Monday, April 22, 2013

Driving the Downtown Experience

Williams-Sonoma offers demonstrations
of its products. 
I found my inspiration today in a two-year old article in the NYTimes ["But Will It Make You Happy?" NYTimes, 8/7/10]. While the article may be a tad dated, the question posed, "how do people derive happiness?" is timeless. The answer to this question holds significant implications for how we design and manage downtown environments. According to the article, new research suggests that "people are happier when they spend money on experiences instead of material objects." Some of the more relevant findings include:

  • "Make consumers feel special by giving them access to exclusive events and more personal customer service"
  • "Spending money for an experience - concert tickets, French lessons, sushi-rolling classes, a hotel room in Monaco - produces longer-lasting satisfaction than spending money on plain old stuff."
  • Recently public research examining nine major categories of consumption discovered that "the only category to be positively related to happiness was leisure: vacations, entertainment, sports and equipment like golf clubs and fishing poles"

If that is really true, then how should retailers - and the downtown organizations that serve them - respond? 

The Beanrunner Cafe in Peekskill, NY has a
kids room. What a great amenity!
In my experience, retailers and downtowns that are doing well are not just managing the sale of products, they are also curating an experience with the product. Consider retailers offer classes on how to use the product (i.e. Williams Sonoma cooking classes, or wine tasting at the wine store, or jewelry making classes at Michael's crafts). Downtown organizations might consider encouraging retailers to create these kinds of offerings, and then include these on a downtown events calendar that gets distributed widely throughout the community. I am also intrigued by businesses that really know their customer and offer complimentary amenities - like the Beanrunner Coffee House in downtown Peekskill, NY. Upon entry, I was delighted to discover a small play space for kids. Too bad I live nearly an hour away, or I would be there every weekend with my 3-year old son! 

Another implication for the commercial district manager is the need to improve the overall experience of visiting downtown. If you manage a downtown with a great restaurant row, work hard to make the window browsing - even if stores are closed - interesting and inviting. Encourage retailers to improve their window displays and keep them lit in the evening. The experience of walking hand in hand during an after-dinner stroll down a lovely street can be the sweetest part of the evening - the memory of which causes people to return again and again. 

Simply put, make your district not just about what you buy, but what you experience. 

Friday, April 19, 2013

Gleaning Universal Lessons in Retail from New York's Meatpacking District

I often write about my colleagues and projects on the East Coast, but in every post I try to find lessons and strategies that are applicable to communities nationwide. Most people would agree - the Meatpacking District in New York City is a unique place. The area has changed drastically in the past decade. Today it is home to the High Line, a section of former elevated train tracks that have been redesigned as an aerial greenway - the first and so far only such park in the nation. This amazing amenity has spurred rapid community change. By 2009, more than 30 real estate projects were under construction nearby, and the local business district has turned into a high-end fashion mecca, with the like of DVF and Stella McCartney opening up shops. With asking rents from $200 to $500 a square foot, you might be wondering how the Meatpacking District might hold lessons for other communities. Believe it or not - there are a few universal lessons that offer insight for other communities.  

The use of a non-traditional, non-retail anchor to drive visitation to the district. In 2011, the High Line welcomed 3.7 million visitors. The spending power of those visitors is keenly visible in nearby streets and in businesses. Unlike a managed mall environment, where the retail anchor is the primary driver of visitation, urban communities have a myriad of ways to drive traffic. Whether it's a tremendous local park, or an activity packed library, these visitation drivers are the "new" downtown anchors. As you consider communicating new business opportunities to retailers, don't forget to map and quantify the visitors to these non-retail anchors. They can be as important, or more important, than any traditional retail anchor. 
    From today's NYTimes, a rending of the new
    Whitney Museum under the High Line. 
Continued efforts to improve tenant mix and co-locate anchors through new development. As if the High Line weren't enough, today's New York Times speaks to the coming of the Whitney Museum. As a broker said in the article “There are pockets of vacancies, which means the side streets aren’t doing as well as they could, so a project that will offer a variety of stores and will attract shoppers and increase foot traffic is just what is needed.” The project will offer a single retail tenant up to 16,000 sf of space - a unique offering in a district replete with smaller spaces in historic buildings. 

