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Tuesday, August 31st, 2010

Richard Layman: Richard’s Rules for Restaurant Driven Development

[ I've linked to Richard Layman's wonderful Rebuilding Place in the Urban Space blog many times. He writes on a variety of topics in an always insightful way, but I'm particularly impressed with his knowledge of urban commercial district revitalization. I was privileged to get to tour Logan Square with him during one of his visits to Chicago and his knowledge of neighborhoods and small business economics and operations is impressive. He graciously allowed me to share one of his older posts with some of his thoughts on restaurants and neighborhood revitalization, with examples from DC, explaining why super-high end or trendy places aren't an absolute necessity. There's plenty more where this came from on his blog, which I highly recommend you check out as a place to bridge theory with practice - Aaron. ]

All neighborhoods and commercial districts can be categorized as healthy; transitioning, emerging; and distressed (using criteria developed by the DC Office of Planning). And each type probably can be further split into early, middle, and later stages.

Healthy commercial districts are not without issues, but the issues vary. Even a district like Adams-Morgan is probably considered transitioning, as is Barracks Row. In some respects, Richard’s Rules for Restaurant-Based Revitalization apply more to transitioning, emerging, and distressed commercial districts. But that makes sense, since those are the districts most in need of “revitalizing.” (For issues regarding problems engendered by the Late-Night Economy, see this entry, “Restaurants and liquor licenses“, from April.)

My rules are focused on building business from the people who are already present in your retail trade area, people who aren’t patronizing your commercial district, because in their opinion “there’s nothing there.”

It’s our job as revitalizers to make sure that “the there is there.”

Chef-driven restaurants aren’t necessary to drive revitalization, although they are nice to have and can be decent draws–but really how great was La Brasserie at driving the growth of the 300 and 400 blocks of Massachusetts Avenue NE? Downtown is still pretty bleak at night despite the number of high quality restaurants such as Occidental, Red Sage, and others. (7th Street is a different story, see below.)

Revitalization is dependent on restaurants. A complete destination has places to see and things to do, things to buy at interesting places to shop, and places to dine.

Without restaurants, where are people going to be able to go to the restroom? If they can’t go to the restroom, they won’t be able to linger and spend time in your commercial district. Patrons of your commercial district will end up being very purposive–when they visit it is for a specific reason, and they leave when they are finished, without taking the time to explore and patronize other retail and service businesses in your commercial district.

Restaurants that augur revitalization have five characteristics, and these characteristics support high patronage amongst a core group of customers that will frequent the restaurant from 2-5 times/month, at least in the beginning. This level of patronage is necessary to provide the cash flow needed to stabilize the risk involved in opening up in a secondary market. Remember the 80/20 rule?–80% of your business comes from 20% of your customers. Ignore this at your peril.

Green Apple Bar and Grill
T. Levette Bagwell/AJC. Willie Broughton and his wife, Ruby, owners of the Green Apple Bar and Grill, show off a fried chicken salad on the one-year anniversary of their opening. Before he retired, Willie Broughton already had determined that he eventually would open a bar at the site.

The rules are:

1. Relatively appealing cuisine that isn’t too specialized; food that is attractive to a large number of people–Italian, Mexican, and “American,” seem to work best. You want at least 100 customers/nite. These days Thai food is moving into this category. Chinese seems to have lost its appeal. Restaurants like Indian, Caribbean, etc. are just a bit too specialized, and therefore don’t get the weekly or at least a couple times/month patronage that such restaurants need especially when they are located in emerging commercial districts.

Think Banana Cafe, La Loma, La Lomita vs. Capitol Hill Tandoor or Phish Tea–the latter two have a cuisine specialized enough that local patrons come maybe once every couple months, so they need to draw on a much larger trade area than restaurants that have a more “approachable” cuisine.

2. Good food; it doesn’t have to be stunning but it better be good. (Perhaps Mexican restaurants illustrate this point the best.)

3. Good, good plus, or better service; waiting isn’t fun, and neither is dealing with a server that doesn’t help you get what you want with a modicum (ideally none) of problems.

4. Competitively priced; you can’t have drinks at $8 or most of your entrees costing $13-$20. If your prices aren’t competitive and maybe a little less expensive than the market, you won’t get that frequent patronage that is necessary for your success. Pitchers of margaritas or sangria are good, maybe not pitchers of beer, which seem to attract a rowdier more alcohol-centered clientele.

5. Nice interior; it doesn’t have to be stunning or a $300,000 interior renovation, but it can’t be threadbare, and it has to be appealing.

IMO, restaurants in the area like Banana Cafe, La Loma, and La Lomita exemplify these characteristics. Other restaurants and coffee places that are leading the revitalization of their commercial districts include include Tryst and The Diner which have brought life back to Adams-Morgan during the day, Boss Shepherds (now Peppers) on 17th Street NW in Dupont Circle, Dos Gringos in Mt. Pleasant (they have an absolutely killer Vegetarian Chili), and Mocha Hut and Colorado Kitchen in the greater Brightwood area.

Probably the best example in Washington, DC is Jaleo on 7th Street, which anchored the revitalization of the East End of downtown and is as significant, if not more so, than the MCI Center. Jaleo opened in 1993, years before MCI. Somehow, this restaurant is just as trendy as it was when it opened, and most every weekend they go through $100,000 worth of food (wholesale cost). Now there are a dozen top notch restaurants within a couple blocks of Jaleo, some owned by the same company like Cafe Atlantico and Zaytinya, and these restaurants rely very little on events at the MCI Center for driving patronage.

I have worked in hospitality for awhile, and I find that what distinguishes quality operations from those that struggle is a failure to focus on the guest and the guest experience. The restaurant industry is one of the most competitive retail categories but is still a retail category where independent businesses can thrive and the “barriers to entry” are surmountable.

There is a great resource for restauranteurs, a subscription website called Restaurant Owner, with scads of resources. Reading trade magazines at the very least (Restaurant Business, Fresh Cup, Specialty Coffee Retailer, etc.) is a good place to start because as I say “to stay the same is to fall behind, because your competitors are constantly improving and new places are always opening.” If you don’t go anywhere else, or read anything, how do you learn?

