Incentives are a great economic development tool to help cities get past challenging points in their growth. Detroit, for instance, has benefited from them to secure multiple mixed-use and office projects as well as keep major employers within its boundaries. On the other end of the population scale are smaller cities like Adrian, where incentives have kept manufacturing giants such as Inteva in place, protecting the economic welfare of the community. No doubt these places are deserving of such assistance, but there are many more going without it because their markets present some challenges for development.
The Makings of a Difficult Market for Development
Great cities like Wyandotte, Mt. Clemens, and Big Rapids all have economic development organizations (EDOs) eager to make a change. They have great plans and enthusiasm, but as shown through feasibility studies conducted by Bonner Advisory Group, they have a common road block to success: stagnant lease rates for apartments and retail. These lease rates continue to fall behind the increasing cost of construction. A newly completed construction project can’t keep the value of its investment simply because the rent is not there. The gap between investment and value is usually too large for any incentive to cover and banks simply won’t finance it. For obvious reasons, this is a massive deterrent to developers.
The Creative Solution Within Your Own Neighborhood
Communities and their EDOs can sit back and wait for something magical to happen with rent, construction, and incentives or they can take creative action.
Always choose creative action.
Now is a time of economic growth and there is every chance a local corporate headquarters could be the source of funding needed. Is it a company committed to the community? Does it want the best for its employees? If yes, it’s likely that its leadership team is already positioned to have a conversation about projects to improve livability. After all, a thriving community will help retain and attract the talent it needs to continue its own success.
How Corporate Funded Projects Work
Leaders of a growing tech consulting firm in Ann Arbor recently shared with me their commitment to community enrichment: They invested in low cost real estate in a nearby community and are building out options for office and residential. Simply put, the financials didn’t need to work for them in a traditional sense as they will be the main tenant to the building. They have now become part of the community’s longer term strategy for creating a livable downtown and increasing the value of property values over time. At the same time, they are working toward their own business goals.
Can this success be replicated in other communities, particularly those with difficult markets for development? Yes. Is it a solution to everyone’s problems? No, of course not. Regardless, it’s a productive exercise for EDOs to take creative action. So are you sitting and waiting or are you taking action?