G. L. Blackstone & Associates LLC

EB-5 Capital: Attracting Foreign Investment to Newark, NJ

7/11/2016

Newark is a city with global potential, and it is poised to become even more global. G. L. Blackstone & Associates LLC (GLBA) is now serving as an advisor to an EB-5 regional center licensed to operate in the Garden State. Regional centers are the special intermediaries authorized to attract and syndicate foreign investment into American development projects. GLBA most recently assisted its client in negotiations with the City of Newark, resulting in a public-private partnership for buttressing the City’s economic development efforts. Accordingly, GLBA is pleased to announce that its client has been selected by New Jersey’s largest city to serve as the City’s preferred collaboration partner for sourcing EB-5 capital—capital to provide gap financing for Newark development projects. That designation is particularly significant as there are currently over 75 other regional centers licensed by the U.S. Citizenship and Immigration Services (USCIS) to do business in the state—although many may be inactive or may have been organized to only fund a single project. USCIS is the component of the Department of Homeland Security that regulates the EB-5 immigrant investor program.

The federal EB-5 program is an economic development initiative that allows foreign investors in nations such as China, India, South Korea and Brazil to emigrate to the U.S. after investing stipulated levels of capital into an American business or development project. Such projects have to create jobs for American residents, and the program has funded the development of mega-projects such as Hudson Yards in Manhattan as well as numerous hotels. Although the regional center program is currently set to expire on September 30, 2016, it is expected that it will either be renewed in its current form or reformed to improve its administration. Program renewal is supported by the U.S. Conference of Mayors, one of the most powerful voices in the nation for American cities. In addition, a bill to revise and continue the program (S. 2415) is pending in the U.S. Senate with Senator Chuck Schumer of New York as a co-sponsor. A provision of that bill seems to allow—under certain circumstances—the Secretary of Homeland Security to include permanent jobs generated by retail establishments in the job-creation metrics of a regional center project. If that interpretation is approved, that particular provision could open up a new source of economic development capital for mall redevelopment projects—particularly those incorporating mixed-use components.

GLBA will be assisting its regional center ally in educating developers and economic development officials on the requirements of the program and how EB-5 capital can be incorporated into the capital stack of development projects. In addition, GLBA will be identifying prospective development and redevelopment deals that are a good fit for the gap financing provided by the foreign investors. Projects should have a minimum total development budget of $35 million in order to support the economics of an EB-5 capital raise. However, EB-5 syndications are inherently scalable, and financings in excess of $200 million have been executed under the program. GLBA’s focus will be identifying small and large mixed-use, healthcare, lodging, charter school and other commercial projects with transformative and community development impacts in four states: NY, NJ, CT and PA. These projects will typically involve complementary debt and equity investment from other sources.

In recent years, the EB-5 program has exploded in popularity. This is because it offers a unique arbitrage opportunity that translates into a source of mezzanine capital or preferred equity that is low-cost on a risk-adjusted basis. At its core, the program is simply another example of the globalization of capital markets. For more information, contact Lamont Blackstone at (914) 663-0498.

Breaking the TIF Barrier in New York State – Part 1

4/10/2016

In a state where real estate developers are accustomed to an alphabet soup of development incentives—think of NMTC, LIHTC, PILOT and EB-5—there is one incentive that has gone largely unnoticed and unused. But, elsewhere in America, it has been tapped repeatedly to cleanup brownfield sites and to build sewer systems. It has financed the construction of parking garages and drainage facilities; it has funded the development of public roads and site preparation. It has even been used to build stadiums and bridges.

Throughout the U.S., tax increment financing (TIF) is a municipal finance innovation adopted to raise public sector capital for a variety of redevelopment projects. And given the staggering infrastructure investment needs in New York State, it should have been welcomed as one more important tool in the economic development toolbox. The logic is simple and as potent as the arguments for workplace diversity: more diverse tools, more diverse solutions. Granted, there was justification for lack of interest prior to 2012. Back then, the authorizing sections under the New York State Municipal Redevelopment Law complicated TIF’s use in most cities and villages. However, it was in 2012 that educational efforts conducted by retail real estate industry volunteers (including yours truly) would eventually yield fruit: The governor and the legislature approved important changes to the law. Of course, it was also helpful to have great counsel to guide us through the labyrinth of state politics.

