BEING A DOWNTOWN CHANGE AGENT: Facilitating Change for Downtown Business Operators

Small Business Operators Are Slow To Adopt Changes

At conferences and other events where downtown managers congregate, the conversation at some time usually turns into a group therapy session focusing on the seemingly intractable, but certainly dysfunctional attitudes and behaviors of downtown business operators and landlords. Some of the dysfunctional behaviors raised might include deteriorating facades and signs, poor market research, lousy merchandising, “wrong” business hours, inadequate customer service, high rents, poor building conditions, harmful tenant selection, etc. Many readers, I am sure, know the rest of the litany.

Many downtown managers also consider it almost impossible to “re-educate” most downtown business operators and landlords or to otherwise induce them to improve their business behaviors. Years ago, based on my own management experiences and field observations as well as reports from friends managing downtown districts across the country, I came to a kind of Bayesian subjective probability estimate that only about five to seven percent of downtown business operators and landlords can be retrained or otherwise induced to innovate.

However, more recently, based on my program development experiences in the Bayonne Town Center (NJ), I have come to believe that significantly more downtown business operators can be induced to change, if, and this is a critical if, downtown leaders, acting as change agents, can help make it easy for them to change.

How To Get Existing Merchants To Renovate Their Facades?

About four years ago I took on the management of the Bayonne Town Center Special Improvement District. The previous executive director had done a great job of getting a highly respected architect, Walter Chatham, to write design guidelines, which were then adopted by the city as an ordinance. The city was offering then, as it still offers today, strong financial incentives to stimulate façade and storefront renovations in the district: a shop with a frontage of 25 feet can get a grant for as much as $10,000; a corner shop can get up to $15,000. However, while new businesses in the district were improving their facades, none of the existing street-level business operations were doing so, though many storefronts badly needed renovation. Officials in city hall as well as the Town Center board of directors could not understand why the city’s generous financial incentive package was not stimulating more façade improvements in the district.

While I quickly ascribed this situation to the typical change -adverse way I believed small downtown business operators behaved, my intellectual curiosity and feeling of management responsibility led me over the next year to talk informally to many merchants about why they were not improving their facades. Here are the surprising conclusions I reached as a result of those discussions:

  • A lot more merchants than I expected were interested in improving their facades. My rough estimate would be somewhere between 20% to 25%, not my expected 5% to 7%.
  • Merchants who owned their buildings were more apt to be interested in renovation than those who leased their spaces. This was understandable since they had more to gain and one less decision-making gatekeeper to deal with
  • Almost no one had any idea of what kind of new façade they might want!
  • No one felt they had a good idea of how much a façade renovation might cost!
  • Few knew an architect or contractor who might help them! Most small business people will not have architects or contractors in their social networks. They often work long hours and lack the opportunities to establish such contacts on their own
  • There was wide spread concern about getting city approvals for their projects!
  • Almost everyone knew about the city’s façade improvement financial incentives.
  • A minority of those interested in doing a facade improvement felt that even with the city’s financial incentives, they still could not afford to renovate
  • Most of those interested in improving their facades felt that, with the city’s financial assistance, they probably could afford to renovate. They were not moving forward because they did not know how to proceed and lacked the time and energy to remedy this situation!

Facilitating Change

As I mulled about these findings some research I had done in 1989 came to mind. Back then I was trying to find out why manufacturing firms were moving out-of-state from the Bronx, a borough of New York City. My research indicated that:

  • These firms were successful, expanding and needed more space
  • They were too small to have a real estate specialist on staff
  • Management was too busy with their growing business to look for a new location
  • They often need specialized training for their blue collar workforce
  • They had concerns about high crime
  • Recruiters from out-of-state economic development organizations had come in and offered turn-key solutions that included low-cost new space, manpower training, low crime, etc. The recruiters made it very easy for the Bronx firms to move to their states. In other words, the recruiters had facilitated change.

A program that could facilitate change seemed precisely what was needed to unleash façade improvements in the Bayonne Town Center.

The Jump Start Façade Improvement Program

Consequently, I designed the Town Center’s Jump Start Façade Improvement Program sm.

This program provides each participating business operator with the following products and services:

  • A well-known architect in the field, Margaret Westfield of Westfield Architects visits with them to listen to any ideas they might have about their new façades
  • She comes back several weeks later with a rendering of their new façade, cost estimates for the improvement project and samples of the materials that should be used
  • The façade design, because it is done by one of the Town Center’s architect’s in conformance with its design guidelines, has assured acceptance by the city
  • The Town Center’s staff, if necessary, helps participants with the paper work for the city’s incentive program and provides them with contact information about contractors who have done successful façade projects in the district.

