Feature: Team Effort

By Omar Blaik and Alex Feldman 

Reports announcing the “end” of America’s downtowns seem to be everywhere these days. The week we began working on this column, Columbia University economist Stijn Van Nieuwerburgh told Fortune Magazine that the “urban doom loop” he predicted last year was not only still headed our way, it was going to be much worse than originally thought. “This cycle,” Van Nieuwerburgh warned us, “is out of control.”1  

Absent any change in course, he may be right. Office buildings that were purchased or extensively renovated after the Great Recession have far fewer tenants than they did before 2020. Many of those ten-year loans will come due in the next few years. If defaults become widespread, the implications for bank solvency — and municipal property tax revenues — will be bad for everyone. 

We say that because downtowns matter, even in their presently diminished state. Some refer to downtown as a city’s heart, but we suggest it is something even more elemental: It is the DNA, the original genetic code from which the rest of your metropolitan area — even its suburbs — grows and develops. In many cities, like U3 Advisors’ hometown of Philadelphia, downtown is the oldest part of the city, the place where it all began, and very likely the densest agglomeration of buildings, streets, and parks. This is not an accident. Cities exist to expedite the connections between ideas, capital, workers, and consumers. Cities were invented to connect people.  

The era of downtown redevelopment that preceded the pandemic — several decades that saw rebounding interest after years of disinvestment — sought mostly to tackle supply. If only we could build the right kind of space, and enough of it, workers, retailers and residents would find their way there. Solve for supply, the thinking went, and buildings would fill, rents would flow, and downtowns would thrive. COVID inverted the problem and turned it upside down: Downtowns now have a demand problem. 

In retrospect, the economic fragility of downtowns that were overly reliant on 9-to-5, white-collar jobs seems obvious. In an era of fast internet and record-low unemployment, bosses can no longer seriously “demand” that their workers return to the office. Workers have too much leverage, and everyone knows it. 

This is the key structural change in central business districts that Van Nieuwerburgh is describing. When we don’t properly interrogate the question of who downtown is really for, monocultures will take root. Healthy and intentional diversity makes places more interesting. It also makes them more resilient. Philadelphia’s large and growing downtown residential population has helped foot traffic recover to 83 percent of pre-pandemic levels, which is more quickly than many peer CBDs.2 An inclusive and welcoming downtown where many different people feel that they not only belong but can contribute is a wonderful aspiration. But manifesting it into existence is easier said than done, and it’s a difficult thing for city leaders to prioritize when they face more urgent questions about downtown, namely: What in the world are we going to do with all of this vacant office space? 

We have three potential answers to that question, each based on our experience working in urban areas with institutions of higher learning, healthcare systems, and other community anchor institutions. 

The first answer is that these institutions — particularly universities and hospitals — could do more to absorb dormant downtown office space. In some places where our firm has worked, such as New Orleans and Fort Worth, institutions of higher learning are doing just this. New projects by the Tulane University School of Medicine3 and Texas A&M Fort Worth4, represent transformative investments in their respective downtowns. 

In many communities, however, colleges and universities have their own struggles to contend with: falling enrollment, high debt loads, and a loss of public trust. These institutions may simply lack the capacity, leadership, or cash to take on new initiatives to support their local downtowns.  

In this case, another stable organization may need to step in: local government. As Diana Lind recently suggested in her newsletter, The New Urban Order, municipalities could acquire distressed office properties at a deep discount, if they move quickly5. In this scenario, local government could choose to fill these buildings with their own employees; more likely, they would hold them until the market reverses or strategic redevelopment opportunities arise.  

Some reading this column will remember Mayor Beame of New York City unsuccessfully petitioning President Ford for relief in the mid-1970s. “Ford To City: Drop Dead” was the most famous headline from this era. In the next year or two, we may see history repeat itself, as some larger cities could turn to the federal government for help. Regardless of who occupies the West Wing, these would be fraught negotiations. Interventions from City Hall or the White House are both enormously expensive, complex, and carry outsized financial and political risk.  

If your local university lacks the wherewithal to intervene and the public sector is similarly unable to help for any number of reasons, a third scenario for avoiding the doom loop does exist: Business improvement districts (BIDs) should grow their role in shaping the future of downtown. 

These are legal corporations, permitted under state statute and local ordinance, to collect assessments from commercial property owners in a specific geographic zone — usually a dense city center — and use those funds in a variety of ways to improve that place. At least before the pandemic, downtown was likely the busiest, densest, most heavily used area of a city; therefore, additional resources should be used for its care and maintenance. BIDs gather those resources and put them to work.  

Many BIDs hire “ambassadors” to interact with tourists and supplement public safety officers. BIDs also handle a great deal of public realm maintenance: graffiti and litter removal, mowing and landscaping, or wayfinding signage. These organizations have been instrumental in making many downtowns feel safe and welcoming.  

Right now, that’s just not enough.  

Here in Philadelphia, for instance, the Center City District (CCD) has been a pioneering organization since its formation in the early 1990s. By all accounts, it has had great success executing on its stated mission of “deliver[ing] daily services with the goal of making Center City clean and safe.”6 Cleanliness and safety are of course essential elements to the viability of any place. We would respectfully submit that CCD could be doing even more to accelerate and sustain the area’s recovery.  

WE SEE THREE SPECIFIC WAYS THAT BIDS COULD DO THIS: 

Demand stimulation: As we know, office buildings in many American downtowns are experiencing abnormally high vacancy rates. Some of these buildings will lend themselves to residential conversions, but their owners are unlikely to commit to this without a great deal of encouragement and technical assistance. BIDs are uniquely positioned to provide both, as well as incentives to workers who wish to occupy that housing. Additional perks for downtown workers and residents could include free or discounted public transportation or even discounted pricing at downtown shops and restaurants. 

Retail curation: BIDs can also take on a more active role in retail development — using fine-grained market intelligence to determine what storefronts may be available, what goods and services may be in demand, and what kinds of incentives might be needed to lure entrepreneurs into addressing these opportunities. When left up to landlords and brokers, storefronts may remain empty for long periods while markets “recover.” BIDs can curate the mix of shops and brands (local, national, and global) that will attract buyers from both inside and outside downtown. This could be done through direct targeting and incentives. Nobody knows the potential of downtown retail better than BIDs, and there is arguably no better time to do it than while rents are low and landlords are eager to negotiate. 

Real estate stewardship: BIDs can think even bigger. They are often primarily concerned with sidewalks, medians, and streets in front of buildings. They could take a more active role in the ownership and management of buildings themselves, particularly as the connective tissue between landlords, local governments, philanthropic sources, and potential tenants. In some cases, it may make sense for BIDs to own and manage property, and to directly steward the right uses into the right sites. 

In short, BIDs need to begin thinking of themselves as anchor institutions and acting accordingly. While not technically a business improvement district, the Memphis Medical District Collaborative (MMDC) is a great example of an organization that has been doing all of the above. Launched eight years ago with the support of nine major local educational and healthcare institutions, MMDC has significantly contributed to the transformation of a chronically underperforming district immediately adjacent to downtown. In addition to routine clean-and-green services, MMDC has taken a very dynamic leadership role with regard to real estate development. In 2023 alone, the area saw the opening of nearly a dozen new businesses, the construction of hundreds of new apartments, and the completion of infrastructure improvements aimed at creating a more walkable community. Moreover, the MMDC welcomed 40,000 visitors to various sponsored events, including fitness classes and festivals7. While MMDC’s staff does a lot of things well, the larger point is that they do a lot of things. Infrastructure maintenance, real estate strategy, programming, and other activities may feel like distinct and separate lanes, but MMDC knows they all go towards the same destination: an economically thriving district. Because MMDC takes nothing for granted, they can swiftly pivot into doing whatever is needed to make progress towards that goal. 

Downtowns are at a perilous moment, but there are positive signs: Edelman Intelligence and the Bureau of Labor Statistics say that there are now some 76.4 million freelancers in the workforce, a number that grows by 2 million people every year8. Americans are living longer, having fewer children, and driving less. We are becoming a nation that craves the kind of convenience, connection, and flexibility that downtowns have always provided. Returning to the questions of who is the city for and why, we may be able to glimpse the future by looking at the past. Downtowns can be — and must be — for everyone: workers, visitors, and residents of varying ages, income levels, and backgrounds. Put another way, no other part of the city can do what downtowns are built to do, which is foster tight and highly productive economic connections. They can bring different kinds of people from different cultures and backgrounds together. 

THIS DIVERSITY HAS A DELIGHTFUL BYPRODUCT: EMPATHY.  

Nowhere else in your city, indeed, nowhere else in the world, will people of varying viewpoints and lifestyles spend as much time interacting, sharing space, accommodating each other, and working together. The discord and rancor that seems to define so much of our politics can be tempered amid this cooperative friction. In this way, downtowns produce and reproduce a special kind of civility, one that is essential to the functioning and flourishing of any place. In other words, so long as downtowns are at risk, so is democracy. 

We realize that we are calling in anchor institutions, local governments, and business improvement districts to behave in new and perhaps unexpected ways. If these entities see that it is in their self-interest — and everyone’s — to get involved in their downtowns now, we may be able to defeat the doom loop before it starts. 

Omar Blaik is the founding CEO of U3 Advisors, a Philadelphia based consultancy that helps institutions across the globe realize their goals for economic growth and community impact. Previously, Blaik served as the senior vice president of facilities and real estate at the University of Pennsylvania. 

Alex Feldman is a managing director of U3 advisors, where he leverages his expertise in architecture, real estate, and urban planning to transform and uplift communities. He serves as a lead strategist in the firm’s role in the anchor-driven transformations of communities such as Memphis and Fort Worth. 

Image: Texas A+M is investing in downtown Fort Worth, above.

CITATIONS 

1. The ‘prophet of urban doom’ says a 1970s-style “doom loop” is here for New York City, and it’s just the first inning of the ballgame. (2024, February 26). Fortune. https://fortune.com/2024/02/25/commercial-office-real-estate-crisis-vacancy-remote-work-new-york-city-doom-loop/ 

2. Center City Retail Report, November 2023. (2023, November 20). https://centercityphila.org/research-reports/ccd-retail-report-11-2023 

3. Big vision for the Big Easy - U3 Advisors. (2022, March 4). U3 Advisors. https://www.u3advisors.com/projects/big-vision-for-the-big-easy/ 

4. Texas A&M Fort Worth Innovation Hub - U3 Advisors. (2022, November 15). U3 Advisors. https://www.u3advisors.com/projects/texas-am-fort-worth-innovation-hub/ 

5.  Should cities buy office buildings? (2024, February 19). The New Urban Order. https://thenewurbanorder.substack.com/p/should-cities-buy-the-dip-and-stock 

6. Center City District. (n.d.). https://centercityphila.org/ 

7. MäKi, A. (2024, January 2). Memphis Medical District marks banner year of robust growth. Daily Memphian. https://dailymemphian.com/article/40789/memphis-medical-district-marks-year-of-growth 

8. Freelance, side hustles, and gigs: Many more Americans have become independent workers. (2022, August 23). McKinsey & Company. https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/future-of-america/freelance-side-hustles-and-gigs-many-more-americans-have-become-independent-workers