Speeches

"The Emergence of Neighborhood Business Districts"
Organization/Conference: LISC, Urban Forum II
Location: Philadelphia, Pennsylvania
Date: October 8, 2003

Thank you. I often say I have the best job in the world, and I really think that's true. Every year I get to go to a hundred or so towns and cities of every size – villages of 450 people in the middle of Kansas to New York, Chicago, Seattle, and every size in between. I work in small town downtowns, large city centers, and, increasingly, in neighborhood commercial districts of urban areas. And I have to tell you that last category – the areas most of you come from – has become my favorite.

Neighborhood commercial districts are difficult, gritty, cranky, often struggling, contentious, and, to put it kindly, challenging. But they are also often the hotbeds of business creativity, neighborhood activism, non-profit entreprenuerism, economic integration, and the locus of opportunity particularly for minority groups and new immigrants.

The title of these remarks is The Emergence of Neighborhood Business Districts and while there has been some work being done in some districts for years, only recently have neighborhood commercial areas drawn significant attention from policy makers, activists, and urban-orientated revitalization organizations. While I was writing the final draft of this presentation I was looking on my bookshelves and accidentally found a book entitled Neighborhoods and Urban Development written by Anthony Downs of the Brookings Institute. I believe Downs is one of the best thinkers about cities in the country. This book was published just over 20 years ago. But what is included about neighborhood businesses districts? Not a chapter, not a single reference in the index, not a footnote. The only mention of the commercial side of neighborhoods is a passing reference that the decay in shopping districts can exacerbate the decline in housing quality. And – in this one paragraph reference in a 189 page book – four alternatives are given: 1) reduce the square footage of commercial space; 2) turn properties into housing, storage, or manufacturing; 3) raze the structures for parking; or 4) create a boutique district. Well if Tony Downs didn’t get it, sure as hell the rest of us didn’t either. But that is changing today, and you are at the forefront of that change.

Some local activists have decried putting resources into downtown revitalization, but I would suggest that was a necessary prerequisite to getting attention devoted to neighborhood commercial districts. I firmly believe that until there is a healthy city core the odds against having a healthy city overall are overwhelming.

And while there are still some downtowns still struggling, and while downtown revitalization is a process that needs ongoing management, I believe most cities have reached the "tipping point" where the business and political community finally understands how important downtown is, and is committed to making sure downtown regains its important functions. This absolutely was not true fifteen years ago, or even ten, but it is today. Again, I firmly believe that transition was necessary for the importance of neighborhood business districts to be recognized. But now, but now, it's the neighborhhoods' turn; it's your turn.

Why has the neighborhood business district emerged? Several reasons, I think.

In some places it is the sheer embarrassment of public officials seeing areas of incredible decline within site of the chrome and glass towers of the downtown.

Sometimes local officials have acted because they were simply besieged by neighborhood activists saying, "We've waited long enough".

But I'd like to think that most mayors, council members, foundations, financial institutions, and others have begun to support neighborhood commercial revitalization because of the array of public policy priorities that are met by doing so.

Smart growth. Today there is no movement in America that commands greater support across political boundaries, regional boundaries, city/suburb/rural boundaries than does Smart Growth. Increase the tax base. Make pubic transportation viable. Stabilize neighborhoods. Maintain a natural incubator for small businesses. Provide an organized response to commercial gentrification. Create entry-level jobs. Put jobs where people are. Do the right thing.

But when people begin to think about neighborhood commercial districts the first thing that comes to mind – almost an idealized neighborhood commercial district – is the district that provides the basic goods and services for the neighborhood residents.

One of the best in the country is barely three blocks long and stretches along 17th Street from P Street to R Street in Northwest Washington, DC. This commercial area is well removed from the monumental Washington frequented by tourists. This is what most people think of when they imagine a neighborhood commercial district, and having lived for 10 years a half block from this commercial district I have to tell you it is pretty great.

