Monday, May 27th, 2013
The Downtown Project in Las Vegas, an attempt to completely reinvent downtown Las Vegas spearheaded by Zappos CEO Tony Hsieh, is one of the better known downtown revitalization initiatives in America. I’ve been planning to write on it since I saw Tony speak about it in Providence last fall. I was kicked in the pants to finally do so by a trip I took to Vegas last week to check the Downtown Project out.
Before going any further, I should disclose that I stayed there for free in one of the project’s “crash pad” apartments (more on those later). I also previously had a small financial relationship with affiliated entity. And I bought my running shoes on Zappos and might have gotten a free upgrade on shipping. But while this article will be very positive on Downtown Project, please stay tuned for part two before dismissing me as a shill. That’s where I plan to cover the negatives.
What Is the Downtown Project?
There’s nobody better to tell you want the Downtown Project is than Tony Hsieh himself. Here’s the talk he gave on it in Providence at BIF-8, a sort of TED-like conference. If the video doesn’t display for you, click here.
In brief, Downtown Project is seeking to reinvent downtown Las Vegas as a community oriented innovation hub. The genesis was Zappos’ purchase of the old Las Vegas city hall as a headquarters. Rather than a traditional tech campus like you might try to find in the suburbs, Tony wanted to build an urban campus more like NYU where Zappos was integrated into the city.
Here’s a picture of City Hall/Zappos future headquarters:
This was not an entirely altruistic move. Research shows that corporations have sub-linear scaling. That is, they become less productive for innovation as they get bigger. But cities have super-linear scaling as they get larger. That is, cities get more productive for innovation as they grow larger. Part of the idea of Downtown Project is to preserve the innovative and productive capacity of Zappos as it scales by hybridizing the company with the urban environment of downtown Las Vegas.
If you’ve read Tony’s book Delivering Happiness you know that customer service is Zappos differentiator, and its company culture is the foundation of making service and everything else they do happen. So unsurprisingly, culture is a big part of what the Downtown Project is setting out to do. There are three project goals. They want to make downtown Las Vegas:
- A true live/work/play environment
- The most community-oriented downtown in the world
- The co-working and co-learning capital of the world
The strategy to accomplish this is basically Ed Glaeser meets Richard Florida. It’s about density, creative class activities, collisions (aka serendipitous interactions), and openness (aka tolerance). From there, as Tony puts it, “The magic will happen on its own.” Or that’s the theory. The magic is intended to be happiness, luckiness, innovation, and productivity.
To make this happen Tony raised $350 million for the Downtown Project. It’s a separate entity from Zappos though it isn’t clear who the investors behind it actually are. (The information may be out there somewhere. Some have suggested Tony is paying for the entire thing himself. Once before he took every penny he made from selling a startup and rolled it into Zappos, so I guess it’s possible. He certainly has a huge appetite for risk. However, when I’ve heard him describe the project, it has only been as “privately funded” which suggests other investors. Given that this is in effect a Zappos campus buildout project, one would hope the company is actually contributing, especially as Amazon now owns it. Whatever the case, clearly Tony is calling the shots and is personally involved at the most intimate level).
Now that sounds like a lot of money, but you could easily spend way more than that on just one real estate project. So instead of just trying to build a bunch of apartments or something, a good chunk of the money is penciled in for “software” type of activities. The allocation is $200M for real estate, $50M for tech startups, $50M for small businesses, and $50M for education, arts, and culture. The real estate money seems to be going quickly as the Las Vegas Sun has reported that the Downtown Project has already spent at least $93 million just on land acquisition, buying 28 acres, mostly along Fremont between Las Vegas Blvd. and Maryland. Their ability to transform the city through purely building would appear to be limited.
The software consists of two venture capital funds. One is going for traditional tech startups, many of which Tony is personally recruiting to Las Vegas. So far there have been about 30 takers, though these are mostly very small enterprises. The other is for small business infrastructure like boutiques, coffee shops, and restaurants with a focus on owner-operated businesses that are unique or best in class.
