Members of ULI’s Urban Revitalization Council discuss ways to catalyze investment and development in the urban core, the demographic factors influencing the popularity of urban living, and how different sectors of the real estate market are faring in the urban core.
What are some best practices for attracting investment and supporting development in urban cores?
Libby Seifel: The key is to creatively leverage public assets and build on them, whether they are properties, streetscapes, or parcels that might be developable. Leverage existing areas of activity as core anchors and build out from there. Bryant Park in New York City is an example. There was a great public asset that had deteriorated. A combination of public and private resources re-created it as a wonderful place to hang out and have events. Once you build on these core anchors, connect them with improved streetscapes. In San Francisco, there has been a big concentration both on the grassroots level and the city-directed level to repurpose and revitalize the streets, as well as public plazas and public parks. Some of them are just pocket parks—reclaimed streets with landscaping or outdoor café seating areas—linked to an event space or a major public park.
James Moore: With city centers, the challenge is to integrate uses. Particularly if you’re targeting residents who may have grown up in a single-family house in the suburbs, now they’re living for the first time in a 200-unit residence above retail and a busy city street. Cities can address this by creating a fine-grained form of zoning. Twenty years ago, a lot of cities might not have even had a mixed-use zoning category. Now they are recognizing that if you want walkability, you need mixed use. But it has to be fine-tuned. Some areas might have loud uses that go until two o’clock in the morning, but other areas should have quieter uses. Some cities are moving toward form-based codes, which offer a phenomenal opportunity. They put an emphasis on the way that uses will fit together—how the buildings will meet the street, what kind of uses can be at the base, and which kinds of uses should be above.
Charles Werhane: To build affordable housing in urban cores, Enterprise sees a potential future pool of capital in impact investors—groups that are interested in investments that don’t just have a financial return, but also a social return. In the past, a lot of that money has gone to medical aid and environmental projects, particularly international, but we are beginning to see funds that bring that money into redeveloping urban areas in [the United States]. Another technique we’ve used is layered funds. In some cities, the financial risk associated with developing affordable housing is significant, so we’ll put together funds to acquire and refurbish several types of properties—primarily multifamily residential. Some of the risk is taken by public money, the next layer of risk is taken care of by foundations, and the banks take the lowest-risk piece. The banks can then offer a favorable rate. We’ve also had a lot of success with transit-oriented development funds, where cities use philanthropic money to acquire sites around transit-oriented development areas. That way they can maintain control over the sites for affordable housing later on as transit gets built.
Janet Protas: It really comes down to innovative ways to get funding and to build public/private partnerships. There are a number of models. A lot of work has been done to revitalize Cincinnati’s central business district by the not-for-profit Cincinnati Center City Development Corporation, which has developed an innovative way to raise money from private corporations. In San Diego, the Jacobs Center for Neighborhood Innovation, an operating foundation supported by the Jacobs Family Foundation, promotes inner-city development. It is developing 60 acres [24 ha] in San Diego and allowing stakeholders to buy shares of stock in the development. Fundrise is a development company in Washington, D.C., that uses crowd sourcing to raise funding for inner-city developments. That’s a new, cutting-edge approach; I hope it becomes a trend.
What demographic groups are drawn to urban cores?
Claudia Sieb: Smart developers have figured out that it’s really not so much demographics as it is the psychographics. It has very little to do with household income; it has to do with the way somebody wants to live. In many cities, people have a choice as to how much density they live in. Phoenix is a good example. I raised my kids in a cul-de-sac in Phoenix. Demographically, we had everything in common with our neighbors, but psychographically, we had nothing in common. We were there because we felt confident of the schools. Now we live in central Phoenix. On our street, there is every shape, age, color that you can think of, but there is a like-mindedness and a very strong sense of community. These are people who care about intimate spaces, who want to live in pedestrian-oriented communities, who want access to good, unique restaurants, art museums, the arts scene. It could be somebody who is 24 years old; it could be someone who is 74.
Moore: Well-educated millennials—between their early 20s and mid-30s, generally single—are looking for a place to live, work, and play. They want a 24-hour or at least 18-hour environment where they can walk places, ride their bikes, and go to a club or restaurant at two o’clock in the morning. At the other end of the spectrum, there are folks in their 50s and 60s, primarily empty nesters. They want many of the same things—access to cultural and civic activities. They like the fact that their office is now only five blocks away instead of ten miles away. They are fairly successful, at or near the peak of their careers, so they bring a lot of energy and money to city centers.
Seifel: There is a real desire on the part of young people to move to cities and be in a dynamic social environment. They are choosing where they want to live and then figuring out where they want to work. Here in San Francisco, this means many are making long commutes via bus and public transit out of the city. We have the Google bus, the Genentech bus, the Facebook bus. In several of the desirable neighborhoods, young people board one of these buses and take a one-hour commute to Silicon Valley. They are willing to forgo owning a car. In the Bay Area, we’re seeing a real price premium for transit-accessible real estate. The last mile from transit is critical: people want pedestrian- and bike-friendly paths between housing and the transit stop. Urban core areas that are able to achieve this will be extremely successful.