Efforts to reduce fractured ownership. According to Joe Sitt, chief executive of Thor Equities, which has been buying property in the area in an effort to become the largest landlord, “So far, ownership has been very fractured, so the development of the area hasn't really moved in unison. Our hope is that by assembling so many properties we can help guide the strategy.” The ability to control and manage tenant mix on a large scale is an extremely powerful tool. In part because a developer who controls a critical mass of property can curate tenant mix more appropriately. This also give them the flexibility to offer deals to unique tenants, for example, which creates demand and drives up sales per square foot for other tenants, thereby offsetting any loss incurred. People in the retail real estate industry know that different kinds of retailers have varied abilities to pay rent. A jewelry store, for instance, typically pays higher rent per square foot than a coffee shop. An electronics store typically pays higher rent per square foot than a furniture store...and on and on. So the ability to control a critical mass of retail space enables a developer to offer a more varied and interesting range of retail offerings that create a higher average rent per square foot, even if an individual store may be paying less. On the other hand, when ownership is fractured, every owner is playing to attract the highest paying tenant. The results of this zero sum game can be seen in commercial districts everywhere, from a plethora of banks on 125th Street in Harlem to the lack of any food or beverage offerings on 34th Street in Herald Square. Albeit not every community faces the intense demand seen in either of these districts, we can still surmise that the benefits of reducing fractured ownership are universal. 

Monday, April 15, 2013

Eleven Ingredients to Successful Catalytic Urban Real Estate Development

Rendering of the Shops and Lofts at 47
I have watched this project take shape for years, and so it was a real pleasure to see the groundbreaking for the Shops and Lofts at 47 finally take place. The project will feature 96 rental apartments, 14,000 sq. ft. of neighborhood retail and a 41,000 sq. ft. Walmart Neighborhood Market. And it is not an understatement to say that it was no easy feat to get this far. The fact that this project took seven years to get to groundbreaking speaks volumes, not only about the tenacity of all of the stakeholders, but also about the fragility of investment in challenging urban environments. From the local CDC's Executive Director to the developer - everyone committed above and beyond what would have been necessary for nearly any other regular deal. This project, the first the neighborhood has seen in 50 years, is now under construction and will ultimately transform a blighted corner of Chicago's historic Bronzeville community and contribute to commercial revitalization efforts. 

I am familiar with the project because in 2007 I was Director of LISC's national commercial technical assistance program. That year I went to the International Council of Shopping Center's (ICSC) Las Vegas Dealmaking for the first time to tag along as QCDC Executive Director Bernita Johnson-Gabriel and then Director of Programs at LISC Chicago, Joel Bookman, toured the floor and met with Frank Petroziello and Adam Troy of Mahogany Ventures, the project's developers. 

In the years following that introduction, I have kept in touch with Petroziello at ICSC events and marveled as he and his team, together with Johnson-Gabriel and the folks at LISC, kept the project alive. 

Lessons Learned
As an outside but interested observer who has watched this project slowly unfold, here is some insight on the critical ingredients that made this project work. 