Natalie Young, owner and chef at Eat, a Downtown Project funded breakfast/lunch restaurant (and a very good one too!) – Image via Eating Las Vegas
The Beat Coffeehouse. (Not a Downtown Project funded venture AFAIK) – Image via Timothy Dahl
Both of these are bona fide investment funds, but the focus is not necessarily short term profits. Rather, Tony likes to talk about “Return on Community” as their metric. This is really an investment mindset of necessity. Downtown Vegas has a huge chicken and egg problem. It won’t be attractive to business and residents unless there are cool things to do and the services people want. But the service oriented businesses won’t open until there’s demand. The Downtown Project is trying to solve this by in effect being a source of “patient equity” by pre-funding the services until critical mass is achieved. And of course the demand side is in part being addressed both by the Zappos move and the tech startup initiative. The goal is basically acceleration of what might have happened organically, though it’s too early to tell if there will be success.
I’m not sure what all is in the arts and education fund, but there’s plenty going on in those areas, including a downtown speaker series (with a theater to house it), the purchase of public art from the likes of Burning Man, and a major music festival called Life Is Beautiful. This category seems to be a catchall for filling in the gaps between the others. I’m not sure what fund these fall into, but there are also co-working spaces for fashion (Stitch Factory) and tech (Work in Progress) with a Tech Shop like space coming soon.
The project focus seems to be principally business attraction and programming. There’s little purely residential development to speak of, in part because that type of bricks and mortar project is so expensive. I’m sure the hope is that the environment will draw developer interest to provide the housing as demand is stimulated.
To sum up, Downtown Project is Tony Hsieh as real estate developer + venture capitalist + philanthropist. In effect, he is trying to be a curator/impresario for downtown Las Vegas.
Project Success Factors
I think there are two main things that the Downtown Project has going for it: the guy behind it and the city it is in.
The first is the man himself, Tony Hsieh. First, he’s a successful, proven serial entrepreneur. He also clearly isn’t scared off by massive risk. Beyond this, he just has general gettitude on cities, which is something that too few people calling the shots in the redevelopment efforts of similar sized cities can say. Because he runs basically the highest profile non-casino business in down, he’s got the gravitas (and the money) to convince the civic establishment to go along with way he wants. Or at least to get out of his way. In too many cities, the people who know what’s up are marginal and uninfluential versus traditional power players. The knowledge capital is there, but it’s not paired up with clout like it is with Tony. And as a superstar entrepreneur, he can command massive attention outside Las Vegas, as well as be very influential in recruitment of startups, etc. Tony H. is clearly the indispensable man on this project.
But Vegas is also the right city. I come at this as someone who has been a champion for overlooked post-industrial cities in the Heartland. So I’m guessing my reaction when I saw downtown Vegas is pretty similar to what advocates from other similar sized cities would say: This is it!?
Let’s be honest, what’s actually been physically achieved in downtown Las Vegas to date is quite limited. The Downcity Arts District in Providence is better than Fremont East. Over the Rhine and downtown Cincinnati blow Vegas out of the water. Downtown Indy already has more tech employees than Vegas will even after Zappos makes the move. Honestly, it’s a bit infuriating as a guy who lived in Indy, Louisville, and Providence to see a place where so little has happened garner such massive press and accolades when most other regions the size of Vegas have done more while getting far less attention.
However, I think we need to get a sense of perspective. The first thing to understand is that for all intents and purposes there is no such thing as “downtown” Las Vegas. What they call downtown has some older casinos and some government buildings, but that’s it. There’s no traditional employment or commercial core. There’s a grand total of one decent sized office building in the entire place. Here’s a picture:
That’s basically it. Most of downtown is either vacant or has marginal business activities at best. This old boarded up hotel is typical:
The streets of downtown are nearly deserted even in the middle of the day. You could shoot a cannon off and not hit anything.
By the way, that new building is the federal court house. The tall buildings further away are on the Strip. Here’s what you see across the street from Zappos:
Las Vegas has the single most savagely bleak downtown of any major city I’ve ever visited. The Downtown Project is almost literally starting at zero. There are practically no assets. So anything that the Downtown Project accomplishes needs to be seen against that backdrop. Most of these other cities have been at the downtown redevelopment game for 30+ years, have massive architectural and institutional assets, and have already been the recipients of untold billions in investment, much of it public money. There’s next to none of that in Vegas. Frankly when you see what’s already been done and is being done with $350M – and so quickly – it almost makes you weep to think about the billion dollars or so in taxpayer money that has gone into stadiums and arenas alone in so many other smaller cities. Oh, what could have been done with that instead!
Fremont East, an exception to the rule of bleakness. Most of the establishments on this block are not gambling oriented. The core of the Downtown Project is to extend this several blocks to the east. Image via Flickr/davelawrence8
At this point you may be wondering why I say this is a success factor. Simply, because it’s clear the elite of Las Vegas have completely abandoned and turned their backs on downtown. If they had even a smidgen of pride in their city, they would never have let it get like this with no effort to change it. This leaves the institutional playing field clear for people who actually know what they are doing.
