Think small and breed big developments
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You've heard the expression "thinking outside the box." Chuck Marohn thinks outside the big box.
Mr. Marohn is an engineer and executive director of Strong Towns (strongtowns.org). His advocacy group decries all the wrongheaded public subsidies that have gone into American development for decades. A big part of his pitch is that big-box stores -- your Targets, Costcos and Home Depots -- don't pay off in the same way your grandpa's commercial development did.
Mr. Marohn stopped Downtown to give a lunchtime lecture on his way back home to central Minnesota last month. I waited to write about this until I could get a computer guru to test his ideas here in Pittsburgh.
He begins with the notion that, until about 60 years ago, development followed a pattern as ancient as the Fertile Crescent: businesses within walking distance of their customers. What we've done since "is an enormous experiment, and we literally are all the lab rats."
Our street/highway blend costs more wealth than it generates, he says. By way of illustration, his PowerPoint presentation compared two developments in his home city, Brainerd, Minn. (Yeah, that's the same little city that had Marge Gunderson as its police chief in the movie "Fargo.") Mr. Marohn compared a "nasty, blighted block" in Brainerd to a "shiny and new" one the same size.
The new development may look better but, with its oversized parking lot, it generates 42 percent less in property taxes than the traditional -- albeit decrepit -- Downtown buildings that supposedly are passe. The old built environment is more flexible, too. If one business goes down it's not a tragedy, and meantime they're forever selling stuff to each other.
As he spoke, I thought of Pittsburgh's many vibrant commercial streets -- Butler and Carson streets, Murray Avenue, etc. -- and their ever-changing storefronts. But what of less prestigious addresses? How might one of them compare to a big-box development?
The city's lone Home Depot has been wildly successful since it opened in East Liberty a dozen years ago, and the 137,000-square-foot hardware store is widely credited with sparking the neighborhood's dramatic comeback. But how much does the location generate in property taxes compared to a nearby swath of urban acreage?
Much less, it turns out.
My colleague Andrew McGill crunched some numbers at my request, looking first at the property tax revenue generated by the Home Depot, the adjacent Vento's Pizza and the surrounding parking lot. Given its current valuation at $8.2 million, these eight-plus acres should generate about $180,000 in county, city and school property taxes.
That's 51 cents per square foot of land area, and that doesn't account for the amount that has been diverted through tax increment financing to pay off the project's debt.
Now let's head south across that parking lot and take in the next block. That would be everything between Penn Circle North and Penn Avenue on the first blocks east of Highland Avenue. You get just the northern side of Penn for a block, and the back streets behind it. The two- to four-story buildings hold shoe and clothing stores, restaurants, nail salons and the occasional empty storefront. Take away the church and other nonprofits and the taxable property takes up a bit less than three acres -- roughly a third the size of the Home Depot property.
Yet those modest old buildings are collectively valued almost as high -- $7.35 million -- as the Home Depot site. They also generate almost as much in property taxes -- nearly $160,000 -- despite the smaller footprint. They're generating $1.29 per square foot of land area, or 2 1/2 times what the big box does.
I wouldn't argue against anyone who says that Home Depot played the pivotal role in the neighborhood comeback. It's likely all these values would be lower had the big box and fellow heavy hitters such as Target and Whole Foods not arrived (with the help of grants, loans and tax increment financing). Mosites Co. plans to build on those successes with more than 360 apartments and 50,000 square feet of retail. That will take up six acres south of Penn, in conjunction with a $52 million transit center.
Mr. Marohn says top-down innovation is "orderly but dumb" while bottom-up innovation is "chaotic but smart," but the breakdown isn't that neat. Still, he's on to something when he says there's often more bang for the buck when we work with what's been on a block for 100 years.
Maybe this is just a long way of saying your grandpa was right. Support your local merchants. They'll do the same.
First Published February 14, 2013 12:00 am