We New Yorkers proudly think of ourselves as leaders in the national culture and economy. We gave the republic six presidents, including Teddy Roosevelt and Franklin D. Roosevelt—that bipartisan duo being particularly notable for how they led the nation. New York also takes credit for breaking the color barrier in professional sports with the 1947 debut of Jackie Robinson on the Brooklyn Dodgers. But in the field of tax increment finance, New York State has been a laggard—its municipalities have sat on the bench, content to let other programs take their swing at bat. That’s probably attributable, primarily, to a lack of awareness of TIF’s benefits. (Former Assembly Speaker Sheldon Silver was reputed to be loath to the notion of using TIF in New York City.) I discovered that many lawmakers were unfamiliar with TIF when I was recruited several years ago to provide guidance to the Yonkers City Council.

Prior to 2012, Yonkers was the one major exception to this failure to get in the game. I was enlisted as a consultant to their city council to help them review a major financing proposal: the $200 million revenue bond issue for a proposed mixed-use project in downtown Yonkers. Those bond proceeds would have financed the construction of a parking garage, new roads and the redevelopment of a combined sewer system almost a century old. In total, the planned improvements and retail and residential development would have brought vitality to the downtown of that riverfront city. And then the Great Recession arrived.

Although the City of Yonkers stepped up to the plate to pioneer, what may have been, the largest use of TIF financing in state history, the underlying project did not move forward. The City didn’t strike out: It did its part; it took a disciplined approach to vetting the deal and obtaining the necessary approvals—and those approvals were contingent upon the developers’ ability to execute. But such are the vagaries of development, and, at least, Yonkers attempted to build its way out of its fiscal difficulties.

However, New York now has another forward-thinking city ready to join the ranks of American jurisdictions that have used TIF. That city is Glen Cove, which is located on the Long Island waterfront in the Greater New York area. As a proponent of TIF in New York State, I will be sharing my observations of its proposed TIF deal during a panel on brownfields redevelopment entitled “Challenges & Opportunities: Redeveloping the ‘Undevelopable’.” That forum will include the mayor of Hernando, MS and other brownfields experts; it will be hosted on May 23rd at the annual convention of the International Council of Shopping Centers (ICSC) in Las Vegas. So, just as the Brooklyn Dodgers broke the color barrier by placing Jackie Robinson on the playing field, Glen Cove appears poised to do the same with the state’s de facto TIF barrier by fielding a $100-million TIF bond issue. We should all root for the successful structuring, approval and execution of that effort. For if Glen Cove succeeds, other cities may follow suit: In that sense, “build it and they will come.”

At that ICSC panel presentation in May, I will also discuss other TIF deals—ranging from a $16mm bond financing for one of my projects in San Diego (City Heights Retail Village), to a $145mm financing in Stamford, CT. That presentation will highlight the scalability of TIF as a funding source, as well as how TIF deals can be structured to manage public sector risks. To be clear, TIF is not going to be selected as MVP for every redevelopment problem. It is not a solution for every economic development initiative. However, it should, at the minimum, be scouted for its ability to accomplish public-private partnership objectives in New York State. San Diego’s redevelopment agency recognized this in the late 1990s, and the video clip below shows the City Heights Retail Village project made possible with support from tax increment financing. Follow this blog for future posts on tax increment financing and public-private partnerships. – Lamont Blackstone

The Latest Thought Leadership for Mixed-Use Affordable Housing Development

4/4/2016

As a retail real estate specialist, I really don’t consider the typical urban multifamily building with ground-floor commercial as being “mixed-use.” I will discuss why in another post. However, the term has been widely accepted as part of the multifamily industry’s lexicon. So why fight it? What is more important is designing—and doing it well—the commercial space that is incorporated into mid-rise and high-rise multifamily structures.

I find that goal to be an interesting exercise in problem-solving, a process in which the horizontal dimension—the typical framework of retail real estate planning—must be coordinated with vertical development. And that is why I was happy to provide a small assist to a new publication issued by Design Trust for Public Space, a non-profit think tank. That guide is entitled Laying the Groundwork: Design Guidelines for Retail and Other Ground-Floor Uses in Mixed-Use Affordable Housing Developments. Granted—that title is a mouthful, but it describes the mission that organization adopted on behalf of the New York City Department of Housing Preservation & Development.

