Why so many "for profit" projects require subsidy: Detroit, lots of projects, but still a weak market

This building had been vacant for decades, but a couple years ago it was acquired by Ford Motor to be used as a headquarters for innovation.

1.  Why projects get subsidies.  Nigel from New Zealand calls our attention to a great article ("Can anything be built in Detroit without subsidies?") in Curbed Detroit about why "for profit" projects receive tax and other subsidies.  It's because in weak markets, for profit financial sources aren't forthcoming because the project doesn't "pencil out" and is likely to be unprofitable were it to be traditionally financed. From the article:

Development is booming in Detroit. Every month there’s new announcements for transformational projects, multi-million dollar mixed-use buildings, and countless other smaller developments.

But behind nearly all these developments are subsidies, adding up to billions of dollars in tax incentives, grants, low-interest loans, and cheap land provided by various government entities at the city, state, and federal level.

Despite its identity as a comeback city, Detroit still remains a “weak market” in development terms. Most projects are unable to secure sufficient financing, leaving a “gap”—the difference between development costs and what market rents or projected commercial revenue can support. For Detroit, that gap can be significant.

I came to understand this, being involved in such matters in weak market neighborhoods. But for a couple years, coming from the perspective of "an advocate," I didn't understand why we had to give public money to the private sector.

Now I do. But as Rolf Goetze writes in Building Neighborhood Confidence, the point of such efforts shouldn't be to breed dependence on government monies, but to set the stage so that private efforts can become sustainable.

The thing is, you know when projects take decades to come to fruition, like Skyland in DC ("For the first time, Skyland Town Center's revitalization might have a chance: creating a community focused retail destination") which has been going on since 1997, or take lots and lots of money, the market conditions are incredibly unfavorable.

Lesson: you can't fund everything, you have to make choices.  You do have to make choices and sometimes tell neighborhoods that the amount of subsidies are unsustainable, and that the local government needs to husband its resources and apply them in other places with a greater likelihood of success.

Lesson: aim for decent profits on the more sustainable projects, so you can still invest in the weakest areas.  Of course, the point of the more successful projects should be to generate extranormal profits that can be applied to the more difficult situations.

Detroit's Woodbridge neighborhood is quite attractive.

2.  Anticipatory planning.  Nigel also sent me a link to a story, about the Woodbridge neighborhood where some pretty good planning and design firms are developing a master plan for an abandoned school site ("Residential, commercial project planned for historic Woodbridge neighborhood," Detroit News).

Lesson:  It's good to be prepared by having plans in place, for when opportunities come along.

-- "Economic restructuring success and failure: Detroit compared to Bilbao, Liverpool, and Pittsburgh," 2014

Reading the headline, I was prepared to think they were wasting their time, until I saw that the neighborhood is in central Detroit, where most of the redevelopment energy is occurring, especially in the Woodward Avenue corridor.  Otherwise, it'd probably be wasted money.

Because ...

Lesson: Location matters, centrality matters, critical mass matters.  At conferences, I've seen government economic development agencies pass out flyers about "development opportunities" scattered around, mostly in lousy locations.  I always say to myself, "why do you think some unknowledgeble developer from somewhere else is gonna come in and be your savior?"

3.  Greektown neighborhood does its own plan.  A few weeks ago, I got a press release for a Framework Vision Plan developed by and for the Greektown Neighborhood Partnership.

The plan was produced by a wide ranging team that included SOM (Skidmore, Owings and Merrill) with HR&A, OJB Landscape Architecture, Sam Schwartz Engineering, McIntosh Poris Associates Architecture, and Kraemer Design Group.

Even after Detroit leaked population, a core of businesses and attractions remained in Detroit's Greektown neighborhood, although patronage from suburbanites has waxed and waned over the decades.

The casino-hotel looms over the neighborhood.

One of the things I learned from patronizing Greektown myself--I was one of those occasional visitors decades ago--was that places like this need to constantly plan and polish their retail mix in order to attract repeat patronage.

And despite all the acclaim Detroit has received from its post-bankruptcy planning, which had an equity orientation (Detroit Future City Strategic Framework Plan, Hamilton-Anderson), obviously plenty of opportunities were overlooked, or this plan would have already been created.

One relatively new anchor in Greektown is a casino.  The Greektown Casino and Hotel--400 rooms and meeting spaces--opened in 2009.

While casinos are not my first choice, I will say it can provide financial might to support not just planning but also implementation, with the proviso that gamblers tend to not be interested in leaving the confines of the casino.

I haven't had a chance yet to sit down and go through the Plan, but I am always impressed when neighborhood groups, business improvement districts, Main Street programs, and similar entities take the initiative to create their own plans.

The Neighborhood Partnership grew out of the neighborhood's historic preservation group, and has brought together stakeholders from across the neighborhood, including residents, businesses, nonprofit groups, and cultural institutions. Various stakeholders came together and funded the study independently of the city, county, or state. According to the press release:

Stakeholder outcomes from the planning effort focus on five key categories: Public Realm, Mobility & Parking, Culture & History, Development Opportunities, and Neighborhood Experience. Design strategies are focused around connectivity to surrounding neighborhoods and the downtown core, increasing built density, the introduction of new public open spaces connected by activated pedestrian paths, and the creation of a mixed- use neighborhood, expanding uses beyond entertainment.

The Greektown Neighborhood Framework Vision considers all opportunities, from public to private, and provides an inspiring roadmap for the future of the historic neighborhood. As the east gateway to downtown, Greektown will emphasize connected, contextual, and inclusive development. The Framework also amplifies opportunities in conjunction with planned new development in and around the neighborhood.

The plan has already garnered some media attention:

-- "Greektown fights back against years of decline with sweeping new concepts," Detroit Free Press
-- "Detroit's Greektown seeks to awaken 'sleeping giant' with neighborhood plan," Detroit News


Infographic about Detroit used during the Comprehensive Planning process