Friday photo: The first sprouts in a freshly plowed field will be weeds

Country road again

An ecological analogy for retail:

Many of the plants we call weeds originally evolved in tough conditions, where there is annual glaciation, periodic flooding, or severe fires – extreme events that leave exposed, bare earth. It’s in these devastated conditions that our weeds are at home. They germinate first and grow the fastest. And through these characteristics they have found important roles in re-establishing healthy ecosystems… Once the weeds are established, longer-lived plants, less adapted to disturbance, germinate and the process of succession begins. The process may end in a grasslands, woodlands or forest, depending on the soil and climate. Indeed, the weeds create the conditions of their own inevitable demise – inevitable unless of course the disturbance recurs.

The “weedy species” that so many bemoan, the token dry-cleaners and fast-food joints that sprout in brand-new buildings, are one key to building a retail market. Over time, better adapted shops will take root — and given enough stability, species will evolve into very specific ecological niches. These new species will both adapt to their environment, and also change the environment around them. The key is to give the habitat time to evolve by avoiding excessive disturbance — a condition ecologists call “disclimax.”

Cultivating biodiversity requires striking the right balance between stability and renewal. The goal should be less to conserve individuals than to maintain the health of overall communities, to not seek out stasis forever but to manage change for the long term.

Gradual change within human communities also helps to sustain and build linkages, according to a paper by sociologist Katherine King: “A gradual pace of redevelopment resulting in historical diversity of housing significantly predicts social relations.”

CNU conversations: Striking before the neighborhood’s hot

DeKalb Market, Long Island University

Yet more thoughts from our (apparently quite long) lunchtime conversation about community-building.

We talked extensively about how, but where would these strategies have the greatest impact? It’s important to jump off the price escalator — to opt out of the gentrification process — early on, before outside capital floods into the neighborhood.

The “tipping point” in neighborhoods is always tied to outside money. First, an urban neighborhood is “discovered” by suburbanites looking to spend their extra $20s in cute restaurants, then by institutional investors looking for $2 million investments, and pretty soon the whole place jumps the shark. But if the small dollars are ever going to have a chance to win the game, they’re going to have to start early on — or else console themselves to small, subsidized slices of the neighborhood, post shark-jump.

“Favored quarter” locations in gateway cities are probably too far gone (more on this in a future post). Even the immediately adjacent areas have probably been bid up too far to be affordable without turning to outside capital. A Place Corp takes a substantial investment of time, rather than money, so the key is not to overpay.

One approach that can work where explosive change appears inevitable is what I’d call a “waterfall TIF.” This uses redevelopment revenue from a “sacrificial” area — for instance, an underutilized industrial corridor separating a gentrifying area from a stable area — to shore up the affordable housing stock in adjacent areas. Two examples:

  • The Hill District in Pittsburgh is a historically poor, African-American neighborhood overlooking downtown. The Lower Hill was demolished for urban renewal, displacing 8,000, but it was never fully developed, except for one arena. A recently adopted TIF to develop the site will direct property tax revenue “into two separate accounts: one for infrastructure needs in the Lower Hill and one for reinvestment in the Middle and Upper hill.”
  • In Houston, the Midtown TIRZ spent $15 million to purchase 34 acres of the adjacent Third Ward, including hundreds of vacant lots, which was then handed to nonprofits and thus taken off the market.

By the time the usual affordable-housing resources, like TIF funds and inclusionary units start to flow, it’s already too late — prices will already be on an upswing. For maximum effect, resources need to start flowing before new construction and new investment create new amenities, which raise property values. Of course, this requires neighborhood organization (and probably capacity-building) beforehand, to identify areas about to undergo change, and to plan for the process.

Think of it as an approach comparable to Transferable Development Rights, which have preserved many rural communities, just applied to urban communities instead. To use the photo as an example, imagine if some of the value created by the Downtown Brooklyn rezoning (affecting the sites in front of Flatbush) could also have steered capital funds towards rehabilitating and expanding NYCHA’s Ingersoll Houses (at back right).

Friday photo: Vanquished twin cities

Pittsburgh various

Vanishing twin syndrome” is an eerie phenomenon wherein one fetal twin seems to absorb another. Its counterpart, in the annals of American cities, might be called “vanquished twin syndrome”: where one city annexes another, then proceeds to obliterate any trace of its core through concerted redevelopment.