  1. Expert guidance. Early on in the process, LISC funded development consultant Chinwe Onyeagoro to support Johnson-Gabriel in her first foray to ICSC. LISC and others credits this early investment in expert guidance as being one of the most critical early investments made in the project. 
  2. A committed development partner. Finding a partner was not easy. Johnson-Gabriel and Onyeagoro attended ICSC Dealmaking in Las Vegas in their early efforts to find a development partner. ICSC Dealmaking is not for the unprepared. Onyeagoro played a critical role in preparing Johnson-Gabriel to walk the floor. And while most developers shied away from the idea of developing in an untested market, one developer engaged in a conversation that eventually turned into a productive partnership. That was all they needed. 
  3. Develop and use neighborhood-based market data. Johnson-Gabriel and Onyeagoro went to ICSC armed with a market analysis by LISC’s MetroEdge research unit. The data showed that nearly half of Bronzeville residents had incomes above the city’s median, yet a majority shopped elsewhere for lack of decent local stores. This information didn't get everyone to reconsider, but it did help open the door to meetings and conversations. It was a good "ice-breaker" that helped set the tone of the conversation and establish Johnson-Gabriel and Onyeagoro's credibility.  
  4. Consistent leadership. I can't say this enough, staff turnover kills projects. In many communities, high turnover undermines consistent, productive steps in the right direction. When there is staff turnover, details need to be relearned, relationships need to be rebuilt, and many projects, particular those in challenging urban environments, can't withstand these interruptions. The fact that Johnson-Gabriel remained tenacious and focused was, I'm sure, a tremendous asset to this project. 
  5. Early "booster" shots. QCDC was one of LISC Chicago's New Communities Program participants (NCP). The NCP program provided seed grants and large scale program investments, and also included the critical early funding for market analysis, as well as things like "street to sidewalk" cleanup patrols and programs that brought art students to design street furniture and banners. These modest improvements were all part of what helped "set the stage" for a more 'retail-ready' community. 
  6. Don't get put off by "no". When Johnson-Gabriel attended ICSC for the first time, most developers weren't interested. Most made it clear that the challenge of urban real estate development was not worth the risk. But the team kept up with their meetings, eventually connecting with Ohio-based partnership called Mahogany Ventures. The rest, as they say, is history.
  7. Find an anchor tenant. In my conversations with the developer in 2009, it was clear that financing could not advance until an anchor tenant could be found. But courting an anchor tenant, particularly during the recession, took awhile. 
  8. Political will. Many retailers got cold feed during the recession, but when Mayor Rahm Emanuel vowed in his 2010 campaign to eliminate all the city’s food deserts, that helped open the door to discussions with Walmart Neighborhood Center and ultimately a signed lease commitment. 
  9. Make a plan, and then follow it. The geographic, laser-like focus on this intersection was no accident. Early on in the process, LISC funded community-led "Quality of Life" plans. In the case of Cottage Grove, the plan listed the 47th Street intersection as the prime opportunity site. Piecing together the parcels was no easy task, but the mission and vision to transform this intersection was clearly delineated in the community plan, which in turn helped reinforce the decision to deploy the staff resources necessary to keep the project going.
  10. Cultivate city partnerships. The project could not have proceeded without a city land acquisition at 47th and Cottage. The City eventually bought 23 vacant lots to create the assemblage.
  11. Stay creative. While finding an anchor tenant was critical to securing financing, the fact that the Chicago Housing Authority agreed to lease long-term 28 of the apartments was yet another factor in making the project a reality. 
Catalytic real estate development in challenging urban communities is the hardest kind to get off the ground. With no other comparable projects, developers are often extremely reluctant to take these kinds of projects on. That's because they are keenly aware of the fact that securing financing will be challenging if not impossible. That is why partnerships are so critical, from community partners like QCDC, to non-profit funders, to City support, to developers with expertise and stick-to-itiveness, every partner is critical to the process of turning dreams in reality.  

Tuesday, April 9, 2013

Struggling to get retailers to pay attention? Consider producing an annual research report.

Most national retailers make decisions based on their own market research. And these days, market data is easy to come by - retailers and investors have market data at their disposal within minutes. Most begin by looking at traditional indicators such as number of people, number of households, median income and trade area. If your community is coming up short on any of those indicators, you have your work cut out for you.

But don’t despair, there are opportunities to influence retail site selection and control the narrative. Many retailers are interested in urban markets but don’t have enough information to make a compelling case. A 2008 study by the International Council of Shopping Centers and Social Compact found that retailers want, but struggle with finding information on daytime population, pedestrian traffic, consumer preferences, and neighborhood change as defined by anticipated development. In the absence of a dedicated downtown advocate, that case never gets made and investment gets made elsewhere. But fortunately, this is where a Business Improvement District (or Chamber, CDC, City, etc) can be particularly useful.

Increasingly, BIDs have begun to embrace their role as an information resource. Center City Philadelphia has a particularly robust reporting program. Their annual “State of Center City Report” even has its own webpage, and the report is positioned as a tool for investors with an emphasis on providing valuable – and hard(er) to obtain – information on employment trends (including employee wages and growth rates) and residential housing development.