Even though commercial spaces in most housing projects are relatively minor elements, mixed-use development requires cognitive diversity, i.e., diverse real estate perspectives—if it is to be done well. It is not sufficient for an architect or developer to just be really good at programming housing. An 80/20 rule or phenomenon can operate to impact project success: 20% of the building space (i.e., the commercial component) can cause 80% of the operating problems or project risk, if the commercial space is un-leasable or obsolete.

Consider what would happen to your project loan underwriting if 10,000 sq. ft. of ground-floor retail space remained vacant for several years or was leased at rates substantially below projections. When the East Harlem Pathmark supermarket was originally developed, the construction lender was—understandably—risk averse regarding the leasing prospects of 5,500 sq. ft. of small-shop space attached to the 50,000-sq.-ft. store. There were suggestions that it should be eliminated. I had, however, conservatively projected rents for that space at $25 per sq. ft., and we found a way to finance it. That first-mover anchor project, on what was then a highly blighted corridor, eventually catalyzed the redevelopment of nearby parcels. Those sites were activated with retail and commercial projects commanding asking rents of $50 per sq. ft.—yes, and within nine months of the groundbreaking of the supermarket.

So, the housing developer’s perspective must be amicably married with an understanding of commercial space users—otherwise a lost opportunity can result. And even now in some of NYC’s most challenged inner-city districts, which are where many affordable apartment units have been built, commercial rents can approach and surpass $40 per square foot. Therefore, even a 10,000-sq.-ft. ground-floor component can represent millions of dollars in capitalized value to the owner.

In NYC, there has been a widespread assumption (for over two decades) that many inner-city neighborhoods have been underserved with quality retail amenities. That is why I joined, back in 1994, the management team of The Retail Initiative, Inc. (TRI), which was the first national commercial real estate investment fund to spearhead inner-city retail development. However, the configuration and scarcity of available parcels in NYC has limited the opportunity to develop inner-city marketplaces—exceptions being two TRI projects, the 134,000-sq.-ft New Horizons Shopping Center in the Crotona section of the Bronx and that 55,500-sq.-ft. Harlem Pathmark Project on East 125th Street. That is also apparently why mixed-use development has been pushed by the City as a means of addressing two important economic development objectives: the production of affordable housing and the expansion of quality retail outlets.

However, I have observed that some affordable housing developers approach retail warily: They don’t understand it, and they see the obligation to incorporate it as a liability—not an asset. The Design Trust’s new publication should mitigate some of that wariness with its attention to the design considerations of various mixed-use building systems. The guide includes sections on the design of facades and signage, exterior access and streetscapes, electrical systems and sample configurations for ground-floor retail tenants. As a member of Design Trust’s peer review committee for the publication, I was pleased to contribute insights regarding the proper programming of ground-floor spaces in order to meet the requirements of small format supermarkets and other commercial users. To obtain a copy of the publication, click here. (Image: an example of effective mixed-use design by MAP Architects)

Brownfields Redevelopment Panel Discussion at ICSC Convention

1/29/2016

I am honored to have been invited to address the subject of brownfields redevelopment at the annual shopping center industry conference to be held this coming May in Las Vegas. The panel entitled “Challenges & Opportunities: Redeveloping the ‘Undevelopable’” will involve a discussion of the role of public-private partnerships in the redevelopment of brownfields sites across the nation. The conference is sponsored by the International Council of Shopping Centers (ICSC), the trade association for that sector of the commercial real estate industry that encompasses developers and owners of retail stores and shopping centers, as well as the retailers and tenants that occupy them. The convention has the distinction of being the largest commercial real estate gathering in the nation with over 40,000 attendees in recent years.

I anticipate discussing the role of tax increment financing (TIF) as a public-private partnership strategy. TIF is a municipal financing tool which has been used effectively to redevelop brownfields and other under-utilized urban real estate assets throughout the nation. My first exposure to TIF was in connection with a proposed public-private partnership for a mixed-use development project in downtown Hartford. In recent years, I was part of a team that ICSC assembled to lobby for the revision of New York State’s cumbersome tax increment financing statute to make it more development-friendly. As a result of a collective agreement by the Cuomo Administration and both houses of the State Legislature in 2012, the State enacted changes to its TIF provisions to facilitate its use by municipalities, counties and IDAs to issue bonds to support brownfields redevelopment and infrastructure projects. The provisions are still a work-in-progress, but the State’s municipalities and counties now have an additional tool to support redevelopment and finance infrastructure projects such as parking garages and environmental remediation.