Three of the more notable examples are cities settled at confluences, which naturally offer a choice of multiple townsites on various riverbanks.

Denver faced Auraria across Cherry Creek, the Allegheny River separated its eponymous town (pictured above) from Pittsburgh, and the fork of the Milwaukee and Menomonee rivers fostered three towns — Juneau (east), Kilbourn (west), and Walker’s Point (south).

Yet as these towns were absorbed into larger cities across the way, the old downtowns of Auraria, Allegheny, and Kilbourn all declined into Skid Rows, offering a uniquely cheap combination of deteriorated, frontier-era buildings within a short walk of the principal downtown. Shunned and looked down upon by the ascendant city’s downtown elite and starved for resources (namely the intra-city transportation links that funneled commuters to the principal downtown), they became prime targets for urban renewal.

Kilbourn was wiped out early on, by a City Beautiful government complex. Allegheny’s center was leveled by Alcoa in the 1960s. Auraria was demolished for a university campus in the 1970s.

In a weird twist on the theme, Minneapolis absorbed its rival St. Anthony — but proceeded to tear down its own birthplace, while neglecting its rival for so long that it remained standing until the adaptive-reuse age could rescue it.

Friday photo: Bonsai, artificial limits to growth, and humility

Phipps: bonsai since 1960

Cities are living things that require supporting infrastructure: physical infrastructure, social infrastructure, green infrastructure. They also need room to grow and change.

The exception that proves the rule are bonsai, “the most unnatural nature that exists.” Trees can survive when confined to tiny boxes that constrain their growth. This 55-year-old Scotch Pine at the Phipps Conservatory would, on a managed plantation, have a trunk one foot wide — wider than the magazine at right, about half the diameter of the planter this tree lives in — and be 60-80′ tall.

However, bonsai require a lot of care and feeding just to survive, including extensive pruning to thwart natural growth instincts. Without that pruning, the tree gradually consumes all of the soil’s nutrients and starves. All this intervention turns what should be a robust, independent tree into a fragile hothouse flower, subsisting on life support. At this juncture, even if it was freed from its constraints, this tree could never match the size of its wild counterpart. It’s a neat inversion of the usual relationship between man and nature, but like seeing a bored tiger at a zoo, it’s also a bit sad to see.

Natural systems also impose limits on their own sustainable growth, of course. Cycles see growth culminating in decline and death, then renewal and evolution. But nothing that’s alive stands perfectly still.

Those who propose to stop growth should have the humility to acknowledge that doing so will change the very nature of growing things. By giving themselves free rein to change the city, they are placing a tremendous burden on the resources of future generations.

“Missing Middle Housing”: missing in action for 30 years

Housing completions by # of units in building

Missing Middle Housing” refers to a broad spectrum of smaller-scale multifamily building types that occupy the middle ground between single-family detached and large apartment buildings. At its edges, the term can cover rowhouses and 5+ unit apartments, but in my mind, the core of the “missing middle” are “plexes” — two, three, or four flats on a single city lot. Small apartment buildings like these line the side streets of most of America’s walkable urban neighborhoods: two- and three-flats in Chicago, Polish flats in Milwaukee, three-deckers in Boston, or brownstones in New York.

Census data show that 2-4 unit buildings have almost evaporated over the past generation. As recently as the early 1970s, over 1/4 of multifamily units built were in small buildings. Now, it’s only about 4%.

Despite the steep mid-1970s recession, over 10X as many units were built in small multifamily buildings as today. In boom years, 14X as many were built. It was during the Reagan era that these buildings broadly fell out of favor.

2-4 unit buildings have been a relatively small share of all multifamily construction in the postwar era. Since the 2008 recession, they’ve practically disappeared — with only a few thousand units built nationwide every year:

Housing completions by # of units in building

Next up: Wait, you mean today’s apartment boom isn’t actually that big?

Friday photo: Be careful what your zoning asks for

In the Penn Quarter neighborhood, as Mark Jenkins wrote in the Washington Post, “arts spaces are mandated by zoning, yet the arts scene is hard to find. Nearly a dozen exhibition spaces populate the area… most don’t have access to the street and aren’t clearly identifiable from outside. They are in lobbies or tucked away in office building interiors.” Here’s one, Terrell Place at the prime corner of 7th & F, that’s not entirely hidden — but also not exactly shouting its noble story to the public. Yet it’s somewhat striking in that it wastes what could be prime retail space across from the National Portrait Gallery and the Verizon Center arena.

