The Untapped Urban Market:
Attracting Business to the Inner City
Irene J. Elia
The major trends affecting urban and inner-city markets and a new competitive cities agenda designed to stimulate neighborhood and city revitalization
Katz then stated that current inner-city economic development strategies such as microlending and empowerment zones were marginal and fragmented, and thus unable to affect real reform. He outlined new policies designed to promote systemic change and develop true economic competitiveness. As a first step, Katz said that cities must "know their context," recognizing such factors as economic and social trends, and regional assets and liabilities. For example, he noted the importance of acknowledging demographic shifts-"the need for cities to know who is living there," and pointed out that European Americans are now a minority in the city of Buffalo. From 1990 to 2000, the share of Buffalo's population that was African-American, Hispanic, or Asian rose from 37 percent to 50 percent, reflecting shifts seen in cities across the nation.
Next, Katz said, cities need to provide the basics: good schools, safe streets, competitive taxes and services, modern infrastructure, and a functioning real estate market. On the issue of safety, he noted the need for addressing the perception of crime, which often exceeds the reality in inner cities. Katz said that the misperception is in part attributable to such common city afflictions as abandoned housing and overgrown vacant lots. Katz also stated that cities must deploy targeted skills training to meet the labor needs of businesses, stressing that "as long as workforce development projects are not linked to the job market, they're not worth anything."
As a caveat, Katz said that communities should not expect major federal legislation geared toward cities, but instead must take the initiative to promote change at the state and local level. He outlined several examples of state and local policies designed to improve the quality of life and encourage investment in inner cities. Katz said that Maryland's Smart-Growth Neighborhood Conservation Act of 1997 helps to maintain a balance between road expansion or widening and preserving the quality of life in urban neighborhoods. He also referred to New Jersey's Rehabilitation Code of 1998, which made it easier for residential and commercial property owners to meet code requirements and allowed more flexibility in the use of their buildings. Katz also described Philadelphia's Neighborhood Transformation Initiative, a $1.6 billion dollar 5-year program to remove blight from Philadelphia neighborhoods.
The competitive advantage of inner cities: Achieving a sustainable inner-city economic base through private, for-profit business development and investments
ICIC, a nonprofit organization that assists municipalities in devising economic strategies for their inner cities, is founded on the belief that a sustainable inner-city economic base is possible only through private for-profit business development and investment based on genuine competitive advantage. Kaplan said that inner cities have a number of competitive advantages that can help certain businesses thrive. For example, inner cities are typically centrally located and proximate to transportation infrastructure nodes, allowing quick access to regional markets. Inner-city locations often have extensive telecommunications infrastructure as well, along with a pool of available labor. Kaplan acknowledged that inner-city locations also present challenges, and said that communities must tackle these issues to attract business investment. Foremost among concerns is safety-but Kaplan believes that sensationalized reporting of inner-city crime by local media outlets often exaggerates the problem and can undermine new investment.
Despite the challenges of an inner-city location, however, many businesses are growing rapidly, Kaplan said. ICIC and Inc. Magazine jointly compile an annual list of the 100 fastest growing companies in America's inner cities. In 2001, 5 of the recognized companies are located in Buffalo, a tie with New York for second place. (Chicago was first with 10.)
A private-sector model for rebuilding inner-city competitiveness: Lessons from MidTown Cleveland
Foremost in the success of MidTown Cleveland was the development and maintenance of an organization based upon stakeholder enlightened self-interest, Murphy said. Composed of businesses, nonprofit agencies, labor unions, and other property owners throughout the 55-block MidTown area, the organization provided the leadership, influence, financial resources, and long-term support that were essential for the turnaround.
"I hate to say it, but there's nothing more important than the 'Old Boy Network,'" she said, advocating the formal and informal networking sessions that took place among MidTown members and between the organization and other community leaders in the Cleveland area.
Together they concluded, not surprisingly, that confronting the safety issue was one of the first orders of business. "We recognized that inner-city areas that reflect a war-zone image-barbed wire, bars over windows-are not going to be competitive," she stressed. Murphy then told of the success merchants had when they pooled their money to pay for security patrols, street cleaning, and beautification projects. Murphy also praised MidTown's cooperative advertising of entertainment events and street festivals, and joint public relations campaigns that helped to alter how the area was perceived.
But the challenges of inner-city redevelopment were underscored by Murphy's description of MidTown's attempt to create an industrial park that could compete with suburban locations. The need for large tracts of land for the project meant that MidTown had to assume the role of real estate developer, and the process of land assembly and clearance proved formidable for the nonprofit organization. With such problems as uncertain property ownership, recalcitrant property owners, environmental damage from previous industry (brownfields), and the cost of relocating displaced businesses and residents, MidTown discovered that the process required an enormous amount of capital, time, and labor. Because of these constraints, MidTown was forced to continue an "infill" strategy rather than attempt massive land clearance.
Catalyzing inner-city neighborhood retail and business strip development by supporting community development corporations
LISC is a national nonprofit organization that acts as a catalyst for neighborhood redevelopment by channeling grants, equity investments, and loans to community development corporations. In 1993, LISC began working with the Abyssinian Development Corporation and the Community Association of the East Harlem Triangle, to attract food retailer Pathmark Stores to an East Harlem neighborhood. With 145,000 residents living within a one-mile radius of the store's proposed location, the community had a large untapped retail market. But showing that a market exists is only one of the hurdles that must be overcome in persuading a retailer to locate in an older inner-city area, according to Armistead. "Yes, there is a market there, but it often takes a great deal of time and work to gain access to it," he said. "It's always more expensive than you realized; that's not necessarily a problem, but just something you have to deal with."
In addition to providing a grant and loans for the project, LISC helped the community development corporations access other sources of funding, negotiate the city's zoning and workforce requirements, and answer neighborhood residents' traffic and environmental concerns. Pathmark signed a 25-year lease to operate at the location in 1996, and opened its 50,000 square-foot supermarket on Harlem's busy 125th Street in April 1999. Although Pathmark executives knew the investment might be costly, they were surprised by the return on their investment. "Their new inner-city stores are among their top stores on the profitability chain," Armistead said.
A community development bank's role in strengthening inner-city markets for business investment and growth
As an example of Shorebank's advisory service, Herman described how the company helped Home Depot move into Chicago's South Shore neighborhood. Herman said Home Depot's regional managers were at first reluctant to consider a new store in the city. According to the company's revenue projections, suburban locations would be far more profitable since residents there had higher median incomes. But Herman and her staff pointed out that the collective buying power of residents near the proposed inner-city site would be enough to sustain the "big box" retailer because the neighborhoods had a high population density. Home Depot eventually placed the store in the city and found that Shorebank was right. "That store is doing at least triple what it was projected to do," she said. According to Herman, this example underscores an important point about inner-city retail development: retailers usually use suburban models to make store location decisions, and these models often miss business opportunities in urban communities.
While attracting national retailers like Pathmark and Home Depot to underserved communities is an important component of inner-city redevelopment, it is only one among many strategies. Another way to bring business back to the inner city is to help local residents start businesses in their own neighborhoods. Herman outlined a program founded in 1996 called "The Runner's Club," a micro-business incubator similar to those developed by the U.S. Small Business Administration. The club gives start-up and financial management advice to adult and youth entrepreneurs; she cited the success of one group of young club members, who made $200,000 in sales their first year.
Public and private incentives designed to encourage inner-city development and redevelopment
The act also establishes 40 so-called "renewal communities." Bannister said that those areas fortunate enough to be chosen, as renewal communities will be able to offer additional firm specific tax incentives that would be powerful tools for attracting business investment in distressed neighborhoods. The Secretary of Housing and Urban Development, in consultation with other Cabinet Secretaries, will select renewal communities in areas demonstrating general economic distress, pervasive poverty and high unemployment. Bannister said that the local Fannie Mae office was actively involved in efforts to obtain a renewal community for the Buffalo-Niagara area, which he believes is one of the most deserving areas in the nation.
Taylor took issue with the notion that the lives of inner-city residents will be appreciably improved simply by locating businesses in urban communities. He said that there are already a significant number of jobs in Buffalo's inner-city neighborhoods, but these jobs are often unavailable to the people living nearby. As an example, Taylor cited the heart of Western New York's health-related industry, which is located in one of Buffalo's poorest communities. He said that this agglomeration of hospitals, medical offices, and educational and research facilities provides thousands of inner-city jobs, but the neighborhood still has an unemployment rate of more than 25 percent. One solution, Taylor believes, is to link job-training programs to the needs of local businesses. "Economic development does not work by itself. It has to be coupled with workforce development," he said.
Taylor also said there should be more support for neighborhood businesses, noting that this is one way to truly create inner-city wealth. He encouraged programs to provide more start-up loans and tax incentives for small business owners and other efforts to promote inner-city entrepreneurship. Taylor believes that too often the focus is on large-scale economic development projects, which he said do little to benefit inner-city residents and often lack community input.
But others pointed out that the reluctance of citizens to participate actively in community issues is a problem in its own right. Before taking an outreach position with a Buffalo organization called Heart of the City Neighborhoods, Richard Morrisroe taught at a public school in one of the neighborhoods Taylor described. "The apathy in the community was staggering, Morrisroe said. "If I could get more than 2 percent of my parents to come to a PTA conference, I was happy."
LISC's P. Jefferson Armistead noted that community development corporations are one way to facilitate community participation. "Community development corporations play a powerful role in expressing dreams and hopes in a community," he said. And Armistead believes that residents can be instrumental in catalyzing revitalization of their own neighborhood. As the conference came to a close, he described "the 'paradox of small beginnings.' We've seen some remarkable changes that started with just one house, and then one block, and then a whole neighborhood," he said.