Juanita Tate Marketplace in South Los Angeles

However, I believe the most potent use of TIF in New York State and elsewhere in the future will be for mixed-use development that combines retail with vertical development programs inclusive of multifamily, lodging, healthcare, and/or office components. This is consistent with the LIVE-SHOP-HEAL paradigm I have been promoting. For the most environmentally challenged development sites, the inordinate costs of remediation often will require intensive development in order to generate sufficient tax increment to support a sizable bond issue. This, I believe, aligns synergistically with trends favoring urban redevelopment.

I look forward to a productive discussion and sharing my insights regarding brownfields financing and TIF for shopping center projects completed in San Diego and Los Angeles, as well as more recent mixed-use and industrial project proposals I have worked on in Texas and Westchester and Orange Counties in New York State. The panel discussion will be held at 10:00 am on Monday, May 23rd. For registration information, visit www.icsc.org.

Healthcare Is the New Retail – For Shopping Centers

10/11/2015

In my February 18th article for this blog, I posed the question of whether healthcare facilities are the new retail. A recent panel discussion sponsored by the International Council of Shopping Centers (ICSC) provided a resounding affirmative—at least for suburban shopping center operators. That program was hosted in Chicago by the trade association for the retail real estate industry, and it included professionals from both healthcare companies and commercial real estate organizations. Healthcare operators on the panel represented commercial space users with requirements ranging from as little as 1,500 sq. ft. to up to 100,000 sq. ft. of gross leasable area.

The discussion was anchored by several premises shared by the panelists. First, the mission of the nation’s healthcare system is changing from a focus on responding to episodic illness events to a continuous focus on wellness and “preventive maintenance” for optimal health. Second, and related to this, is a process of decentralization of the healthcare system, a shift which has as its imperative the placing of healthcare facilities closer to “consumers,” the new terminology for “patients.” It is this motive that has unleashed a development thrust evidenced by the construction of ambulatory facilities such as clinics, surgery centers, urgent care centers and freestanding emergency departments. And these various forms of outpatient facilities are finding their way onto outparcels and into retrofitted junior anchor spaces in open-air shopping centers and malls. However, larger healthcare facilities within retail settings can encompass 100,000 sq. ft. and more. As a striking example of a regional mall location, I am aware that Vanderbilt Health, a healthcare network affiliated with Vanderbilt University, signed a lease deal for approximately half of the 850,000 sq. ft. at One Hundred Oaks Mall in Nashville, TN. I had visited that mall several years ago and witnessed how it struggled for an identity and viable tenant mix in the metropolitan area.

Because medical megatrends are compelling healthcare organizations to think of patients as consumers and customers, healthcare companies are adopting the same type of consumer-centric thinking that has guided retailers and retail site selection decisions. This is superbly illustrated by The Little Clinic, one of the panel participants at the ICSC event. That company was founded on a business model of locating professionally-staffed healthcare clinics in retail stores, thereby providing both convenience and affordability to individuals juggling demands of work and family. Such facilities also addressed a need for a complement to primary care physicians after normal office hours or on weekends. In 2010, the company was purchased by The Kroger Co., one of the largest supermarket chains in the nation, and it has implemented a strategy of tapping the operational and marketing synergies of co-location with a grocery anchor. The Little Clinic now operates 175 facilities in supermarkets located in the Midwest and the Southeast.

Given the healthcare industry’s new focus on wellness, leveraging the nutritional guidance and support available in supermarket aisles and perishables departments is just one example of the symbiotic relationship between healthcare and retailing in the new healthcare paradigm. I have now worked on three urban mixed-use development proposals that incorporate both supermarkets and health clinics in co-location situations, and I expect urban markets will see more examples in the future. I also note that the co-locating of supermarkets and healthcare facilities pairs two recession-resistant commercial tenancies. In addition, healthcare organizations have a growing customer base attributable to an aging population and increases in the percentage of insured households. As such, the LIVE-SHOP-HEAL paradigm should continue to replicate. – Lamont Blackstone, CRX

Local Food Systems and the Live-Shop-Heal Paradigm – Part Two

6/23/2015

In a previous article of this blog, GLBA discussed local food systems and how they fit within a live-shop-heal paradigm of urban development. My firm has recently completed a plan in New York for the ground-floor commercial component of a proposed mixed-use housing development. This mid-rise project applies the live-shop-heal concept in one of the densest neighborhoods in the United States. In doing so, the plan also illustrates how components of a local food system can bolster the sustainability profile of a multifamily housing project.