Soda Jerk
“Soda jerk” passing ice cream soda between two soda fountains / staff photo by Alan Fisher New York World Telegram and Sun archives. Library of Congress.

Quality restaurants share some other characteristics:

1. Understanding that you work for the guest, because after all, that’s who pays everybody. (I know a restauranteur desperately trying to build his bar business, but he adamantly believes that “soft rock”–remakes of the Beatles and Supertramp, and the occasional Carpenters song is the music that should be played. Compare that to the jukebox at the soon to reopen Capitol Lounge.)

2. Listening to guests and employees.

3. Taking in and responding to this feedback. If you don’t respond, listening doesn’t matter.

4. Never fool yourself about what quality is. We all know the saying “You can fool some of the people all of the time, but you can’t fool all of the people all of the time.” Well, if you are the proprietor of a small business, you can never afford to fool yourself. If you don’t provide quality and you refuse to accept the truth, whose fault is failure?

5. Focus on what matters. Until you ensure that your production, service, and ordering and inventory systems work and are robust, gloss (such as balloons) is a waste of your time and energy.

6. Developing robust training and production systems. This sets you up for success by reducing the likelihood of error. The Restaurant Owner website is full of downloadable templates, manuals, and worksheets that can be customized. Weak systems put you behind before you even open your doors to today’s customers

7. Having a sound business model. Understand your metrics and dayparts. Have a (business) plan based on reality and develop your business and marketing plan accordingly. It’s possible to (re)build service and production systems if they are flawed. But a business model that can never yield profits is unworkable.

8. Perseverance and continuous process improvement. To repeat: to stay the same is to fall behind, because your competitors are constantly improving and new places are always opening.

Restaurant

This post originally appeared in Rebuilding Place in the Urban Space. Reprinted with permission of the author.

Sunday, August 29th, 2010

Urban Universities Done Right: Chicago’s “Loop U”

Many American cities have focused on university based development as a catalyst for their downtowns and urban spaces. Louisville has promoted the growth of its university affiliated hospital complex on the east side of downtown. Indianapolis and Chicago both built major urban renewal type campuses – IUPUI and UIC respectively. The University of Wisconsin anchors the core of Madison, and similar patterns are repeated in college towns across the country, or in college neighborhoods like Chicago’s Hyde Park.

In my view “eds and meds” is quasi-public sector. Like government offices, they can act as an anchor of sorts, but are more rarely sources of dynamism. Also, while they attract investment and people, the interests of the university are often not aligned with those of the neighborhoods, leading almost inevitably to various town-gown type divides.

One notable exception to the standard pattern is the expanding collection of over 30 downtown Chicago colleges that has become known as “Loop U”. From a Sun-Times story from last year:

When most college students go off to campus for the first time, they typically end up in a dorm overlooking a grassy quad, classroom buildings, or perhaps the football stadium.

Not so at “Loop U,” a nickname for a recent phenomenon that this fall will bring more than 65,000 college students to live and study at more than 30 institutions of higher learning in and around downtown Chicago.

A recent report published by DePaul University says the downtown population of college students has grown 25 percent in just the last five years, making it the “biggest college town in Illinois.”

Unlike traditional campuses, in which the institution owns all the land and every building is a college building, downtown dormitories (and classroom buildings) are interspersed along city streets like Wabash, Michigan and State, blending in with the existing buildings.

I consider Chicago’s Loop U possibly the most successful example of urban university development in America. It has had an almost totally positive impact on the urban fabric of the Loop, and generated zero controversy or negativity. There are a number of elements of this that I think distinguish the Loop U approach in a positive way and make it a model that every city should study.

1. Diversity of institutions. Unlike a large, monolithic institution like Ohio State, there are over 30 different institutions in downtown Chicago. These range from a community college to the School of the Art Institute to Chicago to specialty design and culinary schools, Northwestern University medical school, a branch of DePaul, etc. This diversity has the same effect that Jane Jacobs described for diversity of uses. They bring different types of people to the Loop at different times of the day, and operate on different schedules, contributing to major activity from morning till night. Also, the diversity of institution types means that you don’t have a single profile of student who stands demographically apart from the rest of the city. While perhaps not a perfect match, the students at Loop U collectively look at a lot more like the city’s overall population than the students at most schools.

2. Small Sizes, Urban Form. A typical college campus – like UIC, for instance – is usually a huge tract or superblock site devoted entirely to university activities. The university often takes great pains to establish their perimeter, and even extend control over “buffer zones”. The essence of most schools is that they in some way stand apart from the city.

But with the Loop U institutions, while they are collectively large, most of them are of reasonable size. And they typically inhabit urban buildings that are on the same block with other types of buildings such like any other downtown structure. Some institutions, such as specialty interior design school Harrington College, actually rent space in multi-tenant commercial buildings. Larger schools like Columbia College have many facilities spread all over. Even Northwestern University hospital plays as nice with the urban fabric as any such facility is likely to.

Because land in downtown Chicago is so valuable, it isn’t feasible to acquire a large superblock site. And what land you do have, you need to use efficiently. This has led to a situation where the vast majority of the colleges are integrated with their environment and don’t stand apart from it. That’s a rarity.

This has lots of benefits. For example, the School of the Art Institute of Chicago built a dormitory at Randolph and State. The ground floor houses a Borders Books that is always jammed. The students themselves are frequently hanging out on State St., contributing to the street activity at all hours, and also counteracting the stuffy, sterile business/conventioneer vibe that infects too many downtowns. People see these young artsy types out there and think, “Hey, this place must be pretty cool.”

3. Neighborhood Compatibility. The rarefied intellectual atmosphere of a university often does not speak to or address the concerns of interests of the residents and non-university related businesses in a given area. Things like art galleries can have a limited appeal to those who are more concerned with quality of primary and secondary schools, jobs, crime, traffic, etc.

But the Loop is an upscale business district. This has the advantage that the people who work in the Loop, or who live in the greater central area, are the profile of people who might take advantage of programs and institutions that colleges create for their own students. I think of the Film Center at SAIC, for example, indisputably the city’s premier film venue. What the colleges produce is an amenity and potentially of interest to a far larger percentage of the non-university people in the area than is typically the case.

