VERSITY? :U . . . LI.“ ‘ g . as . : .FARRIS :. ¢ 4. M « ta? 393538 Afléflfiffiflfi! Ram 1974 G in 6H?! 7 ER is for 1e: "ERECHEG E lulil . . . .> .. . . . .. _ v . . . . .. . v ‘ . I’ . . A . . r . . ‘ V A . . , . . _ . . . ,. . . . . ..v . . IHIJMILN@fllfl\\lfllljllm1llfllmll|l SUPPLEMENTARY MATERIAL m BACK OF BOOK ”Lia: ~ ”he fede irate im'estae teas. Km 80'. is 1“ reduce; 1”“ Profita‘ item delays 125‘:qu of t iiiisted the 1:511 192151; h. 6-1;. Evidenc :=.;ital for 60 fenewal admini ntporations I If: 41 renewal mi “'31 , the a ABSTRACT URBAN RENEWAL: THE SYNERGISM OF PRIVATE AND PUBLIC ENTERPRISE BY John Terrence Farris The federal urban renewal program relies extensively on the private investment sector to respond to the redevelopment of blighted areas. With government powers of land assembly and with the cost of the land reduced by federal and local subsidy, the private developer has the profitable and feasible opportunity to redevelop. But the inherent delays of bureaucracy, political partisanship, and the inadequacy of the sources of finance for renewal endeavors has diminished the potential role of private enterprise as hoped for in renewal legislation initia1ly expressed in the 0.8. Housing Act of 1949. Evidence suggests that corporations have available sources of capital for equity participation in real estate development and that renewal administrators should understand the potential roles which corporations might play in order to attract corporate investment into urban renewal . As a specific example of private investment stimulated by urban renewal the St. Louis, Missouri urban renewal program has been ’ selected as a case study. For an in-depth study of a corporate 2.131;. histon EB? ;::L' ccqcratian ifs anti: is tons: : :5 Iztervih's iii” 2:: F3133 C0331." . :fi:;;:ies ad I". rds‘r nfisgfilished doc;- Igteiezt a throne-log. .14 stages in 19:: Sense of the mission costs im'c. mischcentives a. ‘33! are involved. Zital to become equ; 3'5 medal, present Ifiteility of real ”L“. quasi-philantlh 2353’» corporate rem itematives Might be The renewal p: aha-sent and the 1c: “Simulating privat 3.3m areas, Recen Elm t0 these renew ”as for this pm 15"»? c- t 1 ' s manual comm; :‘l'm' LaStly, Ra: U 0W ‘0‘, John Terrence Farris 0) undertaking, Ralston Purina Company of St. Louis, the largest agri- cultural corporation in the country, is involved in an urban renewal endeavor which is considered to be the first of its kind in the United States. Interviews with officials of the Redevelopment Authority, Ralston Purina Company, and others provide an understanding of the difficulties and hardships of coordinating their efforts. Further— more, unpublished documents and coore5pondence were analyzed in order to present a chronologically-detailed analysis from the initial planning stages in 1968 through 1974. Because of the difficulties of land assembly and the high acquisition costs involved, the urban renewal program is necessary and increased incentives are needed to stimulate private investment to become more involved. Although corporations frequently have the capital to become equity participants in real estate investment and urban renewal, present accounting procedures which do not reflect the profitability of real estate inhibits corporate involvement. However, certain quasi—philanthropic roles for corporations exist which might attract corporate renewal investment even though other investment alternatives might be more profitable. The renewal pragram in St. Louis has attracted private investment and the long-term effects of past renewal efforts seem to be stimulating private investment immediately adjacent to these renewal areas . Recent private development proposals in St. Louis relate to these renewal areas location-wise, but there are other reasons for this private investment, such as the new dynamism of the local financial community, besides the positive aspects of the renewal program. Lastly, Ralston Purina Company has shown that social '-~a ‘..~..‘..'$ev ,3 on". no...:ovaaoel 0“ r ‘ ' ‘ we. -. 9 ‘A O . 3.3.15.“ buxzdbra s 1 s 'O. J u ' 2.49:2. s..s..d be ms :azsiierin; a u. q :eoI-t . .,‘ ..........y describes ° " ‘Ie. I .. as. LQYOYCEZCCE . l. 5 N“ . ' ' . Nubec Fri“, 1 ‘ F“. v..v; . ..,..:..: non. John Terrence Farris responsibility and profitability can work simultaneously. But the excessive bureaucratic delays and partisan politics which Ralston encountered should be carefully taken into consideration by corpo- rations considering a similar endeavor. It is hoped that this thesis effectively describes the difficulties of public-private coordination and that improvements in the renewal process will act to stimulate increased private investment, especially by corporations, in urban revitalization. IT: :- | \' ' u..u-"e . 1n par URBAN RENEWAL: THE SYNERGISM OF PRIVATE AND PUBLIC ENTERPRISE BY John Terrence Farris A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF URBAN PLANNING Department of Social Science 1974 ..:... u. i“ 94"s --...5 «3‘» Ants ' ..bo .111. it: pays 1 ca‘. : 3.5a DEDICATION To my Father, whose past activities in urban renewal and public housing have instilled me with the desire to continue aiding in the social and physical redevelopment of urban areas. ii The ;re;arat; 2.7.2. First, I 59-1- :aesei the initial :rxezents in writ: lie-31d also 93.36231 note of th. 5:15 Cmany for h Fififling the Ralstc Finally, I w I31-10a’ards my grad “‘ “"11- 5. |“klng accepta: 31- Tsouls for the P a ACKNOWLEDGMENTS The preparation of this thesis was aided by the efforts of many people. First, I would like to thank my advisor, Myles Boylan, who reviewed the initial thesis draft in great detail and suggested improvements in writing technique. I would also like to thank Mr. David Hrysko and Mr. James Murray of the St. Louis Redevelopment Authority for their extensive guidance in the preparation of the chapters pertaining to St. Louis. A Special note of thanks is offered to Mr. Fred Perabo of Ralston Purina Company for his candor during our interviews and for his time in reviewing the Ralston chapter. Finally, I would like to thank my parents for their encourage- ment towards my graduate school career, and my fiance, Mary Jo, for her willing acceptance and backing of'my being separated from her and St. Louis for the past two years. iii Urban Trend Suggested S 'v “4': fl: l.‘ ‘ - «BAN Rt}; LeSiSlati‘.'e LWan Econc Economic R; Arg‘merlts 1 The Prison: C°5t~Benef Land Use 5 The Develo Barriers t ECOHOmic C 5 Role 0 11' DIFFICULTIEE Fragment a1 rivate Er C1 Vic Le a DeVe IOpe r Finantler IHVeStmen . Aggregate (-1 .4. \ . , r, . f ‘ ,4 ~'_. I. - ' - . f .' :3” I ’ ‘. ,‘ J“ 47‘: n.‘ . l ' fl ‘ ‘-’ ‘1 ’P 3...; "O ‘ 'l' s :‘ '.~’ :'-. . ' ' , s ’ '9‘ ~o' ‘ ‘1' A __ ‘ v ‘1} ‘ . f k .. >' ’.'- - 4A. . a!, ‘q-I '. A‘ I «I '- _ ~ I .-“’. ' .s .. . W T ” -'. ,- .- w s 3 ‘ "J 3 ‘ x055 ‘1 ‘07 ‘0‘? I“. TABLE OF CONTENTS Page IJST OF TABLES . . . . . . . vii IJST OF FIGURES. . . . . . . . . . . . . . . . . Viii Chapter INTRODUCTION. . . . . . . . . . . . . . . . . . l I. HISTORICAL OVERVIEW . . . . . . . . . . . . . 5 Urban Trends and Problems . . . . . . . . . . 5 Suggested Solutions . . . . . . . . . . . . 10 II. THE URBAN RENEWAL PROGRAM . . . . . . . . . . . 18 Legislative Intent. . . . . . . . . . . . . 18 Urban Economic Theory. . . . . . . . . . . . 22 Economic Rationale. . . . . . . . . . . . . 22 Arguments for Public Assistance . . . . . . . . 25 The Prisoner's Dilemma . . . . . . . . . . . 30 Cost—Benefit Analysis. . . . . . . . . . . . 31 Land Use Succession . . . . . . . . . . . . 32 The Development—Redevelopment Continuum. . . . . . 34 Barriers to Redevelopment . . . . . . . . . . 37 Economic Consequences of Blight . . . . . . . . 45 The Role of the Public Sector . . . . . . . . . 47 111. DIFFICULTIES OF PUBLIC-PRIVATE COORDINATION . . . . . 49 Fragmentation . . . . . . . . . . . . . . 51 Private Enterprise's Role . . . . . . . . . . 57 Civic Leadership . . . . . . . . . . . . . 57 Developer. . . . . . . . . . . . . . . . S8 Financier. . . . . . . . . . . . . . . . 60 Investment Incentives for Renewal. . . . . . . . 62 Aggregate Investment in urban Renewal . . . . . . 64 iv P _. . .eTAa-qdd ray L. b 3.7;1)‘ Scar.-. ‘ v V thcrate 1.. O T.<.;.,...A' ' t a- ‘I‘vkobdybv. Reasons fir l Trends of L. 7"0 Redeve‘. '1 Plan S... .2 Mill Cre. *3 Kosciusl '4 Craniel ’5 Nest Egg ‘6Ze30to-L 7 LaSalle Renewal Eat Private Re; Process :1 “3 E ST‘ULY “Same as; RalS’sOn Purl Barriers tTI The [Matti Liedamtio: UbliC‘Pl‘i‘, Bul‘eauCr.J alsmnss ; Urban Rer neflts f. Refits f; Benefits f: Be 'n‘ CONCLUSIONS ‘. Sum“)? of Chapter IV. CORPORATE INVOLVEMENT IN REAL ESTATE AND URBAN RENEWAL . Demand Factors. Supply Sources. . Corporate Enterprise. . . . Institutional Investment . . . . . Reasons for Non-Investment in the Past. Corporate Investment in Urban Renewal . V. RENEWAL EFFORTS IN ST. LOUIS, MISSOURI . . . . . Trends of Decline. . . . Two Redevelopment Laws #1 Plaza Square . . #2 Mill Creek Valley. #3 Kosciusko #4 Grandel . . . . . . . . . . . . . #5 West End. . . . . . . . . . . . . #6 DeSoto-Carr. . . . . . . . . . . . #7 LaSalle Park . . . . . . . . . . . Renewal Data . . . . . Private Redevelopment-~Outside the Urban Renewal Process . . . . . . . . . . . . VI. A CASE STUDY OF PRIVATE AND PUBLIC PARTNERSHIP: THE LASALLE PARK URBAN RENEWAL AREA . Ralston Purina's Corporate Role . Barriers to Redevelopment . . . . . . . . . The Donation . . . . . . . . . . . . Declaration of Blight . . . . . . . . . Public- Private Coordination: The Ensuing Bureaucracy . . . . . . . . . . . Ralston' 5 Role in Real Estate Acquisition and Urban Renewal . . . . . . . . . . . . Benefits for Ralston Purina Benefits for the City . Benefits for the Residents. VII. CONCLUSIONS AND RECOMMENDATIONS. . . . . . Summary of Conclusions . . . . . . . . . . Recommendations . . . . . . . . . . Page 66 67 68 71 73 74 76 81 82 85 87 88 91 92 93 93 94 95 100 104 114 115 118 119 120 127 129 129 130 131 134 138 s. 3;: ?e;e.'.t F- St. Louis . '- ‘ Pod-u;- as-.. , ' “Ma-unvovb' L l a. D b 0-3 "1... Chapter APPENDICES Appendix A. Some Recent Private Investments in the City of St. Louis . B. Chronology of Events for LaSalle Park BIBLIOGRAPHY vi Page 145 147 151 ’ ' link I 5‘ ‘ 50“ 1 :. '- \o J‘ I Table 1. 2. 3. LIST OF TABLES 1949-1971 Aggregate Investment . St. Louis Urban Renewal Data. St. Louis Urban Renewal Acquisition--Disposition Costs . vii Page 65 96 97 proPOS ed L LIST OF FIGURES Figure Page 1. Regional Location . . . . . . . . . . . . . 84 2. Development Status Map . . . . . . . . . . . Back Pocket 3a. LaSalle Park/Project Area . . . . . . . . . . 106 3b. Existing Area Photo . . . . . . . . . . . . 107 4. l40-Acre Land Use Plan . . . . . . . . . . . 110 5. Existing Land Use--First Phase. . . . . . . . . 111 6. Proposed Land Use--First Phase. . . . . . . . . 112 viii The am JS-IJ‘ 'J‘ 315.1; besause of " in: since its 1:. fitted for redeve; I “a INTRODUCTION The author selected the topic of corporate investment in urban renewal because of his family's involvement in the urban renewal program since its inception in 1949, both nationally and in the City of St. Louis. Having been raised in a family and a city concerned with the need for redevelopment, the author has been interested since his youth in different methods of revitalizing decaying, blighted areas. With the recently-approved LaSalle Park Urban Renewal Project in St. Louis, Ralston Purina Company, the largest agricultural corporation in the country, has become deeply involved in the redevelopment of 140 acres surrounding its world headquarters. Ralston's efforts have generated the author's interest to analyze the role of private enter- prise in the urban renewal process and to determine the potential role for corporate investment in renewal. Congress passed the Housing Act of 1949 with the primary goal: That the general welfare and security of the Nation and the health and living standards of its people require housing production and related community development sufficient to remedy the serious housing shortage, the elimination of substandard and other inadequate housing through the clearance of slums and blighted areas, and the realization as soon as feasible of the goal of a decent home and suitable living environment for every American family. IL-‘i :3 P: .1 get-c1211 ... (1‘,- Vila" aP-ar’. of the ‘9" 5:11le utilize. serve at?! °f th': .;-_‘-.;-.;-. 71:1: I P?" :: 123:;11511 its 3L citezaned WERE. muting public . his thesis wally corporati :3 cf this studY ti" .oes not focus 0 ss'.‘ u sets of renewal s . 1e renewal proce 1“: us? . .an renewal, 11;}; Mag the prob a": 23;» . A descript “in mnl city declim '. , £351? toe on Home ' Title I of this Act, the urban redevelopment provision, delineated the role of the public sector as a catalyst to private sector involvement in urban redevelopment such that . . . (1) private enterprise shall be encouraged to serve as large a part of the total need as it can; (2) governmental assistance shall be utilized where feasible to enable private enterprise to serve more of the total need; . . . Although Title I pursued extensive cooperation from private enterprise to accomplish its goals, frequently urban renewal land has been cleared and remained unmarketable because of the inherent difficulties in coordinating public and private efforts. This thesis analyzes the need for private enterprise, especially corporations, to enter the field of urban renewal. The scope of this study is geared towards corporate investment decisions and does not fecus on the social parameters involved regarding the effects of renewal, although these social effects should be evaluated in the renewal process. As a framework for understanding the rationale for urban renewal, an historical overview is presented as a means of revealing the probable roles for both the public and the private sectors. A description of recent urban trends and the accompanying central city decline is presented with a review of President Hoover's Conference on Home Building and Home Ownership in 1932 which for the first time began to formulate the definition of these roles. Since these roles are directly determined by the economic philosophy of a free enterprise system, rationale for the public sector's role according to urban economic philosophy is explained. Land use succession is described in order to understand the process of the changing structure of the city over time, thereby determining the ' Try-- 2' ff” ;:-.'t3€.€l '3’ .luu: ' 1.”. 5:355:32 are 461.... .n 53.212121: for the :..';:2 Land market 1 Zifficultles artei in order t; iterzzg rivate ins if? grate im'estmer "it renewal. filth this 1) a we "fficulties Rial available f0 33‘ mate investne 15131311“), of reai ‘3‘; 1‘“ .ei‘b‘é Besides {1' We per 59. Pote A Case Stud 23101 ate Support. it tillion dollar. A's‘k :3 than Rene“,£11 $3.101] . purlna ’ th‘ development-redevelopment continuum to which urban renewal is applied. With an understanding of both economic phiIOSOphy and land use succession theory, the roles for public and private efforts can be determined. Barriers to redevelopment which modify private land use succession are delineated in order to determine a certain practical and feasible role for the public sector to correct the failure of the private land market to operate efficiently. Difficulties of coordinating public and private actions are described in order to understand the effects of these difficulties in deterring private investment. Examples are cited showing the reasons why private investment is frequently discouraged from participating in urban renewal. With this background of the roles of the public-private sectors and the difficulties that occur, the author suggests that corporations might become more active in urban renewal since they have extensive capital available for real estate investment. Corporate problems in real estate investment are described in order to determine the desirability of real estate as an investment alternative for corpo— rations. Besides providing an analysis of corporate investment in real estate per se, potential roles for which corporations can be induced into the urban renewal program are also described. A case study involving a major corporate undertaking in urban renewal is included to show the real problems of further attracting corporate support. Ralston Purina Company of St. Louis has donated two million dollars to that City for the local share of the LaSalle Park Urban Renewal Project in which a wholly-owned subsidiary of Ralston Purina, the LaSalle Park Redevelopment Corporation, has been 2.2::2‘; is fit re» gieffsn is -' L215 :crsidered :rmtion. T :egr-rje: to the CL' 222511 for mists: tieccrjxrate ins-'1 lastly, inpli :22“. future role 233. In addition 53‘: as possible sol ;::'.'ate enterprise 11: the Gross p Eris: edms the as - ah.” f” ti 23/4ls mid“ be ‘ /4 sh selected as the redeveloper.1 An historical overview of St. Louis renewal efforts is described as a framework for Ralston's involvement which is considered to be the first undertaking of its type by a major U.S. corporation. The case study describes the economic benefits of the project to the City and to Ralston, the advantages of involvement in renewal for Ralston, the difficulties of public-private coordination, and the corporate investment roles played by Ralston. Lastly, implications of the case study are described to deter- mine the future role of corporate involvement in the urban renewal program. In addition, suggestions to attract corporate involvement are given as possible solutions to the overwhelming difficulties encountered by private enterprise in the urban renewal process. 1Under federal urban renewal legislation, land and old 1mPl‘ovements are acquired at fair market value, relocation assistance is Provided, the property is cleared or rehabilitated, and site 1’“Movements and supporting facilities are developed. This total cost Ylelds the Gross Project Cost. From this total, the local renewal agerlcy deducts the disposition price of the land which is sold at the market value for the reuse intended. This yields the Net Project Cost Which is divided between the federal and local government in 2/3—1/3 01‘ 3/4-1/4 shares. 