Of the five storefronts in the initial round of the program, two renovations have been completed and three are in process, with completions expected by August 2007. The second round of Jump Start has been completed recently. One entire building façade has been renovated; action on six other storefronts is awaited.

The slide show below shows three of the improved building facades, before and after their renovations.

The Kick Start Building Renovation Program

Based on the success of the Jump Start program, the management of the Bayonne Town Center leaped at the opportunity to obtain a technical assistance grant from the Community Preservation Corporation (CPC) to create the Kick Start Building Renovation Program sm. Kick Start is aimed at stimulating district landlords to renovate the upper stories of their buildings and create market-rate residential units.

The CPC is a very large and successful nonprofit that uses CRA funds from over 80 banks and insurance companies to fund housing projects in NY, NJ and CT.

The Kick Start “treatment strategy” is again to facilitate change, this time by having the CPC’s architect-engineer provide each participating Town Center landlord with a feasibility study that describes how many residential units might be built on their property, the types of units that should be created and cost estimates for the project. The CPC also will be ready to finance feasible projects. Furthermore, because of the CPC’s reputation, it is anticipated that the feasibility studies will help ease their associated renovation projects through the city’s permissions and approvals process.

At the time of this blog posting, Kick Start is underway, but none of the three initial feasibility studies have been completed.

Facilitating One Change Can Help Facilitate Other Changes

As consultants have long known, developing a client’s trust and confidence in you and your firm is essential for having your recommendations implemented. Downtown managers, when acting as change agents, face a similar challenge with the business operators and landlords in their district. The Jump Start Program has helped to significantly increase the trust and confidence that district business operators and landlords have in the Town Center’s management team. This is true even among those who have not participated in Jump Start, but knew what happened in it. This has stimulated not only interest in participating in Jump Start and Kick Start, but it has also made some landlords more willing to work with us on business recruitment and redevelopment projects.

Some Additional Observations

My experiences with Jump Start strongly suggest that money, while not a negligible factor, is certainly often not the prime factor that impedes change and innovation among small downtown business operators. Knowing what can be done and easy access to needed professional assistance are also very strong factors.

The city’s permissions and approvals process also can have an enormous impact on downtown change and innovation. The Town Center has city legitimated design guidelines and its architect determines whether or not submitted designs are in accordance with them. The Town Center is thus able to provide designs for renovated facades that are guaranteed to be accepted by the city. This factor alone reduced anxieties about delays and escalating costs among the participating business operators.

Strong Downtown Entertainment Niches

Increasingly, downtown and Main Street commercial districts are finding strength through the establishment or expansion of an entertainment niche. This is happening in communities of all sizes. The theater district around Times Square in Manhattan has long been world famous. At the other end of the scale are communities as small as Weston, VT, with a population of 630, that is home to The Weston Playhouse Theatre Company, the oldest professional theater company in the state. Every summer it presents Broadway plays and musicals in a beautiful white-columned building on the village green. In between are literally hundreds of communities with theaters and performing arts centers for staging plays and concerts such as Carlisle, PA; Rahway, NJ; Englewood, NJ and Rutland, VT.

In most small and medium-sized downtowns, reliance on such formal entertainment venues will result in an entertainment niche that is, perhaps, moderately strong. The problem is that such formal venues, at best, are “lit” a few nights a week and dark during most days. Really strong downtown entertainment niches utilize other resources to attract and amuse visitors throughout most of the day and almost every day of the year.

Informal Entertainments

Entertainment essentially involves people being amused by something. In formal venues, they can be amused by plays, movies, concerts and dances — all requiring some kind of formal organization (a theater company, dance troop, orchestra) that is scheduled and “performs” the entertainment. However, strong downtown entertainment niches rely on the fact that people also are entertained when they are amused or pleased by observing other people — who, at the same time, may be amused by watching them. Great public spaces provide opportunities for “informal entertainments” that occur when people engage in activities that they enjoy and that also interest and amuse nearby people-watchers. Think of the ice skaters drawing the ever-present crowds above the rink in Rockefeller Center. Similarly, in Manhattan’s Bryant Park, you’ll find young men and women seated and watching each other and chess players, who always attract an audience. Greenport, NY, has used a carousel and waterfront location to create a wonderful public space where people can watch and be watched by other people. Other downtowns have fostered entertainment with facilities such as: a model boat pond; a children’s pony ride; a Wi-Fi hotspot to access and cruise the Internet on laptops; a place to catch the sun — a favorite pastime for office workers and young tourists in the spring and summer; places to buy food and eat lunch alfresco; outdoor cafes for sipping coffee and eating snacks; slot car racing for kids, playing bocce for seniors, etc.

Visitors will “perform” if the opportunities are there. To sail a model boat, a suitable pond or pool is required; to sit in the sun and people watch requires an attractive place with benches and chairs to sit on, etc.

The following link takes you to a photo album that illustrates a range of “informal entertainments”

Work As Entertainment

People are often engrossed and entertained by watching other people at work.

Decades ago, the people who brought back “historic” villages, — such as Colonial Williamsburg (VA) and Old Sturbridge Village (MA), — cleverly decided to have people at work, using 18th Century technologies, to educate and entertain visitors. For example, in Colonial Williamsburg visitors can watch 100 masters working in 30 trades. Included are an apothecary, blacksmith, cooper, brickyard, foundry, gunsmith, basket maker, etc.

In Old Town, located in San Diego, CA, visitors can watch glass blowing, wood-working and candle-making, though current technologies may be used.

The Simon Pearce retail store at The Mill in Quechee, Vermont, is perhaps the most brilliantly designed and executed retail project in the United States in a small Main Street setting. It combines a superb site in a renovated old mill located over a waterfall with a diverse assortment of retail goods ranging from blown glass to ceramics and superb furniture. In addition, at this diverse destination you can watch glass being blown, ceramics being thrown and decorated, fabrics being woven and enjoy a meal in a three star restaurant that has attractive water views. The Simon Pearce store at Quechee is a strong destination and lots of people leave there with bags full of merchandise.

At the Torpedo Factory in Alexandria, VA, an historic building has been renovated to provide studios for artists and craftsmen where visitors can watch jewelry being made, pots being thrown, lithographs being made, etc. and have opportunities to purchase the products.

At the Chelsea Market in Manhattan, visitors can be entertained by watching bread making at Amy’s Bread, a working kitchen for Sarabeth’s, a skilled knife sharpener, and people learning to dance the Tango.

People like to watch TV shows outdoors, as attested to by the crowds drawn the Today Show and Good Morning America.

Edward Villella has the Miami City Ballet rehearse in a storefront window, where pedestrians flock to watch the dancers.

Many diners want to sit at chef’s tables or counters where they can watch the cooking process and interact with the kitchen staff. Chef’s tables are often the hardest to book and offer the most expensive menus at topnotch restaurants. The noted French chef Joel Robuchon specifically designed his recent restaurants so most or all of his patrons sit at counters where they can watch their food being prepared.

Double click on the link below and you an access a photo album that illustrates “work as entertainment.”

Paying “Premiums” For Downtown Redevelopment Projects

A wave of public indignation and anger against the use of eminent domain for economic development purposes now threatens the renewal of our nation’s downtowns, Main Streets and neighborhood shopping areas. However, evidence suggests that the use of eminent domain for economic development purposes can be salvaged if universally acknowledged abuses are avoided AND the property owners and tenants dislocated through the use or invocation of eminent domain are paid a meaningful “premium.” The characteristics of the premium may differ case by case, with resulting variation in cost. However, it can be anticipated that the cost often will be significant, with considerable consequences on the financial feasibility of downtown redevelopment projects. Savvy downtown organizations will be finding ways to finance these new redevelopment project premiums.

Kelo’s impact. The reaction to the June 2005 decision of the U.S. Supreme Court in the Kelo v. New London case has put the use of eminent domain in jeopardy in a growing number of states across the nation. Though the court, in a close 5 to 4 decision, affirmed the use of eminent domain, legislation has been introduced or passed to reduce its use in Alabama, Delaware, Texas, Ohio, Minnesota, Colorado, Michigan, Pennsylvania, Florida and New Jersey. California also will hold a referendum on eminent domain in November 2006.

Though these legislative initiatives fall into a number of descriptive categories, their underlying objective — except possibly for clearly blighted situations– is usually to make it difficult or impossible for eminent domain to be used to increase tax revenues or for economic development purposes such as to enable real estate projects that putatively will significantly improve an area’s economic well-being.

Downtowns obviously cannot wait until blighted conditions appear before undertaking serious redevelopment projects. Doing so just makes redevelopment riskier, more costly and burdensomely complex. A way to make the use of eminent domain again palatable must be found. The future of America’s cities and towns is at stake.

Fair market value and the case for premiums. While the Kelo decision focused on the issue of public purpose, in my view the real challenge with eminent domain projects is political rather than legal and centers around the issue of fair market value. As things now stand, an eminent domain project will usually have potential victims from the getgo — the people who must give up the properties they own and who have not asked for the project to be initiated. While the project may indeed have results that will enhance the general good, the best that the property owners can do is get “fair market value.” Such victims can politically nullify a project’s public benefits and become the rallying point for political opposition.

HUD standards are often cited as exemplary when it comes to the use of eminent domain. They are based on an appraiser determining a property’s fair market value, which according to one of HUD’s publications can be understood in the following manner:

“Fair market value is sometimes defined as that amount of money which would probably be paid for a property in a sale between a willing seller, who does not have to sell, and a willing buyer, who does not have to buy. In some areas a different term or definition may be used….The fair market value of a property is generally considered to be ‘just compensation.’ Fair market value does not take into account intangible elements such as sentimental value, good will, business profits, or any special value that your property may have for you or for the Agency.”

Associate Justice Samuel Alito of the US Supreme Court went through his confirmation process around the time that the Kelo case was before the court. In a TV interview Alito was asked about the case and he uncharacteristically expressed a fairly clear view on the issue at hand — the use of eminent domain would be OK, if owners were paid a premium over fair market value for their properties, with the clear implication that such a premium is to compensate for the sort of “intangible elements” that are denied in HUD’s definition of fair market value and/or a share in the economic wealth generated by the project.

Such a legal position appears consistent with the claims of many redevelopment advocates who, in the vortex of debate that built up around the Kelo case, argued that the vast majority of property owners receive more than fair market value when their properties are sold under the threat of eminent domain. Redevelopment advocates also argued that commercial and residential tenants who are forced to relocate by eminent domain related redevelopment projects usually receive very favorable financial considerations. Unfortunately, there is no rigorous research to substantiate these claims, only a thin array of verbal anecdotes.

My own family’s experience indicates that property owners do not always feel that they have received a munificent amount of money from the governmental entity taking their property — or threatening to do so.. Furthermore, the whole experience can be quite complex and its true impacts may take years to emerge.

Back in the early 1950’s, the New York City Housing Authority used the threat of eminent domain to purchase a brownstone and tenement owned by my maternal grandmother in order to build a high rise “housing project.” My grandmother, four of her children and their spouses and children occupied apartments in these two buildings. We all lived in a warm and closely knit family environment. While the neighborhood was changing and family members had considered moving, there was a lot of inertia caused by the fear of the family being dispersed. When the city invoked eminent domain the family could not really judge whether the financial offer was fair or not. Most importantly, the family felt that it did not have the power to fight the city. Family members felt they had no choice but to make the moves to other neighborhoods that they had long contemplated. The money might have made things a little easier, but it was not viewed as a bonanza. The fact that we were forced to move left a somewhat bitter taste. I wonder how we would have reacted if the city had showed that it was paying us 25% above fair market value and explained “We are forcing you to move and the extra money is our way of trying to make up for it.”

Ironically, the diverse manifestations of redevelopment premiums are amply demonstrated by the types of final settlements made by the families involved in the Kelo litigation.

A state official involved in the negotiations claims that giving the property owners more money was a key to the settlements. Also, according to an article in the New York Times, one of the settling owners said “When you look at my property, put these on,” as he fiddled with a pair of sunglasses with dollar-sign holograms on the lenses. Susette Kelo, a lead plaintiff, agreed to have her house moved to a new lot. Another homeowner said the difference was a number of small concessions the city made:

  • While his house will be torn down, his family has an option to buy property in the new development at an agreed price.
  • The city also agreed to move the rhododendrons, yews and other plants his father planted 30 years ago and to install a plaque in the development to honor his mother, who fought the condemnation of her home until she died in 2003.

Successful redevelopment premiums will stimulate property owners and tenants to settle with the developer or development agency and avoid legal actions. Redevelopment premiums are more likely to succeed if they:

  • Provide the property owner or tenant with some of the increased wealth that the new redevelopment project will generate. This will require the involvement of a shrewd financial deal-maker

  • Compensate, financially or otherwise, for “intangible elements” lost by the relocation (e.g., the rhododendrons, yews and plaque mentioned above). This will benefit from a negotiator with superior inter-personal skills.

Where is the money going to come from? The relatively high costs of downtown land already require that financial incentives such as tax increment financing, payments in lieu of taxes, land write-downs, etc., be made available if many redevelopment projects are to be financially viable. The costs of redevelopment premiums — especially in small and medium-sized projects having limited density and hence limited income potential — may require the use of new financial tools.

One of these may be giving current property owners equity stakes in the redevelopment projects that will be built on their properties. The ability to reach a timely agreement on the current values of their properties will likely be critical to the success of such ventures.

Many downtown districts have the capacity to issue bonds through their municipality which are paid off from the districts’ assessments. For example, a district paying about $45,000/yr for 20 years might bond for about $500,000 at a 6.5% interest rate. While $500,000 is not a princely sum, it often can be leveraged and might help make three or four redevelopment projects viable.

Also, there are what some call “exactions.” A community might find that hefty redevelopment projects capable of generating large revenues and big increases in municipal tax revenues are occurring along the municipality’s periphery or in very solid sections of the downtown. The local government might negotiate for such a project to donate $50,000/yr for 20 years — which adds up to $1,000,000. For a shopping center with annual revenues over $100,000,000 a $50,000 exaction should be more than affordable.