4. The Practical Arts. Several of the institutions are either arts related, or provide career training in technical fields. I noted Harrington College earlier, but there are many other similar types of schools. Most of these cater to people who already live in Chicago, thus they provide a critical workforce development function for the creative industries in the city. Without these schools, the city’s theaters, design firms, restaurants, etc. would find themselves facing a very different labor force situation.

5. Planting the Flag. The growing prominence of Chicago’s Loop as an educational and cultural center has created a pull whereby it is almost mandatory for area institutions to maintain a point of presence downtown. So DePaul, Northwestern, the University of Chicago, etc. all have facilities in the Loop. This creates connectivity between those institutions and downtown, which is a good thing.

A diversity of institutions, catering to a diverse student body, predominantly small to medium in size, scattered throughout an area, in urban buildings that are part of, not apart from, their surroundings, hopefully featuring a healthy dose of creative and technical fields, and which create open to the public type amenities – that’s the way to do an urban university district right. That’s not to say you can’t have a large medical campus or university campus. There’s a role for those things. But especially in a CBD or near-CBD type district, the Chicago approach to higher education has much to recommend as a development strategy. It’s a model that should be more thoroughly documented and discussed in urbanist downtown development circles.

Friday, August 27th, 2010

Urbanoscope

The emphasis on little neighbourhoods, the stoop, local shops and walking distances, the ‘human scale’ only tells part of the story of the city – after all, these things can be found in villages and small towns. All cities need sublimity, a touch of holy terror, a defiance of human scale that asserts connection to the greater urban whole. Elevated highways, crowds, tall buildings, interconnection and confusion – these things can be to some people dismaying and unpleasant, but the awe they strike is the overture of accepting the condition of living in a city. – Will Wiles

Top Stories

1. Will Wiles: Saint Jane – A reappraisal of Jane Jacobs.

2. Parag Khanna: Beyond City Limits – “The 21st century will not be dominated by America or China, Brazil or India, but by the city. In an age that appears increasingly unmanageable, cities rather than states are becoming the islands of governance on which the future world order will be built. This new world is not — and will not be — one global village, so much as a network of different ones. ”

3. Alan Murray: The End of Management – “Corporations are bureaucracies and managers are bureaucrats. Their fundamental tendency is toward self-perpetuation. They are, almost by definition, resistant to change. They were designed and tasked, not with reinforcing market forces, but with supplanting and even resisting the market.”

4. William Strauss: Is US Manufacturing Disappearing? – “The manufacturing sector remains vibrant and innovative. Manufacturing output has been rising at a solid pace over time. Most of this growth, especially over the past 30 years, has been achieved by improving productivity. Of course, for some workers and towns, this increase in productivity has been a double-edged sword, since highly productive operations can achieve their output goals using fewer workers.”

5. Jay Green: My Quest to Live in Detroit is on the Ropes – This is an eye opening account of the difficulties Green has encountered trying to buy a home in Detroit. FannieMae continues to be a menace. I think this also goes to illustrate the problems of the poor investment climates that dog our urban cores, even in cities that are conventionally viewed as pro-business. Only the absolutely most motivated are willing to put up with this stuff. The vast majority just put urban investment in the “too hard” pile.

Global Cities

Foreign Policy published its 2010 edition of their global cities index. They don’t give an accounting of their methodology, but here’s the list. Their top ten:

  1. New York
  2. London
  3. Tokyo
  4. Paris
  5. Hong Kong
  6. Chicago
  7. Los Angeles
  8. Singapore
  9. Sydney
  10. Seoul

I should note that this list was prepared in part by the Chicago Council on Global Affairs. Isn’t home cooking delicious? FP also has a nice slide show to accompany the list.

Railigion in Action

Tampa mayor Pam Iorio made a comment that I thought was very revealing of the thought processes around light rail:

Light rail is the only choice for major local transportation corridor improvements, Tampa Mayor Pam Iorio said Thursday, while acknowledging federal requirements to study alternatives.

“I’m not afraid to say it – bus rapid transit is not acceptable,” Iorio said in an interview with The Tampa Tribune editorial board. “You tell us why Charlotte, N.C., Phoenix, Salt Lake City should have light rail and not Tampa.”

What’s interesting about this?

1. It’s again another small city mayor disparaging bus. You don’t see places like New York or Chicago doing that. In smaller cities without much in the way of transit cultures, citizens don’t have much personal experience or knowledge of transit and thus are vulnerable to demagoguery on the issue.

2. Despite Ms. Iorio’s gender, the penis-envy factor of other cities is clearly in play. Why should other places get one and not us?

3. The answer is preconceived and the alternatives analysis is a sham.

I don’t hate light rail and would support it where it make sense. But this approach of just build light rail, facts be damned only puts ammunition in the weapons of people who aren’t inclined to support any transit in the first place. And it makes you wonder if transit actually has anything at all to do with wanting to build light rail.

World and National Roundup

Rick Harrison: The Year 1959. Rick links to this amazing 1959 video describing sprawl and its problems in America in almost identical terms to those used today. Unfortunately, he did not make it embeddable. It’s from the National Association of Home Builders, so obviously has a PoV, but worth a watch anyway.

Richard Longworth: All Aboard – Talking high speed rail.

Joel Kotkin: Why suburbs, not dense cities, are the future

Tory Gattis keeps everyone up to date on Houston over at his Houston Strategies site. One of his recent pieces talks about Houston’s first official jitney service. And he also notes that Houston was number one for total job growth in America in the last five years.

Crosscut: Seattle is big for new media initiatives

St. Louis Business Journal: Most Arch design teams support removing I-70.

Chicago Tribune: State, feds move to force cleanup of Chicago River for recreation

Gothamist: Anti-Cyclist Scaremongering at a Boiling Point

Cleveland Plain Dealer: High tech carts will tell on Cleveland residents who don’t recycle – and they’ll get fined $100.

Gapers Block: Pittsburgh and the Magic of Failure.