Why has this district survived and prospered over several decades when others have not? There seem to be a handful of critical variables that have led to this success.

First, there is an underlying requirement for this type of district to prosper – the "D" word – density. Within a three-block walk of the district live just over 5,000 people, a number that stayed constant during the decade of the 90s. Within this neighborhood are a variety of housing options – apartments, condominiums, owner occupied rowhouses, English basement rentals, and a few single family detached houses, but the fact is that it is densely populated. This kind of "walk to, and have all the basic convenience goods and services" neighborhood can almost never be supported in a neighborhood made up of all single-family detached dwellings, at least not unless it becomes a "drive to" rather than "walk to" neighborhood.

Second, there is income diversity – the surrounding residential neighborhood is economically integrated. There are certainly home high-income households, but also large numbers of households with more modest incomes, reflected in the fact that 2/3s of the housing units are renter occupied. This allows for sufficient dollar volume for profitable businesses but tends to preclude an evolution to only upper-end boutiques.

Third, and among the most important variables, is that the commercial corridor is within a local historic district. Certainly this assures the preservation of the best of the historic structures – the traditional goal of local historic districts. But there are three other benefits as well: 1) because “tear downs” are largely prohibited, an inventory of affordable space of appropriate size for smaller, independently owned businesses is maintained, as is a wide range of rental rates; 2) when new buildings are built, the oversight of the preservation commission means the infill is appropriate to the neighborhood in quality, scale, materials, and siting; and 3) pedestrian orientation is maintained. One consequence of the economic health of the business district and the existence of the historic district is that there is not a single surface parking lot within walking distance. Regardless of the tedious claims of developers, property owners, merchants, and city planners that businesses cannot survive without acres of parking, 17th Street is ample evidence to the contrary.

Fourth, there is both a well-organized merchants association and a residentially based citizen association that advocate for the neighborhood at city hall.

The fifth critical variable is the close proximity of the neighborhood to public transportation – a four-block walk from Washington’s excellent Metro system.

Sixth, the business district serves two different although overlapping customer groups. During the day the proximate residential neighborhood is able to purchase most of its basic goods and services in the district: groceries, drug store products, and dry-cleaning for example. In the evening the neighborhood’s dozen or so restaurants, bars and clubs draw on a regional market far beyond the immediate neighborhood. Thus 17th Street truly is an 18-hour a day business district.

Finally, as there are a diversity of customers and rent levels in the district, so is there a diversity of business types: national chains (CVS, Safeway, McDonalds) and locally owned “mom and pop” operations; convenience goods and services (branch bank, hardware store, liquor store, shoe repair shop) and food and beverage operations. As an aside the Safeway is known locally as the “Soviet Safeway” because of it’s diminimus range of choices, but just the same, having a supermarket in the neighborhood is a major asset.

Were any one of these variable missing would 17th Street still be economically vibrant? Perhaps. But the combination of a diverse residential population in close proximity, the protections and added quality provided by the local historic district, strong and vocal advocates, pedestrian orientation, proximity to public transportation, two discrete markets upon which to draw, and business and rental rate diversity makes this one of the premier neighborhood commercial districts in America. And Rodeo Drive it ain’t.

But we have fallen in the trap of envisioning every neighborhood business district to be like 17th Street – providing the basic goods and services to nearby residents. And that’s a great model, no doubt. But I would also suggest to you that it is far from the only model of a vibrant neighborhood commercial district. Here are some others that have occurred to me, and you can probably add to the list from your own experience.

The specialty shops district, like Manayunk here in Philadelphia or Union Street in San Francisco.

The entertainment district like South Street in Philadelphia (where most of you probably partied at last night) or 6th Street in Austin.

The monocultural ethnic district like Japantown in San Jose or the Asian Cultural Center in San Gabriel, or Chinatowns everywhere.

The multicultural ethnic district like Adams Morgan in Washington or Dudley Square in Boston. Lots of times first impressions can be deceiving in this regard. If one were to only drive through Dudley Square one would probably say, “Well, here’s one more African-American business district.” But that would be wrong. When you walk rather than drive, and go in rather than go past, you find that the shopkeepers and the customers in Dudley Square certainly include African-Americans, but also 1st generation Africans with a distinct culture, Asians – and not just Koreans, and entrepreneurs from a variety of Caribbean countries. To drive by and make one assumption because you saw black faces on the street would deprive you of experiencing the extraordinary multicultural environment at Dudley Square.

There are product cluster districts like East Carson Street on the Southside of Pittsburgh or the antiques district in Hutchinson, Kansas.

There are wonderful student districts that many of you know in Providence and at Harvard Square.

There are what I call “2nd Downtown” districts like 125th Street in Harlem and Georgetown in Washington. Now this may well be the first time Harlem and Georgetown have shown up in the same sentence, but I hope it’s not the last.

There are the cutting edge districts, like U Street in Washington. I don’t think a place with sign written on butcher paper with the name of “Club Hell” is probably targeting 55-year old white heterosexual males like me as their primary audience, but then I’m long past my “cutting edge” stage.

There are alternative lifestyle districts like the Castro in San Francisco.

There are arts districts like Lincoln Road in Miami Beach.

There are the “Abutting Downtown Districts” like Farlie-Poplar in Atlanta or On Broadway in Green Bay.

There are industrial recapture districts like The Flats in Cleveland or LoDo in Denver.

There are market districts in Washington, Minneapolis, Detroit and elsewhere.

Now clearly many of these typologies overlap, and a given neighborhood may have characteristics of two or three of them. So why do we care which of these districts types most closely defines the neighborhood we are working in?

Because there will be decidedly different needs depending on what kind of district it is.

Parking is a great example. In a business district serving primarily nearby residents, the need for parking lots will be minimal. For a business district serving a regional arts market, for example, parking may well be a major concern.

But it’s not just parking. Hours, what kinds of businesses, the demographic and economic characteristics of the area of attraction, potential conflicts with nearby residents, public safety requirements, marketing strategies, capital requirements, the intensity of required management assistance are all elements that will have slightly different appropriate responses depending on what kind of neighborhood business district we’re working with. They are not, thank god, all alike.

But whichever type of neighborhood business district we are working with, the purpose is the same – to increase value. And this should be value on multiple levels. That certainly includes increasing the value of the buildings, the value of the businesses, the value of the district as a tax generator for the city. But it should equally include the value of the district to customers, the value as a place to foster new and creative businesses, the value as a defining and differentiating sense of place, the value as a public gathering spot.

There are great success stories, but, as you know better than I, most neighborhood commercial districts haven’t reached the level of 17th Street in Washington. In many cases the effort to revitalize urban commercial districts is more difficult than anticipated. Why is it so hard? There are seven particular challenges: the players, the (un)usual suspects, transition, leadership, NIMBYism, the rent dilemma, and the “they’re so poor” myth. I’ll describe each of them very briefly.

The players. Most neighborhood activists, government funding sources and national institutions have been more concerned with housing than neighborhood commercial districts.

The (un)usual suspects. While real estate developers are often painted as the neighborhood “villains”, in fact three other types of institutions are frequently driving the bulldozer that destroys the neighborhood: hospitals, universities and churches. There are wonderful exceptions, of course, where those institutions are the foundation of neighborhood revitalization – both commercial and residential. But the unfortunate fact is that far more often those “beneficent” institutions decimate neighborhoods. The reason? Parking for pastors, proctologists and professors.

Always in transition. Although neighborhoods can appear from the outside static if not stagnant, that is rarely the case. Neighborhoods are in a constant state of transition: economic transition in both directions; ethnic and demographic transition; transition of the residential base; and frequently functional transition.

Leadership. In downtowns there are usually opportunities to learn and exercise leadership – the chamber of commerce or the Rotary club or the merchants association. Often those venues do not exist on the neighborhood level. Not only is there limited experience with exercising leadership, there is often a long-standing antagonism between businesses in the commercial district and the residential base.

NIMBYism. The “Not In My Back Yard” syndrome is often particularly heated at the neighborhood level resulting in vocal opposition to any change whatsoever.

The Rent Dilemma. Ideally commercial buildings are well maintained, and infill construction is of high quality. Realistically, however, there is a chain of relationships between sales volume and rent and between rent and warranted construction expenditures. Very frequently the sales volume in neighborhood commercial districts is simply insufficient to justify the level of investment that results in high quality, well maintained buildings.

Let me walk through with you, in admittedly oversimplified terms, this rent dilemma. Let us assume that someone will give us a parcel of land, and that we can build a building, worthy of the neighborhood, for $100 per square foot. Most places could not do that, by the way, but it’s a nice even number to work with.

If we are to justify spending a hundred dollars a foot for a building we need to generate somewhere between $14 and $20 per square foot per year in rents. At $14 a square foot in rents the typical business would have to generate between $175 and $250 per square foot in sales over the course of a year. If the rent were $20, the sales would need to be between $250 and $400 per square foot. Needless to say, the vast majority of businesses in the vast majority of your business districts aren’t anywhere close to that level.

So let’s turn it around. If your local widget shop sells $150 per square foot per year (and that would be one of your thriving businesses) that volume warrants somewhere between $8 and $12 in annual rents. At $8 a real estate investment of between $40 and $56 a foot can be justified. If the rents are at the upper end of the range, one might rationally spend as much as $84 per foot. And, by the way, if we can’t get someone to give us the land for free, the amount available to be spent on the building is reduced even further. What can you build today for $60 or $70 or $80 a foot? Either nothing or complete crap.

So how do we respond to the rent dilemma?

Well, we can try to secure public incentives – intervention in the real estate market. But keep in mind, the lower the rent, the higher the incentive has to be.

Most of you work for non-profit entities, and of course on response is to have non-profit entities do the development. Well, that’s a great idea and I’m a big proponent of that, but the reality is that the “profit” component is a relatively small percentage of what the rent has to pay for, maybe you can reduce the needed rent from $14 a foot to $12.50.

We could build really crappy buildings. And I could certainly cite numerous examples of that.

Or, Or we could do what we ought to do anyway – reuse existing buildings.

The last on my “why it’s so hard” list is the “They’re poor so they ain’t got no money” myth. Many commercial enterprises – particularly national chains – simply do not consider locating in urban commercial neighborhoods based on internal corporate “rules of thumb” for location decisions. A neighborhood composed of households of very modest incomes is written off for a perceived lack of economic opportunity. This decision is often erroneous on two counts: 1) “low income” households spend considerably more than the “household income” figures would indicate. The household with an income of less than $5000 per year spends in excess of $11,000. Transfer payments, gifts, purchasing on credit, withdrawal of savings and other sources of funds make of the difference. 2) While the typical household income may be modest, the magnitude of total buying power may well be equivalent to a suburban store location because the density of population is considerably greater. Some national chains have recognized these two factors; most have not.

So what can we do? I’m really a list maker by profession, so I’m going to give you a quick, 22-item list of mostly cheap ways to assist neighborhood commercial districts.

First, do the basics. That means doing the things that local government is already supposed to do: provide public safety, maintain public space, sweep the streets, and don’t tolerate drug dealing and prostitution.

Second, review what is on the books already that is keeping you from doing what you want to do and then change it. That means zoning ordinances, building codes, regulatory processes, parking requirements, and capital improvement budgets.

Third, a simple one – strongly discourage metal security gates – they are much more effective at scaring off customers than they are at reducing crime.

Fourth, the city should put public services in neighborhoods and pay rent.

Fifth, again relatively cheap but very, very important – remove graffiti.

Now I’m not a fan of graffiti but I have to admit to loving this one – referring to a developer moving into this neighborhood – “He responded in a flash with a lack of aesthetics”.

Next, do not, do not allow a suburban building typology to diminish the urban character of your neighborhood.

Chains are not necessarily a bad thing in neighborhood business districts, but they should always be built to a pedestrian not an automobile orientation.

Number eight on my list is to create design guidelines appropriate to each local district and, importantly, provide design assistance. Most building owners would prefer to follow Spike Lee’s directive and “do the right thing”, but they often need assistance in figuring out from a design standpoint what the “right thing” is.

I mentioned earlier that there is not one type of neighborhood business district but many, and each should be encouraged to build on and celebrate its own character.

Tenth, broaden the definition of historic preservation. Remember that ad campaign a few years ago, “It’s not your father’s Oldsmobile”? Well historic preservation today is not your blue haired grandmother’s historic preservation. Create local historic districts or, if more appropriate, conservation districts.

Make sure public improvements are appropriate to the scale and character of the neighborhood. I don’t think this business district necessarily was crying out for a plaza filled with, I don’t know what the hell they are, concrete mushrooms?

Twelfth, review what is on the city’s books for development incentives and then customize them to meet the particular needs of neighborhoods.

Thirteen, push to re-open neighborhood institutions such as libraries and especially neighborhood schools.

Encourage high quality infill construction.

Forget the big fix, there ain’t one. Revitalization is trickle-up, not trickle-down. Encourage and assist little catalysts in the neighborhood.

Practice selective code enforcement. I’m unapologetic about that approach. Try to work with property owners cooperatively. But when they are intransigent and are having an adverse affect on those businesses and buildings around them, make their life miserable and get the building code enforcement people to help you.

Boston has done a remarkable job in this regard – recruit institutional partners for your neighborhood efforts.

Number 18, for those of you who are still trying to keep count, adopt locally appropriate sign ordinances as the stick and small grants as the carrot regarding signage. Signs don’t necessarily have to be visible by low flying aircraft.

It is not that no building should ever be torn down, but demolition should be the last resort, not the first choice strategy.

The city and your organizations should help the neighborhood – both residential and commercial – get organized and build partnerships. We know the phrase “public-private partnership” but the successful models are actually public-private-non-profit partnerships and they are critical to success.

Now I am not so naïve as it believe this is always possible, but when you can make sure that the revitalization process is depoliticized.

Provide technical assistance on a number of levels including: understanding the local market, parking, financial analysis, dealing with white elephant buildings, merchandising, business planning, personnel training, and a myriad of others.

I said at the beginning of these remarks that neighborhood commercial districts are difficult, gritty, cranky, often struggling, contentious, and, challenging. If you want to be in the economic development that is predictable and formulaic go recruit Super 8 Motels to interstate exit ramps. If you want to be in the economic development that gets governors at ribbon cuttings, if you want to give away free land, buildings, and tax incentives to manufacturers go be the executive director of the industrial park. But if you want to be where the action is stay right where you are in neighborhood commercial districts.

Your job is difficult, stressful, with long hours, and relatively meager pay. You’ve got 5,000 different constituents with at least 15,000 different opinions on everything from the war in Iraq to the color of the new park benches. And every one of them thinks you ought to have the answer to every issue – and, by the way, your answer should be the same as their answer.

You know the typical rewards sought in an occupation are some combination of money, power, and fame. Most of you have none of those. What you do have, however, is a calling where your efforts affect peoples’ lives everyday, where what you do really matters, and often matters to those who need it most.

If cities are going to prosper in the future – prosper economically, culturally, socially, and educationally – that prosperity is going to emerge from the neighborhoods. And you are the ones who are making that happen. Thank you on behalf of your city, and thank you for allowing me to be here today. Thank you very much.

© Donovan D. Rypkema
PlaceEconomics
1785 Massachusetts Avenue, NW
Washington, DC 20036
202-588-6258
DRypkema@PlaceEconomics.com