5125 are no i‘zite days of Der 1:41:11: and the E traeiented congef mating apmeil math century. Reminded by th fittization accomp :ties are clear an can: and social antral city. Rapid than: his - .1.e.ents for 1: 1‘1“" n «no. of metropi its? ' adelmeated ir 1 he -VI advantages of ' ““5 diminished C 4e .. ~entra1 city a‘ CHAPTER I HISTORICAL OVERVIEW Urban Trends and Problems Slums are not new to modern society since they have existed from the days of mercantilism in the Middle Ages. With the growing population and the expanding economy in this mercantilist era, unprecedented congestion occurred with the Black Death pestilence eradicating approximately half of the world's urban population in the finuteenth century. Slums are a product of urban existence and have been expanded by the Industrial Revolution and by the rapid period of urbanization accompanying it. The physical blight and decay of central cities are clear and visible as an interrelated complex system of economic and social processes have degraded the functioning of the central city. Rapid changes in technology as well as changing socio-economic requirements for location and space have reoriented the spatial 10cation of metropolitan functions. The spatial location of blight has been delineated in a variety of studies in the twentieth century as the advantages of the central city as a place for work and residence have diminished. In the 19205 Burgess-Parks recognized the decline of the central city and the forthcoming suburbanization trend in their A case 5: c.2132: Street 1:11;; the St. 3.22:9 the or: c: sirlar to 0' 31.31:: Study ‘ tithes, at the 43:3: using c 3-2: areas ."4 This suc italishrent 0: 333mm! age 1 I .‘A . Wye: .r alizatio £1855 to Subur its“ and ti tsuburbia m0] “eWnsive 1a] \ 2 Stand :43), dei’lsed ”00 Or more his“ .1 at 1€ast I h. simplistic concentric zone theory whereby blight would originate in the Central Business District (CBD) and continue outward in concentric zones through time. A case study by the Institute of Urban and Regional Studies at Washington University analyzed historical and economic data on popu- lation in the St. Louis Standard Metropolitan Statistical Area to determine the origins of blight in the central city.2 The findings are similar to other case studies in many major U.S. citie‘s.:5 As the St. Louis Study notes, ". . . population build-up in the older areas, and then, at the developing edge, an expansion and spread of popu- lation running concurrently with a reduction of population in the older areas."4 This succession process was facilitated primarily with the establishment of trolley cars and subways, and the advent of the automotive age with expanded construction of highways. Thus, decentralization of urban functions from the central city occurred as access to suburbia was enhanced. The more recent decline of the raill‘oad and the rapid shift to the trucking mode also made the shift ‘0 Suburbia more attractive as industries needing large amounts of inexpensive land for new capital improvements decentralized. \ 2Standard Metropolitan Statistical Area (SMSA) is an area of study devised by the Bureau of the Budget which includes one city with 5. :000 or more inhabitants and the adjacent and surrounding counties "1th at least 75 per cent of the labor force in nonagricultural occupations. 3The following discussion is based on Congressional Research SerVice, The Central Cit Problem and Urban Renewal Polic (U.S. G"Vernment Printing 53168. February, 19735. P- 3‘4- 4 Ibid., p. 4. The effects a. :3; city land use 1:111:11 {with is ”S I :31: ror exazt. 31:13.5 Cl“. “.35 in 2:211; expansion. I 22:51:11 of land '." 11:;in at that 51‘ i2, nest growth is By the 1970 fissime city 11m: ttes with low inc<- it :ity population. ‘iiscut‘u'ard shift 1 itlies decided th; :Lierhoming, ther 3:10 lower incom Both the fa Fill: and functiona “mil the patterr The effects of growth itself have caused changing functions of central city land use. Kenneth Boulding's first principle of structural growth is that "growth creates form, but form limits growth."5 For example, the existing structure of the developed city restricts changes in land use since there is an economic limit to vertical expansion. And since most central city land is not vacant, conversion of land use tends to necessitate increased development intensity at that site in order to be economically feasible. There- fore, most growth is forced to decentralize. By the 1970 Census, peak density of population in St. Louis had passed the city limits leaving primarily an increasing number of non- whites with low incomes who presently represent approximately half of the city papulation. According to a 1936 City Plan Commission study, this outward shift to suburbia had begun in the 19205 as middle—class families decided that it was cheaper to move rather than to renovate older housing, thereby leaving parts of the central city to filter down to lower income groups and ultimately become abandoned. Both the factors of deterioration due to the age of the physical Plant. and functional economic obsolescence due to changing needs have altered the patterns of city growth from compact, dense land utili- zation. With the need for expansion and rehabilitation, central city land costs rise as a percentage of development cost thereby determining redevelopment to be tmeconomic. Central city property declines in “1‘18 which aggravates the decentralization process. The reasons \ . sLarry S. Bourne, Private Redevelopment of the Central Gm (ChICago: University of Chicago, 19677, pp. 1-2. 3: this pncess “Av"T A..!.d. ' v'bVO Obi for this process of value decline are discussed later under economic theory. According to Bourne, replacement occurred in the central city frequently, especially in downtown areas.6 However, expanded improve- ment and replacement has not occurred during this century primarily because of the need to use the site for more intense usage due to the economics of replacement. Hence, many redevelopment areas tend to be for new high density apartments or offices, producing the necessary effective income for replacement. Besides the increased construction of new highways and increased automobile ownership, the shift to the suburbs was encouraged by the federal government itself with the introduction of the Federal lknming Administration (FHA) and the Veterans Administration (VA). These government agencies effected better terms for financing new suburban development whereby private lenders were guaranteed that their unrtgages would be repaid by the government in case of default. The FHA and VA effectively promoted the growth of suburbia as mortgages were to be guaranteed only in low-risk investment areas. The central city was virtually "red-lined" by the government itself Since FHA considered much central city property a risky economic venture] It is important to note that the St. Louis study also found - . that this exodus occurred befOre the sharp rise of inner city 6Ibid., p. 3. 7"Red-lining" refers to an area slated by an institution for M Public or private activities. :1 ad blight 2'. 1:25:12, be tra; It sees-.5 1 57" 1 "35‘“ Rube ., 9 c ug‘k ed by deTIOE $2111: “in crime and blight had reached its peak of severity, and could not, therefore, be traced to these conditions alone . . ."8 It seems that both the desire to leave undesirable neighbor- hoods and the preference for suburban living have diminished the demand for central city lifestyles. The role of the central city as a source of socio-economic improvement also changed with the ensuing shift from immigration of semi-skilled Europeans to migration of unskilled farm laborers caused by improved agricultural technology. Also, improved industrial technology has decreased the need for additional manpower, especially in the less-skilled trades. Thus, a new breed of city dwellers did not have the same opportunities for upward mobility as the earlier industrial immigrants. Also, the difficulty of discrimination has delayed this upward process, thereby leaving the central city with excesSive numbers of unskilled laborers who are frequently non-white. Except for the major U.S. cities, however, central city residents are primarily white, consisting of large numbers in dependent age groups, both the elderly and the young. The central city, therefore, is populated by demographic groups whose lack of income diminishes the opportunity of rehabilitating the existing housing stock as well as providing for the expanded services needed by a poorer, dependent population. In short, the central city faces increasing expenses and a declining income for the prediCtable future as the property tax diminishes as a source of central city revenue due to increasing blight. 8Congressional Research Service, _p, cit., p. 4. 7.1m is 2-; O 0 ‘-n:O—.n. :e:.rd Jot-v at“. D I . ’.. .0-1 p. OI- ::€.‘ ' do the . . "12.111312 2! Cl . 1.. im ‘- B h l ifThan ‘4 sZES) SEVeI-al 'I if ‘dt d:::‘ a“ Fw-e .“ V o--~. . l ’I.‘-. A. fill" 4"“ “Ema. "’i ’ -J 0'.- -...e3 1‘. La. .."_.. “' .....:_fi', r3.“ .1" .- n n o... s to the 119123331 1'. fftii 3:531; it, :.;r.".a:i:3';1e :cst fiesta-:3 :33} I r: r f‘ . 3 ‘ihv e, livid-ay‘a‘ \' 11:" is the C italth or 51;. mas filth 5 Ldf range OI. theatres, lit I... . ”L Est 1:3,- ‘ . he to t‘r. 51m?“ pr: 1'; . I}, peor ho_ 10 There is an urgent need, therefore, to rehabilitate and to reconstruct central cities. According to Larry Cox, former Assistant Secretary of the Department of Housing and Urban Development (HUD), the restoration of existing areas of urban decay is important for these reasons: If we don't restore and preserve the habitability of our cities we will permit a continuation of the growing social, economic, and racial cleavage that is taking place today between the central cities and the surrounding suburbs in the United States. As industry, commerce, and middle-income whites continue their outward exodus to the suburbs, the poor and the minority groups who are in the central cities face the threat of a degenerating cycle that feeds upon itself until some sections of the city become virtually uninhabitable. This cleavage between city and suburb is one of the most destructive forces at work in America today. A major reason for focusing national attention on the restoration of decayed urban areas is simply that the central city is the core and lifeblood of our metropolitan areas. The health or sickness of the central city directly affects those areas which surround it. The central city permits and sustains a wide range of services, institutions, and activities that might not otherwise be available--medical facilities, universities, theatres, libraries, cultural centers, stadiums, specialty shops, but most importantly, jobs and occupations.9 Suggested Solutions Due to these various factors hindering the redevelopment of cities, several writers since the late 18005 have described many American slum problems, both social and physical. At the turn of the cmntury, poor housing conditions were being publicized by social commentators such as Jacob Riis and Jane Addams. They focused on the physical deterioration of city housing and the negative effects of deteriorated conditions on the slum dwellers, as well as their effects 0D»American society. They were enlightened social commentators 9Larry Cox, "Urban Renewal Experience in the U.S.," HUD (June, 1970), pp. l-16. . - .‘.- .h J. I».‘ ... A .o'--5 0-- a .4 .' _.. -9 “'1' f".‘..v§o I r9 "‘ 0 HA 5..e S“ 'a\¢‘-“ q 0"“ ‘ .; .“‘-“‘ H..'_CSL L4 . n u- “. .5676. due-1 ‘- b'-.bnb‘ e~v‘ . IU‘QtH :.~S 0? ti: axinatelv Si :21. 1' f ~‘ ‘ at) .atili ryealed t -= .enenents h foamsed on at 11 describing the multi-faceted negative ramifications of the Industrial Revolution and its impact on society. An early advocate of housing legislation, Lawrence Veiller, helped write an important piece of local legislation, the New Tenement Law of New York City in 1901. This legislation furthered the cause to study housing conditions by various states and locales whose leading citizens were aroused by the plight of the slum dwellers. A number of locales followed the concept of the New York law which was considered a successful act of housing reform. According to Friedman, a major reason for the success of this tenement law was the nature of the economic opposition. Tenement house reform did not evoke opposition from any major, powerful economic group. To be sure, builders and owners of tenements opposed the passage of the law of 1901, but most of these were small men, not great landlords.10 The New York Law of 1901 was a more sophisticated ordinance than the initial Tenement Law of 1867 since it better realized the social implications of deteriorated units. The Old Tenement Law of 1867 attempted to regulate tenement building by speculators by allowing approximately 90 per cent lot coverage of a 25 by 100 foot lot. Sanitary facilities were included in the rear. The New Law approach of 1901 appealed to health and safety by reducing lot coverage to 70 per cent with wider lots. Also, sanitary facilities were included inside the tenements which included improved dwelling accommodations. The New Law focused on physical attributes, but it also provided a social measure of quality in housing production by stipulating the minimum OLaurence M. Friedman, Government and Slum Housing (Chicago: Rand McNally, 1968), p. 32. a to“ 0“. ,3... ..'-~age Fl 1.". 2:31:11 ‘ .5. Hit: It 116‘ int-- 3-.“.. ; We ' "bo' . 1* '15 easzer 7‘ I" o l_" 0—; A. 3%.; a new“. Z): EF‘p‘ K. ‘ 'A... a § ‘fi ‘ "‘35 .1: 1 :‘Io....‘ . 4..w.¢; 22-3 05‘ ‘. ‘L - .' bale 1“ : I“ Hi +1. ‘3“ Nukes f0: 12 square footage per person, thereby enhancing privacy. Friedman states that "the aim of the privacy provision was to reshape the moral environment of the areas where the poor lived."11 Thus, the corre- lation between housing conditions and individual social improvement seems to have evolved from this conceptual law. Because of the subjectivity of the "old law" approach, Veiller realized the need for an efficient, apolitical administration system with objective rules which were more easily determined.12 The "new law" was easier to interpret on an objective basis especially with the advent of building permits for tenement houses, thereby allowing for a method of enforcement. The Russel Sage Foundation and Veiller furthered the cause for housing reform as they strived for a national concern and a national goal. Passage of the tenement laws, therefore, was primarily due to the influence of enlightened social reformers and the noticeable absence of strong ideological and economic opposition. With the advent of state enabling legislation and local ordinances for planning, zoning, building codes, etc. in the 19205, a new role seemed imminent for the government to focus on the needs of continual renewal and replacement of deteriorated areas. As the Depression damaged the American economy, federal interest and action in housing and slum clearance were started. President Hoover initiated a Conference on Home Building and Home Ownership in 1932 which 111bid., p. 34. 12Urban renewal should also be relegated to an objective approach for analysis of problems and solutions whereby politics can be in the background. However, any astute redeveloper should realize the extreme importance of the political process for successful redevelopment. ' 0%,. “.121 that t... ‘ '.u re. .-l- ‘0'...- ‘J 0.: n v ' l-A' .0 ' 4 III ‘Ioknaa‘ 6.510- In hbzaete Su:él \' 1 :: etinent dona. airy-n“ ;;zted‘di\'ider. t‘5‘-‘?‘)"fi\.ve Yea lspresi {31. XI, Chaptf: 13 concluded that there was a need for large scale redevelopment as an economic stimulus because of the important positive ramifications to the national economy of an expanded construction industry. This Conference defined the differences between "slum" and "blight" saying that a "blighted area" was . . . an area where, due either to the lack of a vitalizing factor, or to the presence of a devitalizing factor, the life of the area has been sapped to such an extent that the area has become an economic liability to the community and has lost its power to change to a condition that is economically sound.13 This definition provided a broader, economic thrust into the analysis of slum conditions describing negative externalities or neighborhood effects which cause deterioration. Whereas "slums" included more sociological characteristics, the definition of ”blight” described more economic ramifications of deterioration such as inefficient land use, obsolete subdivision of undeveloped land, and effects of neighboring decay on rehabilitation. The President's Conference focused on methods of slum clearance using the New York State Housing Law of 1926 as a procedural guideline. This law allowed private redevelopment corporatiOns to have the power of eminent domain to remove blighted conditions and to redevelop according to a locally-approved plan. This corporation would be a limited-dividend redeveloper with a tax abatement provision for 14 twenty-five years. This law was influential in determining the 13President's Conference on Home Building and Home Ownership, Vol. XI, Chapter I. 14Note the similarity of this redevelopment corporation law compared to the 1945 Missouri Redevelopment Corporation Law, Chapter 353, as described in Chapter V. This law has been used extensively in the City of St. Louis by private redevelopers. . v a- . ’9‘ 9- 9"? 41:52.60 ¢‘-—. 5 h; c u A “a. u.. a..-\- s--. 