The proposed project would bring over 100 affordable housing units to the development of an existing city-owned parking lot in the Mott Haven section of the South Bronx. A complement to that vertical development program is the proposed ground-floor commercial component. That podium would consist of over 21,000 sq. ft. of commercial space—62% of which would be anchored by a small-format supermarket designed with a loading dock to address modern logistical requirements. The development of urban supermarkets is often a common component of the evolution of local food systems, particularly in food deserts such as those which exist in major cities such as New York and Chicago. The subject development would bring a 13,000 sq. ft. supermarket to a zip code with a population density of almost 37,000 people per square mile and nearly 7,600 public housing residents within a 0.30-mile radius of the site. In addition, since the site is across the street from a city-operated health center, the wellness link of the live-shop-heal paradigm is established without the need to incorporate a health care use into the development.

However, urban agriculture has been incorporated into this development concept. And although GLBA has previously proposed incorporating rooftop hydroponic greenhouses into multifamily development, the circumstances of this project dictated a different approach. Recognizing the retail challenges of the site location, that those constraints called into question the marketability of certain portions of the site, GLBA proposed using the least-leasable section of the ground-floor footprint as space for an in-door hydroponic farm. The facility would incorporate stacking systems to make efficient use of three-dimensional space in order to maximize the growing capacity of an approximately 4,500 sq. ft. storefront with 15-foot ceilings. (An example of the stacking design is presented in the photo below.) A glass demising wall separating the farm operation’s growing room from the adjacent residential entrance lobby will turn the vertical stacks of plants into an eye-catching design feature for residents and visitors entering the apartment complex. However, since urban farming is a business, distribution considerations are important. Therefore, the vegetables grown by the facility can be sold to the on-site supermarket as well as building tenants, area residents and local institutions including schools—thereby establishing a nutritional ecosystem and demonstration project for the emerging industry of hydroponic farming. With its location near a health care center, there are additional potential synergies since health care systems are increasingly adopting holistic approaches to wellness. A fine example in New York State is the health insurer EmblemHealth which sponsors a local fruit and vegetables program that provides discount coupons usable at farmers’ markets.

As if the live-shop-grow trifecta here was not enough for one development program, its urban agricultural component also adds another element: learn. Our plan provides for an educational component that allows area students to activate their studies of biology, math and chemistry by observing scientific principles in action in the methodologies of hydroponic farming. An added factor in that STEM training is exposure to the workings of the LED lighting that is to be incorporated as an in-door lighting source for the crops. This educational component can also create market buzz that will help draw traffic to the retail location. GLBA’s client, a developer of affordable housing, is hoping to be designated to develop this model housing and economic development project. Regardless of the outcome, there are potent elements here which can be incorporated in both affordable and market-rate multifamily projects in urban markets with mixed-use zoning authorization. National chains such as Trader Joes, Walmart and Whole Foods have developed or are experimenting with small format stores which could be incorporated into the site plans and ground-floor levels of vertical mixed-use projects. And just as low- and moderate-income households will welcome access to fresh vegetables, the lifestyle choices of wealthier and millennial households increasingly embrace a preference for locally-grown, organic produce.

A subsequent post will discuss the sustainability linkages of local food systems in multifamily development. – Lamont Blackstone

National Real Estate Training Initiative Plans Its Return to NYC

6/11/2015

As chairman of the board of directors of Project REAP, I am pleased that the program has announced plans to return to NYC. REAP is the acronym for the Real Estate Associate Program, a national diversity and talent management initiative. It was launched for the sole purpose of facilitating the entry and advancement of talented African-Americans, Hispanics, Asian-American and other minority professionals in the commercial real estate industry. The program provides a 10-week training curriculum taught by industry professionals who cover the fundamentals of commercial real estate inclusive of leasing, finance, property management and development in the retail, office and multifamily sectors. The initiative is supported by several real estate industry associations such as the Urban Land Institute, International Council of Shopping Centers, National Multi-Housing Council, NAIOP and BOMA. The program currently operates in seven cities nationwide and was launched in New York in 2006.

