The Return on Investment Model: Bridging the Divide between Municipalities and Developers 

By Stephen Ostrander 
10.3.08

Here at CMAP, we like to keep an eye out for innovative approaches to our work. As I’ve touched upon in past blog entries, the goal should not be innovation for the sake of innovation, but fundamentally transforming what can be accomplished. This can include enhancing understanding of the problem (which often begins with simply being able to see the problem), facilitating communication about the problem, and reducing the time necessary to resolve the problem.

Earlier this week, a few of us began training on a new piece of planning software CMAP is acquiring from Fregonese Associates, an urban & regional planning firm in Portland, Oregon. Called the Return on Investment (ROI) Model, the tool is designed to help municipalities understand the numbers behind the development process, and is based on the same tools that investors and developers use to evaluate a development’s feasibility. Municipalities across the country commonly use the ROI Model to determine whether their existing land use regulations allow development in which the returns outweigh the associated costs and risks for the developer, helping to identify which regulations need to be modified to achieve the type of development desired by the municipality. ROI can also aid municipal staff in their evaluation of proposed developments currently under review.

If a primary goal of innovation should be the transformation of what can be accomplished, the ROI Model appears to have a lot to offer. It can enhance a municipality’s understanding of a problem—in this case, how to achieve the type of development it desires. It’s possible that all that might be required is a tweak, so small that it could get lost—or be almost invisible—within layers of development regulations, which may have been “on the books” for some time.

Additionally, by getting a sense of the numbers involved, municipal staff may gain new understanding—and appreciation of—real challenges and valid concerns inherent to the work of developers. Of course, the ROI model is a two-way street, offering municipalities a view into what can seem like the “black box” of development finance, potentially enabling them to negotiate with more confidence. Either way, this is likely to aid communication about the problem, finding the “sweet spot” in which development possessing the characteristics wanted—and, in many cases, needed—by a municipality is feasible (or, put another way, profitable).

And last there’s the factor of time necessary to resolve the problem. With the model, any change results in an instant recalculation of profit and return on investment, but perhaps the greatest reduction in time is generated by the enhanced understanding gained by municipal staff. By efficiently exposing the key development regulations or financial considerations that can be targeted, and a great deal of back-and-forth can be avoided.

As I stated earlier, this is a new initiative. Here at CMAP, we are still in the process of both learning the more intricate details of the ROI Model, assessing opportunities for its practical use in the region’s municipalities, and working to identify potential improvements. Next month we expect to hold focus groups with municipal staff, who will help us “user test” this tool, along with developers; in addition, both groups will help us “ground truth” the transparent formulas that are the foundation of the ROI Model, fine-tuning them and other quantitative assumptions to be in-line with regional trends.

Once this groundwork is accomplished, we plan to offer the software free of charge to municipalities, along with the comprehensive training necessary for the ROI Model to become a valuable asset for your community.

For more information on how your community can benefit and get involved, please contact Stephen Ostrander at: sostrander[at]cmap.illinois.gov.