Tuesday, June 3rd, 2014
Where can we expect real urban change in the way cities and regions manage themselves? So far, in this recession, we’ve seen the emergence of “tactical urbanism”, a kind of low-cost, grass-roots redevelopment of small urban spaces borne out of a lack of money and more formal urban plans. That’s not to put down the good this has created, but where and how can we expect to see cities, many if not most now stopped dead in their tracks in real revitalization, begin to move forward ahead again? Where will we see new management approaches that make better use of the money, enjoy widespread public support, and get large projects done?
This obviously isn’t happening yet, at least in a widespread way, but I offer here a framework for looking for this change, a kind of “triocular” of three lens or factors to spot where the conditions are ripe for change. I’ll describe those here, and then speculate on which regions and cities are most likely to change first and how long it will take for this change to become more widespread.
These three factors are: 1) the need for infrastructure; 2) high pension and other forms of debt, and; 3) local equity issues. When all two or three of these are strongly present, cities will need to find a different way of doing things, and necessity will be the mother of invention. Here’s why these three factors are important:
1. Infrastructure Needs
Infrastructure is the one thing most people can’t find a public substitute for. If the public pool closes, people can walk for exercise or join a private club. If a critical stoplight backs up every morning, they have to get up earlier, and try that as a quality of life to try the patience of voters!
Infrastructure issues become more critical the faster a region is growing. Traffic in Buffalo just isn’t the same as it is in Silicon Valley. And new infrastructure dwarfs salary expense. A typical municipal employee costs $90,000 a year all-in. A typical freeway interchange costs $25 to $150 million. With state and federal financing getting scarcer, cities are going to have to find a new way to pay for this.
A second aspect to infrastructure is a city or region’s credibility in developing it. Here in Washington State, legislators want to pass an omnibus transportation bill that will straighten freeways and pay for new ferries, but problems with current projects have undermined public confidence in government’s ability to manage these. This last year the newspaper has been filled with headlines about a new ferry that lists, bridge pontoons for a new floating bridge that leaks (eek!), and a tunnel boring machine stuck under Seattle. In the Bay Area, a replacement for the Bay Bridge originally estimated to cost $750 million came in at more than $6 billion. We need new ways to manage not just the construction but make the strategic decisions about how best to meet our needs and then structure the contract. Expect to see more independent, “blue ribbon”, need-specific commissions appointed to do this.
2. Pension Debt
These infrastructure problems would be a lot easier to solve if governments had the debt capacity, but they don’t. Stockton’s bankruptcy came from a combination of high spending on redevelopment projects, including a new waterfront promenade, an arena, and a new marina, and overly generous compensation for employees. The recession didn’t so much cause the bankruptcy as tip over a teetering set of dominoes. California redevelopment debt meant to go for capital projects was used to pay part of the salaries of mayors. Now, thanks to money problems at the state level, that form of financing is cut off, even as cities find their other forms of credit maxed out.
Debt alone won’t cause cities to change. We may get a set of “walking dead” cities like Detroit and Stockton that emerge from bankruptcy but never move forward because they have no prospects and deep management problems. But in dynamic places where industry is growing, the combination of infrastructure needs and debt limits will likely lead to new financing. San Diego has a history of troubled government, but with all of its prospects for bio tech growth, and world class institutions like UC San Diego and Scripps, can you imagine a place like this not finding a solution?
3. Equity Issues
These, too, are coming to the fore where the tech growth is the greatest. When everyone is poor, as in Appalachia, there are no perceived differences. When, as in San Francisco or Silicon Valley, this means losing the lease on your apartment, people come out to city council meetings.
The challenge here is that local governments cannot do much about differences in income, and yet they need to provide public services in a way that seems fair to all. The Google bus controversy, for example, is about more than just white buses using the curb in the morning. Those sleek, tall tour buses provide a clean, quiet, free, WiFi-enabled way for tech workers to commute long distances. All this while local service workers commute across town paying full fares for buses that frequently run late and sometimes have homeless people shouting in the back. Try building public consensus with that kind of split!
A Recipe for Change
Where are we most likely to see innovative change? Where these three factors come together. Probably not in Portland, Denver or Dallas, which have built out comprehensive light rail networks that give them the capacity for growth. The Bay Area is almost a certainty, as are Phoenix and Atlanta, which choke on growth, especially now that Millennials want to live and work in urban centers. Other possibilities include New York and Chicago, but politics and entrenched bureaucracies in those places may keep them from moving forward. (Can you say “Chris Christie”?) Other possibilities include the smaller cities—the Boulders, Austins, Madisons and Burlingtons of the world—but because of their scale, they can probably make their urban systems work along traditional lines, with a healthy helping of bicycling thrown in. Not on the list? Cities with few or no prospects for growth, such as Cleveland and St. Louis, where the infrastructure may be getting old but there is plenty of capacity and the commute times are relatively short.
The pace of change is another story. It took 30 to 40 years to make urban living fashionable again, and it will probably take 20 to 30 years to cook up new recipes for urban management. That assumes that some city is out there right now grappling with a problem is heading towards a new solution, that it will take several years to put the solution in place, and another three to five years after that to get noticed. Then another ten to 20 years after that for widespread copying. Thirty years ago we did see the electronic chip manufacturers in Silicon Valley come together, when their employees were late for work, to get a new transportation plan, the South Bay Master Plan, financed and under construction in a matter of just several short years. Maybe lightning will strike twice.
Rod Stevens is a management consultant on Bainbridge Island, WA. He can be contacted at email@example.com.
