Category Archives: Business and Economy

Comparing the costs of tearing down versus renovating a home

Posted on by

Could it cost less money to buy and teardown a home than to renovate it? Here is one data point from a 2015 story about teardowns in the Chicago area:

The teardown candidates aren’t just tiny bungalows this time. Developers are targeting larger houses as well, particularly if they sit on coveted property. Antiquated plumbing, the absence of upscale amenities such as media rooms, and the high cost of gut rehabbing (roughly $300 a square foot, versus $200 for new construction) are pushing homes on North Shore lots near the lake into early retirement. Two properties that sold for around $4 million each in 2014—one in Wilmette and one in Winnetka—are on their way to the scrap yard, says Berkshire Hathaway HomeServices KoenigRubloff agent Joseph Nash. Both were on three-quarter-acre lots with private beaches, and the Winnetka house had seven bedrooms—big and nice, but apparently not nice enough.

At various points, I’ve thought about what might happen to much of the aging suburban housing stock in the United States. Many of those homes, small or large, will be slowly renovated over time. Depending on the neighborhood as well as the desirability of the individual homes, renovation could take place at faster or slower rates. Yet, will there be a point when many of the older suburban homes will be demolished? How long can they be maintained or renovated? If they need to be demolished, who has the money to replace them and if they are replaced, will the residents be able to stay?

From an economic perspective, presumably the money spent renovating the older homes will at some point surpass the cost of building new ones (that may also be of better quality and more up to code) and living in those. Yet, this ignores a lot of features of homes and their construction:

  1. They are part of neighborhoods and communities. People often enjoy having a certain character when they purchase in a particular place. This character is often related to the homes present as well as to a unified character on streets.
  2. Some will want to keep renovating them. (Clearly, however, others will not – hence, we have teardowns.)
  3. They may be able to last a lot longer than critics gave them credit for. (One of the common complaints about mass produced suburban homes is that they are of poor quality. While this may be true, it does not necessarily mean that they are uninhabitable or cannot be improved over the decades.)
  4. Replacing large swaths of suburban housing requires both foresight and funds. Who is willing to look that far into the future? Who has the resources to undertake large projects in this domain rather than working with the occasional house here and there?

For now, most of the news we hear about replacing suburban homes tends to be in wealthier communities where teardowns are desirable. This may change in the near future.

Thriving construction industry in 2018 will primarily build for wealthier firms/residents?

Posted on by

The recovery from the housing bubble and Great Recession of the late 2000s continues in the construction industry:

For all of 2017, construction added 210,000 jobs, a 35 percent increase over 2016.

Construction spending is also soaring, rising more than expected in November to a record $1.257 trillion, according to the Commerce Department. That was up 2.4 percent annually. Spending increased across all sectors of real estate, commercial and residential, with particular strength in private construction projects. The only weakness was in government construction spending.

Construction firms are clearly looking to hire more workers. Three-quarters of them said they plan to increase payrolls in 2018, according to a new survey from the Associated General Contractors of America. Industry optimism for all types of construction, measured by the ratio of those who expected the market to expand versus those who expected it to contract, hit a record high…

Contractors are most optimistic about construction in the office market, which has seen little action since the recession. Transportation, retail, warehouse and lodging were also strong in the survey. Respondents were less encouraged by the multifamily apartment sector, which is just coming off a building boom.

Although this article does not say much about this topic, it would not surprise me if most of the gains in new structures in 2018 tend to go to (1) wealthier areas and (2) wealthier occupants (whether companies/organizations or residents). A thriving construction sector could theoretically float all boats but it sounds like the bifurcated housing market (and perhaps office and commercial as well) will continue.

It is interesting to see that the office market could see some significant construction. How much of that new office space comes at the expense of older structures that are less desirable because of less popular locations or because rehab costs would be too high?

 

Shopping malls continue to be less about shopping

Posted on by

Shopping malls across the United States continue to evolve in order to bring in customers:

Many mall owners are spending billions to add more upscale restaurants and bars, premium movie theaters with dine-in options, bowling alleys and similar amenities. Some have turned swaths of space that previously housed department stores over to health clubs and grocery stores. Others are undergoing no less than a ground-up transformation to make room for office space, hotels and apartments.

The trend has been gaining traction as the companies that operate malls look for ways to keep people coming in at a time when Macy’s, Sears and other big department store chains have shuttered hundreds of stores and consumers increasingly opt to shop online…

Carving out space for movie theaters, videogame arcades and food courts isn’t a new strategy. What’s noteworthy is the degree to which mall owners are now counting on tenants that sell experiences, rather than physical goods. The share of space occupied by non-retail tenants at regional shopping malls reached nearly 13 percent last year, according to commercial real estate tracker CoStar. It was 10.5 percent in 2012.

Since 2014, about 90 large U.S. malls have invested more than $8 billion in major renovations, according to a study by commercial real estate firm JLL. Some 41 percent of the malls in the study spruced up their food and beverage offerings with an emphasis on restaurants that serve more varied fare and, in some cases, alcohol.

With these changes, I wonder if at some point the term “shopping mall” will become defunct. We already have one term in the running from recent years: “lifestyle centers.” Could a new term arise that invokes downtowns or community centers or activity nodes?

If this indeed continues the shift away from traditional retail stores, it is worth pondering how many of these centers based on experiences can exist. How much can Americans spend on eating out? (Apparently now more than grocery store purchases.) How many regional centers like this can there be?

Several of the large tax breaks offered by cities for Amazon’s HQ2

Posted on by

One reporter went digging into the proposals cities made for Amazon’s second headquarters and some of the offers are extraordinary:

Example: Chicago has offered to let Amazon pocket $1.32 billion in income taxes paid by its own workers. This is truly perverse. Called a personal income-tax diversion, the workers must still pay the full taxes, but instead of the state getting the money to use for schools, roads or whatever, Amazon would get to keep it all instead…

Most of the HQ2 bids had more traditional sweeteners. Such as Chula Vista, California, which offered to give Amazon 85 acres of land for free (value: $100 million) and to excuse any property taxes on HQ2 for 30 years ($300 million). New Jersey remains the dollar king of the subsidy sweepstakes, having offered Amazon $7 billion to build in Newark…

Boston has offered to set up an “Amazon Task Force” of city employees working on the company’s behalf. These would include a workforce coordinator, to help with Amazon’s employment needs, as well as a community- relations official to smooth over Amazon conflicts throughout Boston. (Surely Amazon can handle these things itself?)…

Fresno promises to funnel 85 percent of all taxes and fees generated by Amazon into a special fund. That money would be overseen by a board, half made up of Amazon officers, half from the city. They’re supposed to spend the money on housing, roads and parks in and around Amazon.

And he has not even been able to see a significant minority of the proposals. It is as I suggested: a tax break bidding war is underway. It would be great to hear public leaders questioned about these offers and why they are willing to give up so much. How might such offers change their communities? How much will a city really benefit from the second headquarters if they give so much away?

A side thought: what if Amazon’s call for a second headquarters is really a way to flesh out what big cities are willing to offer for a major headquarters? The project has to have enough size and prestige that cities would make big concessions. Once they fall over themselves for this, can’t other corporations ask for similar deals?

Owner wants his shopping mall to be a community space and have a giant monument to The Ten Commandments

Posted on by

Shopping malls are interesting spaces as they are devoted to consumption and yet often operate like public spaces (though they are not). One Texas mall owner has some interesting ideas for his renovated mall near Dallas:

Odessa businessman John Bushman wants to turn the mall into a community space where people can find some “peace and love” in the Ten Commandments, hear some local musicians perform live and take in a giant wave of a 30-foot-by-60-foot American flag outside.

All of Bushman’s other businesses — hotels in Texas, Colorado and New Mexico, other shopping centers and a Chickn4U restaurant in Odessa — display the Ten Commandments engraved on 800-lb stone tablets. In Dallas, he owns the MCM Elegante Hotel and Suites on W. Northwest Highway…

He wants Vista Ridge to be a “wholesome family place” and he said, this time of year that includes Santa who will arrive at the mall on Saturday with free family photos to the first 100 customers. The mall has new Christmas decorations…

Bushman agreed it’s unusual for a mall to display religious messages. But he thinks it will work in the big city as well as it does in West Texas.

Only in Texas? Only in America? Perhaps it is fitting to mix essential tenets of the Judeo-Christian tradition with America’s other great love: shopping.

More seriously though, shopping malls are going to extra efforts these days to bring in visitors and shoppers. This is one way to go: provide family-friendly entertainment and regularly host community groups and events. The second option is mentioned later in the article by a local detractor (who seems to think this strategy is not one befitting of a nicer suburban area): go for upscale stores and trendy restaurants to create a vibrant and glamorous scene.

If shoppers had the opportunity to go to a mall like this with giant Ten Commandments versus shopping elsewhere, how many will go out of their way (in practice and not just intentions) to go to the mall with the religious objects? How much will this boost sales?

“Epic Fail”: demolishing Charlestowne Mall for housing units

Posted on by

A failing suburban mall is slated to be turned into residential units – and it is has a humorous/sad sign in its empty corridors:

A handful of mall walkers represent the only foot traffic. There are faint signs of music emanating from a fitness center. A poster inside a former store directory sign displays what might be a fitting epitaph: “Epic Fail,” it reads.

The words in the World Wildlife Federation poster are a plea to preserve freshwater sources. Right now, St. Charles officials are more interested in protecting the economy on the east side of the city. It’s been six months since the mall owners provided the public an update on their mission to revive the site.

Mall representatives in May told city officials it’s time to abandon the idea of rejuvenating the mall by attracting new stores. Instead, they’ll keep the movie theater, Von Maur and Carson Pirie Scott. They will demolish all but 150,000 square feet of the structure to make way for 155 townhouses on the north end of the property and 256 apartments on the east end…

Rogina said Krausz would “engage a large, national residential developer” to handle the apartments and townhouses. He declined to name the residential developer since the deal may not yet be complete.

While this could be a good illustration for the overbuilding of retail around the turn of the 21st century (the shopping mall will be gutted even though a number of the surrounding businesses – including Walmart, Target, and numerous restaurants – will live on), it could turn into a good example of retrofitting suburban spaces. Adding residential units to this property could help create a vibrant location where residents can walk to a movie theater, stores, and eateries. Imagine a mixed-use area where once stood a solitary shopping mall surrounded by large parking lots.

At the same time, I could imagine how constructing these housing units could turn out poorly. Two things, in particular, could be problematic. First, the new housing units may be constructed in such a way to be completely disconnected from the existing uses. The opportunity to create a mixed-use, walkable environment could easily be lost. The suburb would end up with a case where walking is inconvenient or even strongly discouraged. If this happens, it is similar to the construction of many other suburban housing units: they exist in private realms. Second, the housing could turn out to be luxury units or expensive housing. St. Charles is a fairly wealthy suburb and the developers may want to make units for young professionals, young families, and empty-nesters or local retirees. Yet, this suburb – like many others – needs more affordable housing and the location near a lot of retail options could be nice for those who do not want to have to rely on cars all the time. (Granted, if they want to get to central St. Charles, a car is needed.)

Chicago’s bid for Amazon HQ#2

Posted on by

Here are a few details of what Chicago is offering Amazon to attract its second headquarters:

“Chicago offers unparalleled potential for future growth for businesses of all sizes and is the ideal place for Amazon to build its HQ2,” Emanuel said in the news release. “This bid will demonstrate to Amazon that Chicago has the talent, transportation and technology to help the company as it reaches new heights and continues to thrive for generations to come.”

Developers of four Chicago sites have provided details of their Amazon bids to the Tribune. Those sites are Lincoln Yards, the planned redevelopment of the former A. Finkl & Sons steel plant and other land along the Chicago River in Lincoln Park and Bucktown; the vacant old main post office along the river and Congress Parkway; 37 acres owned by broadcast company Tribune Media along the Chicago River near Chicago Avenue and Halsted Street; and the former Michael Reese Hospital site and nearby land in Bronzeville.

Chicago’s bid highlighted Chicago’s transportation network, talent pool, diverse economy, airport access, quality of life and proximity to research centers, according to the news release…

On Sept. 7, the day Seattle-based Amazon announced plans to invest $5 billion on creating a second headquarters, Emanuel told the Tribune the city planned to make a bid, and said he’d already spoken with Amazon CEO Jeff Bezos multiple times about bringing HQ2 to Chicago.

No word on the tax breaks and incentives the city and state are offering. I’m guessing they are plentiful.

At the same time, why wouldn’t Chicago have a good chance at this?

  1. Chicago is a top #10 global city.
  2. A central location. I know we are in the Internet/social media age and all but location still matters.
  3. A strong transportation network with multiple airports, rail connections, highways, and shipping.
  4. While the city may be losing residents, the region is still growing slightly and has plenty of workers.
  5. An wild card factor: if President Trump continues to use Chicago as an example of a (Democratic) city with problems, would Bezos and company like to stick it to him and show they are committed Chicago? Lots of cities can offer land and other incentives but Amazon could claim to be a significant part of turning Chicago around. (Whether a single headquarters could do this is another story but there are business considerations as well as political narratives at play here.)

Now to see how long it takes Amazon to announce a decision.

Employers now looking for millennial workers in denser suburbs

Posted on by

Even as some companies go to the big cities looking for young talent, others are headed to denser suburbs to find millennials with families who are attracted to suburbia:

Fresh college graduates might be attracted to downtown bars and carless commutes, but these days, for older millennials starting families and taking out mortgages, a job in the suburbs has its own appeal. “What people find is that the city offers a high quality of life at the income extremes,” said Lamphere, who is chief executive of Van Vlissingen & Co., a real-estate developer based in the Chicago suburb of Lincolnshire, Ill. “The city is a difficult place for the average working family.”

Many employers, hoping to attract millennials as they age, are trying to marry the best of urban and suburban life, choosing sites near public transit and walkable suburban main streets. “What’s desired downtown is being transferred to suburban environments to attract a suburban workforce,” said Scott Marshall, an executive managing director for investor leasing at CBRE Group…

None of this means the suburbs will supplant central cities as job hubs. After all, jobs traditionally based in cities-jobs in professional industries as well as the service jobs that support them-are growing faster than those typically based outside of them, according to Jed Kolko, chief economist at Indeed.

At the same time, Americans are more likely to live in the suburbs today than they were in 2000, and even the young, affluent ones drawn to cities tend to move once their kids reach school age, Kolko’s research shows. Many of those workers will suffer long commutes into the city center. Others will opt for jobs closer to their suburban homes.

Which of these two patterns is more true: (1) employers chase locations in a cyclical nature with more moving to the suburbs after World War II and then returning to the city or some cities in more recent years as certain urban locations became trendy and/or desirable or (2) employers since World War II have regularly gone back and forth between cities and suburbs depending on their employee needs and changes within metropolitan regions. Since I do not study this exact topic, I do not know which explanation the data matches (or if there is even a third option). Yet, certain interested parties – the media, city and suburban leaders, and companies often like to push a particular narrative to help their side look better.

Indeed, this article suggests a third option: employers want to find millennials who want both the suburban life – nice, safe, quiet communities – and the urban life – exciting cultural scene. Certain suburbs do offer this kind of lifestyle and some academics have argued this is the way the suburbs are going: even as some will still be interested in spreading the edges of suburbia further and further out, at least a few suburbs will become denser and influential small cities. I’m not sure this is entirely tied to millennials as such locations could appeal to older suburbanites who want a more walkable area and may not require single-family homes.

In other words, the jury is still out on this as a possible trend.

Ikea as suburban economic engine and sign of suburban change

Posted on by

The wealthy Indianapolis suburb of Fishers now has an Ikea and the community hopes it spurs economic growth:

When Ikea opens Wednesday, it could alter the character of this northern suburb city from a drowsy residential nook into a dynamic regional shopping mecca. The giant Swedish furniture retailer’s gravitational pull has already attracted other businesses nearby and prompted major highway and road work.

Which is why city officials expect the residents to get along just fine with the new kid. For one thing, Ikea has cache, even if the store is three times the size of a Walmart. For another, Ikea’s guests are quiet and well-behaved. And most importantly, Ikea will contribute millions of dollars to the local economy in sales taxes and in-town spending at other stores…

But for Mayor Scott Fadness and the City Council, the wave of development is the cornerstone to expanding and defining the city. It follows a similarly aggressive flurry of construction just blocks away, across I-69 in downtown proper, now called the Nickel Plate District. Over a five-year period, the city encouraged residential and business development to get people living and working downtown. Two high-rent apartment buildings with first-floor restaurants and shops were built next to City Hall and several high-tech firms set up shop nearby, earning Fishers the reputation as a technology hub…

Ikea asserts, and experts agree, that it’s 44 U.S. stores draw customers from as far as 200 miles, and they spend money at more places than just the furniture store.

It is not enough for many places to be well-regarded bedroom suburbs: many of these communities now want more.

  1. An expanded tax base. Bringing in businesses means more money for local services and a reduced tax burden for residents.
  2. Excitement about the community. Many postwar suburbs have experienced decades of development. Newer suburbs or exciting urban neighborhoods offer new options. How will a high-status suburb stay on the radar screens of people within the region and elsewhere? New development always brings excitement.
  3. A new vision for the future. What will the suburb look like in the 21st century? Can they develop new plans and visions? The postwar suburban era is over; what will these suburbs look like by 2050?
  4. Number two and number three above are linked to attracting young professionals. These are high-status people who can contribute to the tax base, provide employees that high-end employers want, and bring energy to the community.

The moves in Fishers echo those of many other suburbs across the United States. Some, like Fishers, are well-positioned with their wealth and location to take advantage of possible opportunities. Others will pursue some of these options but ultimately lack the ability and/or resources to carry them out.

New possible Georgia city just for Amazon

Posted on by

The race is on between cities and communities to put forward an appealing pitch to Amazon regarding its second headquarters. One Georgia community has a unique approach: make a new city just for Amazon.

The Stonecrest City Council voted 4-2 on Monday to de-annex 345 acres of land if the e-commerce giant picks the area for what the company calls HQ2, a corporate hub where Seattle-based Amazon says it will one day house 50,000 jobs…

“There are several major U.S. cities that want Amazon, but none has the branding opportunity we are now offering this visionary company,” said Stonecrest Mayor Jason Lary. “How could you not want your 21st century headquarters to be located in a city named Amazon?”

Amazon is seeking a 175-acre site located near an international airport, public transit and high quality of living. Lary said he hopes MARTA expands rail service to Stonecrest.

The proposed city of Amazon could enter into an agreement with the city of Stonecrest to provide city services, he said.

This would indeed present a unique opportunity for any large company. I could imagine a few stumbling blocks:

  1. Naming a community after your company could have some cool features but also might have drawbacks. If something goes wrong in Amazon, Georgia, is it automatically the company’s fault?
  2. Would Amazon want its own community that is still beholden to its neighbor for city services? Providing all of your own infrastructure could be very expensive but working out deals for essential needs is not necessarily easy.
  3. Would Amazon want the perception of running a company town? This has tended not to work out well in the past. See Pullman as an older example or Facebook as a more recent effort.

I imagine there will be additional creative options proposed by other cities and places. Stay tuned.