During its seventeen-year history, REAP has provided training to minority professionals of diverse backgrounds encompassing fields such as the law, economic development, accounting, architecture, telecommunications, and various fields within the practice of real estate such as appraisal and residential sales. Some of its graduates have gone on to pursue promising real estate careers at organizations such as Walmart, Citigroup, Tiffany & Co., Cushman & Wakefield, CBRE, NBC/Universal, IKEA as well as some of the leading real estate development organizations in America. The program does not require a prior background in real estate and talented professionals from both the private and non-profit sectors may apply for admission. REAP plans its return to NYC in Spring 2016 and is currently soliciting support from the commercial real estate community to re-launch the NYC program. For more information on applying for admission, monitor the REAP website for announcements of the commencement of the application process. -- Lamont Blackstone

Local Food Systems and the Live-Shop-Heal Paradigm – Part One

4/7/2015

On behalf of a municipal client, GLBA just completed recommendations for spearheading a local food system as part of a downtown redevelopment strategy for a small city. For over twenty years, GLBA’s principal has been involved in efforts to develop supermarket facilities in urban neighborhoods. Local food systems constitute a new iteration on that theme of exploiting a local market’s purchasing power for food-related merchandise and services.

So what is a local food system and how can it fit within a live-shop-heal paradigm? Like any system, a local food system is a network of component parts with interlocking linkages. The components consist of businesses or activities involved in the production, processing, distribution, marketing, retailing and recycling of produce and other food items within a localized geography. And the linkages relate to the synergies among those various components. It is to be contrasted with the pattern of agricultural production and distribution which has evolved as the dominant system in post-World War II America. A defining aspect of a local food system is the potential for a dramatic reduction in the percentage of retail food prices attributable to transportation, energy and storage costs. As such, there are potential savings that could be passed on to consumers or potential profits to be generated by businesses participating in the supply chain of a local food system.

Businesses and economic activities that are considered as components of a local food system include various forms of urban agricultural enterprises. These are community gardens, rooftop gardens on multifamily dwellings, hydroponic farms at grade or on building rooftops, and greenhouses utilizing aquaponic technology. In addition, farmers’ markets or public markets that serve as retailing outlets for locally-raised produce constitute another potential component. Restaurants and grocery stores that enter into supply agreements with urban farm enterprises serve as additional distribution links to local consumers.

Hydroponic & Aquaponic Farms:

One of the most exciting developments in the evolution of local food systems is the hydroponic farm. As opposed to soil-based recreational endeavors such as community gardens, hydroponic farms are for-profit enterprises operated in greenhouses using a technology in which plants are grown in water. Since they are operated in temperature-controlled structures, they can operate throughout the year. Rooftop hydroponic farms are a variant of the hydroponic format and have been erected atop supermarkets, warehouses and multifamily buildings—ideally new construction designed to accommodate the incremental structural loads and vertical access requirements. As a modern agricultural and quasi-industrial real estate use, the market feasibility of the at-grade or rooftop farm is based on the intrinsic competitive advantage of hydroponic farming within an urban market. This is attributable to the price advantage that urban farms have since as much as 50% of the retail price of produce (such as lettuce) is determined by the costs of transporting and storing vegetables and fruits from distant locations. That logistical advantage—combined with the perceived taste superiority of organically-grown produce delivered fresh and free of pesticides and conventional fertilizers—has become the foundation of the business model of various hydroponic operators.

Aquaponic farms involve the marriage of hydroponics with aquaculture. Not only are vegetables raised, but through a symbiotic and closed-loop system, fish are farmed as well. Fish species such as tilapia, perch, trout, catfish and hybrid striped bass are raised in water tanks for eventual sale in the local market. The accumulated effluent from the fish in the tanks is siphoned off and provided as nutrients for the plants growing in the hydroponic operation. Aquaponic facilities can range in size from an indoor farm operated within a 4,500 sq. ft. space on the south side of Chicago (Green & Gills) to a 365-ft. x 30-ft. outdoor greenhouse operated on ¼ of an acre in Oregon. As such, their footprints can be adapted to hard-to-lease space in older buildings or vacant infill parcels. Aquaponic operations would typically entail a greater level of investment in machinery and equipment than hydroponic facilities. Accordingly, incentives directed towards capital investment in machinery and equipment may prove effective in attracting such operations.

In a future post, I will continue my discussion of the components of a local food system. – Lamont Blackstone

Is Healthcare the New Retail for Urban Infill Redevelopment?

