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Chron Article, "Downtown subsidies could skew market, experts say"


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Interesting take on a lot of the things discussed on this forum: 

 

Critics see plenty of pitfalls in expanded city incentives

http://www.houstonchronicle.com/business/real-estate/article/Downtown-subsidies-could-skew-market-experts-say-5422520.php#/8 

 

By Nancy Sarnoff and Mike Morris

April 22, 2014 | Updated: April 22, 2014 10:41pm

Downtown and Midtown are separated by a freeway, but in some ways they are worlds apart.

Midtown's population of about 9,000 is nearly double what it was in 2000. Much of the growth has come over the past decade, when the area became the urban neighborhood of choice for apartment and townhouse developers.

Downtown's growth, meanwhile, has not been nearly as robust. In 2000, officials projected downtown's 3,000-person residential population would increase threefold by 2010. Today, however, only about 3,600 residents live in renovated lofts and condos in the shadows of the skyscrapers that host an urban workforce of 150,000.

But developers again are challenging the notion that downtown can't be a place more people call home. Several are lining up to build thousands of luxury apartments through a newly expanded $15,000-per-unit city subsidy program meant to help defray the high costs of building in a crowded business district.

As eager as the builders are to increase the supply of downtown housing, demand for the thousands of proposed units - pricey ones, at that - is not a sure thing. And even if the new buildings do fill up, the shops, restaurants and services may not be there to support them.

"In all the cities that have significant retail, there are tens if not hundreds of thousands of people," said Ed Page, managing partner of UCR Houston, a commercial real estate firm specializing in retail."

Midtown growing

Another reason more shops haven't opened downtown is because there's so much of it in the surrounding neighborhoods, Page said.

Midtown, for example, has a major grocer and drug stores, as well as an abundance of restaurants and bars.

Just south of Interstate 45 from downtown, the formerly blighted area began redeveloping after the city in the mid-1990s created a tax increment reinvestment zone, which funneled tax dollars into improving public infrastructure. That TIRZ does not offer the same kind of residential incentive to developers that downtown is providing.

For years, officials have tried to lure retailers to the urban core with financial incentives. While there have been some successes, the overall trend is sliding.

In the past three decades, the amount of retail space downtown has fallen by 60 percent, according to a report released last fall by a task force Mayor Annise Parker appointed in the wake of Macy's decision to shutter its Main Street department store. The report outlined recommendations on how to attract more shops and reverse the longtime slide in retail activity. One of the proposals was to use tax dollars to develop a shopping district in the center of downtown.

Andy Icken, the city's chief development officer, said part of the reason the Parker administration has not pushed new retail subsidies is that officials are hoping residents drawn in by the subsidized apartments will, in turn, lure retailers.

The downtown population stands to more than double if all the proposed projects are built. Four are under construction and half a dozen more are proposed.

That kind of growth will help tip the scales in attracting more shops and restaurants, said Icken and Bob Eury, executive director of the Downtown Houston Management District.

Still, it's not likely to get the attention of a national retailer like Target, which recently launched a smaller-store concept for urban locations. The so-called CityTarget carries products suited for urban lifestyles and customers who travel by bike, foot or public transportation. The Minneapolis-based retailer has opened locations in Chicago, Seattle, Los Angeles, San Francisco and Portland, Ore.

When asked if the company would consider a CityTarget in downtown Houston, spokeswoman Anne Christensen said no additional stores were opening right now, "but we're always exploring opportunities to serve our guests in whatever format store makes sense for the area."

Elusive goal

Revitalizing downtown has been a goal for Houston's city leaders for at least four decades, said Jim Gaines of the Texas A&M Real Estate Center. He said that aim never will be realized without more residents to convince retailers that they can thrive.

There is demand for downtown housing, Gaines said, though the incentives could result in units being built faster than residents can rent them in the short term, particularly if the retail needed for running daily errands remains slow in coming.

"There isn't enough of what I would call support retail. I'm not talking about the high-end women's clothing store. I'm talking about a drug store or a food market," Gaines said. "The belief always has been, if we could create the residential base, the market will figure out how to supply the necessary support services. Probably that will be true."

Jessica Phifer gets the same reaction from most people when they learn she lives downtown.

"The rote questions are: 'Where do you get groceries?' 'Where's your bodega?' " said Phifer, who moved into the city center from the Heights more than three years ago.

"To the natives, it's still weirdly a foreign concept," she said of living downtown, an area that bustles with office workers during the day and then largely empties out at night.

University of Houston economist Steven Craig is skeptical about the city's influence on private development.

If demand for the new housing is weak, Craig said, the resulting renters - mostly well-off professionals - will be the ones to benefit from the up to $75 million in proposed incentives in the form of cheaper rents. Or, he said, downtown will boom and developers will pocket the subsidy in the form of thicker profit margins.

Houston isn't Paris

"There's a lot of people that wish that we were Paris," Craig said. "Paris is cool. It's a dense city, they take public transportation and they walk everywhere. Well, Paris isn't 90 degrees at 90 percent humidity very often. Walking is good, but there's other ways to accomplish all those objectives. We're just not being very thoughtful with how we use our resources."

The incentive program has been available to developers building an apartment or condominium complex of at least 10 units, provided they meet design guidelines focused on how the project looks at street level. The City Council voted earlier this month to approve doubling the program's size to 5,000 units to capitalize on the momentum the program has created.

"The whole idea of this program was to level the playing field," Eury said. "It recognizes the fact that developing on a downtown block, the land's more expensive, it's more difficult to develop. There's a delta in the development cost in doing it in the business district versus in another competitive market in the central city."

If that cost gap goes away, he said, it would be hard to justify continuing the incentive.

Ric Campo, CEO of Camden Property Trust, which is planning to take advantage of the subsidy, said some developers do not want the competition that would come with expanding the program. He said it is working to create a more vibrant downtown, however.

"It will probably hurt me in short term, but will help me in long term," said Campo, who is also on the boards of multiple economic development and business organizations. "It's less rent on the front end to get a transformational effect in the longer term."

 

Downtown vs. Midtown

Population: Downtown grew from 3,000 in 2000 to 3,600 today; Midtown has nearly doubled to 9,000 in the same time.

Development: While retail has fallen 60 percent in 30 years downtown, a city subsidy aims to boost housing; in Midtown, a mid-1990s tax increment reinvestment zone spurred development, and housing has boomed in the past decade.

 

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I'm a supporter of the downtown residential incentives, but the article brings up a good question. The city is basically spending millions to incentivize development that will almost exclusively benefit highly paid professionals. It's a fair question to ask whether that's the best use of city funds.

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Don't they use city money to build inexpensive homes that will exclusively be used by lower income people?

The article started off very interesting but the topic of the headline wasn't discussed until the very end and it was very little.

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Isn't "skewing the market" the whole point of the subsidies?  Before tax incentives were put in place Midtown was just as vacant as downtown, if not more so.  I questioned whether trying to develop Midtown was worth it at the time (some of you might remember from HAIF v1).  I was wrong, so I really don't have any issue with using incentives to develop downtown.  It took  15 years for Midtown to get where it is, so I'm willing to give downtown that long to make it work.

 

 

 

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Looking out the windows of the light rail, Midtown still seems to be run-down as ever (was it worse? I believe it). The Sears there is a great analogy for the company: a mainstay for decades, still open, and probably has some potential in theory, but run-down, poorly maintained, unsound condition, and some disastrous changes made to it.

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Isn't "skewing the market" the whole point of the subsidies? 

 

EXACTLY.  Another ignorant article from our sad excuse for a newspaper.  And they made that UH economist sounds like a clown.  I'm presuming they misquoted him and/or took his comments out of context.  Even then, if he actually said all the nonsense about Paris...  I don't know anyone who is striving to turn Houston into Paris.  And, please, enough with the 90 degrees at 90% humidity nonsense already?

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Isn't "skewing the market" the whole point of the subsidies?  Before tax incentives were put in place Midtown was just as vacant as downtown, if not more so.  I questioned whether trying to develop Midtown was worth it at the time (some of you might remember from HAIF v1).  I was wrong, so I really don't have any issue with using incentives to develop downtown.  It took  15 years for Midtown to get where it is, so I'm willing to give downtown that long to make it work.

 

Is it just me, or do other look at midtown as not being developed as successfully as it could have? When I say that I mean that the types of developments that came are not necessarily great. In other words, what developed was not very walkable and urban. I like that the downtown incentives say that the development has to look a certain way in order to get the incentives. That could have helped Midtown a lot, especially with that suburban CVS that we all talked about a few years back.

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There has to be a major return of retail franchisewise and ammenities that attract tourism and future downtown residents . For example , a return of major restaurants like Burger King , Jack In The Box , Taco Bell , Wendy's , Pizza Hut , Starbuck's , IHOP , Denny's , Golden Corral, etc . Border's Books , Books -A-Million , Barnes & Noble can be brought back . New necessary retail can be greatly needed in downtown like Office Depot and Office Max , Best Buy , Dollar General or General Dollar for office/residential needs in the downtown area .  Midtown can be a retail hub for downtown for example, Academy or Sport's Authority , DSW , Big Lots , Rent-A-Center or Conn's , etc. would bring more value to the area . Fiesta and Randall's grocery is already there . Retail would have to be a major necessity for that area and would have to be visually present that could benefit residents and anyone in midtown and more hotels for tourism . I believe city funds should never be used . The city can provide water and utility and infrastructure . Commercial and residential revitalization depends on the choice of residential real estate and retail developers and use of their own funds to build  or move in available retail space already existent in midtown or downtown . It should be the other way around . Not using city funds .

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There has to be a major return of retail franchisewise and ammenities that attract tourism and future downtown residents . For example , a return of major restaurants like Burger King , Jack In The Box , Taco Bell , Wendy's , Pizza Hut , Starbuck's , IHOP , Denny's , Golden Corral, etc . Border's Books , Books -A-Million , Barnes & Noble can be brought back . New necessary retail can be greatly needed in downtown like Office Depot and Office Max , Best Buy , Dollar General or General Dollar for office/residential needs in the downtown area . Midtown can be a retail hub for downtown for example, Academy or Sport's Authority , DSW , Big Lots , Rent-A-Center or Conn's , etc. would bring more value to the area .

Completely disagree. The chain retail you've listed (or chain retail in general) won't "attract tourism and future downtown residents." While people obviously patronize these places, none of these create any sort of community or benefit to a neighborhood in any real or substantial way. The last thing downtown needs is to feel more like an office park or the 'burbs. In my opinion, downtown needs many more smaller, independent retailers - coffee shops, restaurants, service retail - than another Dollar General or Taco Bell. Luckily, the Downtown District has incentives for these types of retailers. It's grant program has already helped places such as OKRA, Batanga, Oxheart, Little Dipper, el Big Bad, Goro and Gun, Pastry Wars, etc open. Their success will bring more and different kinds of retail and, I hope, eventually, downtown will have a thriving and diverse retail scene to complement all these new residents :)
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That'll be a problem for the next Houston Mayor once Parker leaves.

Speaking of Parker, what odds do y'all give her running for Harris County Judge in 2018 ? I don't see Emmett sticking around past 11 1/2 years.

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Do you think the downtown residential market flood will impact midtown prices?

I am surprised more east end apartments haven't been announced. This is where I was hoping for a boom in more reasonably priced housing.

Was hoping that the lag in residence downtown they mentioned in the article would be picked up by east end residents.

They mentioned that midtown already has a major retailer is a bit disingenuous. Yes Randalls is a major retailer but it's Randalls.

A slowly increasing downtown population would still have midtown and east end to fall back on. Just because 45 cuts the neighborhoods in two doesn't mean the residents can't cross the devide and use each other sites until closer ones develop.

These developments are being built with huge parking structures. Many people will still be driving so I don't think getting retail immediately will be a major issue for a lot of these high end residents

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Do you think the downtown residential market flood will impact midtown prices?

I am surprised more east end apartments haven't been announced. This is where I was hoping for a boom in more reasonably priced housing.

Was hoping that the lag in residence downtown they mentioned in the article would be picked up by east end residents.

They mentioned that midtown already has a major retailer is a bit disingenuous. Yes Randalls is a major retailer but it's Randalls.

A slowly increasing downtown population would still have midtown and east end to fall back on. Just because 45 cuts the neighborhoods in two doesn't mean the residents can't cross the devide and use each other sites until closer ones develop.

These developments are being built with huge parking structures. Many people will still be driving so I don't think getting retail immediately will be a major issue for a lot of these high end residents

It really doesn't surprise me that there's a lack of development in the East End because the subsidies are drawing the developers to downtown. When developers choose to building in the East End instead of taking advantage of the subsidies downtown, that feels like a sign that they've exceeded demand for downtown residential.

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It really doesn't surprise me that there's a lack of development in the East End because the subsidies are drawing the developers to downtown. When developers choose to building in the East End instead of taking advantage of the subsidies downtown, that feels like a sign that they've exceeded demand for downtown residential.

I dunno. Midtown is more expensive than east end and there have been announcements for that area since the incentive program was announced for downtown. Its not like the incentive program slowed midtown down.

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  • 2 weeks later...

Looking out the windows of the light rail, Midtown still seems to be run-down as ever (was it worse? I believe it). The Sears there is a great analogy for the company: a mainstay for decades, still open, and probably has some potential in theory, but run-down, poorly maintained, unsound condition, and some disastrous changes made to it.

Go to bagby and gray

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EXACTLY.  Another ignorant article from our sad excuse for a newspaper.  And they made that UH economist sounds like a clown.  I'm presuming they misquoted him and/or took his comments out of context.  Even then, if he actually said all the nonsense about Paris...  I don't know anyone who is striving to turn Houston into Paris.  And, please, enough with the 90 degrees at 90% humidity nonsense already?

 

The old "they're trying to turn Houston into Paris" saw is probably one of the most ridiculous cliches of the status quo crowd in this city. Why would having a vibrant, walkable downtown make anyone think of Paris, where the walkability is not in the highrise business district (La Defense) but rather in the historic area of midrise flats and boulevards?

 

A much better comparison would be downtown Boston or Indianapolis, or even Houston 50 years ago. But it will never work of course, because of that 90 degree heat and 90% humidity! I guess this guy has never been to New Orleans?

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  • 2 months later...

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