14 important role of private enterprise in redevelopment. Quite obviously, past American laissez-faire economic philosophy set the framework for the role of private enterprise whereby the function of the public sector would act to stimulate private enterprise. This Conference focused on slum clearance problems which centered primarily around the method of financing clearance and the difficulty of land acquisition, since a "public purpose” of clearance was difficult to establish in the courts for application of eminent domain powers. Also regarding acquisition, the concern for relocation was discussed with the conclusion that displacees would improve their conditions through the filtering process. Since the vacancy rate was high in the 19305, the filtering process seemed a feasible approach for relocation purposes.15 The general philosophy of clearance as a means for better physical planning also originated in the Conference, thereby enhancing the role of comprehensive planning. Emphasis was placed on large-scale operations utilizing eminent domain procedures. And replanning would concentrate on the preservation of the central city tax base by incentives for middle-income people who were starting to disperse into suburbia. Another important facet of the Conference delineated a role for slum clearance which has been virtually ignored in legislation, 5In a paper entitled "Redevelopment: A Misfit in the Fifties," in The Future of Cities and Urban Redevelopment, Coleman Woodbury (ed.),7Catherine Bauer states that the initiators of urban redevelop- ment legislation in the latter '405 did not realize the changing housing conditions from the concepts of renewal in the 19305 when the housing supply was high. Rather, the fifties had a severe housing shortage and relocation diminished supply even further, thereby providing reasons for critics of renewal to abolish the program. 11 111333339 S". 90" 1.333;. S' . :1... 2.1;} sheild 3 5:75:15 delineate- .;.a‘;:e centre :5 anther-.1113 The Cenfe e 51: state e? 1:1;1' determine 6 .111 approve the 2151mm were t? teasing displa. “.55 could : 31:. clearance. user public ‘3 «1.1 subsidy. Public land 1‘33. : - «€1.5tlng i.- 35:: 4 - 411011 Which “hated the h Program a; \ 16 I :2 . Presi (‘ C11. \ 15 "slum clearance should be also viewed as a land salvaging operation as well as a direct effort to improve housing."16 Efforts towards replanning, therefbre, should focus on total redevelopment of land uses rather than solely as a means for housing development. Also, land, salvaging should be directed towards future development of vacant land in order to assure properly planned land utilization. Thus, the Con- ference delineated the potential role of slum clearance as a method to revitalize central cities according to proper planning and as a method of strengthening the declining tax base. The Conference proposed a slum clearance program citing the need for state enabling legislation to create a special authority which would determine equitable compensation for land acqusition and which would approve the final plan. The two major obstacles to slum clearance were the costs involved and the legal difficulties of rehousing displacees on the same site since any subsidized program for rehousing could not legally utilize another subsidized program such as slum clearance. In other words, there were legal questions regarding whether public housing could be used on slum clearance land due to the double subsidy. The American legal system authorized that compensation for public land acquisition be set at the present market value of land with existing improvements, compared to the British system of com- pensation which paid according to the land reuse appraisal which reflected the highest and best use of the land. In comparison, any U.S. program appeared excessively costly. 16 pp, cit. President's Conference on Home Building and Home Ownership, ‘u.4V~-- .L .. 3.3.“..6 en {a a 1, .1 .i, u‘o o Ccngre IT‘F‘» ‘ r N“ pro‘ht‘. :0 ‘ It :3 tue Fur? ‘ A“ 161035“. 18‘. 51' priva‘. :55: t0 the 1 '1‘” 0.. ‘ . r "0...: up .‘-I budUbu f;:;;:gs 3?. .~ ~‘IO ,. ...f butt-1:1. . . \‘FF On." ‘O.o¥ ‘ -- ’ 9 Ger: .3; . . 'e'flibbv ~A“ . I. ""f-- A L ‘Vveevg“‘ ’0 \ :IUO‘. “e..d-_ 13,.“- p' L I .'-‘-.‘ b‘5e at e . ‘aue ..‘ 9.-....‘ -n y- ‘ uon {.A ‘ ‘1'. “g ""‘No .1. u v- _ a .00.. ‘1’.-. o..--.e D‘vkl‘ a." eu- Og .h ~- w ...e u: .' ‘ A. brie ; ‘terp wise the»: h. I 1 A A ‘h ”I. :-. Ne.yd5u “he“ 16 Although the Conference discussion was economically conservative regarding the proper functioning of the market system, the summary of the findings on slums and blighted areas shifted to the potential role for the government: Since the public neglect and a variety of other causes have produced blighted areas and slums in our cities which have become an economic liability and where conditions of living have become a social menace the need is clearly indicated for measures which go beyond the home dweller to the community. This may involve either demolition of individual dwellings in case their reconditioning should not prove feasible or complete demolition of buildings on entire blocks, the replanning of the area as an entity and in rela- tion to the surrounding areas, and its rebuilding in accordance with its best usefulness to the community. Unless this problem can be met by private enterprise, there should be public participation at least to the extent of the exercise of the power of eminent domain. If the interest of business groups cannot be aroused to the point where they will work out a satisfactory solution of these problems through adequate measures of equity financing and large—scale operations, a further exercise of some form of governmental power may be necessary in order to prevent these slums from resulting in serious detriment to the health and character of our citizens.17 The importance of these words were reflected that same year as . . . Congress enacted the Emergency Relief and Construction Act, which provided, among other things, for the making of loans by the Reconstruction Finance Corporation to corporations formed wholly for the purpose of providing housing for families of low income, or for reconstruction of slum areas.18 This program under the Public Works Administration was succeeded by the U.S. Housing Act of 1937 which established a low-rent public housing program. Among the stated purposes of the '37 Act are the elimination of unsafe and unsanitary housing conditions; the eradication of slums; the provision of decent, safe, and sanitary dwellings for families of low income; and the reduction of unemployment and the stimulation of 17Ibid., Summary Chapter. 18Congressional Research Service, pp, cit., p. 153. ,. 0...... vi'"<‘ a. 'V ' .. ..... iv. 0" ' , - ‘...‘. O'u-Q e-y Jun... we.“ 5» t o .n-o‘- .1..»€¢e:‘, a S l " h. - - “ '2 .. 3‘ 73.3.9... “‘-I 004‘ :-'.A05 1"... was a: .,.:... , «L . ~-~oé )g“ as 1' '~. awarei' aaézcugh t :Llapse of Eféaitting °§T.asized 1 13333363011 :l 1731?; 01' t} Eliat it atpil 1331 tendin .i the Cities a A cont: I l . '3‘1 A 1‘. « life t ,. , Mil .E‘RLUW Fmd, 17 business activity. An equivalent elimination provision of the Act required that for every unit of low-rent public housing to be provided in a locality, a substandard unit in the local political jurisdiction was to be removed. This Act was proposed on primarily economic grounds and was an outgrowth of other New Deal legislation focusing on housing such as the advent of the Federal Housing Administration in 1934 and the introduction of greenbelt towns. The institutional system was prepared, therefore, for a national commitment to the national goals of public housing and slum clearance. Miles Colean stated in 1953 that by the late 19305 an . . . awareness of the real problems of cities, however, did not reach much beyond the pioneer thinkers, until the economic collapse of the 1930's provided the first real break in the hitherto unremitting rate of urban expansion. The Depression vividly emphasized that urban deterioration was not merely a transitory phenomenon of immigration and city growth to be cured by more growth or the intervention of philanthropic enterprise, but rather that it appeared to be a permanent characteristic of cities, in fact tending to expand instead of to contract or disappear as the cities grew. 9 A continuing process of renewal seemed destined as a way of American life to preserve and to redevelop city structures. 19Miles Colean, Renewing Our Citi§§_(New York: The Twentieth Century Fund, 1953), p. 27. 1.233315: CCEST to: . " . 4:233:13“ 0 ‘9‘. . .....;€xf.8d 3 PK FJP'B‘A‘. . 1‘0- ‘ruent' The 'ul‘p A I: tactically abs mention to the .e Baiting - seeing slum 3C' in outlyir. \l 20 I :35; 4 l . CZ $911111 811116 ”"1: p: 42. I CHAPTER II THE URBAN RENEWAL PROGRAM Legislative Intent Realizing the difficulty of eradicating blight and redeveloping slum areas, Congressional debate throughout the latter '405 focused on the preparation of a national housing policy. In 1945-1946, the Senate Subcommittee on Housing and Urban Redevelopment of the Committee on Banking and Currency headed by Senator Robert Taft of Ohio recommended a program of federal financial assistance for urban redevelopment. The Subcommittee Report stated: The purpose of any special aid in urban redevelopment should be to permit a revaluing of the land at an amount compatible with the way in which it is to be redeveloped, thus avoiding the necessity of using land in ways that are dictated by current prices.2 The Subcommittee also stated that prospective redevelopers could not economically absorb the loss on land assembly, thereby directing attention to the need for a subsidy by a writedown in land cost. The Senate Banking and Currency Committee cited that the high prices of acquiring slum property hindered massive redevelopment especially since land in outlying areas is less expensive. Also, difficulty of assembly 20M. Carter McFarland, The Challenge of urban Renewal, Technical Bulletin #34 (Washington, D.C.: Urban Land Institute, 1958), p. 42. 18 ’ ‘ V w. o ”A . tan—p, '.'o: .UvE'e‘ir ----- . -eO‘ p-... e ,3 :4" vvflbve J ‘ 1 . av’o .— . w. 0 . ' ---e '4 lav . a. "m a taxate Of 5. 3.- .. _ r ‘ .D -. Q I Q I : '" “'Haentav ‘ o' 3:12:15 or of. 1;. : u . '“I. ‘0‘ he ~L . .‘ u A 61. 1:: rang viehpoir 1.2. tor acre 5 "“3335 for re “42:13:: and si f0? EEdeI-a' I In 1945 “muted Tr "‘13 hOusing “4" 453a te, the :23 t 1 raft-Enema I": - t highly fa‘u'i 19 due to hold-outs by individual property owners has aggravated large- scale redevelopment which could offer economic feasibility. The Senate Committee also determined that subsidies would be needed in order to allow for sound redevelopment schemes which would prevent the recurrence of slum conditions. Economics frequently thrust redevelop- ment towards increased intensity of land use, a result which might not be socially beneficial. For example, in order to recoup the investment in the acquisition of blighted properties and their clearance, land would frequently become more intensely developed for high-density apartments or office development. Although economics determined the need for high intensity, these uses may not be desirable from a planning viewpoint. The subsidy of the writedown, therefore, could allow for more socially beneficial redevelopment by improving the economics for reuse. Since state and local financial conditions were deficient and since urban decay was a national economic concern, the role for federal funding was ultimately determined. In 1945, three Senators introduced a national housing bill that incorporated Truman's program with provisions including expansion of public housing and extensive aid to redevelopment. During four years of debate, the House Banking and Currency Committee continually kept the Taft-Ellender-Wagner Housing Bill from the floor although the bill was highly favored by the Senate. The debate centered on the public housing provision which was condemned profusely by the real estate lobby, savings and loan institutions, and the U.S. Chamber of Commerce for the alleged socialistic interference into the private residential market. Following a highly political battle over the "socialistic" aspects of the public housing provisions of the bill, passage of the 12:31.0: of 1} Q '“ fl ;-. IfI'H ‘- ":'P ”50*.I-6 H ... ' r. H! :3; m: o-L r4 ’Q'l-uy o “:.. \ nus-IEACPEr'S at “‘1'. “not be 1 iii-In 1 . “dtfmms ‘am' The 10c 1m: Ihb‘t SUCh as INVOI. This n 20 Housing Act of 1949 provided the first omnibus housing program in the U.S., including Title I of this Act which authorized the "urban redevelopment" program. With amendments in the 1954 Housing Act to include rehabilitation and conservation, the total physical process known as "urban renewal" was established. This procedure provided federal funds to local renewal commissions as authorized under state enabling legislation. Under state enabling legislation, local authorities act with the power of eminent domain to acquire blighted property as determined by the local council at current market value, to aid in relocation, to remove or rehabilitate the existing improvements, to improve the site, then to resell the cleared land to private redevelopers at the market value for the reuse intended. Since the land cannot be assembled and cleared economically by private enterprise, federal fUnds are shared with local funds on a 2/3-1/3 or 3/4-1/4 ratio. The local share can be in part or in whble a local non-cash credit such as the cost of improvements in the area such as a new school. This non-cash credit opportunity acts as an inducement to coordinate improvement programs in a renewal area through capital outlays rather than merely matching with cash. Since the gross project cost of these activities by the renewal authority is greater than the diSposition price of the land to private developers, it is reasoned that this writedown procedure is needed as an inducement for private enterprise to redevelop blighted areas. By this principle, public authority and money is being used to achieve a private reuse of urban land. However, contrary to the general view of the writedown as an inducement, Fred Kramer stated: ”3-? Pei? '1: may coy gues a 3:84. ' . one. o O" —...a. on b- - {nae I-oo .vvb no ’ I 0 cs. k” use V“w-‘- v “3"8 V-C‘v S ccccc Ur ‘—.’. . ...-.'. .',. . "O:" S‘s._‘ I. .;---. “£O?O:.‘do . we... 5 '_ - 3..“ V 3a.. 5" . Oh Oh ., in 5.. e .- .l A F'- OI O A‘u\e V - i . ‘ ‘Aes ‘. V n e Eff." 5.. ‘1‘" ‘ ~L \ R n ‘w'5 revyi . -n."< AC A 1 ...~ V‘ “0‘ o 21 $151.51 I. re d I 22 CODE 21 Many peOple believe that the formula of selling land at 50¢, which may cost the clearance agency as much as $3 a square foot, gives a great subsidy to the developer. Actually it does no such thing. In the case of the N.Y. Life proposal in Chicago, 50¢ a square foot amounts to approximately $25,000 an acre. Prudential Life purchased 40 acres of vacant land further out, with far superior improvements, at $6,000 an acre. . . . Far from being a lavish subsidy, the writedown on the land alone is relatively insignificant in the total cost of the building. One housing development in Chicago now going up on the finest site in the city, facing Lake Shore Drive and Lake Michigan, represents a land cost ratio of only 12 per cent of the total deve10pment cost. A write- down in the cost of land, while essential, will not go far enough to induce private redevelopment on a scale to recall armies of families from the suburbs. 1 The economic and social stake in the central city is greater than most people realize as financial institutions hold tens of billions of dollars of mortgages and bonds secured by central city residential and business properties, and by private and public utili- ties. Continued central city deterioration will lead to the devaluation of these assets, with serious repercussions within the financial structure of the nation. An accounting of such vast public and private capital investments would demonstrate forcefully the benefits of the continued full utilization of this infrastructure. The lack of a viable program to assure the continued use of these valuable infrastructures would in all likelihood lead to abandonment or drastic devaluation. . . . To the extent that the infrastructure has a useful remaining life, it represents a form of in—place wealth. Its replacement elsewhere requires duplication of existing facilities and a needless waste of scarce resources. A pragram of expenditure that preserves its full usefulness would result in a net gain to society.22 21Fred Kramer, "The Role of Private Enterprise in Urban Redevelopment," The Mortgage Banker (October, 1950). 2Congressional Research Service, 22: cit., p. 19. 4113.". It. 241:: trivate 1:63? vaaes. "' " -s O» 12.. e‘mcu 5. 22:73.2; rezeve. '33.;5 frantic: i::.;.ficy crite: :1:;e re L.‘.:&‘.;cn cf 1;. ":‘Y! PA. , ' ~ - 9111C}. zero-11:). is “5131 Dene: The gen f w l“ . . 35:63.15 are _ .135, One HdSt 1 if"- 'L, . u. we prlvatf e' ‘ -ne '1 united S: 1 ‘- ...ltlent YeSou: 1' lfidiyid ' Individv. Profitsi 22 Economic Rationale urban renewal is economically based primarily on the factor that the private market has not functioned properly regarding urban jprOperty values. The following economic analysis will focus on the 'basic economic theory which determines the role of the public sector regarding redevelopment. The urban economist judges proposed solutions via this framework which describes the distinctions between equity and efficiency criteria. Since resources are not unlimited, society must determine the allocation of these limited resources towards alternative uses. Briefly, . . . efficient allocation of resources to the production of a commodity is said to be that allocation which maximizes the net social benefits from production and consumption of that commodity.23 The general rule for efficient allocation of resources to the production and consumption of one commodity states that net social benefits are maximized where social benefits = social costs.24 Thus, one must look at all commodities produced and consumed within both the private and public sectors to determine economic efficiency. In the United States the decentralized private market system determines efficient resource allocation when all of these conditions are met:25 1. individual consumers maximize their private benefits 2. individual producers maximize their net private benefits or profits 3. as a result of l and 2, net social benefits are maximized. 23Arthur F. SChreiber, Paul K. Gatons, and Richard B. Clemmer, Economics of Urban_£roblems: An Introduction (Boston: Houghton Mifflin Company, 1971), p. 16. 24Ibid., p. 22. 2SIbid., p. 24. n .I l .I I o. h ,. .. 3.....5-3‘ “." 9-; - up .1 - - 'Il“.-tb': lid .- 3333. . ..,.' -- - n . L233: COS: C.’ ‘9. . ‘ “"‘ier 15;:e. firth . ‘ nha'.}’ .3, r.“ :":'e:§¢ """ “.5 are Regariir ’"l‘ "$31133 of r "'1: g‘dara litiln a 81' benefits of problem of I in Slum an 5? justifis ‘99 problev mm 311812 mitt fa: .“A‘ ‘ ~~.