The “arts” designation for the “Gallery Place” neighborhood was intended to foster a vibrant community of commercial art galleries alongside working artists, all in the shadow of the Portrait Gallery. Yet instead, there are scarcely any commercial galleries, which require considerable staff investment, and instead many pointlessly large office building lobbies which feature above-average displays of plop art. Perhaps some lawyers and lobbyists have their lives slightly enriched by walking past these paintings, but the general public now derives scant benefit.

The designation is so broadly written that at least two suspiciously spacious bars on E Street — Penn Social and Hill Country Barbecue — both owe their existence to the “arts” requirement. I’m glad that Penn Social has room to spare; it’s a reliable go-to for large events that might not otherwise fit into such a convenient downtown location. But was that really the intent of the zoning?

The situation illustrates the difficulty of trying to define great places, which depend upon a lot of “we know it when we see it” subjectivity, through legal means like zoning. Now that quality retail has emerged as the prime placemaking amenity — anywhere can have open space, but retail’s a lot more difficult — it’s also become something worth subsidizing for its placemaking value. Yet before you can subsidize something, you have to define it.

Doing so will be fiendishly difficult for public entities like municipalities, which will also run into arguments about whether retail is a public good or a private good. However, it should be easier for private entities seeking to cross-subsidize across revenue streams.

CNU conversations: Introducing the Place Corp

west block

Findlay Market in Cincinnati, where a nonprofit market manager and CDC are working alongside private developers to create a mixed-use destination based around small, local shops.

Our earlier lunchtime conversation in Dallas quickly morphed into some constructive criticism of the community development field. We’re doers, so we delved into some of the mechanics of how a community could control its destiny, and ensure affordability over longer time scales.

In theory, Community Development Corporations have tremendous capacity to manage community change, but even where good CDCs exist — as in Boston and Chicago — their efforts are often quickly overwhelmed by the monstrous quantities of capital involved in gentrification. CDFIs were started to help leverage greater sums of capital, but never quite seemed to move beyond a little niche.

The work that community development organizations do is so labor-intensive that it doesn’t end up being very scalable. Some of that is good — community organizing and small-scale development in disinvested neighborhoods is tough. Some of that is bad — there’s so much bureaucracy involved in securing grants or tax-credit financing (or securing property for a Community Land Trust), and in complying with restrictions on spending that money, that staff capacity gets stretched thin.

(As a side note, why don’t we at CNU talk more often with the community development sphere? Sure, there’s some buy-in when individuals from CDCs get invited to present, but otherwise there’s scarcely any overlap. Perhaps siloization is to blame: CDCs/CDFIs have their own conferences, their own language, their own processes.)

Yet surely there are other vehicles that can provide a middle ground of financing for community development. In a gardening analogy, LIHTC-funded, CDC-built subsidized housing is like a trickle of water from a hand-carried watering can, and Wall Street money is like turning a fire hose onto your flowerbeds. Surely there’s some happy medium: a way to use local capital within a neighborhood, to fund incremental, community-positive projects that make a solid but uneventful return, over the long run.

There’s recently been a lot of renewed buzz about low-profit corporations and B-corps. Richard Plunz’s magisterial history of New York City housing shows us that many of the most innovative efforts at community-building there stemmed from just such endeavors, many underwritten by philanthropists or unions who sought investments with steady returns.

We discussed some of the innovation going on with cooperatives — the most established of low-profit, broadly-owned corporations. I talked up some experiments in the Upper Midwest, like the River West Investment Cooperative in Milwaukee, the considerable excitement around the Northeast Investment Cooperative in Minneapolis, and efforts to minimize business displacement along the Central Corridor light rail. In both cities, local capital is fostering communities of cooperative businesses in “emerging” neighborhoods. And unlike the Mondragon cooperatives, these coops are focusing on serving neighborhood needs, rather than exporting. Nationwide, a few credit unions (like Self-Help in North Carolina) have built substantial commercial-lending businesses, even in real estate.

