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Thursday
Dec132012

Best of Blog: The pitfalls of "entertainment districts"

We've been incredibly fortunate here to be able to regularly share the insights of Nate Hood. The story of how I met Nate is interesting if you don't know it: he was our very first donor. We received our 501(c)3 status two years ago and, shortly thereafter, put up a "donate" button (that button still works for those of you that still want to support us this year). The first day we got a donation from this guy, Nate Hood of Minneapolis, and I emailed him to find out who he was and what prompted him to send us a donation.

What I discovered was a very talented guy who had moved back to Minnesota after studying and working in Australia. He has the misfortune of returning home right after the market downturn and, with unemployment high and companies/governments shedding jobs, was having a hard time latching on (a condition that quickly changed). I started reading his blog -- at that time it was called Nate's Job Search but is now called Thoughts on the Urban Environment -- and was really impressed. Nate is a great writer and has some very original insights.

This year I published Thoughts on Building Strong Towns (Volume 1). ToBST (Volume 2) is in the can and going through final editing. I can guarantee you that, with the great content Nate has been providing over the last year and a half, Volume 3 will be a co-authored production, as will any subsequent editions so long as we can keep Nate in the fold.

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Entertainment Districts, as they are referred to as, are easy to spot.

These places usually have a well-marketed name followed by the words: eat, drink, relax, dine, play or some similar variation. A hotel is often used as an anchor, a movie theater is thrown into the mix along with some higher-end chain restaurants while the area’s light posts are covered in well-designed banners.

Another easy way to identify an entertainment district is by government subsidy. These projects usually have some form of subsidy attached, whether that is through direct spending on infrastructure improvements, local government bonding or tax increment financing. They also supposedly support the creation of jobs, economic growth, promote adjacent urban development and feed off a new, existing or proposed sporting arena.

Downtown’s are, and are, not Entertainment Districts. It depends, as certain policies can give them similar qualities. That being said, giving further caveats to these differences is necessary. It is best to breakdown Entertainment Districts into two categories: overnight vs.naturally-occurring.

The Overnight: The Power & Light District in Kansas City

The Kansas City Power & Light District … is a shopping and entertainment district in Downtown Kansas City, Missouri … The district comprises nine blocks on the south side of the downtown loop. … The $850 million “mixed-use” district is one of the largest development projects in the Midwestern United States. The Power & Light District is one of only a few places in the United States where possession and consumption of open containers of alcoholic beverages are allowed on the street, although they remain prohibited on the street throughout the rest of Kansas City. [Wikipedia]

The Power & Light District is an infill project in an urban area that connects with the original street grid, is walkable and the urban design is scaled appropriately. One would think this would be a success story. Reality is, it’s a financial drain. The Wall Street Journal reported:

The tab is mounting for this Midwestern city on a bet it made during the real-estate boom on an $850 million entertainment district meant to breathe new life into its struggling downtown. While the eight-block restaurant, nightclub and retail complex named the Power & Light District is mostly complete, traffic and sales are well below initial projections when construction started in 2006.

Today, the project … generates less than one-third of what is needed to cover the debt service on the bonds. The city is setting aside $12.8 million in its budget for the fiscal year that starts next month to cover the gap, a notable hole in a $1.3 billion budget that calls for $7.6 million in cuts to the fire department. [...] property-tax collections have been lower than expected, given lower rents and real estate values. Sales-tax revenue is also off. [The Developer] has blamed this partly on the lack of a professional sports team at the [nearby] arena.

Kansas City gambled on a 9 block entertainment district and a new sporting and musicarena – and now it’s draining city resources (similar to what is going on in Cincinnati or thesituation in Phoenix). The question should be asked: why did it fail? First of all, projections were too optimistic, and it was admittedly bad timing, as it finished at the genesis of a recession. These are the two often cited reasons for why these developments fail – and they certainly play a role, but they don’t tell the whole story. The real problems are less obvious.

Single-Use

Despite being billed as mixed-use, these environments concentrate all efforts on one aspect: entertainment. While original projects plans usually include visions of high-end condos, this promise fail to materialize. Even if they do materialize, they are not the primary focus. Residential is merely used to sell the bundle. 

Entertainment appears to be code-speak for food and drink. If it isn’t a weekend or an event night, these places are silent. They lack one crucial element: people. For a place to be successful, it needs people. All types of people – not just 25 year old’s on a night out.

Ownership

Overnight entertainment districts are typically controlled by one entity, similar to a shopping mall.

Limits Diversity: When an urban environment’s diversity is determined by one actor, you’re likely to get only businesses that the developer finds favorable. Developers will likely find chain restaurants who are willing and able to pay higher rents. This is economics 101. For the downtown urban environment as a whole, especially one looking to attract visitors, there is little or no benefit from ubiquitous chains. This is the problem that plagued Block Ein Minneapolis – why visit Applebee’s downtown when they are everywhere?

Limits Flexibility: To attract higher rents, developers will sign agreements to limit competition. For example; a coffee shop, such as Starbucks, may sign a contract only under the agreement the developer will not rent to a competing firm even if a demand exists. This limits the development’s ability to adapt to market changes.

The Disproportionate Effect of Failure: If one business fails under the model of single-ownership, it will have a more disproportionate effect on other businesses. Take for example, Block E in Minneapolis. When a mid-sized drug store chain closed its doors a year after opening, this left a large vacant space collecting dust. The developer needed to make that up, and upon new lease negotiations it will likely put more pressure on existing tenants to cover this costs.

Furthermore, after Borders closed its Block E doors in 2008, there were fewer tenants paying into utility costs. These costs (of course, depending on each individual contract) will be shared amongst existing tenants. Where as in a traditional urban environment with multiple landlords, while a neighborhood closure isn’t great for business, it certainly wouldn’t increase the bills your utility bills.

One Sinking Ship Downs the Whole Fleet: If the developer tanks and the building falls into foreclosure – what is the fate of the successful businesses in the development? In some cases, one sinking ship downs the whole fleet – even businesses turning a profit.

Public Space: Open space is not public space. For example; even if you wanted to, you couldn’t legally “occupy” an entertainment district. It’s private property and it has the same shortcomings characteristic of suburban shopping malls.

I see the appeal to the single-owner system. Public decision-makers choose this route because its far easier. They are dealing with one party – not many. It’s also easier to sell and allocating land to one, well-connected developer as opposed to ten to 15 smaller, less well-known developers.

But, even when you have multiple property owners, entertainment districts still fail to create complete urban spaces.

The Naturally-Occurring: Hennepin Ave in Minneapolis (Downtown)

Hennepin Avenue in downtown Minneapolis can be a vibrant place. It has theaters, restaurants, nearby sporting facilities, historic to modern architecture, a high-degree of good transit access and proximity to Minnesota’s largest downtown. It’s active, but something’s missing.

“You will always belong on Hennepin Avenue because everyone belongs on Hennepin Avenue” wrote MinnPost’s resident sidewalk expert, Andy Sturdevant, in his well-written prose about the avenue. It’s hard not to argue that the area can be charming, fun, exciting and a few other hedonistic adjectives – and I certainly can’t deny that the avenue is a conglomeration of income brackets and social classes. It’s all of these things … if you’re 25.

Unfortunately, these types of environments don’t help in attracting other sorts into the urban settings; baby boomers and families with young children aren’t going to be attracted to these places and surrounded by the airport of late-night noise pollution. This being said, naturally-occurring entertainment districts can best be related to as adult theme parks.

The reason the adult theme park exists is because leaders are too focused on bringing people downtown for entertainment, or drawing in tourist dollars. Policy needs to shift from making cities places to visit, and concentrate on making them places to live. Entertainment districts, even the best ones,  can fail at creating a lively mix of retail, residential, commercial and civic space. Unless you're a certain demographic, these are isolating locations, usually not worthy of the public affection beyond the handful of large sporting events, conventions or Friday night bar excursions. In fact, show me an existing or proposed entertainment district and I’ll show you a struggling city.

It may be too early to tell, but it appears as if entertainment districts may be the new Bilbao Anomaly. Paris and Florence don’t have entertainment district. Neither does San Francisco. Melbourne doesn’t either. What these cities have are spaces for people. They also have sports stadiums and bars – just not as the focal points of their city centers or of their new infrastructure investments. The problem boils down to over something very simple: We are disconnecting our downtowns from all other aspects of life when we attempt to turn them into "entertainment districts".

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