Donjek :: The Cents of Place Blog

@Strib: Reconnecting Minneapolis' Seven Corners and West Bank

Like many urban and rural places, Minneapolis and St. Paul each have plenty of underutilized land area. 

One of Minneapolis' most striking examples is the Washington Avenue "trench," a 1960s-era highway that today splits the Seven Corners area, the University of Minnesota's West Bank, and the Cedar-Riverside neighborhood. Current plans call for construction of light rail transit service through the middle of the trench, a station beneath the 19th Avenue bridge, and a pedestrian/transit mall on Washington Avenue just across the river. In tandem, these plans translate to an opportunity for fundamental rethinking of how the trench inhibits the health of the places around it. 

I have posted a piece about these issues at the Star Tribune (link to that post), and I have included here at the Cents of Place, additional images created by University of Minnesota graduate students of architecture working with adjunct professor Mic Johnson, also of Ellerbe Becket. My thanks to Mic for his permission to include these images.

Low Interest Rates, High Anxiety Borrowing

Money is cheap today. In a conversation yesterday with developers, low rates seemed to make it only more aggravating that lending remains a challenge to procure for new construction or rehabilitation. 

Measures to gauge risk as perceived by banks (such as the “TED spread,” shown, and swaps spread) suggest that lenders are currently charging interest rates much closer to the risk-free Treasury yield than they have since the spring of 2007. That ought to mean that lending is flowing more readily for projects with strong fundamentals. Still, looking at interest rate graphs ignores multiple issues that confound borrowers – namely, underwriting criteria put in place in crisis.

One developer described yesterday, difficulty finding a lender to underwrite a 70% pre-leased commercial development in a prime location – soon to be less than 200 feet from a new light rail station, in a growing metro area with a diverse economy. It could be that banks’ perception of risk as illustrated by interest rate spreads has changed – in which case underwriting criteria need to follow suit.

Quantifying Open Space Benefits: Donjek Presentation at MRPA Conference

Today, I am presenting to the annual conference of the Minnesota Recreation and Park Association on the costs and benefits of open space, with Jenna Fletcher, project coordinator of Embrace Open Space. View my part of the presentation here, and see Jenna's presentation here.

Intuitively, we all agree that parks, open spaces, greenways and natural areas have economic value. The real estate marketplace recognizes this: Studies consistently indicate that residential property owners pay up to a 30% premium to live within walking distance of a park. Similarly, access to bike and pedestrian infrastructure such as greenways also boosts property values.

Despite a surge in academic and practitioner analysis of open space premiums, many policy makers continue to view parks as cost centers, as opposed to stable assets that consistently support social and economic activity, as well as tax base, located nearby.

The case for identifying the benefits of open space more effectively is important. In addition to its relationship to residential and commercial property values, local policy stands to be improved by better information about the economic value of the physical activity, non-motor transportation, stormwater management and other benefits.

We have the tools in the form of property data sets and GIS analytics. We have the need to respond to overwhelming budget pressure. And we need urban design that helps rather than hinders our efforts to reduce greenhouse gas emissions. Each of these factors call for a change in the way we understand, talk and make decisions about the role of open space in our cities and towns.

Mall Reuse: An Opportunity for More Durable Places

Earlier this month, Presidential economic advisor Larry Summers presented remarks that speak directly to an important issue for placemakers: The future of the American mall. Summers:

The rebuilt American economy must be more export-oriented and less consumption-oriented, more environmentally-oriented and less fossil-energy-oriented, more bio- and software-engineering-oriented and less financial-engineering-oriented, more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population.

The retail marketplace is in transformation. The U.S. now has 45,000 shopping centers, only 1,200 of which reflect the typical mall design – large, enclosed spaces with anchor and secondary  tenants, surrounded by large tracts of car parking capacity. Since 2006, only one of these has opened, an estimated 300 have been converted or repurposed, and hundreds more have closed. Relatively flat earnings growth, a rapid jump in the personal savings rate, and a drop in total retail that appears very likely to exceed 10% this year all suggest the market will soon have other plans for many enclosed malls.

Federal and state policies that increasingly require recognition of environmental costs such as stormwater runoff from large parking lots, as well as growing volatility in fuel costs, will put further pressure on this building form. The results touched on in a recent article in Planning magazine suggest some modest mixed-use alternatives. I agree that a mix of uses probably makes sense for many of these parcels, and recommend redividing the land and adopting zoning to allow a more diverse mix of ongoing, distinctly owned uses. This allows the marketplace to move incrementally and be flexible, not inertia-bound like many of the malls have become.

This is a topic in lively discussions across the country. I identified 340,000 hits when searching for “mall reuse” on Google. Here are a few samples:

• An interview with “Retrofitting Suburbia” author Helen Dunham-Jones.
• A visual tour of big box store reuse scenarios.
• This blog post from the Architect's Newspaper, suggesting that New York City malls are poised to enter a new chapter.
• An article from the Columbus Dispatch, describing an ambitious plan to retool City Center in Columbus, Ohio with a supersize mixed-use plan around open space.

The enclosed mall is a fitting symbol of the shift Summers identified. As the U.S. economy begins to recover from the current recession, it remains to be seen how these large parcels of prime land will be designed and used. Regardless of whether now or in the not-too-distant future, most U.S. communities will be asking the same question.

What’s the next step for your area mall?

Transportation Stimulus Projects Should Reflect Modern Economy

A New York Times analysis of over 5,000 transportation-related stimulus projects released today indicates that less than half of the funds are slated for investment in metropolitan areas. The analysis suggests that these transportation investments have been selected based on formula as opposed to what the American economy of today looks like.

As I’ve recounted at the Cents of Place in the past, the nation’s 100 largest metropolitan areas:

• Use 12% of the U.S. land area;

• House and employ 65% of our population;

• Generate 78% of patent filings; and

• Create 75% of total U.S. economic activity.

The report shows that the Minneapolis-St. Paul metropolitan area, while producing 1.36% of the country’s economic activity, is the location of 0.72% of the transportation-related stimulus projects authorized. Readers will note that the seven-county metro area contains just 12% of the state’s total lane miles. So doesn’t it make sense that stimulus funds reflect lane miles?

In its most succinct form, the answer may well be no. Here’s why: The federal stimulus legislation will provide capital grants to build, renovate, and replace transportation infrastructure – but it does not fundamentally address how state and local governments will pay for maintenance and operations. Over 87% of Minnesota’s total lane miles are county, township and city streets, paid for from limited state and local sources. Overbuilding may create long-term costs that will stifle prosperity in greater Minnesota, not the reverse.

Just ask my colleague Chuck Marohn, President of the Community Growth Institute, who provides planning and zoning expertise to small towns across Minnesota. In recent weeks, Chuck has blogged extensively about how and why our current approach to locating infrastructure investments is financially unsustainable. Moreover, it undermines the quality of life in communities like Brainerd, Minnesota, where Chuck grew up.

In metropolitan areas, the higher concentration of economic activity will allow for the funding of ongoing maintenance of road, rail and other systems, which will in turn bolster the metro economy as well as the statewide economy. Future stimulus funding, and the coming debate about a new federal transportation bill, ought to be designed in this light.

Photo courtesy of Resedabear/Flickr: http://www.flickr.com/photos/resedabear/ / CC BY 2.0

@Strib Forum: Minnesota State Budget Stress Impacts Redevelopment

I continue to post regularly at the Star Tribune as a member of the Your Voices forum. My most recent post relates to the current state budget problems in Minnesota, where the Legislature and Governor continue to disagree about an appropriate fiscal response to recession and to the structural imbalance in the budget existing before the economic downturn.

Multi-billion dollar deficits don't come with easy fixes; plans relying exclusively on service cuts or tax increases are similarly painful to implement. This biennium, the Governor is using an executive power known as unallotment at an unprecedented level, to reduce spending unilaterally. From property taxes to transportation infrastructure, this approach is sure to impact those of us involved in redevelopment and placemaking.

Already, forecasts have been presented suggesting that this deficit is not a product of recession alone, but another iteration of a chronic budget imbalance. Jay Keidrowski, former finance commissioner, and nonpartisan Minnesota Senate Research analysis indicates the budget deficit for the next biennium (2011-12) to be in the $4.5 - $4.9 billion range.

The American Dream, Part 2

Yesterday, I participated in a program that generated some very interesting discussion. The Urban Land Institute’s event, titled “The New American Dream: The Demands of a New Generation,” brought together four of us with varied backgrounds and perspectives. A few of the ideas on which I focused:

• The American Dream isn’t specific to the postwar suburban boom – it’s a desire for choices and access to ownership (or at least investment) that Americans have long held.  

• The average annual U.S. GDP growth, when examined in constant dollars, has declined each
decade since the 1940s. The shorthand interpretation is that we have become less able to afford the maintenance of a system of development and financing created during times of economic plenty. Not only is the status quo growing less affordable – it is also saddling us with environmental costs we simply cannot continue to accept.

• Prices do motivate us, including the kind we recognize in full (such as taxes), in part (such as gas, which is heavily subsidized), and the kind we ignore (such as costs associated with stormwater runoff into area waters). As a society, we decide which to recognize and which to ignore, and with rapid improvements in GIS analytics, we can measure costs and benefits more than ever before.

• Younger Americans’ aesthetic is more urban than previous generations, but the extent of this is unclear. For example, even in nearly fully-developed Ramsey County, Minnesota, 70% of 20-24 year olds drive to work solo, as opposed to 75% statewide. Of family households under age 45 in the Minneapolis-St. Paul metro area, only 20% live in either of the Twin Cities. (2007 Census data).

I enjoyed the event and the opportunity to engage the prospects for the American Dream, and am enclosing my slides – presented in twenty seconds of fewer each, according to the Pecha Kucha format – here. Contact me for more discussion!

@Strib Forum: Deciphering the News in the Economic News

After a hiatus that included time eating grits in Dixie, I am back at the Cents of Place, sorting through multiple notes for articles. Primary among them are GIS-related services for placemakers available soon from Donjek, and new content on business improvement districts. The first is posted at the Star Tribune this morning, and is available here.

Donjek Project: Identifying the Economic Impact of Housing

An economic impact analysis produced by Donjek for the Minnesota Housing Partnership and Greater Minnesota Housing Fund was released at a news conference held at the State Office Building in St. Paul on February 18; the Finance and Commerce coverage of the release is available here.

The key findings of the report, titled "Housing as a Lever for Economic Recovery," include:

• Public investments in housing leverage private capital; a 2008 analysis by the Minnesota Housing Finance Agency (MHFA) indicates a commitment of $1,310 in private funding for every $1,000 investment by the agency. Financial leverage broadens the impact that state housing investments bring to bear as a stimulus measure. 
• Housing investments are an effective vehicle to stimulate spending and revenue creation; analyses show that $1 million invested in housing generates $1.75 million to $2.1 million in economic activity, resulting in income, sales, property and other tax revenues.
• Studies reviewed in this report indicate the job creation potential in housing as well; an investment of $1 million (in public funding leveraged with private capital) in housing generates 14 jobs according to the MHFA analysis, and up to 21 jobs in other studies.

An application of the findings to a Minnesota setting is included in the final report and is also available here. An effective stimulus ought to have a broad range of approaches. Substantial leveraging of private equity and lending, as well as the funding of federal and other public partners, make housing finance a powerful approach for the state to consider in its plans to support economic recovery.

Photo: Courtesy of Flickr.

Should Recent Shifts in Interest Rates Encourage Placemakers?

It’s been a week since I posted to the Cents of Place.  I’ve wanted to contribute more in that time, but a number of projects have taken a turn for the more involved.  Why? Chaos in the private lending market has placemakers thinking twice and three times about potential partnerships with the public sector.  

One client is a well-seasoned developer and investor, looking to break ground this spring for a project in a major transit corridor. Financing is in place for multiple floors of retail and office, and preleasing has gone well.  Perhaps, the development team has explored, we could add thirty or more rental or condo housing units by building upwards, with a stepped design to ease concerns about views from the street?  Despite their record of selling and managing housing in urban corridors, lenders aren’t enthused.

Part of banks’ lack of spirit on this point is due to the recent spike in the rates banks charge each other for overnight or short-term lending.  The enclosed graphic shows how much higher is this short-term interbank rate (LIBOR) than the three-month Treasury bill; this difference is known as the “TED spread.”  In October, banks would demand interest over 4.50% higher than the three-month Treasury bill, to lend their funds to other banks.  Such a spread between the rates indicated dramatic anxiety among lenders.  If you’ve visited with real estate lenders in recent months, you know what this has done to your odds of securing project financing.

The bright side, of course, is that the graph illustrates the precipitous drop in the TED spread, from 4.63% in October to 1.08% as of this afternoon.  Hopefully, as economist Jim Hamilton suggests in this post, the shift is part of a larger, positive next chapter for the economy.  

Thanks to good friend Courtenay Brown, seasoned bond trader, for providing the graphic.  With uncharacteristic brevity, Brown called the drop in the TED spread “pretty good.”