Leaving Indiana

I learned this week that Bil Browning and Jerame Davis, co-founder of the Bilerico Project, are moving to Washington, DC where Davis is taking a job with the Stonewall Democrats. I’m no brain drain believer, but in the Bilerico Project, one of America’s absolute top LGBT sites, Browning and Davis proved themselves among the city’s top internet entrepreneurs and clearly the city’s leading media entrepreneurs. As with Formspring.me, this is a big loss for the city. That’s doubly true given the way the Bilerico Project was able to broadcast a far different view of Indianapolis to the world than the one that is commonly believed out there in the world. Best of luck to Bil and Jerame in their new home.

Columbus Branding Follow-Up

After my recent Columbus branding post, someone pointed me at this Chamber of Commerce video promoting the city. (Click through if the embedded video doesn’t display). I won’t opine on it, but let you decide for yourself what you think of it.

Little Big Berlin

A great tilt-shift video of Berlin, and some of what its people are up to. And a great soundtrack too. (If the video doesn’t show for you, click here).

Post Script

Here’s a very cool 1943 picture of Chicago that was part of a photo series of full color Depression/WW-II era snaps that have been circulating around the web. Check them out on the Denver Post web site.

Thursday, August 26th, 2010

The Physical Evolution of Infrastructure

Thinking about recent posts on the Metra bridge project and long term parking meter leases, I was reminded of a conversation I had with Professor David Solzman at UIC. He made an interesting comment that we need to find a way to create infrastructure that can physically evolve over time at reasonable cost.

Our fundamental approaches to many things haven’t changed that much, despite big changes in the world. We still create major buildings to last for the ages, even though they’ll be functionally and technically obsolete quite rapidly. We treat infrastructure as a one shot build deal, where to change, upgrade or even repair it later is a hugely invasive, costly, and difficult proposition.

Maybe instead we should operate on the consumer electronics paradigm, where we focus on low cost, innovation, and a shorter term product cycle. That might be one way. Another is to create more modular or flexible architectures that allow things to be changed or replace in a much easier and cheaper manner. With things like sewer and water pipes, this might be difficult. But it’s an area worth studying.

One of the big challenges we face is that the lifespan of our investments can exceed the realistic planning time horizon given the ever faster cycles of change. This can leave us stuck with albatrosses for decades. I think, for example, of all the cities building deep tunnels for stormwater management just as we’re on the cusp of being able to use new green techniques to do this in a better way and at lower cost.

I won’t pretend to even have the problem fully framed, much less have a solution. But this is an area that deserves significant study and consideration.

Tuesday, August 24th, 2010

The Index: Michigan and Ohio

Here’s another installment of my periodic postings with archive summaries on various topics. Today, looking at posts about Michigan and Ohio.

Detroit

I’ve done quite a few piece on Detroit that have proven extremely popular for whatever reason. I’d love to claim it’s because they’re brilliant, but there’s just something about Detroit that resonates with people.

Cincinnati

Cincinnati is a very under-appreciated place. It’s got its quirks, faults, and challenges to be sure – which for some people add to its charm – but also the greatest collection of assets of any city its size in America in my opinion.

Cleveland

It’s a struggling city, and one I’ll admit I don’t know enough about and haven’t cracked the code on yet.

Columbus

This capital city is one of the Midwest’s standouts in terms of demographic and economic performance. It’s a city to watch in the future. I’m putting it at the bottom since you probably saw most of these recently.

Enjoy!

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Cities: Cincinnati, Cleveland, Columbus (Ohio), Detroit

Sunday, August 22nd, 2010

Parking Meters and the Perils of Privatization

Last week I taped a segment for a film project on privatization. For some reason, people keep seeking me out to be the guy that will take an anti-privatization point of view. That always puzzles me because I’m generally favorable to it. I’m a big fan of the Chicago Skyway and Indiana Toll Road leases, which were clearly grand slam home runs. Chicago pocketed over $100 million from a privatization of Midway that didn’t even go through because the winning bidder couldn’t line up financing and had to forfeit their deposit. $100 million just for running an auction has to be the all time greatest ROI in the history of privatization. The recent Indianapolis water company “privatize to yourself” transaction was a pretty good deal I thought.

The fact that I cite all these long term infrastructure lease deals as examples of privatization, and that this is what everyone typically thinks of regarding it these days, shows how much things have changed in this field in just the last couple decades. Think back about 15-20 years ago and the types of deals privatization pioneers like Stephen Goldsmith did. He’s now a deputy mayor of New York City and formerly a Harvard professor, but then he was mayor of Indianapolis. Goldsmith undertook 80+ privatization deals. His approach was rooted in a conservative vision of good government where he believed that by subjecting what was formerly a government monopoly service provider to competition from the marketplace, he could reduce costs and improve quality of service. While as a moderate Republican he had free market sympathies, he wasn’t acting out of some innate hostility to government. In fact, he allowed the government employees who were already providing the services to bid on them, letting them up to propose how they would go about doing it if freed from the previous rules that tied them down. And those employees actually won some of the deals.

In retrospect, I think you’d have to classify this as a success. Some of these deals were criticized, and anytime you do 80 of anything you’re probably going to run into problems. But because these deals were periodically rebid, vendors had to stay on their toes and if they screwed up they could be sacked or replaced at the next tender, which happened on a regular basis. The risk was manageable, the benefits clear.

This is a very different type of privatization than the infrastructure leases above. Those deals aren’t about bringing competition to bear on service provision at all. They’re about jackpots. They are about substituting one monopoly service provider for another, and splitting the resulting monopoly rents between the government and the private sector. Rather than being rooted in a vision of how to improve government services, these deals are about how to generate cash from under-performing assets. It’s an investment banker mindset, not an operator mindset.

That’s not to say they are bad, as the examples above show. But they are very different. One of the biggest differences is that unlike Goldsmith’s deals, these are extremely long term contracts, often 50-75 years. This makes them very risky undertakings. If you sign a bad deal, the consequences are much more severe. Also, these deals generate large up front payments. Because of that, particularly in an era of financial crisis for our cities, there is an enormous structural incentive for mayors who operate on a four year election cycle to grab that pot of money, even if it means signing a bad deal.

