Model Solutions to Revitalize Urban Industrial Areas

Most urban areas are experiencing significant disinvestment in older industrial-warehouse areas, along with a net loss of employment, tax base and related activity. The few recent surveys done to measure vacant industrial land suggest that, in Northeastern and Midwestern cities, 15 to 20 percent of industrial sites are inactive. In major cities such as Chicago or Philadelphia, vacant land can amount to several hundred parcels comprising several thousand acres. Often there are significant financial liabilities associated with the ownership of these “brownfield” sites due to the high incidence of contamination and related safety and environmental problems.

Vacant or underused properties are often located in areas suffering generally from physical decline, concentrations of low-income households and high crime rates. Thus, older cities are faced with the dual challenge of improving the capacity of the resident population to participate productively in the labor force and restoring the competitive market standing of areas with declining fiscal capacity.

While recent economic changes have resulted in a net decline in business activity in older industrial areas, many of these sites have the potential for residential, commercial or office reuse, with varying degrees of investment required. However, reuse is often constrained by factors including fragmentation in ownership, risks associated with the ownership or use of contaminated property, and the high market risks associated with front-end investment in environmental assessments, market studies, land assembly and area planning.

Currently, federal laws and regulations dealing with contaminated sites add to the high risk for new owners, investors and users who might otherwise contribute to reinvestment in and reuse of these areas. Also, federal and state clean up programs tend to operate independently of concerted area-wide redevelopment strategies and programs.

Special Situations for Industrial Reuse

Unfortunately, examples of successful reuse approaches which effectively orchestrate federal, state and local government policies and actions with private landowner, investor and business development actions are limited and tend to be concentrated in a few special situations. One circumstance involves a strong private owner such as a financially healthy major corporation which cannot avoid the liabilities associated with the site yet cannot afford the adverse publicity of simply abandoning it.

Another situation is when a strong private reuse market for the site creates a high reuse value relative to the current “as is” value. This typically involves waterfront or other property adjacent to growing downtowns or sites which happen to fit the development needs for a major, publicly subsidized facility such as a new stadium or convention center. In these situations, the private or public reuse benefit calls forth the financial and political resources necessary to acquire, clean up and redevelop the land.

However, most vacant or underused former industrial-warehouse properties do not meet these conditions. Generally the demand for reuse is weak or declining, in part due to deteriorating neighborhood conditions. Because of low land values, even for clean, ready-to-develop sites, finding investors for either equity or debt investment in acquisition, renovation or new development is problematic. These areas typically require more concerted efforts involving business, government and civic group participation.

Site-Specific vs Integrated Redevelopment

While interest in brownfields reuse has increased over the last several years, policy discussions at the national level and programs in the states tend to approach brownfields as a site-specific contamination cleanup problem rather than an area-wide reuse problem within the context of the metropolitan economy.

The case for integrating site treatment into a broader redevelopment strategy can be argued from several angles. One is simply that giving priority to cleanup expenditures may do little to foster area reuse and may preclude the more effective use of public funds. If the contamination is contained within a small area and the public can be protected from any potential harm, then area reuse may be more effectively fostered by focusing on the removal of other constraints to investment. These constraints may include improving access, removing unsightly buildings, installing landscape improvements, clearing sites of obsolete structures, and subdividing the area to better meet current facility demands.

Another argument for integrating site cleanup into an overall redevelopment strategy is that the cleanup costs are difficult to finance in a situation where the value of clean sites is very low. If an area-wide redevelopment effort focuses initially on increasing the overall demand to reuse sites, putting vacant clean sites into use will improve the demand/supply balance. Then, the cleanup costs can in most cases be funded out of the increased site value, and private owners of such sites will be motivated to clean up the sites voluntarily. Area-wide financing schemes using tax increment financing (TIF) and special taxing and benefit districts can also facilitate the funding required for remediation and indemnification against any future liabilities.

New Models and Strategies

The Lincoln Institute, in cooperation with the U.S. Department of Housing and Urban Development, is undertaking a research project to explore the problem of recycling urban industrial areas which fall outside of the special situations described above. The study builds on recent work conducted by the Lincoln Institute, the Northeast-Midwest Institute, the author and others who have researched reuse potential and demand/supply constraints in industrial areas. Some examples are the American Street industrial area in Philadelphia, the Collinwood area in Cleveland, the Southwest industrial area in Detroit, the south side of Chicago and several areas in Pittsburgh.

Research directed at discovering common opportunities and constraints and the related strategies most effective at addressing different types of situations is very limited. Therefore, our approach is to conduct a broad survey of industrial reuse markets based on a review of existing reports and interviews with local experts, and then to develop a series of in-depth case studies to assess alternative reuse strategies appropriate to common types of situations.

Each case study will include a survey and assessment of the city-wide situation and the conditions in various industrial subareas. Model solutions will focus on a single subarea chosen to represent a combination of factors, including the relevance of that case to other cities and the relative importance of the subarea to its city’s overall reuse plan. In each case, a group of development professionals familiar with the local real estate market will be involved in assessing opportunities and constraints, alternative strategies and implementation measures. Ultimately, our objective is to identify changes in federal, state and local techniques, policies and programs that would support the implementation of the strategies being developed.

J. Thomas Black, visiting fellow of the Lincoln Institute, is an urban development economist and the principal investigator for this project. The study is in its early stages and the author invites your insights, ideas and suggestions on the subject, particularly for case examples demonstrating opportunities, general strategies, particular techniques, financing methods or organizational structures that work well.

FYI

The Collinwood Yard in northeast Cleveland is a 48-acre, mainly vacant industrial site which has lost 20,000 jobs since 1970. Its access to Interstate 90 and the rail lines is a key element in the revitalization of the area.

The Union Seventy Center in St. Louis is a multi-tenant industrial/warehouse facility occupying a remodeled 2.7 million square foot General Motors assembly plant. It is part of a 171-acre redevelopment project which demonstrates the reuse and investment potential of older urban industrial areas.