‘.img to g galSallocati: 4,.Or Pottion F Minty, {QC .0» “1 Planner “I: "allocation m..... 23 waever, this is a utopian goal since the private markbt fails to efficiently allocate resources because consumers and producers do not consider all of the costs and benefits connected with their private production and consumption. Externalities, sometimes referred to as ”spillover or neighbor- hood effects," alter this efficiency criterion. An externality is an indirect cost or benefit not accruing to the private consumer or producer alone. Inevitably, certain benefits and costs spill over to society, and, net social benefits are not maximized since indirect costs or benefits are excluded by private resource allocation decisions. Regarding urban renewal and its relationship to efficient allocation of resources, urban renewal . . . guarantees simultaneous improvement of adjacent properties within a given slum area in order to capture most of the indirect benefits of investment. Area wide redevelopment overcomes the problem of externalities which prevents individual property owners in slum areas from improving housing. Urban renewal projects can be justified on grounds of efficiency if this method of handling the problem of externalities results in larger net social benefits than alternative programs designed to handle this form of housing markbt failure.26 According to Schreiber, the present financing of urban renewal acts as a misallocation of resources since the federal government provides a major portion of the funding. If benefits accrue only to the locality, federal subsidy cannot be economically justified. Since local planners compare only their local costs to social benefits, a misallocation nationally can occur. Schreiber maintains that, in order for federal expenditures to be used for local renewal according to economic theory, a national purpose must be demonstrated whereby 26Ibid., p. 76. 221115 at: 12.. ‘ ‘. ‘1 o'p inbtlbaot)" Nee "*“V‘e'ec' 1 .‘5- vouno. e 5‘: 111115 31-21.: 2335:3113: a:;_ ”-3- is .Lcse h”"‘ 5.. ._ . . I . : _:er can 122.: the feaer I‘" ‘1' ‘ .- ‘sm: ‘euOC‘t‘or‘ we. ‘ . n ‘I‘ ‘I 37-. .ecret. 3:1;16315 of t: Another 2:3: is the e 24 benefits are accrued nationally and not merely to the locale. Politically, the Housing Act of 1949 and the many subsequent amendments have considered the renewal of cities as a national concern. And the 1974 omnibus housing bills consider the federal interest of the preservation and renewal of cities to be an even greater national concern as these pending bills could boost federal sharing from 66 2/3 per cent to 90 or even 100 per cent. Political decisions might expand the federal role, although economic philosophy might not justify this allocation of resources. In order to determine economic justifi- cation, theoreticians of economics must determine who are to be the recipients of the benefits of renewal. Another economic determination of the role of the public sector is the equity of a government program since it alters the distribution of income. Equity implies a fair distribution of income which is determined by a fair balance of costs and benefits. These tend to be value judgments which yield political decisions. From an equity standpoint, urban renewal benefits have frequently not improved the well-being of slum dwellers. If slum dwellers are not provided adequate housing at affordable costs and if the psychological dilemmas of renewal are not adequately remunerated, then the equity problem arises. And if increased demand for lower-cost housing occurs without increased supply, rentals may rise generating doubling-up which ultimately accelerates slum creation thereby increasing the costs of renewal. For renewal to be more equitable, the renewal effort must pursue the most net benefits. For example, this equity principle could require the need fer further assistance via improved redistri- bution of social, physical, and economic factors to the slum dweller f"..3.'.3 CI in 1' >I< ‘1 . t 1 2:372.) 13': 5?. ‘11....b .0; \r .nwt.ov.bcv 0 «112115 “rug H...‘ -A' H ' w) a..: - ”wig“ ‘ ‘i..,§ fi.‘pn. '- n.»h ‘HL U . '~..-?'::sa:s of 1: : ‘ an 23:.» "1b.. ‘- ..1 S SUD-“Ad 31E: a1 ‘area .1 'I ‘ v ." \‘R. N; c 68., "T1. :23?“ A. i4 .‘ “Ia .153... C AHal 25 by means of an income maintenance program. In addition to the land assembly and writedown provisions of renewal, a need for equitable redistribution policies is also mandatory for the provision of the most net benefits. The problems which determine the need for urban renewal are similar to most urban problems which are due to either a mis- allocation of scarce resources or an inequitable distribution of income. Arguments for Public Assistance Various arguments have been used applying this framework of efficiency and equity in order to justify public expenditure in the: redevelopment of blighted areas. According to A. H. Schaaf, most appraisals of renewal lack an overall evaluation of its effects. Since federal subsidies are involved, he states that the final net effects should be analyzed on an inter-city basis, not just in the renewal area, the city proper, or in the metropolitan area. According to Schaaf, "The publicly assisted renewal program represents a mis- allocation of resources by the yardstick of the private market."27 Schaaf's arguments are similar to Schreiber's description of renewal as being inefficient due to the involvement of federal expenditures. Schaaf cites the need for an analysis of inter-city net effects in order to determine the national scope of the problem, thereby justi- fying federal expenditures. If the property value after renewal is greater than the property value before plus the cost of undertaking renewal, the 27A. H. Schaaf, "Public Policies In Urban Renewal: An Economic Analysis of Justification and Effects," Land Economics, XL (February, 1964), p. 68. 1:222 mitt h. .2215 less :1. :12'.‘e:e:.°.s , 1.“. 11225115 to I've- q: i “‘- 4': a 02243 '4 u . . e 1.21.13) 13C if Jrezehal stir“ Hal acts as Eli‘ e. fi~¢S.gC Oxuer 3.339. ~53:th a1te A '6-1, "B. estate in‘\ 26 private market will operate efficiently. But if the post-renewal value is less than the cost of acquisition, clearance, and new improvements, then public intervention is necessary to make redevelop- ment profitable. According to the private market theory, therefore, the benefits to be gained by private renewal are normally less than the costs of obtaining them. Schaaf has determined that using public authority and writedown to provide profitable benefits is a mis- allocation of resources, but it might be justifiable in the short-run if renewal stimulates better allocation of scarce urban sites and if renewal acts as a catalyst to further private investment. This is a simplistic overview of determining whether private investment will take place. One must realize that this basic description only looks at the investment opportunity in real estate and totally ignores other investment alternatives which could yield greater returns. Accordingly, real estate investment must be weighed in regard to all other financial investment opportunities. Schaaf presents five general arguments potentially justifying the use of public authority and assistance to instigate and sustain this misallocation: 1. There is no misallocation of funds since market measured Q15 exceed market measured costs , but market imperfections or emifinalitieSJrevent private action. This concept of market imper— fe“-tions recognizes the difficulty of land assembly due to hold-outs and the need for the power of eminent domain in order to produce an e‘imlomically viable development. If only market imperfections PNVail, only then can eminent domain be used if renewal can be Profitable. In this instance, Schaaf states that the economics for 9.2.1:? :t is :2: 2121.113: 112211222111 '15 12511.: mine}; 3. Pt: 1 1.51233: ~‘ 1 . 1A n 11:33, 1': 9‘ 2’ :t-reze'a'al 11?" 2:11:11; matte: :25 .101 repres erred alloca fistifies the 11 many profit taxable mm 12111:: and re 3. T: renewal th t 6' mestment 3a:j fiaaf Wen c Elder“ a so. 27 redevelopment is present, but market imperfections such as hold-outs render redeve10pment impossible. Therefore, public authority of eminent domain is justifiable although the writedown is not needed for feasible redevelopment. 2. Publicly-assisted renewal does improve the private market gllocation of land resources with a corresponding increase in land yalues, and that the failure of the private market to operate is solely; the'value of_pre-renewal efforts. The subsidy can, therefore, clear Inc-renewal improvements, or blight, which have been determined socially unacceptable. The destruction of pre-renewal improvements does not represent a waste of socially valuable resources. Rather, an improved allocation of land resources to the highest and best use justifies the need for public assistance since clearance is not normally profitable by private enterprise compared to the cost of available vacant land which does not have blighted properties to a<=<1uire and remove. 3. There may bewgains in land utilization resultingvfrom mufial that do not enter the private market's calculations of ‘inVestment gains and losses. For example, what are the effects of the s"cial costs of noise, pollution, and other negative externalities? Schaaf even cites that the forced dispersal of Negroes might be con- Sidfired a social benefit by possibly speeding racial integration, although this apparently has not occurred. 4. Publiclyjassisted renewal could increase the rate of 1is'Ldential and non-residential capital formation. Effects on the aEgregate stock, the total number of different types of structures Within a designated area, should be the basic concern as well as .,..3 ref“: ‘ {135-15 at 1‘8 nu £8115" ‘ 2;, .: 3'1 3 ~" :51: site. 1’ {I .: 111' ."-.CL 111:: :ecessar 212:: 10? "CC 22:255. Eccn; mete if 535: :fitably. A; ":‘istic 3313 s. P 1'61:th 353 :ri.g, these Filic purchas “Suing pre-I ‘eital losses lielosses of fariated Na EC"sing 111 th :‘T‘P: erties fc til-h were 1 i: th argume: 28 whether renewal capital would have been invested elsewhere. This analysis of the aggregate stock does not seem necessary if vacancy rates are high in a metropolitan area. Also, aggregates should be analyzed on a metro-scale and not merely on the city proper or on the renewal site. Presently, the 1969 Weicker Amndment requires replace- ment of any housing lost under renewal if the vacancy rate is too low, but not necessarily in the renewal area per se which indicates that concern for local aggregates has been included in the present renewal process. Economists frequently describe the use of renewal dollars as a waste if such capital would have been invested elsewhere more profitably. Again, the social costs have to be included in this Simplistic analysis of mere cash outlay. 5. Publiclyyassisted renewal can act as an adjunct to other Mlic policies that do improve theflegte residential and non- risidential capital stock. If this replacement becomes a social Objective as a redistributive process such as the provision of low-cost h"-‘PuSing, these points can be advanced to justify renewal. First, Public purchase and clearance is an efficient and equitable method of remOving pro-renewal structures by permitting social absorption of caPital losses. However, this concept really makes the public absorb the losses of slum owners. This social absorption of slum properties infuriated Nathan Strauss, former federal commissioner of public hmlsingin the 405, who felt that the real estate interests bled the pr°Perties for profit and then wanted society to purchase the slums which were illegally abusing the building code. A second point of the fifth argument to justify public assistance is that clearance may :P.‘ .111 of a. Sciaaf .. :2 rather 1:13;. 2111;: it use fine-renewal I .. , ., 5- ,__. H' 1 r) ‘: 29 provide an impetus for other public policies to directly increase the real value of aggregate land improvements. Schaaf concludes that arguments for public subsidy of renewal are rather inadequate and that market imperfections, per se, do not justify the use of subsidy, although eminent domain may be used. Even if pre-renewal structures are socially worthless, the post-renewal uses probably do not represent an improved allocation of scarce urban sites. On the other hand, the program may be justified as providing a vehicle for achieving social benefits of changing the locations of land use which cannot be achieved by the private market. For instance, if industry hiring semi—skilled central city reSidents is forced to locate in suburbia due to the unprofitability of central city capital improvements, the social benefit of locating near the labor force might justify public subsidy. Lastly, the renewal program may be a first step in city rebuilding by acting as a catalyst although it may appear inefficient and wasteful in initial dollar terms. Another analysis of market imperfections has been described by Jerome Rothenburg. He cites that those economic theoriests who state that the filtering process represents an orderly equilibrium market re$130nse to normal demand and supply do not take into consideration that dilapidation and unsanitary conditions "are not an optimizing 28 resPonse to normal market forces." This approach rebukes those denlilgogues such as Martin Anderson, author of The Federal Bulldozer, 28Jerome Rothenburg, Economic Evaluation of Urban Renewal (Washington, D.C.: The Brooking's Institution, 1967), p. 3 . n: it: to via; 2:23:25: a.c.' Thgs, s areas. " £35-21- biases inadve: 3- Ice f1; ' s 50:; . 30 who want to wait for slums to be profitable to redevelop by private enterprise alone. Thus, suboptimal resource use may exist whereby: 1. There are important "neighborhood effect" externalities in land use. These are likely to be especially significant in slum areas. 2. The profitability incentives to produce the particular type of low-quality housing that characterizes slums rest upon market biases that are either ethically disapproved or are the inadvertant result of public policies. 3. The functioning of slums entails the creation of important social costs that are externalities to the people involved.29 The Prisoner's Dilemma Regarding investment alternatives as a hindrance to redevelop- ment, Davis and Whinston state that it is sometimes economically more desirable for an individual to let his property deteriorate rather than maintain it since the surrounding neighborhood's externalities may be a negative influence. Davis and Whinston's "prisoner's dilemma" appmoach describes why a rational owner may be unwilling to redevelop. For eXample, assume a neighborhood of two adjacent apartment bUildings of the same age and deteriorating condition. Each owner has enOugh capital to rehabilitate, or to clear and improve. Presently each owner has this capital invested in bonds such that each owner receives a 5 per cent return from the apartment building and the bonds. If both investors sold their bonds, cleared the land, and built .a new aPal‘tment, each could earn a 7 per cent return. However, the rate of return depends on each other's actions. If Owner #1 invests in renewal and Owner #2 does not, Owner #1 will only achieve a return of S'Per’cent while Owner #2 obtains a 10 per cent return due to the \ 29Ibid. . o I ’ ’fl .1” . ‘5, sue I w: ~~“ 3:. c, A ““5 Lo: e... “f‘ C ‘ A u. o .‘5. r‘ C trierehpaent . Host 0 353‘5enefit a :3 5'3». f‘ht in u. In a detefifilne gox'emmer mine the SCCtors. :56 Val‘lab l e \' 31 adjacent improvements. Due to Owner #l's improvements, Owner #2 can raise rents, thereby increasing his rate of return. However, Owner #1 cannot raise his rents excessively because of the adjacent blighting influence. This example shows the difficulty of coordinating two investment decisions. The greater the number of property owners, therefore, the more difficult that coordinated action will occur, especially considering the possibility of a small slumlord holding-out finra high price or for a gain from the beneficial adjacent develop- nwnt. The "prisoner's dilemma" shows why government assistance, especially the power of eminent domain, is necessary for private redevelopment.30 Cost—Benefit Analysis Most of these economic analyses, therefore, require an adequate cost-benefit analysis in order to evaluate alternative actions. Such analysis can aid in determining the amount of expenditure which could be Spent in urban renewal according to those projects which appear fe85ible. In a broader perspective, cost-benefit analysis can help determine how resources should be allocated among agencies of the government; and, in its broadest perspective, it can help deter- mine the allocation of resources between the public and private sectors.31 Although cost-benefit is not a refined tool of analysis since many of the variables cannot be given in economic value, it will give \ I 3oOtto Davis and Andrew B. Whinston, "The Economics of Urban Egnewal," Law and Contemporary Problems, XXVI (Winter, 1961), pp. 105- slschreiber, Gatons, and Clemmer, op, cit., pp. 38-39. .. ‘1 o - £415: .3 L921: .71 3:22:33. 1:21;: benefit 'u :“g‘ ’ v r ) ' I —-'———‘— —-_—_—-— . > I :— m- -’ v. . . I I Y ' — —_ _- — — — _ — 32 decision-makers a better grasp in understanding the economic ramifi- cations of alternative programs. Although benefits cannot be totally equated in terms of dollar values, political decisions can be improved by a determination of the benefits accrued by renewal. Although this thesis does not include the technicalities of a cost-benefit analysis, one should realize that cost-benefit analyses can'be geared to different perspectives such as the city, the private investor, or society in general. Any cost-benefit analysis should focus on total benefits, and not merely on one perspective, such as improve- ment of the tax base. Land Use Successign_ Land use succession is the market process whereby non-publicly aided redevelopment occurs. This process was described by Schaaf as he points out that if the property value after renewal is greater than the value before renewal, then redevelopment or land use succession Would ultimately occur. Profitable land use succession either intensifies the land usage such as from single-family to multi-family, or else a change in land use occurs which yields higher returns due t0 the marketability of the newer use. As described by Whipple, land use Succession occurs due to supply-demand market forces, whereas redevelopment is induced by non-market forces such as public action.32 suecession activity has occurred in various areas such as adjacent to ”he (:80 where large parcels under single ownership prevail, around \ 32R. T. M. Whipple, Urban Renewal and the Private Investor (Sydney: West Publishing Corporation Pty. Ltd” 1 , pp. -33. sycct. ‘Q‘Q ..