Category Archives: Business and Economy

The same LA bridges in many car commercials

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One interesting set of locations is fairly common in car commercials: bridges in Los Angeles. This is not what you might expect: how many people know that bridges are even necessary in Los Angeles? (The Los Angeles River does exist.) This has a long history: a 2004 New York Times story suggests the presence of production companies in southern California plus good weather leads to many shoots in Los Angeles.

One of the past bridge locations was the Sixth Street Viaduct which closed in 2016:

According to Film L.A., the organization that helps the film industry book municipal locations, over 80 movies, television shows, music videos, and commercials are shot on or underneath the Sixth Street Viaduct each year. That’s partially because of the bridge’s swooping metal arches, perched on an art-deco concrete platform; and partially because of the river underneath and that access tunnel: if you want to film something set in Los Angeles that makes reference to the city’s automotive culture, or if you’re just looking for a place to shoot a car chase that’s cheaper and more available than a clogged freeway, the channelized, concretized bed of the Los Angeles River is your best choice.

Except that the bridge officially no longer functions that way, as of last week. It’s going away completely. And the river? It’s on its way to becoming a river again.

Here is a short montage of the bridge being taken down alongside iconic images from films.

The Fourth Street Bridge is also home to a number of shoots and features Art Deco columns as well as views of the downtown skyline. Here is a Google Street View image:

FourthStreetLosAngeles

Are viewers of car commercials more likely to purchase a vehicle if it is shown in Los Angeles compared to other settings? Los Angeles has its own aesthetic which may or may not match with many other places. (In urban sociology, Los Angeles is often held up as the prime example of decentralization. Yet, it also does have a downtown as well as numerous other scenic sites such as the hills behind the city.) In the Chicago television market, we see some car commercials shot in Chicago. Might this help viewers envision themselves driving a new car when they see it in a familiar location? It would be more difficult to do this for all of the metropolitan markets in the United States.

Here are some other common car commercial locations with several more in the Los Angeles area.

Two new options for those aspiring to a mortgage: take on an investor or list on Airbnb

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Axios highlights two businesses trying out some models that could help potential homeowners acquire a home:

James Riccitelli, CEO of Unison Home Ownership Investors, says in an interview with Axios that he is consistently surprised that nobody in the decades-long history of U.S. housing finance had thought of the company’s business model. Unison co-invests with prospective homebuyers—typically putting 10% down along with a bidder’s own 10%, helping them qualify for a standard 20%-down home loan. Depending on the lender Unison partners with, a homebuyer can end up putting as little as 5%:

  • Unison’s investors—who Riccitelli says are typically large pension funds with long investment time horizons—realize a profit only when the home is sold. The product is attractive to such investors because they need assets that match their liabilities, i.e. pension payments sometimes 30 or 40 years away.
  • Other than a few private equity funds that bought up cheap single family homes at the housing market’s bottom between 2010-2012, there are few ways for investors to own a diversified pool of residential real estate, a market that at $30 trillion is more valuable than the U.S. stock market
  • A homeowner can buy Unison out at any point after three years—as long it recoups its original investment. A homeowner can sell the home to another party at any point, however, even if it results in Unison taking a loss.
Loftium has an alternative strategy. It will will contribute $50,000 for a down payment, as long as the owner will continuously list an extra bedroom on Airbnb for one to three years and share most of the income with Loftium.

This strategy might be particularly appealing in booming markets like Seattle, where rent prices are rising even faster than home values themselves, and which are popular tourist destinations.

These present alternatives to the traditional mortgage market with one emphasizing long-term payoffs (and assuming that housing values continue to rise at investment-level rates) and the other trying to capitalize on rental opportunities in the next few years. It will be interesting to see if such options (1) become popular (and if so, how traditional lenders fight back) and (2) whether there are negative consequences to such alternatives (and reactions to them including regulation).

Apple: new Chicago store will “transform the riverfront”

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The claim that Apple stores can serve as town squares is questionable and another claim about the new Apple store on the Chicago River might be as well:

During the keynote address, Apple’s Angela Ahrendts claimed that the new store will “transform the riverfront.” And in typical Apple fashion, the new store combines form and function to deliver perhaps the most transformative retail offerings in years. Similar to designs for other Apple flagship retail stores, the new Michigan Avenue store boasts a glassy, transparent box shape. However, it is capped with a curved roofline that resembles the lid of its Macbook laptop computer.

