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The daunting task of economic redevelopment inside the city limits of any older American city can be a labyrinth of community, neighborhood, environmental, sewer and water, transportation and, yes, political complexities. Progressive cities, such as South Bend, Ind., have taken on the massive task of pre-development to smooth the way for future economic growth for both the private and public sectors.
South Bend ON recently sat down with local developers and City of South Bend economic-development officials to explore the merits of pre-development from private- and public-sector perspectives.
Participants in the roundtable discussion included:
South Bend ON: How do you define pre-development?
|Don Inks, director of economic development|
Don Inks: “The first thing I think of is planning. You’ve got to have a plan. It doesn’t matter whether it’s Eddy Street Commons or the East Bank, you need a plan. That is where it all starts on our pre-development efforts.
“Pre-development defines itself as actually implementing the plan. Taking action. For the City, many times, that’s putting in infrastructure. It may be new roads, new water or new sewer, and could be relocating utilities to make a larger site available for development. It may include property acquisition and building demolition. It can even mean laying the groundwork with financing like TIF [tax increment financing].”
South Bend ON: Can you provide us with an example?
|Jeff Gibney, executive director of the City’s Department of Community and Economic Development|
Jeff Gibney: “In the old Studebaker corridor, we had hundreds of acres and a couple of million square feet of vacant, abandoned and run-down buildings. We are certainly never going to see any development in that neighborhood without public involvement. Central to economic development strategies is the acquisition, demolition and environmental remediation of buildings that are a detriment to health and safety, and to other economic development activities. A federal loan to the City and the use of TIF dollars are providing the funding for the acquisition and relocation of existing businesses to keep them home in the city of South Bend. The land is then available for future and subsequent development.
“I think when you look at the value of real estate in the community, as it relates to the City getting involved in acquisition and demolition, if the City does not fill that pre-development role, then the cost of new construction on these sites becomes prohibitive for the private developer.
“You can then expect to see development follow. In one case a developer is building market rate, infill housing on the East Bank. New town homes in the $175,000 to $300,000 range. The City’s pre-development role in making this project feasible was the acquisition, demolition and clearance of a vacant and abandoned warehouse. Subsequently, the land was reappraised, sold to the town-house developer at a reduced cost, allowing the construction of new units to enter the market at a competitive price range. This property will pay taxes, and the City will recoup its investment within a decade. The development of market-rate housing in the East Bank was the highest priority for the first phase of the East Bank plan implementation.
Don Inks: “There are a number of sites around town where not only do you have to demolish the buildings, but often there’s contamination either within the building or within the ground that needs to be remediated before that site can be developed by private interests. That’s where the City can really help.”
Jeff Gibney: (to Chris Davey and John Phair) “Can you imagine taking on a $5 million cleanup for IgnitionPark? I don’t know of anyone in the private sector who would be willing to incur those costs.”
|Chris Davey, president of Grubb & Ellis|Cressy & Everett|
Chris Davey: “We want to make the community a better place. But we are also in it because it’s our basis for survival – a for-profit venture. I agree 100 percent there needs to be a plan. But you [the municipal government] are looking at the ‘needs of the city.’ It might be an economic need, it might be to fix the roads, fix the sewer – it’s more straightforward than the prospect of trying to make a profit.
“Sometimes we’re on the same page. The City reworks a corridor so we can go in, clean it up, and then turn around and develop it because it now works financially. And that’s where our paths should come together. Maybe we could be around more in the beginning of the plan?”
|John Phair, president of Holladay Properties Inc.|
John Phair: “We get involved if we think there’s an opportunity. We have to be able to make money in the long run, and even in the short run we have to be concerned about profit. If there’s a criticism of the pre-development process it’s that many times there is little or no involvement on the part of the private sector.
“The Studebaker corridor, for instance. What are you going to have when you’re done there? How much should we invest? You may still make all the same decisions that you’ve made up until today, but we could help you down that path from our perspective. No doubt it’ll look better, the city will be a better place, you’ve done a great job.”
South Bend ON: So who participates in the pre-development process – does it include the private sector and the public?
Jeff Gibney: “We’re getting better at bringing the business sector to the planning table. One of our current projects is Eddy Street Commons. It had significant participation by the private sector. It started with a commitment from the University of Notre Dame. Funding from Notre Dame, Memorial Hospital, Saint Joseph Regional Medical Center, Madison Center and the City.
“We came together to do community organizing and strategic planning. So we contracted with South Bend Heritage Foundation, a community development corporation, to facilitate these initial and very important activities. Over the period of a year and a half, planning took place that involved all the institutional partners, a professional planning firm, and neighborhood residents, represented by the Northeast Neighborhood Council.
“A strategic plan emerged that was of a scale that the neighborhood never would have imagined had it not been a participant in that planning process. It was a great private-, public- and institutional-sector planning process. The sponsoring institutions have made a commitment of more than $3 million over several years. This has been a highly effective model that has resulted in $250 million worth of investment so far.”
South Bend ON: So how does pre-development benefit the taxpayer and the local economy?
Chris Davey: “Well you have no tax or minimal tax income from a blighted area. Any of these projects we have been talking about so far were not producing any revenue. After the fact, it’s a huge difference in terms of real estate taxes that are paid coming from that same piece of land that generated nothing.”
South Bend ON: So what advice does the private developer have for the City pre-development planner in this economy?
John Phair: “The City just needs to set the table. Keep trying and keep providing incentives for folks to come around and try to get back in the game. You simply can’t stop just because the economy slows down and people aren’t making offers to buy property on a regular basis. Sooner or later they will, and you give yourself a big leg up when things start to turn around if you started the planning years ahead of everyone else.”
Chris Davey: “Boy, you sure have to have some thick skin. Don’t worry so much about what people say. Listen, but you can’t let them get under your skin. Be aware that no matter what you do, there’s always a group of people that are against you. And if you’re in this business, you’re not always going to be right. You’re going to have some failures. But you can’t let it worry you or stop you or slow you down because things happen, markets change.”