The Chicago Parking Meter Lease

Which brings us, of course, to perhaps the most controversial privatization deal of recent years, the Chicago parking meter lease, which continues to generate negative press for the city. A recent provocatively titled Bloomberg piece, “Morgan Stanley’s $11 Billion Makes Chicago Taxpayers Cry,” had this to say:

Morgan Stanley, Abu Dhabi Investment Authority and Allianz Capital Partners may earn a profit of $9.58 billion before interest, taxes and depreciation, according to documents for a $500 million private note sale by their Chicago Parking Meters LLC venture. That is equivalent to 80 cents per dollar of projected revenue. Standard Parking Corp., which runs 30,000 spaces at the city’s O’Hare and Midway airports, earned 4.84 cents on that basis last year, data compiled by Bloomberg show. The deal illustrates how Wall Street banks, recipients of more than $300 billion in taxpayer bailouts in the worst credit collapse since the Great Depression, are profiting from helping states and cities close record recession-induced deficits by selling bonds and leasing public properties.

Oddly for a financial publication, this piece ignores the time value of money. But I think it’s fair to say that it’s likely Morgan Stanley got a very good deal on these meters. They closed this deal about the same time the Midway one fell apart. The fact that financing was readily available in tight market for the parking meters while it was impossible for Midway tells you everything you need to know about the relative merits of those deals financially.

But even if Chicago didn’t extract the last penny of value out of the parking meters, so what? It’s highly unlikely you are going to win huge in every deal. In fact, the more of them you do – and Chicago has done several – the more likely you’ll encounter a loser. Chicago got massively overpaid for the Skyway and Midway, and on a portfolio basis I feel confident the city is still a net winner from privatization on a cash basis even if it theoretically could have gotten more for the meters.

The Real Problem: Policy Risk

The problem with deals like the parking meter lease is that they aren’t like buying a stock, which is an entity with a purely financial purpose, and where if you screw up the worst thing that happens is that you lose money. They’re a lot more getting married. And if you marry the wrong gal – particularly with no option of divorce for 75 years – the consequences are a lot worse than a bad stock pick.

I’ve long said that most of the critiques of the Chicago parking meter lease are overblown. They’re good fodder for gotcha journalism, but not much more. But even so, this deal, and any deal like it, contains serious fatal flaws.

The main problem with the parking meter lease is that it locks the city into a particular policy structure on parking for the next 75 years. In order to get someone to pay $1 billion up front, you have to give them certainty as to the quantity, location, hours, and rates of the meters. All of these matters are thus written into the contract. In effect, Chicago has irrevocably set public policy with regards to parking for the next 75 years.

This might not matter for something like a toll road. Firstly, unlike with parking, there’s a track record here of successful deals. Second, tolls roads by design are built to stand apart from the territory through which they pass. They are purposefully isolated. This is one reason so many urbanists hate freeways. If you get something wrong on a freeway, you affect it but not necessarily everything else to a great degree.

But with on street parking it is very, very different. Parking spots are the curb lane of your streets. Your streets are the primary public space in your city. They are intimately connected with everything that happens in the city, which is one reason parking policy is so politically controversial. On street parking – in contrast to garages, which are very different – is a fundamental and integral element of urban planning policy. In effect, these deals aren’t about just parking spots, they are assigning a property right interest in the biggest component of public space in the city to a private monopoly that doesn’t have the public’s best interests at heart. The city of Chicago has ceded a portion of its urban planning powers to a private company.

I’ll show some of the consequences of this momentarily. But first I’ll address the response that the city hasn’t given up the right to anything, but still retains all of its powers it always had. That might be legally true, but de facto these powers can’t easily be exercised. I noted earlier how all of the parameters of parking policy are specified in the contract. They can’t be changed without paying the vendor to hold it harmless. According to published reports in the Reader and elsewhere, this isn’t even based on actual loses, but on a penalty schedule in the contract that assumes nearly 24 hour meter occupancy. This means if the city wants to change policy, it has to pay dearly for the privilege. Being broke, it can’t afford to. Alderman have already been told they can’t exercise their previous prerogative power to change parking hours in their wards because of this.

The essence of a monopoly is collecting rents. Everyone thinks of the public’s quarters here when it comes to leases. But part of the monopoly is on policy, meaning that the vendor is now in a position to extract even further rents from the city to change policy. I believe this is one reason these vendors desire such long term deals. They believe there is even more future value to be extracted through penalties and inevitable re-negotiations.

I actually cited that as a benefit of the toll road leases. The city in effect bought a hedge against changes in future conditions as part of the deal. For a relatively standalone asset like a toll road, that’s a good thing. For an integral part of the city’s public space, it’s catastrophically bad. This is because management of public space is, along with public safety, schools, and taxation, one of the single most important factors contributing to the attractiveness of a city as a place to live and do business. In an innovation era, in an era of ever more rapid change, locking yourself into a fixed policy for public space for decades is a terrible mistake.

Imagine the world 75 years ago (1935) or 50 years ago (1960). Those people could never have foreseen what our cities would be like, what the challenges and opportunities of our urban spaces would be today, what the technology would be today, etc. How likely it is we’ll know what we need even 10 years from now?

Unfortunately, one doesn’t even need to hypothesize about the negative fallout from this. It’s already visible.

New York’s Pop-Up Sidewalk Cafes

It’s no secret that New York is today’s leader in urban transportation design. Under Transportation Commissioner Sadik-Khan, they’ve launched a revolution in public space management, and have brought huge innovation and positive change to New York’s streets.

Here’s a small but great example. Some of New York’s sidewalks are too narrow to permit sidewalk cafes. So what do you do? Well, the Architect’s Newspaper reports on an experimental solution using pop-up sidewalk cafes. I believe this idea may have actually been borrowed from San Francisco, but it involves re-purposing some parking spots on a seasonable basis for a temporary sidewalk cafe installation. Here’s a picture:

It’s a nice solution, and an attractive design I might add. NYC went from concept to implementation in just one month. Now, maybe they are possibly losing some meter money from space removal. But at least it is only actual loses, not Chicago’s fantasyland liquidated damages. And with tomorrow’s dynamic pricing systems (see below) it might not lose anything. Also, while tampering with parking is always a sensitive matter, they were able to move quickly because, among other things, they don’t need to coordinate with a leaseholder on the spots. Everyone knows time is the enemy of the deal, and so many innovative ideas never happen because they hit resistance and end up in the too-hard pile. New York hasn’t created a barrier to continued innovation and improvement in its streets. As Transportation Commissioner Sadik-Khan put it, “Inventions like this help make our streets into destinations and improve the quality of life for the thousands of people who live, work, and play in Lower Manhattan.”