‘-o-.D div:~ 2; 217.6? 3:93; . .‘I‘CI' J“. a... 33 transit stops where increased land use intensity allows greater return, and other areas where the return is sufficient for redevelopment. Bourne cites that buildings, as well as land, go through a continuous cycle of change with age and pressures for reuse. After initial development, real estate normally increases in value followed by a long-term of maintenance and beginning deterioration which can lend itself to building modifications. This occurred during the 19305 with a substantial conversion, nationally, of single-family dwellings to multiple-use. The cycle, ultimately, is completed by replacement of individual buildings, thereby renewing portions of cities. Thus, central city redevelopment is related directly to the progressive replacement of individual structures. However, certain structures do not necessarily need replacement if they are not functionally obsolete such as historical buildings and areas which are still in demand. 'nieoretically, those areas and structures which are undesirable by consumer tastes and needs should enter the replacement phase.:53 Miles COlean states that this is a continuous process which depicts physical rBTOWth and change.34 Thus, the recent phenomenon of abandonment illustrates this cycle to the complete unprofitability and undesirabil- ity of individual structures. Age, obsolescence, and growth predict that large areas of cewrtral cities are becoming deteriorated. "The problem is not that such 33Bourne, pp: cit., p. 5. 34Colean, op: cit. 22:;er €115 _ 1:: that (a: hint: 113125 iifflt', 113.12: are 't “2312;“. :- ‘r‘l‘ h‘ ““ve. an.- EU Olay‘ \. :7"an 35 em I . mire ~ , 'o ltd uses, 5 .531 ”mu gutting“ '1 ticket in EC The :31 of muc “new frc 4:. ‘ ,. “’Cbsed 1 \ 35. 36 34 conditions exist, because this is inevitable in a changing society, but rather that they persist."35 Another element of analysis in the succession of land uses relates directly to the nature of real estate and real prOperty. Their qualities are both durable and immobile.36 This durability of real estate is relatively fixed considering the minimal 50-year life span of a structure. Rather than to replace existing units, new construction tends to increase supply; and removal and replacement occurs primarily because of external economic pressures rather than of deterioration. Another important factor in succession is the fixed location, or immobility of real estate. The adjacent environment, therefore, has an immense effect on the value of immobile real estate. Diversity of ownership and legal restrictions also characterize the real estate market. For instance, zoning has an effect on the supply of various land uses. So, immobility, durability, diversity of ownership, and legal constraints resemble a perfect model of supply and demand, and government intervention should theoretically relate to this perfect market in economic analysis. The Development-Redevelopment Continuum The economic theories discussed earlier have been the prime foe]: of much urban research. Rather than producing a theory of re“ewel from a spatial-time relationship, urban researchers have disCussed the philoSOphical role of both why the private market has \ 35Bourne, .1' cit . “Ibid., p. 24. 332-355 of : Sgatial- 15:43:13.: t}: iii :‘eszribe 1 2 sun-mac: :fi:=:.:‘.a1 ee iii: ether f asgatial-time Ttars ‘I‘C‘Jld Sh :51“ Shortag estate analys1 7:55 3f mimic 35 failed to redevelop and what the role of the public sector should be to alleviate this failure. Little analysis has been derived considering the process of change in the structure of the city over time. Spatial-time analysis can depict the innumerable factors which describe the types and locations of new construction. These factors would describe the historical changes in space needs for various uses, in socio-economic factors which affect the types of structures built, in financial mechanisms)employed in rehabilitation or new construction, and in other factors hindering or inducing development. For example, a Spatial-time analysis of commercial development over the past twenty years would show rapid changes in socio-economic factors. Strip- commercial rapidly became obsolete with the advent of community shopping centers. Then the regional shopping center has made the earlier community centers virtually obsolete. And with the apparent energy shortage and with the desire for planned unit developments, real estate analysts are predicting new life for strip-commercial and the rise of mini-malls. In just twenty years, these changes have produced enormous changes in the physical plant of the city which should be analyzed for the continuous process of renewal. As Wingo comments, the physical plant . . . represents a large proportion of the total wealth of a nation, and the flows of investment induced by its growth and change are a significant fraction of our GNP.37 Bourne has described his concept of this continuous spatial- time analysis as "the development-redevelopment continuum." As a growth process, development and redevelopment may be thought of as a spatial continuum, extending from redevelopment 371bid., p. 14. .D-v ' . r ““1 z £.m: . 5e _:r::ess c: i: 1h :23: fringe. A: innit): i: riative ;: szeaiilf 0..I 12.1: ':e:o:e I L”. new cc: t-eer. ting stability.- 3 a cum-6' melon z”457510;“;ent 3:35-95“ that, :11. However istcess 5 the“ centrz iii: 36 in the central areas of cities to new development on the suburban fringe. At the central end of the continuum, all building activity involves the replacement of one structure by another. The relative proportion of new construction thus classified'deClines steadily outward from the center as densities decline and vacant land becomes more widespread. At the opposite end of the continuum, all new construction takes place on vacant or agricultural land. Between these two extremes are areas of relative structural stability.38 Thus, a metropolitan approach links suburban and central growth in the same process of investment alternatives. This process relates the spatial dimension from the city center such that construction activity occurs primarily in the center and in the suburbs. Non-public redevelopment normally occurs in the central core rather than acting as a function of age and obsolescence which would theoretically yield redevelopment spreading from the core over time. The continuum suggests that, over time, redevelopment will occur spreading from the core. However, present core revitalization is not the beginning of this process since economics of redevelopment is enhanced in the core, whereas central city redevelopment is infeasible. Bourne suggests that this geographical importance of the center and the periphery is a matter of economic gradient analysis which describes the economic importance of these two extreme locations. This continuum framework, therefore, should provide a method for understanding urban growth and redevelopment over time. Besides focusing on economic philosophy to rationalize the roles of public and private enterprise, a theory of redevelopment should aid decision- makers towards producing more efficient land utilization. 381bid., p. 40. o | ’ .QGKané accuse has :.es::er.t :22: V .' . IDES. sects: :13 .0. ~O;u crochbg‘c : age of ; lie b'it‘in ‘ u... -5 mer r 5‘.::;:ie:-'. 2.. She pr: .._" non“‘)" h. in'l'es ‘nee- O estate‘ .3; 1'33: states - '. Hher Present 1: attested. Fifita'tle .“ ‘.A "’ m6.‘_¢t.‘ 59 eccm; practical 37 Looking at the redevelopment aspect of the continuum, private enterprise has not promoted much land use succession due to the poor investment potential. Investment in real estate projects, by the informed private sector flows only when certain conditions are present i.e.: where effective market demand can be shown to exist (at least, to a high degree of probability); where the risk element can be judged‘to lie within tolerable limits; where the profitability is sufficient to cover risks; where the flow of money from the investment is sufficient to service the costs of capital; where the equity sunk in the project can be recouped in a reasonable time period; and, finally, when the project concerned competes favorably with other investment outlets (these may lie outside the field of real estate).39 Bourne states that . . . where private renewal processes are operative two factors are present irrespective of the characteristics of the properties affected. First, the possibility of putting the land to a more profitable use exists, and second, the means are at hand to permit realization of this possibility. Thus, not only must redevelopment be economically feasible, it must be socially and politically practical and acceptable.40 Barriers to Redevelopment_ As the preceding conclusions indicate, there are barriers to redevelopment, as suggested by economic philosophy, which inhibit land use succession, especially in the central city. The role of the public sector, therefore, has been determined primarily by these barriers which inhibit the market to respond freely. The urban renewal program was determined necessary by Congress as a means to alleviate these barriers and as a means for Obtaining*the‘highest and best use of the land on the private market, devoid of these barriers. These barriers 39Whipple, _p: cit., p. 33. 4oBourne, gp, cit., p. 34. 'JL‘iS net-p; '22:: cf the : 1. Pt: ’7 use: of if. “35?. none of mad: the re 0 liliate, T: 1:32.71is the Lie acquisitid Obvio Eifiis of t iG‘u‘iia, a 10C ACE‘iisition c inland COrc .. RS baSed on I 38 towards non-publicly aided redevelopment have provided for the basic format of the objectives of the publicly-assisted renewal program. 1. Problem of site assembly, Since land is controlled by a multitude of individual owners, the acquisition of these parcels for redevelopment becomes virtually impossible. Hold-outs can occur by any one owner which can diminish the redevelopment potential of that site. Whipple suggests three possible tactics to acquire and assemble land privately.41 First, the redeveloper can organize a meeting of the individual owners and offer a fair price to each if they act as a whole. Other- wise, none of the properties would be bought. This method apparently relies on group pressure to force individuals from holding-out. Second, the redeveloper can purchase the major key site and then negotiate. Third, he can conceal the purchaser by having different agents buy the individual properties. This method was used by Rouse in the acquisition of land for Columbia, Maryland.42 Obviously, the difficulty of site assembly has been the major emphasis of the renewal program. By use of the power of eminent domain, a local renewal agency can control the acquisition of property. Acquisition of land by a unit of government for private re-use was declared constitutional in 1954, Berman v. Parker, Constitutionality was based on the public welfare provision and has received continual heated debate regarding the public purpose of'urbanyrenewal since 41Whipple, pp, 2123' pp. 33-35. 42Ibid. See pages 35-40 for an excellent discussion of cost differentials by hold-outs and their effects on the economics of redevelopment. rm this ; I? passzbm' ““ ‘5-\ u an: e'L'.“ r. VISA. 39 private land is taken for private re-use. But the acquisition process by government decree acts as a public purpose to rid blighting conditions in order to put land back on the private market. And all redevelopment activities must follow a locally-approved public plan. Public site assembly, therefore, provides the means of acquiring and assembling a large enough parcel of land to be redeveloped effectively. Without this public power of eminent domain, hold-outs could diminish any possibility of redevelopment. 2. ‘High acquisition costs deter realistic possibilities for the economic reuse of the land. Besides the difficulties of'hold-outs for more dollars, market values are inflated due to the profitability of slum property investment. The slum owner who has an excessive rate of return, therefore, is difficult to acquire because he enjoys a profitable cash flow. Also, since some structures have not deteriorated to the same degree as others, higher appraisals deem purchase in- feasible. Another factor which boosts acquisition costs is improper zoning, especially where industrial-commercial uses are penetrating residential neighborhoods. Also, the psychology of the owners who feel that their location is prime for intensive and profitable redevelopment tend to overprice their properties. If acquisition is at a high price, therefbre, intensive land use is needed to justify redevelopment although this may not be the best land use socially. With the process of urban renewal, acquisition costs are based on fair market value as determined by the average of several independent appraisals. Through this method of remuneration and land assembly, I ., a .fi'.‘ ‘ I} .5...- “1.. :trcz-ersy re :1: $551ny :35 land it Ffzziple land 3 ""- ‘ L. ‘ $3121“ 1 \ I: the effeets 1E "Prisoner 33.22555. Urban self‘co’ltaine Es: Urban re Exiting Rel g E““95an r? Ll- as PSYchn externality . 335311 40 hold-outs are obliterated and yet, receive a fair return (although the method of fairness has been debated). Difficulty has prevailed over appraising land that is slum land and virtually worthless compared to the value of that land cleared. Thus, arguments have occurred stating that the acquisition price is too high since renewal makes the land marketable. However, this determination is beyond the scope of this thesis. Much of this controversy relates directly to our method of property taxation which could possibly be alleviated through a site—value tax whereby the value of the land itself would be taxed rather than the property, by which principle land would be forced into its highest and best use. 3. The social and_physical environment yields areas which are unsuitable for work or living. This factor is environmentally related to the effects of the adjacent areas on redevelopment, again reflecting the "prisoner's dilemma." Accordingly, adjacent slums, pollution, congestion, etc. can hinder the potential of the site for economic success. urban renewal can provide boundaries which can provide for a self-contained, viable unit of lasting duration. The boundaries of most urban renewal areas are determined, therefore, to eradicate the existing neighborhood effects of blight. Thus, potential sites for successful renewal tend to have boundaries which act both as physical and as psydhological barriers to surrounding blight. This negative externality causes the "prisoner's dilemma," such that development on a small-scale usually diminishes the rate of return. Although small— scale develOpment can frequently provide a sufficient rate of return, this rate is normally improved with large-scale development which can 1'3".th CCOZSZ .L 1;..'.:... r' oth-‘I‘Advc- ' .b -. o 9.. .,. u J:..e..55 5_| U E ‘o F L 1 .eIKE'St: 2 :‘e::eased a IIIII c 'e.. .‘ L P . - ' r“. “Crier: 41 provide economies of scale. As described in the "prisoner's dilemma," many individual investment decisions are necessary for the full amount of benefits to be derived from all of the costs. With urban renewal on a large-scale, the neighborhood effects of surrounding blight can be decreased and, therefore, provide fer a more viable, economic development. Slum clearance, rehabilitation, or conservation should usually occur in large-scale areas in order to attain full economic and social benefits. 4. Financial constraints can deter redevelgpment especially_ since there is an_igpgrance of both demand and market feasibility in redevelgpment areas. As a result, normal market low-risk financing is more difficult to obtain since redevelopment is considered a high-risk enterprise. Many financial institutions have "red-lined" high-risk central city areas by refusing financial investment. Also, the problems of acquiring fire insurance are acute in such areas. Where there is a large-scale development and a marketable disposition price of the land to private enterprise, financial institu- tions are more willing to provide capital fer redeveIOpment. However, the newness of renewal in the earlier years of the program did not provide the catalyst for financial lending as originally planned. To meet this need, federal secondary mortgage markets, such as the Federal National Mortgage Association and the Government National Mortgage Association, coupled with institutional lending guarantees by the Federal Housing Administration have been utilized to backup and safeguard private investments. Since renewal acts primarily as a means of making land available fer redevelopment, other programs to provide capital sources for 23:; are :11 ' .s-tc-zccera :10 onrvA‘o‘F e '1'. O-.. H... ”.1 mate a“; C V" 'QI- g. coo-'e.__,_a.‘~ . - o 'I‘ ‘3' "‘ 'I‘ I... ‘ ‘ V.-. A .4339 131‘“ in ‘A‘ Ion; ‘_ ""“ "ETC a: : ‘ .ezera‘, 531.5 .. v . Tunnel ass 42 housing are needed, especially if the residential reuse is intended for low-to-moderate income families. It is important to note that urban renewal does not finance any construction of housing. It is paramount that coordination between Federal agencies occurs regarding housing finance and construction. Until 1961, twelve years after urban redevelopment was initiated, there was a belated recognition of the role for private enterprise in financing and developing low-to-moderate income housing. Federal programs such as 221 (d) (3), 235, and 236, which have allowed for below-market-interest-rate financing through federal subsidies to mortage financiers, have attempted to provide the financial assistance needed to aid renewal efforts by the private sector. Renewal also provides financial assistance for essential site improvements, such as water and sewer facilities, streets, sidewalks, etc., which are basic to the overall improvement of the neighborhood. As of 1969, approximately 25 per cent of the renewal dollar was used fer such facilities. Renewal can aid the reluctance of financial lending institutions towards redevelopment. Since renewal needs a market analysis for funding, further objective determinations can verify the potential success of a renewal area. 5. Epighborhood resistance can delay or prevent renewal ggpecially with the difficulties of relocation. It is easier to avoid the problems of relocation in redevelopment by investing in vacant, suburban areas. Frequently, the public outcry over relocation can injure public esteem for the private entrepreneur. The difficulties of relocation, therefore, can provide poor public relations for the private sector. Public outcry over Metropolitan Life Insurance Larry's ref- . . . ,- 9—: 3" Ore _ -. on 5.: Av . agezzies beg; ““3” ’ti 3"? been des "3535. But EEO“ SUE: 43 Company's refusal to allow Negroes in its Stuyvesant Town in New York City in the 19405 effectively diminished the role of private enterprise in the production of low-income housing for some time, especially from the insurance industry. Urban renewal provides for adequate relocation assistance and monetary remuneration to make relocation less of a hardship. Through the Uniform Relocation Act of 1970, local centralized relocation agencies began to administer relocation for all federally-funded projects causing displacement. Although urban renewal was the first federal program to provide relocation assistance, various hardships have been described by critics of renewal, especially in the early years. But improved assistance techniques and counselling, more money, and more subsidized housing has lessened the relocation problem. With public renewal, therefore, assistance is provided fer relocation, whereas private redevelopment might not provide for such aid since relocation is frequently uneconomic. Even though renewal does aid the process, private enterprise is frequently skeptical of becoming involved in renewal because of the many controveries, especially relocation. Unless the area is completely abandoned, the problems of relocation will continue; but well-planned renewal has the potential to lessen this.hardship considerably. 6. The properpy tax acts as a severe deterrent to redevelgp; 2222: There are many effects of the property tax on central city redevelopment. Primarily it acts as a burden on the poor in the central city because it is a regressive tax discouraging expenditure for housing. Besides the problem of this tax deterring investment in housing per se, it deters improvements since increased assessed : . . a e... 5. 1 ‘Léee'wn u o 95- » u. «leoo- s Lu d"... s ".i.‘ 2232‘ 51‘. Asa; ' ' p . -‘:" 51- o A. "fioevu ‘ ‘. . he s .---‘-*C'?.)' tare 44 valuation will increase the individual tax load. Even if some cities are unofficially not increasing assessed valuation on improvements, this fear still prevails. A major effect of the property tax is altering intra—urban location factors for various land uses since most suburban area property taxes are less than its adjacent central city. The property tax prdblem injures the central city stock and its marketability. Although renewal cannot rid the reliance of municipal governments on the property tax, ridding the neighborhood effects through large-scale development can induce investment even though taxes will increase. Also, if renewal can enhance the tax base initially by concentrating on industrial redevelopment, long-run neighborhood improvements might be stimulated because of increased revenues from the improved tax base. When added to the other difficulties encountered in renewal, the effects of the property tax might deter investment. For instance, an industry desiring expansion in a central city which has a higher property tax than in an adjacent suburban location has the disincentives of increased property taxes and of the bureaucracy in the renewal process. Tax incentives for redevelopment have been used in many states and are described later regarding St. Louis redevelopment. The ramifications of the property tax on central city redevelopment should be researched thoroughly in order to provide long-run solutions to its intra-urban effects. These barriers are not all-inclusive but they do describe some of the major obstacles towards redeveloPment by private enterprise without some public assistance. Primarily, the difficulties of site easily ad 1 n..:.." '-: 'Cev‘ob‘v lita‘ Besi: I ' u 3 lie F'c .. VAQI I “ .".A ; _ U! :‘.~ess‘ .1 32:25 of t ; :W'. H ‘ - «Hfljrx Cf 45 assembly and the high cost of acquisition render redevelopment efforts basically infeasible through exclusively private efforts. Economic Consgquences of Blight Besides understanding both the complexities of redevelopment from the private sector's point of view and the conditions when land use succession will occur, one should acknowledge the economic conse- quences of blight from society's viewpoint. By utilization of the framework of urban economics and cost-benefit analysis, therefore, the roles of private and public enterprise can further be determined. Regarding the municipal economy, blight has severe economic consequences which reduce the municipality to virtual bankruptcy. As stated previously, blight reduces property tax revenues and increases municipal costs. This fact is well-known as studies have shown the excessive tax burden a blighted area has on total municipal finance. Since central cities have high population densities and an excessive amount of dependent population groups such as the poor and aged, municipal costs have increased whereas revenues from the property tax have decreased. These costs have increased as blight and slum conditions, which are not ncessarily physical problems, produce an increased demand for police, fire, health, and other services. Thus, blight effectively limits the services that a community can offer its populace. And when blight occurs in the CBD which generates a greater portion of city revenue, the city is financially drained unless there is a great amount of revenue sharing. Many redevelopment activities have centered on the CBD as a revenue producer in order to service the neighborhoods better in the long-run. £315 a CE hwy Soc the CCEmmi 7““ use. I mimnnen‘ “‘39 centm is . “£93533 1 e OPEIatl‘ V8 46 As described under land use succession, blight leads to inefficient land use. Miles Colean's description of the city as a dynamic organism which is constantly changing is the crux of determining policy which will rid obsolete areas of blight and put the land to its best use. Obviously, the economic ramifications of inefficient land use puts a heavy strain on city fiscal integrity. With the surge towards decentralization aided by government lending programs, highway development, financial institutional red- lining, etc., blight has generated the flight of residential, commercial, and industrial uses to suburbia. Presently more people live outside of central cities within SMSA's compared to just a few years ago when the central city was more populous. Thus, central city development has declined considerably as new development seeks more available suburban locations. While residential development had decentralized, industry and commerce has also dispersed due to improved access, thereby placing an even greater burden on the support or service capability of central cities. Society deems renewal as a process which can improve services to the community by improving the tax base. By putting the land to its best use, planning can be enhanced by the provision of a decent environment. Renewal can also aid to retain industry and commerce in the central city which may desire to remain, but find it economically infeasible. Renewal as a dynamic process can provide for a better operative metropolitan system by enhancing marketable development. -o .. .. :‘ue Ema-l ‘ '....,J e .115“ :§r--.- ‘ wkvu. ’ I ‘ A " rebel 9 nu,- ...... I *1 'I ‘V I ~4e3. 47 The Role of the Public Sector The government's role, therefore, has basically focused on these a5pects which alleviate the negative externalities hindering private redevelopment: 1. Land assembly through the power of eminent domain. 2. Acquisition of property at fair market value. 3. Relocation by remuneration and by aid in finding alternative choices of locations and structures. 4. Clearance and site improvements to make the site marketable and available for the highest and best use. 5. Planning according to a comprehensive plan as well as with project area committees for citizen input. 6. Disposition of land at a fair market value for the re-use intended, thereby allowing land to be better utilized. 7. Writedown which has been determined by Congress as the price to society of eradicating blight and allowing for private market forces to evaluate land in more economic terms. 8. Finance through the writedown and various other public programs which can aid and stimulate private enterprise towards redevelopment. The urban renewal program has been initiated as public inter- vention into the operation of the private market in order to alleviate the barriers towards effective redevelopment. This intervention is the crux for the determination of whether urban renewal should be the focus of public policy. Urban renewal is an alternative to the uninterrupted decline of land and property values in central cities. The question is whether to wait for redevelopment until "natural forces" bring . . 3.37955 7.35 a,-...' _ h'l“..\ e n I ‘-5'.."- “r. Alex..." ’b‘ ‘ ll 33. 3?. a: e; 3.5: 1:. re; .- 2".“ a" stall-o‘ns t.” .I ‘ ‘1 . 4 22.35;: ‘vtn. . "~ .‘ .atnlus 1r“ 48 values down low enough so that private, unassisted redevelopment can take place, or to cut short the time period and the degree of decline through government intervention and financial assistance.43 Congress has determined that this process has been a responsibility of the public sector at the federal level for twenty-five years, and recently-approved legislation in the Senate has continued this federal role on an even greater scale. Therefore, the role of private enter- prise in redevelopment with public intervention should be determined including the inherent difficulties of public-private coordination. The following chapter discusses these difficulties and also describes existing investment incentives for private involvement in renewal. Congressional Research Service, pp: cit., p. 7. ‘— CHAPTER III DIFFICULTIES OF PUBLIC-PRIVATE COORDINATION The preamble to the Housing Act of 1949 states that . . . the general welfare and security of the Nation . . ., and the realization as soon as feasible of the goal of a decent home and suitable living environment for every American family.44 This general goal and philosophy pertained to the whole Act and not merely to Title I, the urban redevelopment provision. Hence, critics of the urban renewal program who state that it has not accomplished this goal do not take into consideration the total package of the bill approved.45 The Act was direct in stipulating that the major emphasis of the public role was to aid private enterprise such that . . . (1) private enterprise shall be encouraged to serve as large a part of the total need as it can; (2) governmental assistance shall be utilized where feasible to enable private enterprise to serve more of the total need; . . 45 44 . . . Philip Dav1d, Urban Land Development (Homewood, Ill.: Richard D. Irwin, Inc., 1970), pp. 383-84. 45For example, Title IV, the New Town Provision of the 1968 Housing Act, would not be criticized for failing to meet the goals of 26 million housing units in the next decade as reaffirmed by Congress in that Act. Thus, the urban redevelopment provision of the 1949 Housing Act was only one tool among others to reach towards the goal of a decent environment for all Americans. 46David, 2p. cit., p. 384. 49 ".‘. -’0~e..2 . ‘ . 'II...J.. :"”.n.9 re, 'a-ld'~ “.. faz' Eee: a... K... . ‘ _ ., ..5 egg; 7.8}; Of a re Exestrent . iii the " SI ‘0‘ rates r J5. SO Initially, land assembly and writedown provisions were deemed adequate to stimulate private activity. However, the stigma of a formerly-blighted area which had been cleared hindered the market- ability of land, especially for middle-income housing. For instance, local citizens frequently recall that an area has been a ghetto and cannot imagine that area in any other type of development. To erase the attitudes against formerly-blighted areas, large-scale projects were developed in order to provide a self-contained neighborhood. But large-scale clearance increased the capital requirements necessary for private entrepreneurs to redevelop. Thus, the small-scale invester had been avoided considering the excessive up-front capital to service this community. Combined with the high initial investment, the high- risk of a renewal area of untested marketability limited potential investment. Large-scale investors such as life insurance companies had the "staying power" and could be satisfed with obtaining long-term, low rates of return compared to the speculator who wanted short-term, high return investment alternatives. The 1954 Housing Act stipulated that FHA should stimulate non-institutional investment in renewal by liberalizing mortgate terms. But these liberalized terms still did not attract massive private investment because of the novelty of Title I procedures. The newness of the Title I program and the area selected for development forced the sponsor to be an innovator, both in his ability to work within a new and complex matrix of government regulations and to create a new environment in a presently blighted area.47 471bid., p. 386. “i -..-.| “ —' “-‘IA . . ""“5‘ «.9 ' ‘e-Jo‘ v'e - - o. . "O‘~.. . O ‘-.¢-b.‘ \ ....‘A‘ P‘ ~~-.g., Q1 - ' 1 ’5' e... "-5.41 a: . - I 00‘ . ‘ 3“ ‘ ~ \ cfi‘y““ l 5;... :“.cte ea ‘. “.V e I“ ' $313. :D‘n’ Sl Frpgmentation With the reliance of the public sector upon private investments, the urban renewal program's success depends greatly on expert coordi- nation of public and private efforts. This meshing is indeed a difficult task for both the public renewal entrepreneur (the local public agency administrator) and the private entrepreneur (the developer-financier). Besides the dichotomy between public and private control, Greer and Minar state that ". . . there is the tension between federal and municipal agencies, the division of power among different agencies, and the fragmentation of power at the local level."48 This fragmentation of power at various government levels increases the difficulty for the renewal entrepreneur to assure success for the private entrepreneur. Besides the difficulties of coordinating efforts for successful redevelopment, the renewal program is completely dependent on private marketability of development since urban renewal cannot normally build any structures except supporting facilities such as parks, government complexes, civic centers, etc. Some states, including Missouri, have recently amended state legislation to allow renewal authorities the power to build. The local public agency (LPA) has to be effective in determining the potential marketability prior to acquiSition. Some areas may be blighted, but undesirable for private interests to redevelop. A prerequisite for a successful venture in redevelopment is a competent market study which will guide the LPA in preparing a 48Jewel Bellush and Murray Hausknecht, (eds)., Urban Renewal: Peo le Politics, and Planning (Garden City: Doubleday 6 Company, Inc., I967}, p. 162. Sm 0f the iilineate t." iSPCSition. 52 marketable renewal plan. In other words, the potential for private investment depends on the marketability of the renewal plan. Real Estate Research Corporation, a private real estate feasibility consultant firm based in Chicago, is presently preparing a study for the Department of Housing and Urban Development (HUD) analyzing the various factors affecting the disposition of land in urban renewal areas. Real Estate Research has developed a framework of three categories of factors which hinder the disposition of land to redevelopers and which delay renewal completion:49 1. Local market related factors 2. Local management related factors 3. National program related factors Some of the points itemized under "Local market related factors" delineate the importance of successful acquisition for successful disposition. 1. Image and accessibility of project area deter potential redeveloper interest. 2. Improper selection of candidate sites by the LPA adversely affects marketability. 3. Improper or early parcelization of the project area before redeveloper interest ascertained. (Parcels may be too large or too small for efficient marketing.) 4. Decision by LPA to attempt to market entire project area as one package rather than sectional divisions to attract several developers. 5. Misjudgment on determination of proper re-use potential for project or parcels within project; also, planned re-use inflexibility where market conditions change before con- struction start. 6. Inaccurate market feasibility studies or use of studies com- pleted early in the project when disposition decisions are made at a later time in the execution stage, as marketability 49Based on unpublished HUD Contract H-3610-R with the Real Estate Research Corporation. p :or part - ' £15138 :: :tn'ate re :e ‘. ”:9. 51.1. EXEC-3t l ".e r. EA C3,; :4 and different sLe . . “‘ Pm'lslon ,. COOrdi um mist si1 arm A150, resource for is diSperSal S3 for particular uses may have been altered due to development outside the project area. Since potential financial investment is derived by proper marketing strategy, the LPA has a mandate to secure the best plan as an incentive to private redevelopers. Obviously, the renewal entrepreneur needs great executive capability to coordinate these types of factors leading to a successful program. Since the local council determines which areas are declared blighted and eligible for funding, the LPA has a responsibility to the municipality in both political and economic ramifications considering the effects of the local share on diminishing municipal budgets. Coordination of other municipal efforts in the provision of supporting facilities is also difficult considering the availability of funding and different time schedules. For instance, the LPA needs to coordinate the provision of school facilities by the Board of Education and yet the Board may not have the money scheduled for this renewal effort. Coordination at the federal level is important as various grants can assist site improvements and supporting facilities in renewal areas. Also, federal programs related to housing act as an important resource for relocation. Other programs can aid renewal efforts such as dispersal of low-income groups to the suburbs. This suburban- central city coordination shows the need for metropolitan planning to effectively eradicate blighting conditions. And many policy-makers are considering the importance of new towns as an element in the development- redevelopment continuum. For example, new towns could act as an important relocation resource base in renewal efforts. Revenue-sharing proposals presently pending are an attempt to alleviate some of these animative di sgfiiitures f; eternity den It is : ifferent lex'ej ' n A " ‘W- a. ‘ :J'e‘ 'Hci It. . e 31 :wralnatzo; :etzzztion of ' {inaugui ' -- Widej haYing imp: attlvity, of mind in antiCipate: 'J'rban renfl‘al < prime investc flimizations 1. taking. Greer hey are unders :entral goVemp 54 coordinative difficulties through more local determination of capital expenditures for a combination of previous grants-in-aid combined into a community development program. It is apparent that these divisions of power among these different levels of decision-making create a difficult situation for redevelopment feasibility. George Duggar has described the importance of coordination and the goals to be achieved by analyzing the definition of "enterprise" as "an attempt to project, especially one which involves activity, courage, energy, or the like; an important undertaking."50 Hence, urban renewal administration is such that . . . widely varying participants engage together in an activity having important substantive goals, demanding a high level of activity, and calling for a forward looking and venturesome frame of mind in which prospects are weighed and a strategy to overcome anticipated obstacles.51 urban renewal enterprise attempts to utilize government at all levels, private investors, civic organizations, the media, and neighborhood organizations in order to achieve success in this important under- taking. Greer and Minar state that although these divisions of power are destructive towards changing the conditions of metropolitan areas, they are understandable from Americans' political cultural fear of central government. These divisions must be coordinated as effectively as possible. Duggar's discussion of enterprise indicates a need for decisive leadership by various interests for renewal to be successful. Because of the extensive fragmentation of power, the role of the SOBellush and Hausknecht, _p, cit., p. 180. Sllbid. 355“. 67.121 "Vega-5"? ' aged-hJJ-e‘ b A I. .0; !I:.o-.Jn o "uh-an: ‘v .‘N5'a \uo- ‘. ‘rafisu ,: u.~.....5‘\, _ :eszzes his "W‘. e- ., '“h-r‘re..e J 55 renewal entrepreneur (the local public agency administrator) becomes paramount in renewal action as his power can effectively coordinate execution. Various studies have shown the importance of the renewal entrepreneur and his relationship within the political structure. The power which a renewal entrepreneur generates and applies can be determined by his relationship to the mayor, local council, etc., besides his own personal capabilities. In addition to the renewal entrepreneur, the private entrepreneur must be included directly in the process as he has the investment resources towards redevelopment. As President Lewis K. Moore of American Oil said in 1967, "We're the cats with the bread."52 Victor Gruen argues that government has taken the lead too often where the private entrepreneur should have initiated the renewal process, especially in downtown redevelopment. He states that ". . . Private enterprise should be the initiating force and the government-~as the servant of the people--should use its power and authority in the carrying out and implementation of the project."5:5 Jewel Bellush and Murray Hausknecht have described the entrepreneurial role as having three distinct functions.S4 First, there is the investment function. Second, an important managerial role maintains the.enterprise. Lastly, the entrepreneur determines the place of enterprise in the market place. 52"Crisis in the Cities: Does Business Hold the Key?" Dun's Review, 90, #5 (November, 1967), p. 31. 53Victor Gruen, "Who is to Save Our Cities?" Harvard Business Review, 41, #3 (May, 1963), p. 107. S4Bellush and Hausknecht, 22, cit., p. 211. a» Real Est rte-'11 entI‘EPT" 2:511:39 0f 3 31.3 of 6112335 2231 staff iS :frene'n‘al activ tenors succe Eagenent funct Bellush mutant, then Siren a success liquired reputa Eli private of f endeavors. It mo laderstand: PNCESS . Regard realize the pr Given P‘Jblic off nOsecl as 1 surprised 56 Real Estate Research's report cites the importance of the renewal entrepreneur as being the most apparent variable in the success or failure of a renewal program. Real Estate Research frequently found a lack of qualified personnel on both LPA and HUD staffs. Obviously, the LPA staff is an important cog towards rapid and proper execution of renewal activities. And the staff's competence determines the director's success. Thus, the director must be skillful in the management function to produce effective results. Bellush and Hausknecht state that an initial success is important, thereby producing a future career for the entrepreneur.55 Given a success, he has obtained a line of credibility due to his acquired reputation. Besides acquiring confidence from the political and private officials, he can also obtain civic support in future endeavors. It is, therefore, necessary to have a renewal entrepreneur who understands the different roles of those actors in the renewal process. Regarding the businessman's role, the renewal entrepreneur must realize the problems confronting the private sector. Given the American businessman's notoriously negative view of public officials, he does not expect to find one that is as hard- nosed as he fancies himself to be, and after he is pleasantly surprised, both can get comfortably down to business. The renewal entrepreneur must realize that time does mean money to private enterprise and that money wasted yields less profit, the incentive for investment. Thus, he must effectively coordinate 551bid., p. 217. 561bid., p. 222. firing of the :3 master's conce :‘the effects c ‘ Q 'B‘L'? “1‘..- -- nuovleaVIL-- let. a :etegcries: 1- CIVIC L1 2. r 1 “ DE\€,QP. 3. Financi S7 timing of the many phases of renewal in tempo with the private investor's concern, profit. And public officials should be well aware of the effects of finance on the return on equity in order to stimulate redevelopment. An analysis of these important points of coordination will aid in improving the total renewal process. Private Enterprise's Ro_1_e_ The role of private enterprise can be divided into three . 57 categories: 1. Civic Leadership 2. Developer 3. Financier Civic Leadership_ Many renewal efforts originating in the 19505 were begun at the urging of business leadership in the community. Frequently, business leaders united as downtown committees, housing committees, etc. Local Chambers of Commerce were also in the forefront of urban renewal although the national association was against the program. Such organizations as Downtown, St. Louis consisting of downtown business interests, Greater Baltimore Committee consisting of major financial institutions, and Pittsburgh's Alliance for Progress and Regional Plan Association also ventured into promoting and financing planning studies for improvement. These promotion-type organizations have continued their important role of uniting the business community, especially 57Martin Millspaugh (ed.), Bgltimore Charles Center: A Case Study of Downtown Renewal, Technical Bulletin #51 (Washington, D.C.: urban Land Institute, 1964). salable for t3 ;.2. The rene- se gcals of re: .. reaevelcprzen‘ The dew a relate his p‘ ~16 LPA. He is .E. m as deter-min. area profitably “hi’h u determipe Rm h'hiCh is m 58 after the urban riots of the late '605 when business realized the important stake that they had in urban improvement. Besides promotion and education, the business community can also assist developers by assuring the marketability of a project by locating initial tenants. Also, financial backing can be more readily available for the developer if the business community is promoting the plan. The renewal entrepreneur, therefore, should pursue acceptance of the goals of renewal by the business community as an important catalyst to redevelopment. Developer The developer's role is to "put the pieces together" in order to relate his project to the goals of the community as stressed through the LPA. He is primarily concerned with the marketing strategy of the LPA as determined by the approved plan and whether he can develop the area profitably. Market research is an important pre-planning tool which determines quantitatively and qualitatively the type of develop- ment which is marketable. Space needs and types of design will be noted in the feasibility study in order to minimize risk. Whipple states that . . . It is pointless to produce Space for which there is an insufficient market or space which lacks those features which appeal to consumer tastes and requirements; this is a major shortcoming in most "pure" civic design planning proposals.58 A marketing study, therefore, is influential in projecting the future viability of a type of development. S8Whipple, pp: cit., p. 22. Tu 1.5 study sili :3'tl'.e L? :, C. 1:: type of no marine the Then, #11:}. shows p:- t. 2.3. B." (186.1: taxes, and t"e ::re’ the de\vve accuracy. Am 59 re The Uhal estate I gate a buye] longage 0r 1 mail from a 1 1’1 “gage 108: as Put 59 Having determined market feasibility, the developer determines economic feasibility by preparing a cost projection over a time period. This study will delineate the land cost (normally already determined by the LPA), construction cost, and other expenses. He then determines the type of mortgage financing that he can obtain. Therefore, he can determine the amount of equity capital that is required.59 Then, the developer makes a preliminary cash flow projection which shows projected expenses, projected income, and resulting cash flow. By deducting for vacancies in the projected income, deducting taxes, and the retirement of debt service (payment on the mortgage), he can determine the return on capital invested. By preparing cost projections and cash flow projections, there- fore, the developer can minimize the risk involved depending upon his accuracy. Any investor of equity capital or debt finance will need these projections to determine their risk, also. The business com- munity's role in backing this project can stimulate the needed capital from both within the outside of the locale. The developer's entrepreneurial role is similar to the renewal entrepreneur since the developer's reputation is "on the line" with government officials, private investors, and the community. Since he bears little financial risk due to the large capital investment provided 59There are two components of real estate finance. Given a real estate parcel for purchase, the buyer can put his own assets into the purchase price which is considered his equity in the project. Since a buyer usually cannot pay 100 per cent of the total cost, a mortgage or lien on the property is secured by obtaining a mortgage loan from a lending institution. With payments over time on the mortgage loan, the buyer builds up his equity in the project since he has put in more of his own assets. ,_. a ,3 (1. v :1 00 .J :1 (h n - '- =--::ess:ul 1.. ~— ' J .._.:.;t)' nee- :esxrces . h. 23:21: nth t V? a hence Peg.‘ retard 'h'eisb C stated, ' . ' tkse nose to +1. c.. building. to d8fine to it that In Orc' real estate as rent in ten E since it is dj Particular $11 91' . “at 1m'estme: Investment a1 60 by lending institutions and government guarantees, he has to be successful in order to continue being a developer. And the local community needs to guarantee his success because renewal is a large- scale undertaking, normally needing outside skills and financial resources. His talents are also needed to ultimately market the program with the aid of the LPA. Hence, a partnership is necessary between the developer and the community in order to achieve realistic goals for redeveloPment. Bernard Weisbourd, the developer of Charles Center in Downtown Baltimore stated, . . . the developer's business is to be a developer, to keep his nose to the grindstone, to secure financing, to build a good building, and to rent it. It is the business of the other partners to define the goals of the community, to implement them, and to see to it that the developer keeps his nose to the grindstone.60 Financier61 In order to obtain investment in redevelopment, the nature of real estate as a vehicle for investment should be considered. Invest- ment in real estate is a speculative type of venture with much risk since it is difficult to determine the highest and best use of a particular site over a fifty-year horizon. It is important to realize that investment opportunities in real estate compete with other investment alternatives. Rates of return for different risks might diminish available capital sources for real estate. Tight money markets effect urban renewal negatively as in all real estate ventures. 60Millspaugh, pp: cit., p. 64. 61Whipple, _p, cit., p. 13. 2.1.Le nsr‘ey' rt 3- ‘ ‘7":33, Stage a... _ . t. e urge-3.1611 13-35 O iguatini acne," e-TEtise that 13' incsition. lite deve 2:15 throughout takings. Usual isaspeculatitx assured that he Thing, th'estor becaus red tape. Alt'r ESE-pleted such 51" the develop thereby potent Real E earagement rel Coordination . 1. Slown facil' such compl Defe in ir of s' deve 61 Since the money market fluctuates rapidly, a renewal program in the planning stage during an easy money market can be delayed during the disposition phase due to the changing money market. Considering the fluctuating money market conditions in the past ten years, it is no surprise that there are frequent periods of difficulty in land disposition. The developer depends on different types of capital require- ments throughout the development process. Initial risk capital or "front—money" is needed for basic site planning and preliminary working drawings. Usually risk capital is out of the developer's pocket, and is a speculative venture, especially in urban renewal where he is not assured that he will be selected the redeveloper by the LPA. Timing, therefore, is the key problem of renewal for the private investor because his cash is ”in the job" longer due to bureaucratic red tape. Although the developer has much of the preliminary work completed such as an LPA market study and an approved plan, any changes by the developer have to be approved by many different agencies, thereby potentially diminishing profit potential. Real Estate Research's study also specified some "local management related factors" related to timing which needs improved coordination. l. Slowness in execution of land clearance or provision of public facilities may discourage potential redevelopers who may view such inaction as lack of city or LPA support for expedient completion of the project. 2. Defective coordination of public and private resources involved in implementation of project. Appropriate timing in provision of supportive facilities shows indication of progress, aids developer's activities, and meets public demand. 15 metal en-tr £22221 goals 3 5.12221 success If the " 22 ieu'elsper’ s tycrsued. If irszance cozpa'. :ttain from cthe :atital, a short 62 The renewal entrepreneur, therefore, must be aware of the developer's financial goals and needs to speed up the process and to guarantee financial success. If the ”front-money" for initial planning yields selection of the developer's plan by the LPA, equity capital and mortgage funds can be pursued. If he obtains mortgage finance first (usually from a life insurance company or a savings and loan), equity capital is easier to obtain from other investors. After obtaining equity and mortgage capital, a short-term construction loan is usually obtained easily. Investment Incentives for Renewal_ One can see that the developer and the city have to coordinate their schemes for redevelopment successfully in order te obtain the immense capital needed from financial resources. Because of the higher risk of renewal compared to other investments, incentives have been given primarily by FHA to reduce the risk of the developer and to provide greater financial benefits. Daniel Berman has summarized some of the benefits of renewal:62 1. Maximum Leverage.--FHA financing allows the developer to have minimum equity capital of as low as 5 per cent. Low equity investment allows a developer the potential to own large amounts of real estate or to buy a project with continuing income such as an apartment development. With small equity investment, therefbre, greater potential returns occur as other dollars can be invested in other 62Daniel S. Berman, Urban Renewal; Bonanza of the Real Estate Business (Bnglewood Cliffs, N.J.: Prentice-Hall, Inc., 1§70), p. 16. 63 alternatives. There are two types of investors which determine the importance that leverage offers and the length of time an investor wants his capital in the development: . . . the one whose primary interest is to maximize net project income and, to achieve this, the usual policy is to minimize the cost of the investment. The other, while seeking steady flow of net annual income, takes a longer perspective and looks also to capital appreciation.63 2. Tax Write-Offs. For the upper tax bracket individual who is an equity partner, 70 per cent can be written off against current income taxes. For a 70 per cent tax bracket, $300,000 invested in a $10,000,000 project (3% equity) is actually only a $90,000 investment since 70 per cent ($210,00) is deducted. The importance of tax shelter for the upper income individual acts as a positive factor towards equity participation. 3. Tax Shelter. In order to derive "front-money” and equity money, maximum tax shelter is allowed since the long mortgage and low annual amortization in the earlier years is less than the depreciation which offsets it. Thus, FHA financing mechanisms allow maximum depreciation as an incentive for investment. 4. The Build-Up of Mortgage Amortization. Although FHA financing mechanisms can be used in the initial years of the develop- ment, re-financing conventionally can be profitable since FHA rental controls are then lifted. If after ten years, the project is re- financed, capital appreciation and mortgage amortization can be very profitable. For example, an apartment development financially-backed by FHA in a renewal area will maintain the same rental rate by law 63Ibid. .0 .. 0. g. .l 64 until re-financing. Since most renewal apartment projects have a continual waiting list and since rental controls are dropped with conventional re-financing and these rents can marketably be raised, income will be greater, thereby yielding a greater return on equity. Urban renewal, therefore, has many more advantages for private enterprise than merely assembling land at a writedown. Utilizing other public programs, investment opportunities in redevelopment are enhanced to a great degree. The renewal entrepreneur should encourage the developer by being a quasi-partner for successful renewal execution. Aggregate Investment in Urban Renewal?4 As of June 30, 1971, the total private investment nationally since 1949 in urban renewal was about equal to the total public investment. "The public investment in construction and land is pri- marily the local government investment for schools, libraries, parks, streets, sewer and waterlines.”6S And some of these capital investments will be repaid at least partially by user charges such as provisions for sewers whereas the federal grants are not repayable. Although private investment shows an approximate 2 to 1 ratio to federal grant disbursements, economic evaluation should analyze total spending of the public sector in order to determine the costs and benefits. Federally- disbursed grants of $4.8 billion do not take into consideration the funds committed through 1971 which amounted to $9.4 billion, or almost double the funds disbursed. Thus, if the figures were projected 64Congressional Research Service, 22: cit., p. 65. 651bid. EC 3: 'V II. m 65 Table 1.--l949-1971 Aggregate Investment. Billions of Dollars Types of Investment Private Public Construction Completed or Underway 8.40 3.90 Land Sales (to) .75 .33 Federal Grants Disbursed 4.80 Total 9.15 9.03 according to the ratio of funds, approximately $17.8 billion would have been invested by the public sector with $18.3 billion in the private sector totalling approximately $36 billion. In the aggregate, therefore, public investment has provided an incentive for investment towards urban redevelopment. These figures should be used in determining the economic implications of renewal. These implications should be measured regarding costs and benefits for future project direction with possibly more incentives for different sources of capital, thereby financing more renewal efforts. As described, FHA has provided incentives for redevelopment by private enterprise. Further incentives to different sources of capital should induce increased investment by the private sector in renewal. The fbllowing chapter suggests that corporations might have available capital for real estate investment which should be tapped for urban renewal. CHAPTER IV CORPORATE INVOLVEMENT IN REAL ESTATE AND URBAN RENEWAL In recent years much discussion has focused on the feasibility of corporations entering the real estate field especially as equity participants. A shift is occurring in the attitude of corporations which have potential sources of finance for real estate as an invest- ment alternative. Hallmark Cards is presently building and financing a 100 million dollar complex surrounding its adjacent international headquarters near downtown Kansas City, Missouri. Alcoa has been involved extensively in real estate developments, especially in the Pittsburgh region. Gulf Oil has participated in the new town of Reston, Virgina. The experiences have produced mixed reactions as real estate investment is still a puzzle to the corporate world due to the high risk and unusual accounting procedures involved. Samuel L. Hayes, III, and Leonard M. Harlan have written about the important role that corporate investment can play in equity parti- 66 cipation. If corporations have capital available which can be tapped for real estate investment, urban renewal entrepreneurs should pursue 66Samuel Hayes, III, and Leonard Harlan, "Real Estate as a Corporate Investment," The Appraisal Journal, XXXVI, #3 (July, 1968), p. 361. 66 67 these sources of finance for redevelopment activities. The renewal entrepreneur must first be aware of the profitability of corporate investment in real estate per se to determine the potential profit which can be attained by renewal and to determine the possible roles in redevelopment which corporations might play. An examination of the supply and demand factors for future real estate in the U.S. can provide part of the basis for determining the role of corporate investment. Demand Factors Hayes and Harlan state that two primary determinations of real property need are population growth and replacement factors. Besides increasing shelter needs in the U.S. presently, these factors also effect the market for commercial, industrial, and institutional property. Most market analysts foresee increased real estate activity as recently-formed households accelerate the demand for new housing, as needs for multi-family housing in urban areas increases, and as demolition increases. Besides meeting shelter needs, the anticipated growing U.S. economy will increase the overall demand for new housing and related facilities. Economic influences will continue increasing this demand as increasing personal income will direct consumer tastes towards new and better developments for living and working. Also, demand is increasing for second homes unless the energy crisis hinders their marketability. And increasing family mobility will necessitate a greater supply of vacant units for wider selection. Hayes and Harlan 68 estimate that for every $10,000 expended in residential construction, approximately $2,500 is invested privately in supporting facilities. Future demand appears explosive, and included in this demand will be the need for two to three million dwelling units per year throughout the 19705 according to various studies. The Kaiser Committee, commissioned by President Johnson, determined a goal for housing development as a basis for certain provisions in the 1968 Housing Act which identified a goal of 26 million units, 6 million of these for low-and-moderate income families for the next decade beginning with 1968. Furthermore, the President was required to report annually to Congress on: 1. the progress achieved in the prior fiscal year toward meeting the housing goal, 2. the outlook for the residential mortgage market in the forth- coming calendar year, and 3. suCh information and recommendations as the President deems advisable.67 Compared to the annual average of approximately 1.5 million housing starts throughout the 19605, the availability of both debt and equity capital is crucial to achieve this goal of approximately 2.6 million units per year. Supply_Sources The supply of capital for development of real estate is apparently dwindling, especially mortgage funding or debt finance. Sources of mortgage funding have been diminishing because savings deposit institutions have been allowing greater interest payments 67Fifth Annual Report on National Housing Goals, Congressional Record, 93rd Congress, lst Session, August 14, 1973, Document #93-141 0 69 thereby reducing the amount of funds which savings institutions have fer debt finance. Also, the large number of young households borrowing extensively for initial furniture and other necessities will decrease personal savings into these institutions. And monetary policy of the Federal Reserve will frequently create tight money markets to hedge inflation, thereby decreasing available sources of debt infance. Thus, sources to alleviate this shortage of debt finance need to be found. One means of increasing the supply of debt capital is the use of federal debt funding to spur development. The FHA 235 and 236 below-market-intereSt-rate housing programs are an example of federal spending. For example, under Section 235 of the National Housing Act of 1968, as amended, HUD makes monthly payments to mortgagees to reduce interest costs to as low as l per cent on a home mortgage insured by the Federal Housing Administration. The homeowner's mortgage payments must be at least 20 per cent of his adjusted monthly income. Amounts of subsidy vary according to the income of the homeowners and the total amount of the mortgage payment at the market rate of interest. The federal government, therefore, provides debt funding as a means of providing moderate-income housing. Since their introduction into the market in 1968, these types of programs have initiated a high percentage of new construction, even to a level of approximately 25 per cent of total housing starts in Fiscal Year 1971. By mid-point in the goal decade the Federal Government will have aided the construction or rehabilitation of almost 1.8 million units for low and moderate income families, as well as providing subsidy assistance to an additional 218,000 families in existing units not requiring substantial rehabilitation. This represents housing assistance for more families in the last five years than 70 the cumulative total provided during the entire 34-year history of our national housing programs before this Administration (Nixon) took office.63 However, these programs were initiated during the Democratic Adminis- tration of Lyndon Johnson. Although this federal effort has improved the availability of debt finance, other means of debt capital are needed unless the federal government expands its role in subsidized housing. The other supply alternative is to rely more on equity partici- pation, thereby reducing mortgage commitments. For large-scale projects suCh as new-town developments and urban renewal, extensive sources of equity capital would be required. In the past, the developer relied extensively on mortgage funding with small equity investments. With these sources "drying up" according to recent annual reports on national housing goals, the developer has looked to Wall Street, the chief financial center of the United States. However, Wall Street has traditionally considered real estate investment too risky and specula- tive. Wall Street investors seek to maximize return on investment and to minimize the risk involved. According to Sedgwick Mead, Jr., of Real Estate Research Corporation, ". . . there is one overriding reason why corporations do not invest in real estate. Income-producing properties contribute low 69 reported earnings to corporate statements." The problem is aggravated by different accounting techniques since positive reported earnings are __ 681bid., p. 2. 69Real Estate Research Corporation, The National Market Letter, Vol. 28-No. 11 (March, 1974), pp. 5-8. 71 the key to corporate profit with the desire for the bottom line to be black, reflecting a positive net income. Real estate analysts, however, prefer an accounting technique whereby the bottom line is red, or reflecting a net loss, since profit means higher income tax payments. Ehe major advantage of real estate investment, then, is the liberal tax shelter provided, even though a net loss can occur. Conflict arises from the financial and real estate communities who misunderstand each other's roles. Furthermore, Wall Street finds real estate ventures unsophisticated financially. The bankruptcy of Webb and Knapp, developers in the early 19605, who were involved in many large-scale urban renewal projects, have also caused fear in the financial community towards real estate investment. There is a need, therefore, for both the financial and real estate communities to come together. And the advent of real estate investment trusts, legalized in 1961, is an example of such a merger. Publicly-held corporations, those corporations whose shares of stock are available on the open market, and institutional investors such as life insurance companies and trust funds, should be tapped as equity sources in real estate developments for the following reasons as described by Hayes and Harlan: Corporate Enterprise 1. They have impressive financial resources, including easier access to new capital and often large amounts of cash flow from their re ular operations they must find profitable investment outlets. 0 70Hayes and Harlan, op: cit., p. 368. 72 Thus, corporations can utilize their cash flow for equity participation and they have the "staying power" to undertake large projects with little profit or even losses initially. 2. They can take advantage of both leverage and the tax shield opportunities inherent in most real estate investments.71 By creation of a subsidiary with a modest investment, the corporation can use its integrity as a means for the subsidiary to obtain debt capital. Another advantage of forming a subsidiary is that a con- solidated income statement can be used. The corporate income tax rate of 50 per cent can be offset by the potential depreciation of the assets of the subsidiary. In this case, real estate assets could be depreciated. Thus, the red bottom line (net loss) of the subsidiary can offset the black bottom line (net income) of the corporation as a means of cutting income taxes on a consolidated income statement. But this method can diminish the apparent profit in the portfolio of the corporation, thereby acting as a disincentive to stockholders. 3. They often already are involved in real estate financing indirectly, thus, in many cases the move to direct gguity part1c1pation would not be a drastic step for them. Although corporations invest in their own real estate capital such as plants and headquarters without being concerned about profit generation per se of a real estate development, the opportunity to invest in real estate as an investment alternative is not that alien to present corporate operations . 71Ibid. 721bid. 73 4. They stand to gain not only from the profitability of the real estate projects themselves, but also from the "fallout" of new demand for their products.73 Although this fallout has not been apparent in many corporate ventures, Alcoa, General Electric, U.S. Gypsum, and others have promoted their products in real estate ventures in order to test new methods and to determine product marketability. Fallout potential was an important catalyst in urban renewal undertakings especially in the early years of renewal. Therefore, corporations involved in real estate-related products have an incentive to test new techniques and products with their own equity participation. 5. They have important management skills which have often been missing in independent real estate ventures.74 Since the financial community is dubious of real estate due to reported poor management regarding inadequate control of cost and time com- mitments, corporate management techniques could act as a stimulus to further acceptance of real estate investment. Institutional Investment Institutional investors such as life insurance companies and corporate pension funds have become an increasingly important source of equity capital. Briefly, institutional enterprises have grown con— siderably as savings has flowed into these institutions in the past thirty years. Therefore, increasing cash inflow yields more dollars which can be invested in alternative opportunities such as real estate. Besides financial leverage opportunities, institutional 73Ibid., p. 369. 74Ibid. 74 investors have an array of experience in real estate since they have been a prime source of mortgage capital for many years. Thus, institu- tional investors have more expertise than most corporations in rapidly adjusting to real estate management. Lastly, since mortgage funding is "drying up" and since mortgage lenders feel entitled to equity participation when they provide 100 per cent loans, the institutional investor can demand equity participation for its fundings. Thus, they can reap the benefits enjoyed in the past by borrowers of their capital. Real estate has become a reputable alternative for broadening portfolio commitments, securities owned by a corporation, since their yields are often better than other investments. With increasing demand fbr real estate capital, a "lender's market" has provided the impetus for increased equity participation. Further acceptance of real estate as an investment alternative has been exemplified by such efforts as Equitable Life Assurance Company's participation in St. Louis redevelop- ment which includes Busch Stadium, John Hancock Mutual Life in Reston, and Connecticut General Life in Columbia, Maryland. Reasons for Non-Investment in the Past_ A major cause of low-volume real estate investment by corpora- tions and inStitutional enterprises is that the risk involved is mis- understood. The prdblem centers on the need to understand the profit- ability of different types of development as influenced by tax status, the use of financial leverage, available managerial resources, potential product fallout and public relations, and available capital and time horizons. Since future needs for real estate equity cannot 75 be met by traditional lender sources, an excellent opportunity exists for imaginative entrepreneurs. As suggested earlier, however, corporate accounting techniques for real estate development acts as the real pitfall since the impor- tance of favorable leverage, of tax shelter, and of appreciation of net income and market value do not reflect profitably on a reported income statement and balance sheet. