Societal Disruptions are Opportunities for Economic Development

Are you ready for the next phase of growth?

Dec 1, 2019 | ARTICLE
BY KIM BRIESEMEISTER

Societal disruptions have always created tremendous opportunities for economic development, but what sets today’s disruption apart is the accelerated pace at which change is occurring. In order to remain competitive, city leaders must rewrite their economic development plans to account for the disruption, and perhaps even more importantly, implement those plans expeditiously.

Cities that want to be in an optimal position for economic growth should focus on three key areas:

• Rezoning to attract new development opportunities,

• Strengthening city/county and/or regulatory relationships, and

• Marketing opportunity zones or targeted redevelopment sites.

Evaluating your city’s status in these categories is essential so that once the analysis is complete, the planning phase can commence. I have always been a strong proponent of creating a step-by-step plan to tackle city issues, then working the plan aggressively.

The Retail Apocalypse?

While the term “retail apocalypse” is commonly cited, I don’t believe the news is all bad for retail stores. Yes, there are issues, but there are opportunities as well, and cities who proactively update zoning codes to stay ahead of the changing retail trends will fare better than those who are complacent.

First, let’s address what we are facing. According to data from Green Street Advisors, roughly a third of shopping malls are at risk of dying off as they exist today. When a mall loses a major anchor store, the chance of the mall’s survival is drastically reduced.

Other problem retailers can be found along major U.S. corridors as mom and pop shops and big box electronic/home stores close and remain vacant, leaving struggling strip centers and blighted empty buildings.

However, new concepts are beginning to emerge that are changing the way people shop. These innovations may reveal the next generation of how shopping will transform underutilized retail centers. One concept to explore is called Neighborhood Goods, a new type of department store with retail “pop-up” areas where multiple vendors can rent space on a short-term basis to introduce or test merchandise.1 Their first location, a 14,000 square foot space, opened in November 2018, in Plano, Texas. Cameras are omnipresent, recording consumer shopping habits, and since most people assume they are being watched everywhere anyway, they are not bothered. This invaluable market research of monitoring how people buy things, combined with in-person interaction, is creating a new form of retail strategy.

While online shopping has radically altered our relationship with retail, it’s also providing innovative options for the next phase of growth through the reinvention and re-use of existing space.

The Mall Reimagined

If your city has a dying mall, this real estate asset offers one of the largest potential prospects for new uses on the site. Although malls are privately owned, cities with aggressive economic development teams can proactively work with the owners on a revised plan for the real estate.

Begin by assessing what your community really wants and needs to grow economically—not just now, but also 20 years from now. Then ensure there is an authentic connection to the overall brand of your city. Consider cities such as Charleston, South Carolina; Austin, Texas; Kansas City, Missouri; and Boca Raton, Florida. Whether or not you like their brand is irrelevant, it’s that they have one and have built upon it to their advantage. Austin, for example, is building a brand around the music industry, so if they have failing real estate assets, they could target musical uses, such as a school or even a performance venue, to the vacant or underutilized parcel.

For cities with a strong tourism industry, hotels or visitor attractions could be zoned into large sites encouraging and expanding the tourist brand. Another city could create codes that encourage a medical office expansion if the site is near a hospital, thus growing a medical brand for the city.

It helps tremendously if a city already has a brand to build upon when attracting new businesses or is considering how to repurpose a dying mall. If your city doesn’t have a brand, begin to create one.

Back to retail and malls. I believe the innate desire for human interaction will continue to drive people to places where they can shop in a physical location and interact with other people.

In addition to the human connection, most Baby Boomers still like to touch stuff before they buy it. Even as online purchases increase, certain goods and services may transition more slowly and continue to be sold in traditional retail physical environments. Generation Z also likes to shop, but they want unique handmade items, preferring experiences over materialism. This is leading developers to devise entertainment, dining, and shopping centers that have a pop-up and personalized feel.

Finally, the aging population is also a key factor in new development as some malls are looking to transition into micro-housing units that are directly connected to medical and dental facilities along with restaurants, entertainment, and specialty grocers.

Cities that consider the changing retail environment and nuances of human interaction can create an economic strategy that proactively repurposes the reuse of malls and other large real estate, becoming a magnet for good economic growth.

Change Your Zoning Laws

One of the most powerful tools a city has is its ability to control, manage, and manipulate growth through its zoning laws. Bad zoning codes can stunt a city’s growth faster than a poor crime rating, and good zoning codes can change the face of a city in a very short time. Cities that say they have strong economic development goals are only as strong as their zoning code, so begin by reviewing your zoning laws for obstacles and opportunities.

Six Fundamental Zoning Areas to Explore:

1. Conduct an analysis of underutilized surface parking areas or garages in your city, including mall parking lots, old big box centers, city owned parking, etc. Look for both public- and private-owned parcels. The loss of retailers has led to many empty or underutilized parking areas leaving tremendous opportunities for new growth.

Using the options previously discussed, plan for new uses, or a complete redevelopment of these sites, including new residential development inside the mall footprint, new public gathering spots, green spaces, and pedestrian connections. Consider changing access roads and create walkable connections to the surrounding neighborhoods.

2. For major high traffic corridors with strip center frontage, cities should check if parking requirements, or some other regulatory requirement, are limiting new businesses from filling those vacant spaces. If you can find out why the retailers won’t rent space, you’re halfway there.

3. Change zoning in the middle of a city center on key sites, or on perimeter parcels near town, to allow small-scale distribution centers in commercial areas. The tremendous growth of online orders is pushing Amazon, grocery chains, and other big retailers to find new distribution centers inside traditional neighborhoods or city centers.

Economic growth will occur in your city when these retailers can create a distribution system near their client base making their delivery system more efficient. The assumption may be that this use is not compatible or will increase traffic; however, if zoned correctly, these buildings will likely create less traffic than retail or commercial use.

4. Review strip center zoning to determine if it can be changed from consumer-oriented retail uses to a new flex category, thus modifying the parking requirements, as well as the ingress/egress of the site. By altering the traffic and parking flow, there may opportunities for new green space or plazas for gathering.

5. Conduct a feasibility analysis to determine if shallow retail strip centers abutting residential neighborhoods can be rezoned for live/work, creating a transition. Taking a live/work zoning category a block deeper into a single-family neighborhood may not be popular or appropriate in a strong and healthy single-family neighborhood, so a thorough examination of the surrounding area will be critical.

6. Consider a form-based code. Very few cities have embraced the concept of a form-based code, which provides development guidelines but also flexibility within the building footprint, which is enticing to developers.

Zoning Case Study

One city wanted to revitalize their downtown, but they were struggling to define their brand. They didn’t have any obvious assets to build upon, such as a beach or mountains, medical centers, educational uses, or courthouses. My company suggested a “culinary district” brand for them because they did have strong catering businesses, kitchen designers, specialty food stores, and culinary retail shops. Uniquely, they had a huge 180,000 square foot industrial building that used to be a Sears distribution center right on main street, but it was zoned retail. We suggested they rezone it industrial to accommodate a brewery, and within one month they landed Funky Buddha Brewery, which set the stage for a complete revitalization of their downtown.

The City-County Connection

There are often disconnects between the cities and counties, but for this new phase of growth to be successful, those gaps should be tightened, and a uniform vision realized. The county must be as progressive as its most progressive city for overall economic development to be successful.

Investors and developers analyze locations and a burdensome governmental process can be enough to send a potential investor to the next county where easier permitting and a business-friendly environment await.

Some of the biggest stumbling blocks that must be addressed immediately include:

• Outdated systems,

• Declining and failing infrastructure,

• Bureaucracy, and

• Lack of long-term progressive goals for moving people or goods around.

City leaders can help move this relationship into a better place by focusing on three key areas:

• Defining an overall strategy for how the city wants to grow,

• Forming public/private relationships to attract good growth, and

• Creating a shared vision for growth that removes development obstacles at all governmental levels.

Opportunity Zones and Targeted Redevelopment Sites

Last, but not least on our checklist, we visit a “good” disruption created by the IRS. Opportunity zones were added to the tax code by the Tax Cuts and Jobs Act in 2017, with the first set of opportunity zones being announced on April 9, 2018. As defined by the IRS, an opportunity zone is “an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.”2 Cities who obtained this status are now determining the best ways to fulfill the promised potential. Other cities, without these zones, who are looking to emulate elements of the model, can create their own targeted redevelopment sites including a thoughtful set of incentives to attract private investment.

The IRS code has reams of details about Opportunity Zones, but essentially, it’s a substantial tax break on capital gains that’s re-invested in disadvantaged communities. The federal government’s goal is purportedly to attract much needed funding in areas that are struggling economically. What city leaders need to concern themselves with is how to they make their city stand out to attract some of that investment!

Leaders must ensure that their city is ready to do business whether they have an official opportunity zone or not. These are the best steps:

• Begin with a thorough analysis of zoning laws, land-use, utilities, infrastructure, roads, and right of ways.

• Create your vision and position your Opportunity Zone or redevelopment site as a place to do business.

• Develop marketing concepts and creative pieces that will attract investors utilizing the city brand.

• Establish a dedicated department and point person in the city. Ensure there’s a real estate expert in house who can promote the advantages of investing in the city.

In conclusion, disruption creates opportunities. Embrace that concept. Great leaders view periods of rapid change as an exciting time leading to new innovations. As you move forward to create a successful city, be confident in your plan and work those steps!

 

ENDNOTES AND REFERENCES

1 https://neighborhoodgoods.com/about

2 https://www.irs.gov/newsroom/opportunity-zones-frequently-asked-questions

 

 KIM BRIESEMEISTER is co-founder of Redevelopment Management Associates and has won numerous awards for her management of some of the largest, most complex CRA districts and redevelopment projects in the state of Florida. She co-authored the book, Reinventing Your City: Eight Steps to Turn Your City Around.

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