Wednesday, October 16th, 2013
[ Quality of place improvements tend to be targeted at high end demographics downtown and such. In this piece Rod Stevens and Gregory Tung talk about how the needs of industry for better quality places should not be overlooked – Aaron. ]
In a recent posting on “The Promise and Peril of Rust Belt Chic” Aaron Renn contrasts the goals of self-affirmation with the Richard Florida approach of hipster havens. There is a division here between creating jobs and place-making, a gulf that has never been bridged between economic gardening and New Urbanism. Recently, we may have found a way of uniting these approaches, by focusing on the work districts themselves and the place-making needs of the firms already located there. We did this as part of a strategy for a 21st Century workplace district in San Leandro, California.
San Leandro is located just south of Oakland, in the San Francisco East Bay, and in recent years the city has seen most of the good new jobs go north to Berkeley and Emeryville. At one time San Leandro was an industrial powerhouse, a suburban center where factories were moving into farm fields. As California grew after WW II, this became a lunch bucket paradise where Portuguese and Italian families moving out of Oakland could earn a good middle class income working at the Caterpillar plant, the Dodge factory or one of a hundred other companies. By 1970, more than 20,000 people worked there in manufacturing. With its focus on making ordinary, everyday things, San Leandro was more like Muncie, Indiana than Mountain View, another Portuguese farm town to the south that was going electronic in what would become Silicon Valley.
Then, in the mid 1970s, the factories started to close and the jobs move away. The factory buildings stayed, but instead of being used to make things, they became places to store things. Today there are only about a third as many people working in manufacturing as there were 40 years ago.
Today the vacancy rate for this industrial space is just 5%, a rate brokers point to with pride, but their value is far less than in Berkeley, just 15 miles away, where there has been a renaissance of small, urban manufacturing. Like Brooklyn and San Francisco, Berkeley has become a center for making niche goods, not only food and apparel but also very technical items like scientific glassware. Those specialty skills have, in turn, drawn in companies that need them as part of their supply chain.
This realization that, effectively, many of the local buildings in San Leandro are barren of people led us to our first strategic goal: “IQ per acre”. This means raising the value-added in each building, whether by man or machine. This doesn’t have to require a masters degree. A lot of people are smart with their hands, and advanced manufacturing is all about combining technical skill with computer-controlled machinery that leverages this skill.
As we looked around the area and began compiling lists of interesting companies that worked there, we realized that much of the original DNA of making things is still there—but these companies had been forgotten or gone unrecognized by the city. We found companies still working in food processing, metals and machining, and instruments and process control. We also found vestiges of older companies that had moved away to cheaper places where it was easier to pollute, but in which the orphaned child had grown up and found success. INX Digital, founded as the subsidiary of a local paint company, now serves as the worldwide R&D center for a company that makes the inks that go in wide-bed printers. People working there wear lab coats.
As we talked with the managers of these companies, many of whom simply commuted into work there and felt no particular attachment to the place, we realized that some of their business needs were going unmet. They told us that they had no place to go to lunch and that local hotels were so tired that they put customers and suppliers up in other cities. They said that the curbs needed to be restriped to create more on-street parking, so that women coming off the night shift would not have to walk so far to their cars. They told us that the younger generation of tech talent coming from San Francisco and the North Bay could not take the BART trains, because the shuttle connections were too slow and infrequent. And they told us that their workers would like to have a nice place to walk to at lunch, someplace green that would be an alternative to the drab, industrial landscape.
This led us to our second strategic goal, “Serve existing customers first”.
Why? Because not only are these firms already there and producing jobs, but they are the best source of referrals for new business. You want them talking up the place at their next industry conference. You want them telling other companies in their supply chain that this is a good place to do business. But how to get them involved? A manager running a computerized chocolate factory probably is not going to take two hours off in the middle of the day to attend a planning meeting. You have to make it worth their while to get involved, to take care of that parking problem today. Only then will they get interested in the longer-term planning issues.
As we drove around the area, we realized that we ourselves were lost within it, despite many trips there. Key roads do not connect, most of the buildings are sun-bleached, and there are few landmarks. Nearby there is a Kinkos and there is a Starbucks, but they are buried in an outlet mall, across the freeway. In all, it reminded us of the movie “The Sheltering Sky”, in which Debra Winger wanders through the Sahara with nomads. How and where to create some oases that people could actually attach themselves to?
This led us to our third strategic goal, “Humanize the place”. With more than 2,000 acres to deal with, however, you cannot spread the peanut butter too thin. You have to concentrate the investment.
Our first tactic, then, became a “backstreets strategy” of attracting smaller companies to the cul-de-sacs and lanes with smaller buildings that are easier to change and upgrade, where changing a few facades, adding a parklet and improving parking will improve the overall place. The city has a façade program, but this has always been targeted at Main Street merchants, not factory managers.
A new, $1 billion Kaiser hospital is opening in the area, one that will bring more than 2,000 workers as well as countless patients, and so we encouraged putting a pod of food carts on its front door. Not food trucks but food carts. These are stationary and are far less costly to buy and operate than trucks. With more than 500 of these, Portland has proven that these can operate in a variety of places. Why not an industrial district barren of eating opportunities, next to a hospital where thousands of workers will want an alternative to the cafeteria?
And we recommended other bargain-basement ways to humanize this area. Things like pedestrian-level street lights that can be attached to the base of existing cobra-heads. Filling in the missing links on the bike routes, so that people can ride to work without fear of being side-swiped by a semi. Or, very simply, reversing the direction of the BART shuttle so that it does not have to make so many left-turns across traffic.
The fact is, we have over-looked the place-needs of industry for a very long time, simply taking the tax revenue from these places without reinvesting in them. A place like Detroit is proud of its Campus Martius Park, where Quicken workers can eat their lunch outside, but where is the equivalent investment for the machinist who makes jet engine parts, or the brewer who makes your local micro brew? More often than not, these people are sitting outside at a rough picnic table eating under razor wire.