It’s not going to be impossible for Chicago to do this, but it is going to be harder. Maybe pop-up cafes are doable. But what about large scale BRT deployment? Or the bicycle boulevard I’ve proposed on Monroe St. as a way to safely link the west side to the lakefront through the high traffic barrier of the Loop? It isn’t hard to see how the meter deal puts a major obstacle in the way of all these things, financially if nothing else.

Dynamic Pricing

The other tragedy is that Chicago has locked itself into a parking policy at just the moment that we’re on the cusp of a revolution in on-street parking management. Just as we understand congestion is a result of underpricing, and that we can use dynamic pricing on tollways to optimize the use of that resource, dynamic congestion pricing is coming to parking. Based on the recommendations of professor Donald Shoup, San Francisco is rolling out high tech meters like this one that will enable it to dynamically change pricing in order to maintain 80% parking occupancy at all times:

The beauty of this approach is that it not only ensures that limited parking spots are used in the most economically efficient way possible, it also depoliticizes parking rates. Rather than setting them arbitrarily, or only once and nearly forever through a lease, San Francisco is basically telling the public “you tell us what the rate ought to be.” Like eBay, the value of a spot will depend on actual consumer demand, not government fiat. Who would have thought that the greatest bastion of the free market in parking would end up being San Francisco? This is an example of what modern technology is letting us take out of the ivory tower and into the real world.

There will no doubt be kinks to work out. But that’s why it’s good SF doesn’t have to deal with a private leaseholder. And even further down the road policy might change again. What’s more, none of this actually prevents San Francisco from issuing revenue bonds against its meter proceeds (which it has done in the past), nor does it prevent contracting out management of the system, enforcement, etc.

Again, this isn’t even about money. It’s about being able to better manage one of key assets of the city – its public space on its streets.

The lesson is very clear: maintain policy flexibility, particularly when it comes to these types of services. San Francisco and New York are positioned to step on the gas here, while Chicago is going to have to figure out how to deal with the consequences of its meter lease.

Lemmings Off a Cliff

Given the paucity of successful case studies for meter privatization, and the cautionary tale out of Chicago, one would think that cities would be hesitant to follow the same path. But apparently not. Lots of cities are considering this. Indianapolis just this week signed a 50 year deal for its meters. I’m sure they would say it’s completely different than the Chicago one. And I’m sure they couldn’t have failed to learn something from the Chicago fiasco. But in its essentials, at least based on media reports, this deal has the same basic characteristics as the Chicago one. Indianapolis is selling a 50 year property right interest in its public space, including virtually all of downtown, to a private company. And they’re doing it for a comparative pittance of only a $32 million lump sum. (The revenue share component does not necessitate a 50 year deal). At least Chicago got $1 billion for their trouble. What’s that story again about Esau and a bowl of soup?

I think about Indiana’s failed FSSA privatization. Gov. Daniels took some heat for this deal, obviously. But here’s a guy that has tried to advance the ball. Occasional failure is the price of innovation. If at least a few of Daniels’ ideas didn’t work out, I’d argue he wasn’t doing nearly enough. I don’t blame him at all for trying a new idea an in fact I think he ought to be admired for the political courage he’s exhibited in making the case for the new in a conservative state like Indiana.

But guess what, when the FSSA deal didn’t work, he was able to re-evaluate and cancel it. While some people who receive services from them no doubt experienced the downsides of this, in the long term, Indiana wasn’t harmed. But imagine if the state had signed a 50 year deal in return for a large up front payment. And when the deal went sour it had already spent it all and the state was so broke it couldn’t afford to cancel the deal even if it contractually had a termination clause? Indiana would have been in for a world of pain.

Cities would be wise not to put themselves in the situation to let that happen to them. Daniels understood the difference in risk profile between the FSSA and the Toll Road, and he contracted appropriately. Parking meters are closer in risk profile to the FSSA.

What Would Goldsmith Do?

Some local political bloggers claim a cabal of Goldsmith-era people are running the Indianapolis government behind the scenes. That sort of inside politics stuff is beyond my pay grade. Given that Goldsmith was the last Republican mayor before the current one, it would make sense that Ballard hired a few of those people, just like President Obama hired many folks from the Clinton administration.

But perhaps rather than listening to what old Goldsmith hands have to say, better to just look at what Goldsmith himself does – or, more importantly, what he’s not doing, which is signing a long term lease for Gotham’s parking meters. He runs their Department of Transportation, so this is clearly in his scope of responsibilities.

Yes, I’m aware that Goldsmith defended the Chicago parking meter deal. And I agree with virtually 100% of the article he wrote. The vast majority of the complaints about Chicago’s parking meter lease are much ado about nothing, and he explains why. But he did not address the matter of policy risk that I discuss here.

I’m sure he’ll be looking at parking in New York. There’s no doubt that parking in NYC is, as it was in Chicago, grossly underpriced. Fixed pricing for parking is on the way out. As for parking garages, I’m not sure why government is in that business anyway, since it’s clear that private enterprise will spend their own money to provide that service. I have no principled objection to the involvement of private enterprise in the management of on-street parking, which is clearly long overdue for a shake-up. I think there’s plenty of scope for contracting things out, issuing revenue bonds, etc.

But I’m confident that if he looks in detail at leasing New York City’s meters, the policy risks inherent in it will become very clear. That’s doubly true in New York, where public space innovation has played a key role in moving the city forward in recent years. I’ll be very interested to see how he addresses it. If anybody can figure out a way to structure a good deal around parking, Goldsmith is the guy. If he does a major parking deal in New York, then that’s a structure I’d advise anyone to take a hard look at and consider implementing. Until then, a long term parking meter lease should be a no-go zone for cities.

Who’s Your City?

One of the things about so many of the policy fiascoes of the past is that they tended to get universally applied, thus didn’t generate competitive disadvantage. Most cities had their share of urban renewal boondoggles, for example. But what happens when a bad policy trend hits, but only some cities go for it? We might get an example of it right here.

