Build it and they will come?

Josh Mukhopadhyay

Background:

Patrick Kennedy mentioned his plan to mix housing and social services in his future Berkeley developments on the first day of class. Since then his proposal has come up repeatedly, both as a positive that should be explored further and as a cautionary example of a developer building coalitions with sympathetic partners simply to help get through the entitlement process.

Mr. Kennedy’s theory of change basically says build it and they will come. ‘They’ are the future residents of downtown housing who will in turn induce demand for retail and also create a political constituency that demands public safety improvements. This model’s fundamental assumption is that the pioneering residents will stick it out between move-in and the lagging commercial development and improved neighborhoods.

Are the two above notions compatible? If you seek to draw in middle and upper-class residents to ‘homestead’ an urban area, they will do so with the expectation that the neighborhood will improve over time. If some of those ground floor retail spots where new residents hope to someday find a Starbucks, Gordon Biersch or Banana Republic instead end up holding a homeless shelter or halfway house, will the whole model unravel?

Summary:

Downtown Los Angeles’ Skid Row area has been being gentrified over the past decade and has faced a similar dynamic. Loft dwellers have brought life to formerly derelict areas, but commercial development has been limited and the social problems have been squeezed into the ever shrinking not yet gentrified area available to the homeless population.

A recent LA Times article tells the story of the Little Tokyo Lofts – a six story former factory that was turned into condos that sold for between $400,000 and $1,200,000. The building included a 6,500 square foot ground floor retail space, and developers hoped to sign a boutique market like TJ’s. Even though the area recently lured its first supermarket in fifty years, that firm (a Ralph’s) located itself on the very edge of Skid Row. While it has been doing brisk business, other retailers haven’t yet decided to follow suit and move in nearby, much less locate in the core area. But the developer’s pro forma had assumed the commercial space would be rented, and eventually had to settle for a sub-optimal tenant.

In the end, a social service provider moved in and will be use the space for its mental health program. Everybody is understandably upset with this outcome – loft residents feel like they were sold a bill of goods and may badmouth future development efforts and the service provider is in a building where they know their landlord didn’t really want them and where their patients are unwanted. If ground floor retail space can be difficult to fill with desirable tenants in a still gentrifying area, the build it and they will come model for a mixed-use community may fall flat. The remedies might range from expensive subsidies to attract business to settling for ‘undesirable’ tenants like social service providers. These will further complicate the project’s economic analysis.

Source:

Cara Mia DiMassa, Little Tokyo residents resent mental health facility, L.A. Times, February 21, 2008, available at http://www.latimes.com/news/local/la-me-lofts21feb21,0,4937026.story.