2/18/2015

Since the 1990s, developers of mixed-use and single-use urban infill sites have discovered that retail formats can be important components or outright drivers of development proposals. This phenomenon is attributable to underlying determinants of demand supported by the income density of urban census tracts. It is also influenced by decades of disinvestment that failed to respond in a timely fashion to corrective measures which reduced the virulence of locational disincentives. In inner-city markets, those risk mitigating factors include lowering crime rates and the attraction of Generation X and Generation Y populations to central-city neighborhoods. When opportunities arise to re-balance the disparities of the supply of retail space in urban markets, some pioneering retailers have experimented with limited adaptations of formats to address the constraints inherent in urban infill sites—classic examples being the Harlem Pathmark project in East Harlem and Target’s forays into Brooklyn and Washington, DC. Some experiments by retailers have been successful; others were less so.

Developers and planners should now ask whether urban healthcare facilities may offer similar opportunities for the commercial components of projects. A transformation of the healthcare delivery system is occurring as the nation moves from a reduction of large-scale hospital facilities to the development of smaller facilities such as freestanding emergency departments, ambulatory surgery centers, urgent care clinics and community health centers. At a panel presentation last year to The Wharton Club of New York, Dr. Ezekial Emanuel, a prominent authority on the Affordable Care Act, suggested occupancy levels of the U.S. hospital industry, combined with modern healthcare economics, both were precipitating an inevitable reduction in the nation’s required stock of hospital beds. Dr. Emanuel also mentioned that the average occupancy rate of the nation’s 5,000 hospitals was about 70%—not a robust indicator of fiscal health when compared to the similar metric for the hotel industry. Now, occasionally a few major metropolitan areas may see the development of large-scale facilities such as state-of-the-art proton therapy centers for the treatment of cancer. However, just as national retailers such as Walmart, Best Buy and Staples have been gravitating towards smaller formats, the healthcare industry has increasingly been embracing smaller facilities as part of new delivery models geared towards outpatient care at the expense of inpatient hospital treatment. Therefore, developers of urban retail and mixed-use projects should be mindful of whether the capital expenditure and facility development plans of healthcare operators should be considered in programming the development of infill sites.

Wellness center in low-traffic location of City Heights Retail Village

There are additional considerations. First, healthcare has a quasi-retail character that, in certain respects, is more analogous to retail than to conventional office space. Similar to retail, healthcare facilities such as ambulatory care operations and urgent care clinics exist to serve a population visiting the establishment to obtain a product, i.e., healthcare services. That traffic-generation aspect of certain healthcare operations can have synergies with retail outlets such as drug stores, coffee shops and other food service operations. (It is interesting that Walmart, along with drug store titans CVS and Walgreens, are incorporating clinics into some of their stores.) Second, the size of the healthcare sector alone warrants attention from the development community inasmuch it comprises nearly 18% of the gross domestic product of the United States and 1.7 trillion dollars in annual revenues. Compare that to the U.S. restaurant industry’s annual revenues of 660 billion dollars. Third, as a commercial use, healthcare operations can offer developers design flexibility that retail often can’t. For example, whereas retail typically will not work on a second or third level of a mixed-use project (department stores and urban mall developments excluded), healthcare operations can occupy second-story space or, alternatively, operate in site footprints and in spatial configurations that are spread out over multiple levels. This last point should be noted by economic development professionals as this may also mean that healthcare facilities can offer more job generation per square foot of site area than horizontal retail layouts and, potentially, at higher wage rates than those typically paid by conventional retailers such as restaurants. In NYC, the average pay of healthcare industry workers is $56,000 annually—a metric obviously influenced by physician and nursing salaries, but nonetheless reflective of the career opportunities of lower-level jobs such as patient care technicians, clinical medical assistants and health information technicians.

So, is healthcare the new retail? Maybe, maybe not. But it does offer new opportunities to incorporate commercial uses amidst retail storefronts or as a substitute for locations where it may be difficult to attract retailers. -- Lamont Blackstone

Announcing the GLBA Urban Bulletin...

2/9/2015

With this blog I am re-launching a newsletter to periodically inform the commercial real estate (CRE) community of announcements, developments and trends of interest to public and private sector stakeholders. Past issues of the print newsletter covered topics such as changes in retailer store formats and energy management issues. Stay tuned. -- Lamont Blackstone