In the future there might be two kinds of cities: those who who sold off a long term property right interest in their on street parking – which is to say, in the most important component of their city’s public space – and those who didn’t. And make no mistake about it, no matter what anyone might claim about these meter leases, the long term sale of a property right interest is what they represent.

I won’t claim this is going to be the difference between urban success and failure. But it will make things more challenging to innovate, and keep up with best practices, in public space. It’s sort of like running with ankle weights and a 25-pound weight strapped on your back. It doesn’t mean you can’t finish the race, but it does put you at a competitive disadvantage. While a place like Chicago can probably handle it, lots of other cities are still struggling mightily to attract residents and investment to their urban cores. Why create gratuitous problems for yourself? Deals like this are one reason why, despite the fact that I believe Indianapolis has higher potential, I have said that Columbus, Ohio is likely to be the better performer in coming years.

Again, it’s an era of ever more rapid change and ever tougher competition. We have no idea what the world is going to be like 5, 10, 25 years down the road, much less 50 or 75. Anything that locks cities into a particular policy framework for the long term for areas where there isn’t a strong track record of success poses a high risk. I would strongly advocate that cities avoid entering into long term on-street parking leases until successful models have been developed and have proven themselves through shorter term, successful contracts.

Post Script

I haven’t examined the Chicago meter contract personally in depth and I’m not a lawyer in any case. If you’d like to, however, a copy is online here. My scan of it indicates that the city could change parking policy if it desired (it’s a “reserved power”), such as to implement dynamic pricing or some such, but only if it results in a net financial gain to the vendor. Otherwise, the city has to pay up (it’s a “compensation event”). This is what I mean when I talk about the ability of the vendor to extract even more downstream revenue through its ownership of that property right when the city needs to change policy. It’s amazing what the contract considers an adverse event. It even includes reducing the threshold for booting!

Friday, August 20th, 2010

Replay: Fantasy Transit Maps

There’s a sort of genre of urbanist creativity out there of fantasy transit maps. These are maps of transit systems that don’t exist and usually aren’t even proposed yet, but rather just express some dream of the creator, often quite epic in scope.

What I find interesting is how much better these often are than actual transit maps or proposals. I noted before how the Cincinnati streetcar people basically don’t even have a decent map of the line [now fixed]. Contrast that with this example that Columbus Underground points us at. If you click the image, you’ll get a high resolution PDF.

Now that’s a pretty slick map. It is, for locals at least, recognizably Columbus. The crisp, modern design, 45 degree angles, and relatively equidistant stations recall the famous London map and others from cities around the world. The idea being to show how Columbus could position itself among these global cities by creating a transit system. You can even buy it as a poster! A nice possible marketing tool.

This map was created by designer Michael Tyznik and is part of his online design portfolio.

People who are pushing actual transit system improvements could learn a lot from these fantasy maps. Coming up with high quality collateral that demonstrates what the end state looks like is important. And if you can make short term progress and update the map to show reality being made, even better. Transit advocates should take note.

Here is a collection of Columbus fantasy transit maps.

And additional fantasy maps some people linked to in the comments of the original post.

Indianapolis:

New Orleans:

Cincinnati (printed on a T-shirt):

St. Louis:

This article originally appeared on December 2, 2009.

Thursday, August 19th, 2010

What Is the Real Function of an Arts Organization?

According to an article in D Magazine, the Dallas Symphony Orchestra is in financial trouble:

There’s no doubt that the symphony, like many nonprofit groups in North Texas, is struggling to make ends meet in the teeth of a still-sputtering economy. The DSO’s plight is especially vexing to many Dallas businesspeople, however, because of the symphony’s importance to the business community as a symbol of the city’s cultural standing….After four straight years of balanced budgets—and a 70 percent increase in its endowment, to $120 million—the DSO ran into difficulty two years ago after its then-president and CEO, Fred Bronstein, left to head the symphony orchestra in St. Louis. Battered by the stock market crash and the so-called Great Recession, the DSO’s endowment would plummet to $84 million.

Local donors are hesitant in a tough economy and Dallas is having difficulty raising funds. What I find interesting is the juxtaposition of the endowment decline with the $1 billion the city just invested in a performing arts complex:

It is clearly one of the most impressive collections of new arts buildings in the country, designed by some of the finest contemporary architects – Renzo Piano, I.M. Pei, Edward Larrabee Barnes, Foster + Partners, Rem Koolhaas and Brad Cloepfil, whose Arts Magnet High School could provide the daily doses of populist energy that the district needs.

How can a city invest over a billion in buildings but not support the on field product? It reminds me of a previous post on Kansas City’s Kauffman Center for the performing arts, whose price tag could have created an endowment that would have funded the entire operating budgets of the symphony, opera, and ballet in perpetuity.

Obviously art is not the primary role of these organizations play in their community, but something else entirely. That’s not to say that expenditures on buildings that seem excessive to some or to have no rational purpose is a bad thing. Man does not live on bread alone. Throughout history great civilizations have raised monuments of a questionable nature that nevertheless continue to inspire to this day – from the Pyramids of Egypt on down. A city that did not have such aspirations, that created a purely utilitarian environment driven entirely by the iron law of cost benefit, would be a place in which the spirit of man was atrophied. Few such places ever achieve greatness.

But there’s a balance to be had. The greatness of Athens was not in the Parthenon, nor Rome in the Coliseum. It was the intellectual, cultural (and yes, military) pursuits that happened in those places. Dallas is a great commercial success. It’s now looking to harvest the cultural benefits that can come from it. But Dallas would do well to heed the lesson of earlier boomtowns like Chicago. As Chicago got wealthy, it didn’t just build imposing Beaux-Arts monuments, it populated them with world class institutions. To this day the Art Institute of Chicago, the Chicago Symphony Orchestra, and the Lyric Opera of Chicago are among the finest in the world.

Dallas, Kansas City, and others looking to elevate their recognition level and quality of life through the arts should recognize that first and foremost it’s about the art. Building world class buildings populated by second rate, financially starved institutions would send a message to the world about a city alright, but I’m not sure it’s the one city leaders hoped to create.