But as much as we liked the idea of cooperatives, not everywhere has the fertile legal or cultural setting of Minnesota or Wisconsin. While cooperatives are great for certain kinds of businesses, they’re not for everyone: They can raise modest sums of capital, but struggle with large sums; their structures aren’t always flexible enough to accommodate multiple capital classes; their plodding, consensus-based nature makes them resistant to entrepreneurs’ bold ideas.


The history of Minneapolis’ West Bank neighborhood is an instructive example of co-ops’ promise and limitations. Uniquely among the ’60s hippie havens, federal urban renewal was leveraged to place most of the neighborhood’s housing stock within limited equity co-ops or Section 8. Alas, idealism and local control proved unable to adapt to either obsolescence or succession [PDF]. Photo: Michael Hicks, via Flickr.

Co-ops are a proven success within steady markets that provide community necessities, like workforce housing or groceries or child care or bike repair or bakeries — but perhaps aren’t the best vehicle for more colorful businesses. In many ways, commercial real estate development is just such a business.

Which brought us to the big small-business finance innovation of recent years: crowdfunding. Numerous “community investing” vehicles have been floated, like direct/P2P lending, lending through community financial institutions, conventional Kickstarter-style rewards (perhaps with interest paid in-kind), equity investments, etc. Crowdfunding has become almost de rigeur in certain popular, high-growth businesses. It first swept thin markets for trinkets that would typically be distributed online — e.g., board games. As the dollar amounts have grown, and as regulators have gradually warmed to the idea, platforms specializing in more capital-intensive bricks and mortar projects have sprouted for sectors like breweries and restaurants. Business models that defy categorization, like the McMenamin’s brand of alcohol theme parks, might be particularly well-suited to crowdfunded equity.

Several new platforms have emerged within this space. I’m most familiar with Fundrise. It’s evolved its primary offering away from common equity investments and towards what it calls “project payment dependent notes,” a hybrid of mezzanine debt (it’s debt, with a promissory note) and preferred equity (even though there’s a pre-determined target return, dividends are only paid when there’s adequate cash flow). For small developers, crowdfunding — even in the currently half-baked, accredited-investors-only form — holds significant advantages, namely cheaper, slower money, plus broader community buy-in.

Interestingly for our purposes, at least one nonprofit community development institution has begun to use Fundrise as part of its capital stack, and in particular in an attempt to save a for-profit community institution. The San Francisco Community Land Trust used Fundrise to raise its 38% equity stake (a local nonprofit offered the other 62% as equity) in an attempt to buy a mixed-use building housing the nation’s oldest African American bookstore, in a neighborhood otherwise ravaged by urban renewal. (Alas, the attempt foundered when the landlord changed the offering price.) All that the city could do was to landmark the building, perhaps in an attempt to reduce its market value, and to offer the business inclusion on a “legacy business” roster.

Mezzanine debt seems to also be the sweet spot for small business-oriented lenders like ZipCap. Their business model mirrors the built-in customer base of a cooperative, “recruiting an ‘Inner Circle’ of customers who pledge to spend a set amount of money in a fixed period of time.” Instead of relying upon just that circle for funds [as a co-op would do with equity memberships, or Member Loans], ZipCap uses those pledges as collateral for outside loans.

Combining all of the above vehicles — not-for-profits, low-profit cooperatives, and crowd funded for-profits — into interrelated entities might solve the scalability problem by allowing each entity to contribute its own strengths to a capital stack:

investment co-op waterfall

We called this entity a Place Corp, which has the ability to construct a capital stack from various tranches of capital, while keeping control within the community. (Outside investors and developers can help to build pieces, with the Place Corp hopefully maintaining some control via equity, but are treated merely as means towards an end.) Investors can choose from a wide variety of risk/return combinations, and can invest either time or money, choosing negative returns (gifts, grants), zero return (co-op equity), or modest returns. The Place Corp is diversified across property types, but not in location — like the family firms or community banks of yore. The durable, long-term returns of placemaking will create financial rewards for some investors — but for most, the place itself will be the return.

Next in the series: Where? And what sort of services might a Place Corp provide beyond just financing?

Thanks to some of those who contributed to this series of conversations: Karja Hansen, Matt Lambert, Russell Preston, George Proakis, Padriac Steinschneider, Seth Zeren