Using place-making for economic development means taking care of the basic, day-to-day needs of business by providing safer, easier ways to get to work, service and amenities, and a nicer setting right outside the front door. It is no accident that there has been a kind of revenge of the cities in Millennials wanting to work in urban centers. These places are more convenient and interesting, in part because we have spent the last 15 years making them better places to live and shop. Now it is time to turn to the “productive” side of urban life- work, and in particular to making things, especially with advanced manufacturing.
In planning for these places, if we do it at all, there is a tendency to treat them as white spaces on the map, like “Indian Territory” to be settled by new white people. Yet there are successful businesses in these places, and the trick is to figure out how the place itself can make them more successful and draw in other companies in their supply chain. This requires the ability to talk to business, to tour the operations on the plant floor, what makes a given worker so good, and to listen for the opportunities to make the work district around the company better. This is the next frontier in place-making. The communities that do it well will be the economic winners.
Rod Stevens is a management consultant on Bainbridge Island, WA.
Gregory Tung is an urban designer with Freedman Tung + Sasaki (FTS), based in San Francisco.
Tuesday, April 9th, 2013
Two recent columns on the Urbanophile, one by Angie Schmitt called “A Culture of Corruption” and another by Aaron called “Do Cities Really Want Economic Development?” discuss how the forces of the status quo fight change. But sometimes you can create a new strategy for a place, based on its values, that will better embrace those values than what is happening now. This takes visionary leadership, as well as a “small is beautiful” approach to change as something that happens in the moment.
The Politics of Identity
In Detroit, the main problem is that local people are now being told that they are no longer Motown. This is a hard thing after being the center of the universe for cars for the last 100 years. How humiliating that Chrysler is now owned by Fiat, by old stereotypes an Italian maker of small under-powered cars. That’s why the Chevy Volt was so important when the feds took over GM take-over story: the government might be running things, but at least this new vehicle offered hope of a future in the limelight again.
In Port Townsend, WA, on the northwest corner of Puget Sound, there’s another identity play going on, this one to provide place-based education around maritime themes. Port Townsend is a small town of less than 10,000 people, but it is the wooden boat building capital of the United States. This is where people truck their old yachts to be restored, or refit work boats that go up to the fishery at Bristol Bay . The new schools superintendent talks of “making the city the classroom”, with the community, its surroundings and all things maritime as the subject of study. There is already a program there now, in operation for about ten years, in which seventh graders go down to the waterfront to learn rowing, and into shops at the maritime center where they learn geometry and measurement while building boats.
Now the superintendent wants to expand this program, pushing maritime subjects into every grade and class. Imagine biology students putting on rubber boots and going out on the tide flats to measure how the pH of the water is affecting oyster production, or third graders hiking up over the headlands of the old fort to look out at the lighthouse where the wind, waves and currents of Puget Sound collide. The key word here is “relevance”, of studying things that kids are already familiar with day to day, the beaches and boats they play on, the work stories they hear from their parents and grandparents at the dinner table. This isn’t learning in the abstract, some subject or formula they may or may not use later, but learning up close and personal, with things they can see, hear, touch and know. Imagine a town in western Pennsylvania saying that it wanted to make the study of steel, coal, rock, geology and making things part of its curriculum. If this had been done 25 or 30 years ago, with modern hands-on teaching, perhaps more of those towns would still have core industries in those fields, no longer giant, but perhaps re-oriented to niche markets, with highly trained workers who spoke “steel” or “glass” in their business conversations. In Port Townsend, they still speak “boat” there.
I haven’t met many charismatic leaders in my career, maybe two or three, but this new superintendent is one of them. He speaks in a low-key way that is the exact opposite of the bellicose corporate leaders who sound like high school coaches yelling at the football team. This guy is a former art teacher who still keeps colored pencils in a box in the center of his conference table, but he has a track record of success, both starting up a high school maritime academy in Seattle, and a Chinese language program in northern Nebraska.
More importantly, when he speaks, people listen. He uses techniques outlined by Stephen Denning in “The Leader’s Guide to Storytelling”, techniques like keeping the future stories simple so listeners put themselves in the hero’s role, and think about what they can do to make things happen.
Every hero story involves some kind of Joseph Campbell challenge, and in Port Townsend that challenge is keeping the kids from moving away, the same kind of Pied Piper challenge that so many Rust Belt cities face. Forty years ago this was a counter-culture place young people fled to, a back-water place with cheap housing, a strong sense of community, and a boatyard where they could buy and fix up old boats. Today retirees who have “discovered” Port Townsend have driving up housing prices, and there are not enough good jobs for young people.
That’s where the school superintendent’s vision comes in. For some years the community has had a vision of converting nearby Fort Worden as a “learning center” for adults, and now this new vision extends this down to their own children, putting the city on the map internationally as a place that does K-12 education differently, mixing and matching local institutions together to create “seamless” learning across ages. Part of the goal here is not just to make traditional topics more interesting and relevant, but to create a different world view about how kids can educate themselves and involve themselves in the world. The traditional, conveyor-belt model has kids taking STEM and AP classes in high school, getting an engineering or science or business major in college and then going out into the world, sometime in their early to mid 20s, to interview for a job. The vision in Port Townsend is not only to give kids and adults skills that they can use now, in their own community, but to get them to look around that community for unmet needs and, by age 15, to be thinking about how they can use their own skills to meet these and create a livelihood for themselves. There’s a fundamental shift in this educational outlook, one that kids are not simply charges to be brought up to state standards, but assets to the community, to be prepared for membership in it and contributions to it.