Thursday, August 19th, 2010

Stuck in the 90′s

My latest post is online at New Geography. It’s called “Stuck in the 90′s” and extends some of the ideas I’ve written about here regarding economic changes over the last couple decades. The 1990′s really were a great decade for job growth in America’s tier one cities. The 2000′s were a different story entirely. These places would be well served to start focusing as much on the basics of job creation as they do on glamour projects.

Tuesday, August 17th, 2010

Jim Russell: Catch a Rising Star – Pittsburgh

[ It's no secret I'm a fan of Jim Russell, who is doing simply the most compelling writing out there on the geography of talent on his blog Burgh Diaspora. He's also the best at stating the case for why Pittsburgh is positioned to shine in coming years. If you want to know why the Pittsburgh story is real, read Jim's blog. He graciously agreed to share a bit of the case for Pittsburgh today, focusing on its reputation as a demographic disaster zone - Aaron. ]

Prima facie, Pittsburgh is the picture of demographic dysfunction. Both the metro area and the city are perennial population losers. The core county of Allegheny is home to some of the highest concentrations of elderly people in the entire United States. As for domestic in-migration and immigration to the region, calling it anemic might be too generous. Shrinking cities scholars Justin B. Hollander, Karina Pallagst, Terry Schwarz, and Frank J. Popper sum up the Steel City, “Demographically, Pittsburgh consistently ranks as one of the worst performing U.S. cities in terms of poverty, crime, employment, income, and housing abandonment.”

This sad story is the basis of what the above authors term the “Pittsburgh paradox”. Why are cities across the country trying to figure out how to copy such a miserable place? Pittsburgh is legendary in urban planning circles. But don’t take my word for it:

Paul Farmer’s reputation as a visionary planner is what first caused Minneapolis officials to seek out and court him in 1994. Farmer had already served 14 years as deputy planning director in Pittsburgh when he accepted the Minneapolis post. He’d worked as a planning consultant in Canada, India, and Germany. He’d taught urban planning at several universities. In Pittsburgh, Farmer led the charge to redevelop 35 miles of waterfront, install busways and a light-rail transit system, and transform contaminated land into parks, businesses, and residential neighborhoods–all projects that city leaders have long been anxious to see happen in Minneapolis. …

… When you came to Minneapolis, it was clear why the city wanted you working here. Projects you steered in Pittsburgh–light-rail transit, the riverfront, downtown improvement–have had city councils across the country drooling.

Minneapolis wanted to be the next Pittsburgh. Given the lousy data associated with this Rust Belt backwater, all the interest in the economic redevelopment going on there is curious. Pulling a Pittsburgh would appear to be a bad idea.

Downtown revitalization is one thing, but stimulating a regional economy is quite another. Did Farmer’s efforts really spark a renaissance? The jury is still out on that question. But during the depths of the current economic downturn, Las Vegas looked at Pittsburgh as a model of a way forward. A reporter from the Las Vegas Sun called me, inquiring about the positive changes in my favorite city. What might Pittsburgh teach devastated Las Vegas?

I’m under the impression that most people don’t believe the good press that Pittsburgh receives. But I also think that few appreciate how far Pittsburgh has come, particular when one considers the lack of inmigration and immigration that has favored so many other cities, such as Las Vegas. The city has done much more than “redd up”. As I see it, the transformation of the regional workforce is more worthy of celebration. Pittsburgh is a demographic dynamo.

If you are familiar with my blog (Burgh Diaspora), then you know I’m fond of linking to this post from the Federal Reserve Bank of Chicago titled, “Growth and Great Lakes Cities”. As you might expect, Pittsburgh sports poor job creation over the last 40-years. Weighing per capita income, Pittsburgh is a hands-down winner. Words from the Fed:

The two local leaders in 1970 college attainment, Columbus, Ohio, and the Twin Cities also experienced the fastest employment growth. While Pittsburgh ranked low in college attainment in 1970, its gains in this metric since then have been the most rapid. Perhaps not accidentally, Pittsburgh’s growth in per capita income also outpaced other cities in the region.

Concerning the 1970 baseline, we would expect Columbus and the Twin Cities to do well over the next four decades. Smart cities tend to get smarter. Pittsburgh bucks the trend, unique among large metros (and not just Rust Belt cities). The result is some of the highest concentrations of college educated young adults in the entire country. (here and here) As the Boomers leave the workforce, Pittsburgh will emerge on par with Boston, Austin, San Francisco, and Washington, DC In terms of the availability of talent.

The strong performance numbers have been there all along, for anyone who cared to look past the shrinking city title. The fallacy is that population growth indicates economic growth. This is industrial era thinking. New metrics track educational attainment and the migration of the college educated. Pittsburgh does very well on both counts.

Then why aren’t people moving to Pittsburgh? As detailed above, Pittsburgh prosperity isn’t tied to attracting new residents. During the most recent recession, that has proved to be a point of economic resiliency. Thus, there is interest from boomtowns such as Las Vegas in learning how Pittsburgh did it. Improving the urban core didn’t bring back the people who left in the early 1980s. Nor did the title of “America’s Most Livable City” do anything to entice outsiders to relocate there. The declining population said all that needed to be said. No one, from there or elsewhere, wants to live in Shittsburgh.

As Aaron Renn himself has noted, all of that is beginning to change. More impressive to me is the improving jobs picture. I’ll bring your attention to two graphs from Chris Briem (Null Space), “Pittsburgh MSA Labor Force, 1970-present” and “Difference Between US and Pittsburgh MSA Unemployment Rates: 1970-Present“. The recession of the early 1980s was a demographic disaster for the Pittsburgh region. Relatively speaking, the most recent recession is the best of times. The progress over that 25-year time period is astounding, the reversal of fortune jaw-dropping. That change will get the attention of other cities. That’s what all the fuss is about, not the gloom and doom stereotype that has dogged Pittsburgh for the better part of half a century.

Pittsburgh is accelerating into the Great Reset like no other city in the Great Lakes megaregion. It’s a strong performer hiding in the Rust Belt, the manufacturing legacy still the dominant image. The usual numbers remain unimpressive, for now. The real story is lurking just beneath the surface. Pittsburgh, a former world class city, is a rising star.

Jim Russell is a talent economic geographer whose mission is to help shrinking communities benefit from outmigration. He can be reached at E-mail: jimrussell@globalburgh.com

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

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