How are cities and developers appealing to these groups?
Moore: It requires creating stable, well-paying jobs and housing opportunities; developing strong cultural, civic, and social activities; and providing clubs, restaurants, bars. One of the most important things a city center can have is some form of reliable transit. Many of the nation’s central business districts evolved to have two blocks of parking for every block of development; they were playing by the suburban rules. But if you have a well-established transit system, as in Washington or New York, or a burgeoning transit system, such as in Phoenix, you can begin to address the development process differently. You can put uses closer together and reduce the demand for parking. There are developers in some of the best transit-served cities who are not including any parking in their projects, or very limited parking—maybe four-tenths of a space per unit. That’s a savings for the developer and it allows for more effective, compact, pedestrian-oriented development.
Sieb: When we work with our developer clients, we focus on the life residents are going to live rather than what they would like to buy. We focus more on the benefits rather than the features. The people drawn to urban cores find elegant use of space attractive. They also want practical innovations—something that will improve their life, like sustainable elements that lower costs and protect the environment, but that are also well crafted.
Protas: In Dallas, the demographic that’s drawn to the city center is a fairly upscale, young demographic, and they look for high-end finishes in amenity spaces and public gathering spots. The public spaces within the building are as important as the units themselves. They want to know that there is a lounge with high-speed wireless access; they want their own private coffee shop within the building. They value a pedestrian-oriented lifestyle and access to public gathering spots, such as parks and coffee shops in the neighborhood. They live their lives in public via social media, so the same thing is important in the physical world. This demographic is almost never willing to pay a premium for sustainable design, but they expect the buildings they live in to have it. It’s important, but not as important as how much the rent is.
How are different uses or building types faring in city centers at this stage in the economic recovery?
Protas: I’ve seen mixed signs of retail coming back, but it depends where you are. I have seen no signs of office coming back. Conventional office space is not doing well right now, but shared office space is—both formal shared business suites, like those offered by Regus, and more informal coworking spaces. That suggests a rise in smaller, more entrepreneurial companies and startups. And while shared office space doesn’t always happen in the inner city, it’s a great fit.
Werhane: Urban schools are getting a lot more attention than they used to. This year here in Maryland, the state general assembly authorized the issuance of $1 billion in bonds for Baltimore to refurbish 30 to 40 public schools and build an additional 15 schools. That’s the first time they’ve done that in the 20 years I’ve lived here. The head of the school system in Baltimore told the general assembly that to have world-class cities, we have to be able to educate our kids to compete in the world. We can’t do it with deteriorating equipment and school buildings built in the 1930s or ’40s.
Seifel: Multifamily rental housing is doing well virtually everywhere. Condominiums are starting to come back in a lot of the markets, and retail follows rooftops. But retail tenants in the urban core have to compete with malls as well as online retailers. The underwriting market is very concerned about long-term performance, so there’s a focus on credit tenants, which usually means big-box retail or chains that may not offer the dynamism needed in an urban core area. To compete, urban retail has to offer something new and unique, so it’s critical to find a creative mix of credit tenants and smaller tenants that are complementary. Food-related tenants are key because those are much more place based. In the Bay Area, offices and hotels are definitely having a comeback, too. While underwriters often focus on well-known hotel management brands and corporate tenants, cutting-edge retail, boutique hotels, and creative office uses are often the key to invigorating the urban core.
“The last mile from transit is critical: people want pedestrian- and bike-friendly paths between housing and the transit stop. Urban core areas that are able to achieve this will be extremely successful.”—Libby Seifel
What other trends are shaping development in the inner city?
Werhane: One negative trend is the continued shrinking of public resources, both federal and local. In a lot of cities, there are areas where the rent levels don’t justify the cost to develop, so a subsidy is necessary to help jump-start economic activity. The new markets tax credit, the low-income housing tax credit, community development block grants, HUD [U.S. Department of Housing and Urban Development] funds—all those pools of public money are under attack politically. Although we are developing as many new funding streams as we can through foundations and impact investors, we need to retain as much public subsidy as possible. If we believe that cities can be vibrant and that they are big economic engines for their states, and if we want people to live there, then we should support their development.
Sieb: The image of the city is changing, becoming more positive. And many of the qualities of urban living are very exportable. We are working on a project now in Mesa, [Arizona,] called Eastmark, developed by DMB Associates, and while it is not urban, the team is working hard to infuse it with many of the same benefits of urban living so that it’s not a bedroom community. Places like Mesa have a good jump start on urban-style developments, but even in second- and third-ring suburbs, developers are looking at why people love urban living and figuring out what qualities are exportable.