The new store has taken over a large portion of Pioneer Court, an outdoor office plaza which had previously served as the location for large-scale art installations. Construction on the new store officially kicked off last March, and after a year, the store began to take shape as workers installed the store’s large glass walls.

Apple is known for its focus on design, and its big move and new location is notable for not just being on the river, but for adding more to Michigan Avenue south of the Magnificent Mile. Once a quiet stretch, the length of Michigan Avenue between the Mag Mile and Millennium Park has gained significant momentum with the delivery of a new apartment tower, a new hotel, and the planned overhaul of the Tribune Tower and its surrounding properties.

This one store has been talked about for months and certainly has a striking design. Yet, can it truly “transform the riverfront”? That remains to be seen. Part of the issue could be exactly how transformation is defined. Is it simply operating an iconic building? Does it involve attracting a lot of people? If it does bring in a lot of people, what if those people primarily stay inside the Apple store rather than lingering on the riverfront and frequenting other spaces and businesses? Is it bringing in big money (sales as well as tax revenues)? Is is transferring the high status of Apple to a development project – the Riverfront – that could use some status?

Let’s see what happens. My guess that this will be an iconic store for Apple but the Chicago Riverfront is going to need much more than this to truly be a destination in its own right.

Apple stores are not new town squares

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American communities often lack vibrant public spaces but Apple stores may not be the answer:

The stores have good vibes. Everything is clean. There are no sounds of commerce. No clanging till. No specials on an aisle. No mechanical belt sliding products toward a beeping scanner. People will tell you they like your new shoes. I love Apple Stores.

But there is one problem with calling an Apple Store an Apple “Town Square”—which the company announced it’s now doing at Tuesday’s iPhone event. Namely, the Apple Store is a store and not a town square…

And most surreally, a dominant problem for democracy at this moment is that truly public space doesn’t exist on the internet you access through your phone.

Internet platforms, as John Herrman has argued, merely masquerade as democratic spaces. But they are not. They are private, as private as an Apple Store.

This is a regular issue that pops up: private retail or office space that often functions as public space is not truly public space. If you conduct activities that are not conducive to business, whether in an Apple store, a McDonald’s, the cavernous lobby of a hotel, a shopping mall, or even a landscaped area outside a business but that it is on private land, you can be removed from that space. These private spaces that allow people of different backgrounds to gather and interact can still be very valuable – see the concept of “third places,” an idea that Starbucks CEO Howard Schultz has discussed. Granted, there are restrictions on what you can do in public spaces as well but your activities are much more limited in private spaces.

Sociologists and others have asked for decades how American communities might develop more public spaces. The Internet was one space that offered new opportunities for democracy and public interaction. Alas, much of that early fervor has decreased as the Internet is dominated by major corporations and online discourse is often not very enlightening or civil.

Roll out the tax break bidding war for Amazon HQ#2

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Amazon want to build a second headquarters with some 50,000 workers. Expect the tax break war to begin:

Amazon is seeking proposals from local, state and provincial government leaders, and says it is focusing on metropolitan areas with more than 1 million people. It is also looking for areas that can attract and retain technical workers and “a stable and business-friendly environment.”

News of the search has unleashed a wave of speculation about where the world’s largest online retailer could set up shop. But experts say the company’s decision is likely to be as much about politics as it is about logistics and incentives. Bezos has been a vocal opponent of President Trump’s immigration bans, and earlier this week was among hundreds of tech leaders who urged him to reconsider his stance on the “dreamers” immigration program…

Among the criteria it will consider, Amazon says, are tax exemptions and other incentives, including relocation grants and fee reductions. “The initial cost and ongoing cost of doing business are critical decision drivers,” the company said in its request for proposals.

It added that the location does not need to be in an urban or downtown location, or a development-prepped site. The site should, however, be within two miles of a major highway and have access to mass transit. Amazon said it will give priority to existing buildings that are at least 500,000 square feet and undeveloped sites that measure about 100 acres.