I was chatting with one of the Downtown Project employees who is from Rhode Island. He compared the ease of getting things done in Las Vegas with the near impossibility in Rhode Island. In most places, there’s a spider web of competing land interests, power brokers, politicians, etc. all fighting over what happens downtown (especially who gets to receive all the subsidies). This seems to be immeasurably less true in Vegas. All of the action is on the Strip, so the downtown playing field is wide open. This is one place where the term “blank canvas” might really be appropriate. There’s probably an ability to execute in Las Vegas that simply doesn’t exist in other cities because of the lack of competing interests. (This is also a huge problem for Downtown Project, which I’ll cover in the next installment).
I want to wrap up this part with a look at some of the highlights of what Downtown Project is doing.
Actually, the most compelling thing that they are doing, a combination of what they call “Subscribe to Las Vegas” and “Las Vegas Makes You Smarter,” I’m going to save for part two so I can use them as the exception that proves the rule. However, there are some other very interesting things.
One is that Las Vegas is the only city I’ve ever visited that actually has sales and not just marketing. Let me explain. Every city in America obsesses over talent and spends beaucoup dollars on various talent initiatives, etc. Similarly, we hear about startups and building tech communities. But while everybody says they want this stuff, and while everyone has a web site and well-funded booster clubs, what nobody actually tries to do ever is actually recruit people unless there’s a specific job opening they are trying to fill.
I always like to do my “Urbanophile test” when I go speak somewhere. Obviously if people are willing pay me to come speak to them, they must think there’s at least some value I bring. But how many places I visit will actually attempt to sell me on their community as a place I might want to live? The answer is zero. I’ve talked to more than enough people to know this is a common occurrence. Nobody is actually selling their city.
Vegas is different. Downtown Project, and Tony personally, are aggressively involved in sales. They leased out 50ish units in a residential high rise called the Ogden (one of only a handful of residential properties downtown). They use these as what they call “crash pads.” They are for people who want to come check out downtown Vegas and the Downtown Project to stay free. They also make sure to showcase what they are doing. And they are going to try to show you how downtown Vegas could be a fit for you or your business. Tony himself is personally involved with this. I was able to take a small group walking tour with him, and part of his agenda was trying to sell a small retailer on setting up shop in a retail development they called Container Park. Here’s this guy who is a multi-mega-millionaire personally recruiting a small business. Hard to imagine there’s a lot of that going on in other places. Think having a tech rock star personally making the ask helps bring small tech outfits to Vegas? You bet it does. Unlike 99% of other cities in America, the downtown Vegas crowd is actually asking for the business.
The Ogden, home of the Downtown Project “crash pads” and what Tony calls the project’s “secret weapon” – Image via Business Insider (lots of good photos of downtown Vegas and the Downtown Project on that page)
Another item, as I highlighted earlier, is capital efficiency. It’s basically the Zappos do more with less ethos. A major retail development will be made out of shipping containers. A new hotel will be Airstream trailers. A casino called the Gold Spike is getting a fairly lo-fi makeover instead of getting scraped and replaced with a Taj Mahal. All of these are stretching $350M at lot further than it would go in most cities. Part of this is obviously of necessity, but is has big benefits. As Jamie Lerner of Curitiba put it, “If you want creativity, cut one zero from your budget. If you want sustainability, cut two zeros. If you want to make it happen, do it fast.”
The car share program they are setting up is also interesting. Firstly, the backbone of the fleet will be 100 Teslas. How cool is that? They are planning to do an entirely electric fleet. Also, the idea is to integrate bike share and every other mode of transport you might need into the same system, and have it accessible from your phone.
Lastly, a couple of the projects – the container space and a school – are oriented towards children. This is very rare to see, as families and children are simply not part of the equation in most cities that are targeting the “young and restless.” While the ubiquity of sexually oriented material in downtown Vegas means this will never be a truly kid-friendly environment, there’s at least an effort being made.
That’s a look at the project and a number of the positives about it. If this seems like too much puffery for a traditional Urbanophile post, stay tuned. Thursday I’ll take a brief look at the nature of community and collisions in small cities. Then I’ll follow-up with part two of this series where I examine my reservations about the project and the challenges it faces. Stay tuned.