A view on the dynamics of downtown development

Submitted by Ed Morrison on Fri, 07/20/2007 - 11:25.

From a thread over at BFD:

Serious question for you, Ed: Why, in your opinion, does Cleveland not follow a similar process? I mean the MM/CC, but I also mean Gateway, Rock Hall, Euclid Corridor, Browns Stadium, you know the drill. Why are other cities able to follow a rational planning process while Cleveland lurches from one half-baked scheme to the next? xpMark: You ask a very interesting question. Here's some background on my perspective. Successful downtown development requires two types of strategies. One strategy is led by the public sector. These publicly-led initiatives involve heavy investments in infrastructure. They often include investments in anchor projects like convention centers, stadiums, libraries, and museums.

Standing alone these publicly-led investments do not generate much economic development. You need a complimentary set of strategies led by the private sector. These privately-led strategies focus on residential, commercial and mixed used development. So, for example, this story of downtown Indianapolis, an unqualified success, comes from the integration of these two types of strategies. We followed this model in Oklahoma City starting in 1994, and we have produced dramatic results. (Working with the chamber, I was responsible for designing the privately-led set of strategies.)

In Cleveland, starting in the 1980s, the public sector led off the revitalization of the city with dramatic investments in Gateway and the lakefront. These investments set the stage for the privately-led development. Yet, this development never followed. So, for example, the private sector to ten years to establish a business improvement district downtown. This common sense tool should have been created at the time Gateway opened. By the early 1990's, the pipeline of public projects began drying up. Without private developments to build off these public investments, the downtown district lost momentum, slowly at first, but now at a more noticeable rate.

We can see the problems with privately-led development in Cleveland with Tower City. Here's a downtown shopping mall with no anchors, no street visibility, and very poor parking amenities. It is a poorly executed private development. Tower City has largely failed.

Contrast the Simon development, in Indianapolis (where Simon is located). They also build the downtown shopping center, Circle Centre. Once complete, the real estate community focused on building downtown residential to increase the stability of the downtown market. Forest City never took this common sense step in Cleveland. (Indeed, Forest City property that could be used for residential development lies undeveloped.)

Over the past five years, we've seen in number of efforts to try to correct for the failings of Tower City. The ill-conceived casino project, most notably, was designed to to pump new life into the development.

I have no idea why Forest City never followed the Simon model from Indianapolis. At the same time, other elements of the real estate community in Cleveland have developed outlying shopping malls that have further undercut the competitive position of downtown.

In my view, the Medical Mart and convention center proposals are largely designed to rescue Tower City. Recall the work done the during the Campbell administration to outline a site for convention center. The process collapsed when Forest City, late in the game, insisted on the convention center being located near Tower City.

The Medical Mart and convention center project follows the logic of an inside game of politics. The indicators are clear. We are only talking about convention Center located near Tower City. (According to the planning people I've spoken with, the Tower City site has serious logistics limitations.) The GCP has announced its support the project without a business plan in place. We are rushing to discuss public financing options before we understand the scope of the project. Outwardly, the process is haphazard and breathless. (We even have the head of the chamber called in as "the Fixer", even though this term connotes -- in the economic development world at least -- political corruption.)

At this stage in history of downtown redevelopment Cleveland, it is important to get this issue behind us. The convention center has dominated the downtown development scene for over a decade.

Despite the fact that the public has pumped in somewhere between 500 million dollars and a billion dollars into downtown development, we still need to figure out a way to rescue Tower City. Tower City has become the project that ate downtown Cleveland. That's why, in my view, we have not followed -- and cannot follow -- a sensible civic process with the convention center. If we did, the convention center would, in all probability, end up somewhere else, further frustrating Forest City's efforts to resuscitate Tower City.

Clearly, Forest City needs help. The County Commission is stepping forward to provide that support. Successful or not, the convention center and Medical Mart will not transform downtown Cleveland. It will not produce much in the way of an increase in per capita incomes. We still need a sensible privately-led strategy in place...

We will not get this strategy until the GCP (or some other business led group...a new chamber or chamber alliance?) becomes more reflective of a broader business agenda that emphasizes education and innovation. Real estate development is not the same as economic development, and the GCP, in my view, has become captive to Forest City's Tower City agenda. Downtown Cleveland is important; but other issues -- like education and workforce development -- are falling off the table. (Example, I recently concluded a strategy process with our local workforce board and GCP representatives never attended a meeting. GCP representatives also did not contribute much to the formation of the County's new Innovation Zones strategy.)

As the Federal Reserve has consistently pointed out, regional economic development is tied most directly to education and innovation.

The future Cleveland will emerge from a strategy that links Cleveland State and Tri-C with the campuses of the Cleveland clinic and University Hospital. That's why I designed the Innovation Zones initiative for the County..to give the County the tools needed to implement this type of strategy.

