Wednesday, February 5, 2014

Of Cost, Market Realities, and Ideas (besides THAT one. Yeah THAT one too)

I was at the Come Together forum last night in City Performance Hall (and I'll write more about it if I get the chance) which included a panel including Mayor Mike Rawlings, Bishop TD Jakes, Michael Sorrell - the president of Paul Quinn College, and Liz Cedillo-Pereira discussing, in very general terms, economic development of South Dallas.

I enjoyed Bishop Jakes' input but even moreso Michael Sorrell, who refused to ignore the realities facing South Dallas as these kinds of panels tend to as they devolve into mindless "we're number 1 everything is grand" cheerleading.  Mostly when it's an all North Dallas panel.  "Walkability, what do we need that for I have my limo driver."

Now, the mayor mentioned a few things worth repeating here within the context of the highway tear-out plan.  One, "we're in too many silos." Meaning, various organizations don't communicate.  This is true and especially true within City Hall where an assistant city manager (with a background in civil engineering) mentions 1) the most lay of questions, "what happens to the traffic?" and 2) it costs too much.  It only costs too much if 1) you can only comprehend a tunnel, and 2) You're not communicating with economic development.

Expensive is relative.  Expensive is only relevant within the context of investment and return, return on investment.  Particularly, if the returns are significantly over costs (like factors of 10+ fold -- keep in mind we're proud of Klyde Warren Park's 2x ROI), the concerns over upfront expense begin to diminish.

Let's talk about what is truly expensive.  $100 million to maintain a shade structure for another 20 years is expensive.  There is no return on that investment besides catastrophe prevention through structural maintenance.  Expensive is not capitalizing on the underperforming real estate property within and along the right-of-way that is valued on a per land area basis lower than most sprawl, precisely because of the highway deflating value.  However, the market prices that land far more than it is actually worth...which is why nothing happens on it.

By maintaining the highway, we're not leveraging the $4-5 billion in private investment that would occur (our latest numbers show $5.5 billion and $120 million per year in property tax revenue to the city).  $120 million over 20 years is $2.4 billion in revenue the city is foregoing.  What exactly is expensive?  Building the second downtown DART line is expensive.  And it can be built (or at least borrowed against) the new property tax revenue.

Our latest numbers show the tear-down (read: NOT A BURIAL - The underserving grid has more capacity available than the highway ever could.  Haven't I demonstrated enough that Dallas has way too much highway capacity, to a destructive level, than it needs?) would cost about $80-85M, the new streets and four new parks another $35-40, for a total of about $120 million.  Again, that seems like a lot of money.  Until you factor the potential land auction/sale.

Let's say TxDOT quit claims the ROW, deeding the land over to the state.  If the state transfers the land to a dedicated redevelopment authority under the city's auspices for a $1 like California did in San Fran and the redevelopment authority can get $40/foot for land (not unreasonable at all for downtown adjacency) on the developable blocks of formerly public ROW, they're recapturing $111.5 million just in the land sale.

The mayor added, cost isn't the issue. "We're a rich city"(despite the growing concerns about poverty).  "If you bring us market-based solutions, we'll listen and if we like them, we'll get it done."

Now let's think about market-based solutions for a moment.  One of the primary drivers of this development plan was what I call an "upside-down development market" in downtown.  It isn't market-based because demand is too low and costs are too high.  Every new building requires heavy levels of charity (see: The Arts District) or subsidy (see every building proposal in downtown asking for $50 million) to cover that upside down gap.  Fifty here, fifty there.  Even then, it does very little for the demand side of the equation.  Thus we get either empty buildings or buildings not able to get the rents projected in the pro forma, and thus buildings have gone through bankruptcy.

We wanted to avoid this endless 'coming to the trough,' by driving up the levels of demand so that downtown investment was market-based and we can get out of the subsidy (and begging for more parking) business.

When I've been on panels dealing with South Dallas or having discussions with people on the ground trying to make a difference, the grand generalities about entrepreneurship and local problem solving go out the window when they can get loans to start businesses, simply because of their area.  In a way, it's passive-aggressive redlining, but you can understand both sides.

I don't like it, but the reality is in modern banking everything is driven by data and semi-arbitrary formula.  Sorry, not enough households and not the right incomes in the area to support your business.  There is no empowered localized decision-making that could identify that there is real need there.  Computer can't see need, can't help people deliver supply.

Here's an idea.

1) Of course, we begin seriously addressing the downtown highway system that bifurcate North and South, East and West as a way of nudging investment, jobs, and capital further south.  Risk averse capital doesn't play hopskotch around the city.  It oozes block to block.  What's happened in uptown and happening down Henderson, can happen closer to downtown, bridging the yawning gap of pavement, parking, and tumbleweeds between East Dallas and downtown.  From there it can then be nudged into South Dallas.

Last night's discussion began wandering ominously into the language of smokestack chasing, which rarely pays off for a city.  Companies are looking for high quality, walkable urban areas.  Because their employees are looking for that.  New entrepreneurs and startups are looking for that.  And keep in mind, uptown isn't even all that walkable.  Just in small pockets here and there.  We can do better.

2) Since we have money in the North (that seems to like both charity and lending) why don't we create a KIVA style local hybridized charitable lending system.  A local not-all-that-micro-financing system where North Dallas money can pool capital that goes towards South Dallas small business start-ups, which like KIVA, the loan repayments can be withdrawn, or recirculated back into an ever growing pool of capital and then re-lent back to South Dallas.  That's an idea so good even the grifter class would be excited.

That way, we can build more authentically, organically, and market-oriented rather than begging, borrowing, or stealing to get some name brand corporation to drop one plant in the middle of south Dallas for a few years until they get a better offer.  Because Mockingbird Station isn't coming to South Dallas.  Nor should we want it to.