Creative Reuse of Downtown Real Estate Post-Pandemic

I believe the image most of us conger when we think about a big city downtown is composed of the opening shots in movies where they fly over a vast thriving metropolis.

These films are perpetuating the myth of something sustainably vibrant. In truth, cities thrive in moments and operate in cycles. They are as much a point in time as they are buildings and the people who inhabit them.

I could validate this point of view with a bunch of statistics and references to cities like NYC and Philly in the early 1980s, or like LA and Detroit after the end of WWII. But, it’s just one persons’ opinion. The hope is that it will spark an idea of your own and that you’ll share that palatably.

Here is the revitalization cycle, essentially:

A city government decides it wants to revitalize its downtown core.

The modern age playbook cities use acts to bring real estate developers together with corporate employers and, then the city administration goes about convincing their city council members to subsidize the holy shit out of these transactions. (You wouldn’t believe some of these dollar amounts, seriously.)

This action brings the banks running to the table because their risk profile is relatively low since the taxpayers are ultimately footing the bill downstream. Most major cities will also have several philanthropic foundations (old-money tax havens) that will kick in and sweeten the pot for the lenders.

Downtown property ownership is consolidated as much as possible for efficiency’s sake, and a master plan is packaged and marketed to anyone willing to sit for the show.

A law and order plan is authorized, historically police intimidation (broken windows policing) and more recently through live camera surveillance. (project green light)

The crime rate goes down as the buildings open up, and corporations come in to fill them, on the backs of city and state tax breaks (yet another citizen subsidy) in return for moving their operations downtown.

These companies make money and employ people. (capitalism as taught in schools) Employees want to live close to where they work (walkability scores), and they need places to get coffee, eat lunch and dinner, and get a buzz going after work if they choose.

Now, two strategic factors here that, in my opinion, mean big trouble for those holding the real estate in American downtowns. And for the cities themselves, as they are about to see an exodus of their sales and income tax bases.

Let’s say you are a real estate developer, and you don’t know a once per century pandemic is heading your way. The game is supply and demand. If you have, for example, 300,000 people employed within two square miles and only enough capacity for 30,000 units, you are going to build expensive housing because you have a segment of the market that can afford it, typically corporate executives, lawyers, doctors, and because there is more profit in the high-end units.

And now think about those who control the commercial real estate. Would you hope to lease to a start-up coffee shop or Starbucks? Right, so the prices go up, the city center has turned into a campus for the upper-middle class, fine, I’m not personally a fan, but have at it.

And then comes the hurricane, the unemployment crisis, the great fire, the disease epidemic.

The pandemic has accelerated this cycle as it is doing in most sectors of the economy. (Gross Domestic Product is down near 40% since the first case of Corona was first announced on CNN.)

Meanwhile, corporate employers are downsizing and shifting employees to remote work as much as possible. Without those employees, retail and hospitality go away. No different than when large manufacturing plants disappeared at the end of the Industrial Age, so did the businesses that supported the workers.

As for the housing, why would someone pay $5000 a month in rent or pay a million for a condo if they didn’t have to go to the office very often and didn’t want to live next to a former Starbucks? These people will move to where the cost of living is lower, and there is less congestion, less risk of infection. They already are. (The occupancy rates in NYC are down 10% since March. The lowest in 25 years.)

I say, now, right now, while the real estate is intact and before it sits too long and becomes dilapidated, cities should bring artists and entrepreneurs to the table early and often. Come up with innovative ways to activate these spaces in the interim and wait out the storm.

Downtown’s will come back again; they always do. However, if you get creative about the unavoidable downslope we are already in, you’ll save millions or billions in the redevelopment process next time around.