In my view, until we solve the Tower City problem, our business leadership will not begin thinking at this scale, and we will not begin to implement more intelligent and transparent civic processes. (Joe Marinucci, a nationally regarded economic development professional for whom I have deep respect, emphasized the importance of thinking at a larger scale, I believe, in the Cool Cleveland forum.)

Meanwhile, the other cities in our region are moving ahead with smarter, leaner, more agile strategies. Look at Youngstown and Akron, if you want some lessons.

That's my take on what's happening.

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Development in Cleveland

“We can see the problems with privately-led development in Cleveland with Tower City. Here's a downtown shopping mall with no anchors, no street visibility, and very poor parking amenities. It is a poorly executed private development. Tower City has largely failed.”
 
Tower city was conceived with a Higbees department store and also a Neiman Marcus, and also to be the site of the Rock Hall.   The later two changed that, Pei wanted the lake front site and Neiman Marcus pulled out with that.  Then Beachwood Mall expanded, that was it deathblow. 
 
“In my view, the Medical Mart and convention center proposals are largely designed to rescue Tower City. Recall the work done the during the Campbell administration to outline a site for convention center. The process collapsed when Forest City, late in the game, insisted on the convention center being located near Tower City.”
 
True it needs traffic, and you are correct it needs logistical consideration.  It could create a bottleneck; locals should be or would need to take the RTA in to events.  Plus how do tractor-trailers get access?    The site requires much consideration and it is safe to say a challenging location.  
 
Focus…Harvard College of business teach that short term gains, equate to long-term profits.  Something to improve per capita income, add people that have higher incomes.  The CBD needs polishing off, it core elements are Office Space, Retail, Residential and Parking.  These are all for the most part private, other elements are tourist attractions even a convention center is tourism.  This feed other elements hotels, restaurants, theaters, and museums.  You also have government, which should occupy smaller spaces and have small footprints; they are office space, but not revenue generators. 
 
The key is government working on the core elements, which it never truly does.  Increase residential, reduce office vacancies and insure plenty of parking. 
 
Do not be offended by the simplicity of it, the best things are simple and addressing them pragmatically helps.  No sense in analyzing how we got here better to look at what we have and refine it. 
 
Converting older building to residential, it requires capital and then recovery of the capital. If it is not happening, it could be economic!  It may cost more than it can retrieve; private developers do not or are not not-for–profit.   
 
I like to talk or communicate in specifics; the county is being forced to examine a model that being a redevelopment project.  They are being forced to redevelop part of the office glut.  Take some time to consider this; 100,000 sq ft of 1,000,000 is 10%, if all we have is a million sq ft of office space and it is 60% occupied, we have a glut and that glut is demonstrative of a poor market.  To eliminate 10% has the same affect as leasing it, to those that look at the economic indicators.  Some may say, the lay people that look we are now building a new office tower and that’s good.  But since the 80’s we kept adding to the glut, which is not good, its bad.  
 
If office space is eliminated or converted to housing, then you are generating another statistic, new housing starts, the more you have the better you look.  If the process is two-fold generating up ward trend in housing starts and a downward trend in office vacancy, that is a win win. 
 
As offices occupancy rates go up and residential starts go up, you have more demand for retail, you actually show up on the developer’s radar.  These higher numbers also create vibrancy in activity and then tourism is also empowered. 
 
The county has to look at 1010 Euclid and also 1030 the Truman building.  They are being forced to look at converting vacant office space, and to convert it to residential.   I see this as unique since it take government fund and invest them into something that has to recover the capital. 
 
My best advice is to cycle that 500M they are poised to spend, first through the CBD, then build the admiration building and convention center.   The market value in the CBD is low, if they spend al the funds on capital project, the administration building and convention center, then that will cause what can be called false value.  It is the same thing that these expensive home in the neighborhoods are doing.  The adjacent homes go up in value with out any actual physical improvement.  The 30k home that needs 60k in improvement becomes valued at 60K, then the opportunity to improve has less profit.  If the developer bought it first at 30k then built its project next, it would have been able to compound it profit.  It could have invested 60k and sold it for 110K!   The point is this; the county can as well as the city can develop these abandoned and under utilized buildings.  The value is low today and if they feel that building new project such as offices and conventions centers will increase the value good just make sure the building are not abandoned or half empty.  Increasing value makes them harder to develop.   If an owner of a abandoned property or an office building that is falling apart is ready to sell offer them a price that make it feasible to rehabilitate it.  If the price is to high or puts breaking even out of the realm of possibility, then eminent domain should be used.  If a property owner in the CBD is taking write off for loses then they should be targeted, that is another bad statistic.  That is an economic drain, profit is taxed, and losses are tax evasion.     
 
The city should get closer to hold the office space in the city; it should make clear to them the value of the agenda, they show the value of filling the spaces and look for creativity in them reducing prices and filling buildings.  Parking also needs to be addressed; they need to get the parking companies consolidated and accountable.  The city should have a logistical specialist overseeing the parking.  They should have total accountability of the spaces and traffic flows and have very good communication with the RTA.