Small is Beautiful
In Washington State, there is no more powerful political group than the teachers’ unions, which fought the idea of charter schools tooth and nail. This may be home to Boeing, Microsoft and Amazon, but most of the young engineers here come from places like Michigan, not the state’s own schools.
That’s why it will take all of the new superintendent’s leadership skills to really make this vision a reality. The first changes have to be non-threatening, incremental programs that do not directly threaten the status quo. How do you do this? With programs that create small and immediate successes. One of these is expanding the partnership with the maritime center to include youth use of its pilot house simulator. That simulator also caused one of the country’s oldest training schools for professional mariners to open a branch operation here. That company was drawn in no small part by the vision of this place as a learning center for all things maritime, and shared use of that facility with youth.
In putting this new strategy forth to the community, both for K-12 education and as a broader economic development strategy, it is important to embrace the values of the community. Some, especially older workers in “heritage trades” like wooden boat building, might say that the community should only encourage the growth of jobs that involve hand crafts, Williamsburg-like preservation trades. In fact, though, the real heritage here is the tradition of craftsmanship and veneration for things well-made, especially those that relate to salt water. The value, then becomes quality, not how or what tools are involved in making something, but of what standard it is made to, and to what use it is put. In Port Townsend’s case, this opens the way to a whole new generation of craft manufacturing, of making things for maritime use out of new materials and with new methods like computer-aided design and manufacturing. We are already seeing a boom in this in places like West Berkeley, South San Francisco, East Cambridge and Brooklyn. It is ironic that these old counter-culture places, the places that people fled to find themselves, have become centers of business change. Why? Maybe it’s because their people now know what they love and value (including their children and grandchildren!), and are not willing to let the status quo get in the way of holding on to them.
Rod Stevens is a business development consultant on Bainbridge Island WA, specializing in urban ventures.
Tuesday, February 28th, 2012
Last month Kodak declared bankruptcy, and this month it quit selling cameras, something it has been doing since 1900. Did Kodak fail because it did not move from film to digital faster, or because it did not stick to what it knew best, laminating film? A close look tells us something about how other places with deep knowledge and fascination with a given
science or technology might find new success in global business.
What Business Are You In?
The Economist titled its article on Kodak’s bankruptcy “Gone In A Flash”, but watching Kodak go down was like watching a ship slowly sink under the waves in clear shallow water. At one time Kodak controlled 90 percent of the film business and 85 percent of camera sales. In the late 1980s it had a workforce of more than 145,000 people. Today it employs about a tenth that much. It’s not gone, but it is a shadow of its former self.
Conventional wisdom would say that Kodak failed because it defined itself as a film rather a photography business. This says that if Kodak had done so, it could have made the shift to digital earlier.
This is the strategy approach taught in almost every major business school, often using a Harvard Business School case study titled “Marketing Myopia” written 52 years ago by Theodore Levitt, when railroads lost traffic to both cars and trucks. Levitt argued that the railroads thought in terms of products rather than needs, that instead of defining themselves as “railroad companies” they should have called themselves “transportation companies”. Had they done so, they might have invested earlier in containers, multi-modal terminals, barge lines and even package services like UPS and FedEx.
It’s a pretty persuasive argument, but there is another, basic question that deals with the identity of companies: if you think of yourself solely in terms of markets, of your customers and the service you provide them, are you bound to limit yourself in what you can do, in who you serve? What if, in evolving to meet your customer’s needs, you leave behind the things you do best, and no longer engage the interests that brought you into business in the first place?
Almost everyone – people, companies, and communities – have “core competencies” or things they do better than others. These are the abilities that define them. Many successful companies are founded on one person’s fascination with a process or technology that they found application for. They gather people around them who share this fascination, and over time this fascination becomes part of the company culture. Weyerhaeuser, for example, isn’t just a wood products company. The people there love growing trees. Weyerhaeuser has gotten out of a lot of its old lines of business, but the company’s core assets remain vast tracts of forest land.
Kodak’s Core Competency and the Challenge of Digital
Back in 1880, when George Eastman founded the company, traveling with a camera meant loading up a pack horse with a huge camera the size of a refrigerator, glass plates the size of printer paper, bottles and bottle of chemicals, and even a tent to prepare everything in. George Eastman found a way of eliminating the fuss, by pre-coating the chemicals, and over time the company pioneered the laying down of chemicals in very thin “films” on substrate. The company’s expertise was physical chemistry, the physics of how atoms bond together and jointly react to light, heat, radiation and other changes around them.
Kodak’s challenge was that shifting from chemical to digital photography involved a different discipline – circuitry and software. Digital cameras are essentially a box with glass on the front and back and a whole lot of wiring, chips and motors in between. Kodak may have understood more about how to coat that glass on the outside than it did about what went on inside. Look at the companies that have done well in digital photography – Canon, Nikon, and Panasonic – which all come out of a long Japanese tradition of precision manufacturing and electronics. Until digital came along, Kodak had mostly sold cheap plastic cameras that had little or no electronics inside. Kodak’s strategy for cameras had been very close to Gillette’s with razors: give away the holder to sell the consumables.
Kodak had stumbled once before in trying to diversify its film business. In 1988, believing that it could apply its core knowledge of chemicals to medicine, it bought Sterling Drug, one of America’s largest pharmaceuticals companies. By the mid 1990s, however, Kodak had divested itself of most of the company. It may have known physical chemistry, but it did not know biology.
How Might Kodak Have Survived?
What if instead of branching into digital and software, Kodak had instead stuck to making film, but found new markets for its knowledge of chemicals and coatings? What if, instead of trying to call itself a “photography” or “image” company (something Xerox did half-successfully), it had redefined and expanded the markets for “film”?