Another good example is Downtown Portland’s “Business Census& Survey” , commissioned by Greater Portland’s Chamber of Commerce. This simplified version accomplishes a similar goal, sharing information about local employment trends and also incorporates findings from an annual survey of business owners and managers. What I particularly like is that the report functions in part as a report card, allowing downtown leaders to tweak public and private sector improvements on an annual basis. This level of transparency and accountability is a powerful response to many BID critics – it helps to keep everyone honest and ensures that BID assessments are having a positive impact.

These reports also position the downtown organization or chamber not as a competitor to the private sector, but rather as a valuable resource to property owners. Having information that people want helps open doors and builds relationships and partnerships. So instead of brokers, for example, seeing you as competition (sadly, this is more common than you think) they will look to you as a valuable partner in their investment decisions – decisions that will ultimately direct and shape the future of your community.  

Thursday, April 4, 2013

Business Improvement District Helps Businesses Go Green

Would any of the businesses in your district elect to to participate in a rebate and incentive program that would lower their energy costs and pay for 70% of the cost of one-time improvements. Sounds like an incredible deal, right? How about if the cost savings could pay for themselves in less than a year? Anything after that is money in their pockets. You would think most companies would jump at the chance to put cash in their pocket in a fairly effortless and low-cost way. So why was the Con Edison power company in New York State struggling to get businesses to participate? Apparently cutting through the din of special offers and phone solicitations was (and remains) extremely difficult, especially when most business owners can smell a sale from a million miles away. There had to be a better way. 

The answer? Partner with the local Business Improvement District of course 
In New Rochelle, Con Ed found a partner in Ralph DiBart, Executive Director of the New Rochelle Business Improvement District. Ralph, a long-serving BID Director who had become a trusted partner and friend to local businesses. His participation was key to piercing through the clutter of sales pitches that so many of his business owners field on a daily basis. Having Ralph provide an introduction turned a cold call into something decidedly warmer. As one participant in the program said, "Given the BID’s track record of presenting downtown business with good programs I decided to go forward." 
Ralph DiBart, Executive Director of the
New Rochelle Business Improvement District

And the results speak for themselves. To date the program has resulted in nearly $100,000 in annual energy savings for participating local businesses. That is certainly not chump change. Not only that, but the ability to define the savings so tangibly helps reinforce the value of contributing to an effective Business Improvement District.

So how does the program work? 
The program created a partnership with Con Edison and NYSERDA and uses select contractors armed with rebates and incentives to encourage main street businesses to make energy efficiency upgrades.  

In an informative write-up, Dibart outlines the key elements that made the program a success: 

  • Start small and prove the value with respected local businesses – start by recruiting a handful of active business owners and use their results and experience as your “word of mouth” marketing.
  • Make it easy and manage the process for the business owner - usher the process through so that nothing gets complicated – from the energy evaluation, the installation, to the paperwork and follow-up.
  • Make it happen in person – A BID representative walks the energy assessment expert into each business with a personal, face-to-face introduction that makes all the difference.
Bryan Heaps, co-owner of Talner Jewelers in
New Rochelle, NY
Businesses are often surprised that energy savings don't have to come at the expense of ambiance  The days of ugly energy efficient lights are over. A local jewelry shop owner who had expressed concern that the lighting would affect the feel of the store, was pleasantly surprised when he saw the options. An added bonus was that the new lights threw off less heat, resulting in less need for air conditioning...and more savings! In the case of the jewelry store, the old bulbs created so much heat that the retailer had to run the AC twelve months a year, nine hours a day. The one-time improvements alone cut monthly costs for this retailer by $500 to $1000. Yes. That is monthly. 

These programs and incentives are not limited to New York - so run, don't walk to find out what your local electric company offers by way of energy efficiency incentives...and get moving to help your local businesses. This might just be one of the most tangible ways you can help their bottom line.  

For more information
For more profiles on participating businesses:
For more on the program and impact: