearly any type of commercial or residential property development can utilize amenities to maximize the attractiveness of the project to its target market. However, there are potential pitfalls along the way.

Why Add Amenities to A Project?

The primary reasons developers add recreational amenities to their projects is to 1) add value to improved land or real estate projects, or 2) gain marketing leverage for sales. Most certainly a well-planned amenity package can establish a project’s credibility, market attractiveness, and brand image. In some larger developments, recreational amenities are included with a view toward being profitable entities on their own. In larger projects, amenities can be large enough to become the social focus of a community and serve a noble purpose well beyond adding value to the building or land and selling units faster.

Risk

Developing with large scale major recreational amenities can carry risks. Most obvious is that the project’s amenity strategy might not work. If it does not attract a market and generate sales, the higher carrying cost and debt, accentuated by lower than expected revenues, could cripple the entire project. A poorly planned amenity package can also tie up a developer with high maintenance and operating cost. Many developers allow pride to get in the way of realizing that they are not in the business of managing the operational complexities of large recreational or hospitality amenities.

Golf courses, sports clubs, and marinas are classic examples of this. Land development and amenity management are not necessarily compatible or complementary fields.

Conflict

For developers, having an “amenity strategy” means 1) having a clear understanding of the market, 2) a recognition of the reality of the core project’s life cycle, and 3) an early plan for the eventual transfer of the operational management and/or equity control of the amenity. The two basic purposes of recreational amenities ie. increase land value, and adding marketing leverage reflects the interest of the purchaser/user on one hand and the interest of the developer on the other. Developers may choose some facilities for their marketing value and others because they will be heavily used.

For example, clubhouses and restaurants add value, while children’s playgrounds and tennis courts have user appeal. This divergence between marketing orientation and user orientation has long term implications. Sometimes the developer’s chosen amenity, geared to sell real estate, will be expensive to maintain and also under-utilized, while facilities with extensive user appeal may never get built. The natural combination of recreational and social amenities usually found at country clubs that appeal to families is never built as promised in the marketing literature. By the time a critical mass of users is available, the developer is gone or disinterested.

By George Foose

In Part II we will look at Project Phasing, Project Quality, Project Disclosure, Project Myths, and Project Disposition Plans.