To answer this, consider some of the other “film” inventions of the past 40 years: Post-It Notes from 3M; breathable fabrics and bandages from Goretex; flat panel displays from Samsung; Teflon pots and prosthetics; polarized glasses; and even osmosis filters for creating clean drinking water.
You might argue that if a company doesn’t focus on one or two markets, it cannot know these well enough to meet their needs and follow their evolution. This is true for many companies, but some are so good at something, so driven by a given fascination or competency, that they can pull off new product development across a variety of markets. Sometimes the markets come to them, asking them to adapt their technologies and know-how to new uses. 3M is one of these companies.
Apple is another, albeit with far fewer products. In each case, it has used its core competency in “ease of use” to create a new platform that others build on, in many different markets. Had Apple stuck just to computers, it would today be competing with Dell and HP for low-margin hardware sales. It updated and downsized the Sony Walkman with the iPod, moving into consumer electronics. It filled the iPod with iTunes, taking on the recording industry. It made those downloads portable, with the iPhone, taking on Nokia and Blackberry. It brought audio and visual together with the iPad, taking on Amazon and Netflix. And now, with iCloud, it is taking on Microsoft. There is one consistent quality here: ease-of-use.
The Lessons for Cities
Today whole communities are trying to reinvent themselves in business, turning from their traditional strengths in machinery or glass or steel or wood products to growth industries like biotechnology, social media, financial services and “green technology”. (This last really isn’t an industry. “Green” is just table stakes.) Often it is not clear what special skills or bragging rights these places have to offer in these new fields.
Maybe it is time for these communities to revisit what they do well, the techniques and technologies that have historically defined them, and instead put money and focus into updating their competencies, and finding new markets as well. One of the reverse sides of global trade is that there is now a world of markets out there, and you can be sure that somewhere someone is facing a new problem that is old to us. That’s what being export-driven is all about, thinking beyond traditional geographies and supplier relationships to find new ones. This is what a lot of what economic gardening is about.
Most places, especially in the industrial heartland, have long work traditions that revolve around technology. America’s original military industrial complex was in the Connecticut Valley and the area south to New Haven, which, not surprisingly, gave rise to a robust machine tool industry that was strong until the early 1980s. In places like this, people spoke “machinery” at the dinner table. As the factories of America empty out, we’re losing these skills, but if communities act quickly enough, they can update the skills and find new markets, just as Kodak should have done.
There are a number of examples of places with special skills that do not have biotechnology or software at their core. They may involve software, but the core fascination is something else. Milwaukee, for example, is expert at process control, maybe because it used to make both beer and cars. Grand Rapids is expert at workplace design. Portland, a place that runs, walks and hikes, does all things outdoors. Boston, which teaches, provides educational materials. And Las Vegas, a major tourism center, entertains.
Let’s take the last example for a minute. With its huge base of gambling casinos, shows and showy buildings, Las Vegas knows how to capture people’s attention and take money out of their pockets. The gambling machine companies that supply Las Vegas with its slot machines have learned how to use the adrenaline-inducing effects of video games like Grand Theft Auto to keep people sitting down. Perhaps Las Vegas can teach the video gaming industry something it has learned on the casino floor or with lounge acts. This seems like a far better business opportunity, long term, than selling health care to desert retirees.
Or how about Detroit, the “Motor City”? Detroit has been expert in motors and engines for more than 120 years, since before Henry Ford. A key shipping point in the Great Lakes, Detroit used to build both boats and the engines that powered them. Later, as the auto industry evolved, this expertise in motors and machinery found its way into windshield wipers, electric windows and air conditioners. Today nearby Ann Arbor is one of the engineering and technology capitals of the world. Combining new and old, Ann Arbor could anchor the new (Nano) Motor City.
Did Kodak prove Harvard wrong? Maybe it is more important to hold on to do what you do well and find new customers for this, than to hold slavishly to markets but lose yourself in the process. Kodak didn’t have to die on the back shelves of Wal-Mart. It could have stayed in the film business, making water filters for Africa. For America’s expert cities, maybe it is time not to reinvent themselves, but to reinvent their customers, and how and where they apply their expertise.
Rod Stevens of Spinnaker Strategies is a business development specialist and change agent who pioneers new sources of revenue. He has worked with entrepreneurs, investors, Fortune 500 companies, universities and municipalities on projects that change how we live, work, learn and play.
Tuesday, January 31st, 2012
Using the tech metaphors so common now, we have tended to focus on the “hardware” of place, the land, bricks and mortar. But maybe it is time to think more in terms of the “software”, of how we program and run places day to day.
There are two masters who have done this with real estate, one on the East Coast and one on the West Coast, and they have both been at this with single properties for more than 20 years. One is Dan Biederman of the Bryant Park Corporation, who has made that Midtown Manhattan space one of the world’s most densely used parks. The other is Ron Sher, who has turned the Crossroads Mall in Bellevue, Washington into the kind of active public people place that suburban communities lust after.
Before looking at their work, however, consider the term “property management”, which practically speaking means “property maintenance”: the oversight of building systems, cleaning, security, landscaping and utilities. “Asset management”, on the other hand, is largely a financial function, overseeing fixed expenses like insurance and property taxes, lease negotiation, investor reporting and the occasional repositioning or disposition. Real estate is one of the few industries where many owners farm out marketing, to brokers, many of whom have only an episodic relationship with a property. That’s why these two men are so interesting – they have given special attention to the public space which usually gets only swept or blown. In doing so, however, they have created notable value around them.
Out in Bellevue, Washington, one of Joel Garreau’s “Edge Cities” on the east side of Seattle, the Crossroads shopping center went up at the intersection of two arterials in the first wave of growth in the 1960s. This was before a new freeway, Highway 520, would reach eastwards to a town that was virtually unknown then, Redmond. Crossroads was an enclosed shopping center, but with just 40 acres it was definitely a “junior regional”. When enclosed malls reached their zenith of construction in the 1980s, most would be twice that size.
That’s why, by the late 1980’s, Crossroads was like the flotsam on the beach left after the wave of growth had gone by. The new store chains had followed the freeways out to the new shopping centers. Apartment houses nearby had deteriorated, and gangs showed up in the mall.
When Ron Sher and his partners bought the mall in 1988, one developer had already tried to turn it around and failed. It is surprising, in fact, that Crossroads was not torn down, for this was a period when developers replaced many of the older junior regionals with serpentine power centers that ranged big box stores along one another facing a single parking lot. Lacking freeway exposure, however, this was not an option, so in many ways the centers own failure saved it. Fortunately the price was very low, so carry costs were much less of an issue than in most acquisitions.
Sher and his partners did make some large initial capital improvements, such as lopping off one end to build a new grocery store that connected with the rest of the mall, but his main emphasis was on fixing the basics of the center. Had Sher simply re-tenanted the shopping center, however, he might have failed, but he also began to program the shopping center for activity not just in the stores but in the malls themselves.
Every larger shopping center has its car shows and seasonal choirs, but Sher built a stage at the center of the mall and hired inexpensive bands on Friday night to play and draw in movie-goers an hour or so before show times. Near the entrance to the grocery store he installed a giant chess set now attracts some of the top players in the region. Just inside the main entrance, in the mall itself, he set a magazine seller up in business, and added a Starbucks and Half Price Books store that is an island of reading. On a typical morning there are about two dozen people sitting and drinking coffee there, an hour or two before the main mall stores open.
One of the most important things Sher did was to take back the marketing of the tenant spaces, by setting up his own brokerage house. This gave him early and first-hand knowledge which chain stores were in the market, so he could catch them before they signed with better-located but slower acting centers.
It was also about this time that Microsoft moved its headquarters to a freeway site about a mile north. Few people outside the area know how much Microsoft has done to diversity the region with highly skilled tech workers from other countries. Fully one-third of the people in the area now speak a language other than English in the home. Many of these new workers were young people sharing an apartment or a house.
Rather than leasing to Burger King, QFC or even Panda Express, Sher leased his food court spaces to locally-owned ethnic operators. Go there at a lunch hour and the place is crammed with hundreds if not thousands of Microsoft workers. Their presence in the area also led to the upgrading of the nearby apartment houses, which, over time, have filled with more and more middle-class families new to this country. Sher targeted their needs with stores like JoAnne Fabrics, Michaels, Reclinerland, Dress Barn and Old Navy. He also catered to everyday needs by signing a branch of the public library, a motor vehicles office and a community policing station. Ann Taylor and Z Gallerie might have brought more prestige, but these tenants brought more everyday traffic.
So did increased programming in the malls. The calendar for a week this January shows about two dozen non commercial events, including musical performances; free tax advice; CPR lessons in Spanish; translation clinics in Hindi, Korean, Chinese and Russian; and knitting and crochet classes. Outside, Sher has met the needs of nearby apartment residents by turning an under-used part of the parking lot into community gardens. Longer term, he plans to create a plaza that will be wrapped with mid-rise housing. It’s the kind of multi-hour gathering place envisioned in town center plans, but rarely realized.
If Crossroads is an example of a profoundly suburban place reborn, Bryant Square is a example of a profoundly urban place reborn. Located at 6th and 42nd Street in midtown Manhattan, right behind the main branch of the public library, it is hard to believe that this place was once known as “Needle Park” because of the number of drug users there.
Biederman is an unusual guy to be known for running a public park, for he has degrees from both Princeton and Harvard, and he seems to know people at the Bloomberg level. But Biederman doesn’t work for Bloomberg or the City of New York. He works for and runs the Bryant Park Corporation, which is a non-profit that contracts with the city to manage the park.
How is a person who is runs a public park able to operate at such high levels? Because he has created such value around him. A study by a major accounting firm found that his turn-around had created hundreds of millions of dollars of value around the park.
The interesting thing about this park turn-around is that it is the reverse of the classic redevelopment play in which governments use their powers of eminent domain to tear down and resell land at a discounted value, and then use the increased property taxes to pay back the financing. Financially, that strategy relies on leveraging just the land value of a place, and even when it works, it usually takes ten or 20 years to realize significant results. Biederman’s strategy was to focus on what wasn’t working, the public places, and to use the improvement there to draw people and value back to buildings that were already in place, leveraging their full value, both land and improvements. Not only was this lower risk, but the return period was much shorter. Today he takes no public money to run the place, operating solely on funds from a local improvement district. Are such improvement districts the wave of the future, in lieu of traditional redevelopment?
A couple of core principles guides his work. One is opening up the park to the gaze of passers-by, a kind of “eyes on the park” strategy that made it safer for everyday people. A second is a focus on programming, to create events and activities that draw people there “6/16/12” or six days a week, 16 hours a day, 12 months a year. A third principle is providing public services at private quality standards. The lobby of the restrooms, for example, has large, real flower arrangements worthy of a Four Seasons hotel. The bathrooms there have made it a nominee for the “America’s Best Restroom” award.
Like Ron Sher, with his Peruvian flute bands, Biederman has not been afraid to buy activity. Biederman paid a New Jersey bocce ball club to change its location and play in his park, for he realized that it would draw on-lookers. He has a seasonal outdoor skating rink that is free, compared to $15 at Rockefeller Center seven blocks north. Biederman knows who his customers are, for he sends people out with clickers at different times of the day to count them, and his goal is to fill in the slack hours with activity, like movies on warm Saturday nights in the summer.