Here is the actual language from page 6 of the RFP:

AmazonRFPp6

This may seem like a perfect scenario for locations (cities and states) to offer tax breaks: the company is growing, it is a major player, and it comes with a large number of jobs. Headquarters are a status symbol for areas but this one includes real jobs and a high-status company.

However, I would still argue a tax break war is a bad idea. Here are a few reasons why:

  1. There will be one winner and a lot of losers. Those who do not win may just offer even deeper breaks to the next possible company. When does this stop?
  2. A massive tax break will offset at least some of the benefits of the headquarters. While it is hard to pass up 50,000 jobs, significant tax breaks mean local governments and residents get less than they might otherwise.
  3. A bidding war puts Amazon in the driver’s seat and may have local governments begging for this. A victory would wipe out groveling but going all in on an offer and losing may reduce the status of a location. (Think of unsuccessful Olympics bids in the past.)

The locations involved could be many but this will not turn out well for many or maybe even all.

A new suburban Walmart comes with tax revenue, crime, and economic development

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How exactly does a new Walmart change a suburb? Here are at least a few factors to consider:

From its opening day to June 30, 2017, officers responded to 445 calls for service at Walmart, 166 of which resulted in arrests, according to records obtained by the Daily Herald. That means police were called to the store an average 1.2 times per day in its first year…

Walmart announced in 2012 its plans to close an East Dundee store and build the Carpentersville supercenter less than three miles away, prompting a lengthy legal battle between the company and the two villages. Walmart is expected to receive $4.3 million in tax increment financing funds ­– property taxes above a certain point in the area that would have gone to local governments — for the new store…

Though he declined to disclose specific sales numbers, Rooney said the new Carpentersville store has generated more sales tax revenue than East Dundee reported losing…

Already, the supercenter has significantly increased traffic and economic interest on the village’s east side, he said. Plans are moving forward for constructing a new five-tenant building and an O’Reilly Auto Parts on the store’s outlots.

To be honest, many suburbs cannot afford not to welcome Walmart into their communities. It is rare to find a user for a decent sized portion of land along a major road that will bring in so much tax revenue and provide jobs. The increase in crime can be chalked up as simply part of doing major retail business (I assume there may be bumps with other major retailers or shopping malls) and may not be a huge issue if it is largely isolated to the Walmart site.

In the long run, there are additional factors to consider including the local business climate with the behemoth Walmart in town (more competition for certain businesses), the opportunity cost of what else might have operated on that site, and the image of having a Walmart and related businesses. There is a reason more exclusive communities turn down big box stores and large strip mall areas. Furthermore, the fate of East Dundee could soon befell Carpentersville; if Walmart eventually wants a better deal or a bigger store, they can simply move and bring their benefits (and problems) to a different suburb.

As I suggested above, given these short-term and long-term outlooks, most American suburbs would choose to welcome Walmart. From whence the Walmart came does not matter while the tax receipts can be blinding to many.

No cheap homes left at the bottom of the housing market

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One downside of increasing housing values is that the lower end of the market also rises:

More telling is that at the start of 2013, when home prices were just beginning to bounce off the bottom of the housing crash, the share of homes sold above $500,000 was just 9 percent of all sales. Today that share is more than 14 percent. The share of lowest-priced home sales today is less than half of what it was then as well.

“On the lower end, there is virtually no property at a very low price level anymore,” said Lawrence Yun, chief economist for the National Association of Realtors. “The same property has been moved up to a different price bucket just because the prices have been rising strongly, over 40 percent price appreciation in the past five years. We are not getting the transactions on the lower end because there is virtually no inventory on the lower end.”

In the wake of the housing crisis, investors bought thousands of low-priced, distressed homes, putting a price bottom on the market but also removing lower-priced inventory. The expectation at the time was that if prices jumped, the investors would sell. For the most part, they did not. In fact, investors continue to buy properties, even at peak prices today because both the rental market and the market to flip these homes are so lucrative…

Homebuilders are continuing to increase production and selling homes they haven’t even built at a historically fast pace. They are not, however, putting up low-priced homes, even though demand there is high. They argue they cannot make the margins work, given the high costs of land, labor, materials and regulation. The median price of a newly built home recently hit a record high.

Two quick thoughts:

  1. I thought letting this go to the markets would solve the problem. In other words, if there is a need for cheaper housing, shouldn’t the market correct? It does not appear this is happening as builders do not want to have smaller margins. Some interventions may be necessary if no businesses see an opportunity.
  2. This makes the issue of affordable housing even more difficult. Many big cities already have major shortages of affordable housing. If prices keep increasing and little is being built at the lower end, might be drastic consequences?

Job growth in the food service industry

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What does America make? Increasingly, at least in terms of the number of workers, the answer is food:

In 1990, manufacturing was almost three times larger than the food service industry. But restaurants have gradually closed the gap. At current rates of growth, more people will work at restaurants than in manufacturing in 2020. This mirrors the shift in consumer spending. Restaurants’ share of America’s food budget has doubled from 25 percent in the 1950s to 50 percent today.

Yet, as Derek Thompson notes, our national rhetoric is still stuck in the era of factories and manufacturing:

But the most important feature of the restaurant jobs boom is not what it may say about the future, but rather the fact that it is happening in the first place. Trump and other politicians often say they want to help the common worker. But then they talk about the economy as if it were cryogenically frozen sometime around 1957. The U.S. still makes stuff, but mostly it serves stuff. To help American workers, it helps to begin with an honest accounting of what Americans actually do.

The jobs landscape has experienced much change in the last half century. Certain sectors – such as the tech industry or manufacturing – consistently receive a lot of attention. But, could someone unite the interests as well as depict a group to the public at large that would include restaurant workers, service workers, and nurses (among other fields that have grown tremendously)?

Suburbs to respond to companies returning to cities

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Another new issue facing suburbs – in addition to homelessness – is how to respond when companies move their headquarters back to cities:

In Chicago, McDonald’s will join a slew of other companies — among them food giant Kraft Heinz, farming supplier ADM and telecommunications firm Motorola Solutions — all looking to appeal to and be near young professionals versed in the world of e-commerce, software analytics, digital engineering, marketing and finance…

Aetna recently announced that it will relocate from Hartford, Conn., to Manhattan; General Electric is leaving Connecticut to build a global headquarters in Boston; and Marriott International is moving from an emptying Maryland office park into the center of Bethesda, Md…

The migration to urban centers threatens the prosperity outlying suburbs have long enjoyed, bringing a dose of pain felt by rural communities and exacerbating stark gaps in earnings and wealth that Donald Trump capitalized on in winning the presidency…

Long term, the corporate moves threaten an orbit of smaller enterprises that fed on their proximity to the big companies, from restaurants and janitorial operations to subcontractors who located nearby.

It is difficult for any community – whether big city or suburb – to adjust to the move of a large firm out of the community. A number of things are lost: prestige, jobs, philanthropic contributions, and tax revenue. Arguably, suburbs lose more compared to big cities that have broader and more diverse economies: the headquarters in the suburb might be a sizable community anchor.

This may be similar to when suburbs with once-thriving shopping malls try to figure out what to do with that space. It can be difficult to fill the property all at once so suburbs might have to take their time and move one small step at a time.

I’ve argued before that this whole city-suburb competition for headquarters could harm both in the long run as it takes the focus away from a metropolitan effort to encourage business growth. On the whole, it matters less if a company moves from the Chicago suburbs to downtown than if the company decides to leave the entire region for another location. If more businesses move back to major cities, could suburbs find some way to work together to prevent moves? Or, or is the sometimes cutthroat competition between suburbs impossible to stop?

Naperville has 11 Starbucks locations

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The recent move of the downtown Naperville Starbucks to a larger location led to a quick mention of the numbers of Starbucks’ location in the suburb:

A favorite place to stop for coffee is on the go in Naperville as two of the 11 Starbucks stores in the city are preparing to move.

Naperville has collected many accolades over the last two decades (see earlier posts here, here, and here) and this may be another one: having this many Starbucks suggests the community has a certain level of wealth and quality of life. Certain businesses can set a community apart and many suburbs would love to have multiple Starbucks not just for the money they generate (think of the drip, drip, drip of sales tax revenues) but for the prestige they confer.

Here are the locations according to Google Maps:

StarbucksNaperville

Not surprisingly, the majority are located along major transportation corridors: Route 59, Ogden Avenue, and 75th Street.