Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Wednesday, September 14, 2011

When locally/regionally owned companies make a difference over national firms

The issue of a local economy is now more of a micro-business discussion, such as various local first/buy local campaigns or the locavore movement in food production.

The new book by Marc Levinson, THE GREAT A&P AND THE STRUGGLE FOR SMALL BUSINESS IN AMERICA, discusses the creation of one of the nation's first retail chains operational across the country, the A&P Supermarket. New York Times review; NPR story.

It has long since been the case that most business sectors in the U.S. have been reorganized from a local and regional operational scale to a national scale, accompanied by massive consolidation of smaller separate businesses into large companies.

This is true especially for banking.

Two of the biggest problems in the economy now are (1) the difficulty that banks are showing customers who need to refinance their mortgages in order to avert foreclosure; and (2) loans for small and medium sized businesses, because despite the billions in dollars of financial support received from the Federal Government, the nation's biggest banks aren't loaning money.

The Wall Street Journal has a fascinating story about Webster Bank, "For Lender, Foreclosure Is a Dirty Word." From the article:

Webster's small size makes it more nimble than bigger competitors. But its track record shows how focusing on customer service can pay off for banks and borrowers. Webster services $8 billion in mortgages and home-equity loans, a tiny fraction of Bank of America Corp.'s $2 trillion portfolio. Webster also owns 75% of the loans that it services, helping the bank call the shots. Just 1.84% of the mortgages serviced by Webster were at least 30 days past due but not in foreclosure as of June 30. The U.S. average is 8.15%, according to Lender Processing Services.

When it restructures a loan, Webster usually waives late fees, penalties and unpaid interest instead of adding them to the loan balance—and putting homeowners deeper in the hole. Borrowers don't have to make months of trial payments before the modification is made permanent.

A dozen employees in Webster's collection unit staff the front lines, prodding borrowers with hardships to apply for help and then send in required documents. Seven loan-modification specialists sit nearby. Employee bonuses are tied partly to the number of modifications. About 80% of the agreements hammered out with borrowers are approved by Webster's management without any changes. ...

Webster has completed 1,184 modifications, boosting reserves by $20 million to cover possible losses. As of March 31, 9.6% of borrowers whose loans were reworked in 2010 were at least 60 days past due on their payments nine months later. The re-default rate was 24.7% for modifications completed by the largest U.S. banks and thrifts in 2010, says the Office of the Comptroller of the Currency.

What a difference compared to the big national banks, like Bank of America.

In "Mr. banker, can you spare a dime?, Joe Nocera of the New York Times describes how a couple small businesses tried to get loans for their successful businesses, in order to expand. One couple was rejected by 14 banks before being funded by a local institution.

... On another note, while it has been discussed in the Washington City Paper and this blog in the past, the lease to manage the retail in DC's Union Station is held by a nationally active firm based in New York. They paid $160 million for an 84 year lease ("Ground lease for Union Station changes hands" from the Washington Business Journal).

They have been systematically eliminating locally owned retail and restaurant businesses in favor of national chains.

But they keep saying that they need to not pay local property taxes on their earnings, that it's a hardship because maintaining the building is expensive. First they asked for property tax abatement (see the blog entry "76 year tax abatement proposed for Union Station"). Now they are repudiating that the building should pay taxes, because the building, underlying, is owned by the federal government ("Union Station: Don't Tax Me, Bro from the Washington City Paper Housing Complex blog).

Why did the company pay $160 million for such an asset, if it were truly encumbered?

This is why I say the issues of "building a local economy" are more intricate than the typical "economic development" element that is present in Master and Comprehensive Land Use Plans. They need to be more fine tuned and nuanced and focused on the total net returns to the local economy from various actions.

WRT Union Station, I would argue that the retail space management operations don't necessarily justify any tax abatement whatsoever, because their management overall is reducing the dollars circulating in the local economy, because the economic multiplier of chains is significantly less than that of locally owned stores, even probably if there is somewhat higher dollar volume for the chain stores.

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