One of the most important things about Bryant Park is that Biederman trusts the public, collectively. The bathrooms are one sign of that. Another is the chairs, which are not bolted down. You can pick them up and move them, but try take one away and people will stop you or call one of the maintenance people in evidence. In fact, like Disneyland, part of the perception of quality in this place is simply seeing those people moving around and working.
What Sher and Biederman have both done is to fine-tune the management of places, in such a way that people feel it is theirs. It is true that private coffee houses are gathering places, but there is a rush and hub-bub that with each whoosh of the cappuccino machine reminds patrons that they are essentially sitting on rented seats. Sher and Biederman have created ease.
Back to the computer analogy: one of the essential questions for the upgrade of Apple’s operating systems is backwards integration: how many old applications should they continue to support, and at what cost to speed and elegance and new features? This is the same question for effectively managing and programming real estate, be that a place to live, work, learn, shop or play. What Sher and Biederman have shown is the value and success that comes from paying attention to real and immediate needs. Get the basics right, and your customers will come along with you and draw new ones as well.
Also by Rod Stevens:
The 31-Flavors of Urban Redevelopment
Rod Stevens is a business development consultant on Bainbridge Island WA, specializing in urban ventures.
Monday, April 4th, 2011
Aaron Renn’s March 24 posting on “The Logic of Failure” and his reference to “silver bullet” solutions for redevelopment and revitalization reminded me of my visit to the “Creative Cities Summit”, about revitalizing cities, three years ago this fall. The setting, timing and venue could not have been better, at least in terms of provoking thought about how to do things better.
The setting was Detroit, the time was October, 2008, when the financial markets were crumbling, and the venue was Renaissance Center (“RenCen”), the Robocop-like mixed use center that is headquarters for General Motors. I flew in the night before and opened my door that morning to a newspaper lying in the corridor on which the top headline read “GM in Merger Talks With Chrysler”. This was the beginning of the end as the auto industry had known it for the last 100 years, and those very same corporate managers were coming to work 30 floors above me.
This was my first trip to Detroit, so I decided to take a quick ride on the People Mover to see the city. With a station attached to RenCen, this automated system took me on a loop around the city, on elevated tracks 20 feet above street level, without my having to set foot on the street.
The first thing I was conscious of was that this was supposed to be rush hour and no one else was on the people mover. For that matter, there were few people on the streets. Some cars streamed off the freeway and almost directly into the RenCen parking garages, but not many, and even fewer people were out walking.
Most of the buildings between the stops also seemed to be empty. Most of were of the same pre-WW II vintage and quality as those on North Michigan Avenue in Chicago and in Mid-town in Manhattan, but there was no one in them. It was like an old Star Trek or Twilight Zone episode in which something has happened and the population has disappeared.
I gradually became aware that many of the stops were at Sim-city like attractions – the kind you are allowed to build when your city gets to a certain size- such as the convention center, an arena, a baseball park, a football stadium, and a casino. Each of these must have taken hundreds of millions of dollars to build. I thought, “They’ve been spinning the roulette wheel, hoping to get the tourists and suburbanites back into the city”. But what had the city fathers done for the residents themselves? Later I was to walk through Campus Martius, a center city park that people take considerable pride in, but even in the middle of the day it was largely empty. On the last day of my trip I walked up Woodward Avenue, the grand street at the center of the city that used to be the main place where people shopped. The buildings on one side were largely empty. The buildings on much of the other side were simply gone, some torn down for underground parking garages that were to be the new base of new office buildings to be built by private developers. These office buildings didn’t materialize.
After this trip I began to compile a list of the “silver bullet” solutions, of redevelopment projects that city leaders have put in place in various places across the U.S. over the last sixty years like those I saw in Detroit, and that I present here. Early in my career I prepared marketing and feasibility studies for these things, so I knew there would be a number of different kinds, but I was still surprised at their number when I stopped counting. Like Baskin Robbins, there are 31 flavors on the list, and it would be easy to add to it.
Graphic by Carl Wohlt from an original chart and information by Rod Stevens/Spinnaker Strategies. Please do not re-use without attribution.
I have divided these into three kinds of projects: business, retail and tourism, and transportation. The bars show the decades they span, from the 1950s through the 2000s, with the earliest kinds of projects shown first. Expos, first on the list, actually started with the Crystal Palace and the Great Exhibition in England in 1851, which later inspired Chicago’s “White City”, but my time frame here starts after WW II, when American cities began to consciously redevelop themselves in the face of suburban competition. For each kind of project I have also included an example and the year that example opened. The examples were not always the first built, but they inspired others to follow. For example, the Ontario Science Centre came before the Exploratorium as a modern, hands-on science center, but it was the Exploratorium that most of the other centers in the U.S. looked to as an example. San Diego’s Horton Plaza was not the first downtown mall, but it excited a lot of talk in the world of urban development.
Notice that the largest category is retail and tourism. If you really looked behind the rationale for most of these projects, you would find that most were in fact aimed at tourists or at suburban shoppers who had fled the city. The grand-daddy of all redevelopment projects is Ghirardelli Square, which remains vital to this day, although the upper floors have now gone condo for rich people who want to keep a place to stay in the city. Ghirardelli inspired the festival marketplaces of the 1980’s, many built by the Rouse Company, and many of which are now struggling. These later morphed into the food halls inspired by Granville Island in Vancouver and the Pike Place Market in Seattle, and, more recently, the market halls or sheds for farmers markets that have recently begun to show up. Notice the trend here for an ever-more-local clientele. Partly this is due to retail trends. When Ghirardelli first opened, it was filled with unusual boutiques selling clothing and glasses not found in the malls. Today you can buy these things at suburban “town centers”, where chains like Crate and Barrel keep a good selection of wine glasses and linens.
There is almost a flavor-of-the-month approach for transportation as well, which really started with the downtown connector freeways aimed at whisking shoppers to ailing main streets. More and more cities are now tearing out these freeways and converting the space to parkland. What’s more interesting is the evolution in rail, from heavy systems like BART and the DC Metro, to light rail in places like San Diego, to the current passion for street cars. Transportation is becoming lighter than air, and now this is even an urban gondola in Portland, with Vancouver planning a second on Burnaby Mountain. Years ago Disneyland had one of these, for frenetic visitors eager to punch all of their E tickets.
Notice how few kinds of business-related projects there have been. Science parks, which started with Stanford and the Research Triangle, have mostly been in the suburbs, but a few are in the city, such as Yale’s Science Park, and more are on the drawing boards. Carnegie Mellon’s Collaborative Innovation Center may be the best example of integrating academia, industry and the city, for here private sector tenants come together on a campus in the middle of a very urban city.
Notice just how briefly projects like Renaissance Center were popular. John Portman, an Atlanta architect, designed the most prominent of these, including not only Renaissance Center but the Hyatt Regency/ Embarcadero complex in San Francisco (which is connected with sky bridges), Peachtree Center in Atlanta, and the Bonaventure Hotel in downtown L.A. At the time these were the wonder of their cities, and tourists came in to gaze upward at the atriums and light-bedecked elevators that moved through these. They almost all included office buildings, hotels, and mini-shopping malls, and almost never housing. Many of these were introverted, arrived at by car in special drop-off lanes, with the pedestrian entrances being hard to find. Few or no lobby windows faced out onto the street. At Embarcadero Center in San Francisco, the main level of pedestrian activity is one floor above the street. and for about 20 years it had a thriving trade of office workers from nearby buildings eating and shopping there at noon. Now most of that lunchtime activity is out walking along the Bay, on the true Embarcadero, or eating in the Ferry Building next to it.
And then there are the truly wacky projects, which may or may not work in their own right. Projects like the automated people movers in Detroit, Miami, and Morgantown, West Virginia. The canal in Oklahoma City’s Bricktown “entertainment” district. And the submarines and battleships, like such as a submarine in the prairie land of Muscogee, Oklahoma and the dreadnaught Olympia at Penn’s Landing in Philadelphia. The Olympia ship may be headed to the scrap heap, for lack of support and visitation and Penn’s Landing has struggled because of its isolation. Fish don’t shop.
Why is it that these projects work in one place and not in others? And why is that Portland has pioneered so many of these projects? I believe the answers are related, and having grown up in Portland, with a family that was involved in creating some of these solutions, I can offer some insight.
Aaron Renn uses the term “silver bullet”, and that is exactly why many cities copy other cities’ solutions: they hope these will magically solve their problems. But as Aaron points out, these other cities frequently fail to adequately define what problem they are trying to solve, and what their priorities are. The approach that works well in one city for one set of challenges will not work well for a different set.
But why has Portland been so successful? I believe there are three reasons: 1) crises and political turnover that opened the community up to questioning and new leadership; 2) a growing facility with problem definition and problem solving; and 3) the attraction of “outsiders” who joined the community and brought fresh new approaches and energy.
Without getting into too much detail, the political crises included a revolt and mobilization of the citizenry in the 1960s, when private interests tried to take over the public beaches. Never before had the legislature seen so many private citizens flood its conference rooms, and this led to other conservation measures like the bottle bill, land use planning and the Willamette River Greenway. This activism, growing at the same time as Vietnam War and Watergate, brought a new generation to power in the early 1970’s, including Neil Goldschmidt, who pushed forward light rail system when citizens revolted against more freeways. And the final event was a very, very deep recession in the early 1980s, when most of the major timber companies closed shop or left town, leaving behind a vacuum of power in which it was easier to make broad-based decisions. Oregon’s growing environmental reputation and the easier entry into the circles of power drew in like-minded people from throughout the country, and some of these people helped push the city in new ways.
Most importantly for Portland, and perhaps for other cities, the community got better at problem solving, at not simply reaching for off-the-shelf solutions. In the 1970s, relatively strong retail, on the street downtown, led the community to reject a multi-block retail project connected by sky bridges that was proposed by Canadian developers. That first light rail line took care of a transportation need when citizens said no to a freeway that would have wiped out miles of neighborhoods. “Fareless Square”, downtown, was a response to federal air pollution rules that made it tough to build new parking garages. The streetcar that opened in 2001 simply connected an already-strong downtown with Northwest Portland, a strong residential neighborhood that is the densest in the state. Portland has had its failures and misspent money – the Rouse project is now ailing and the extension of the transit mall has killed retail along its length- but its successes come because they are rooted in local needs.
Hopefully this trend is developing nationally. The failed Rouse project in Milwaukee, aimed at drawing tourists back into the city, is now re-oriented to more local shoppers, largely because Mayor John Norquist would not give it more subsidies. Money is flowing out of big downtown projects and into more neighborhood-based retail projects, like those sheds and squares for farmers’ markets. And we are putting more of an emphasis on “productivity” projects, aimed at creating good places to work, and fewer on the “consumption” side, retail and housing. More cities are realizing that great places draw good talent, and that they need to focus on the work side if they are going to participate in the modern knowledge economy. Already we are seeing more collaboration between the city and the universities, and while much of this new development still takes place within the walls of the campus, in some places like downtown Phoenix, where the new Arizona State University campus has opened, the city and the university are one, without walls. It will be in leveraging the talents of our people, and our anchor institutions, that we do our best problem solving, and create the most interesting and durable of places.
Rod Stevens is a business development consultant on Bainbridge Island WA, specializing in urban ventures.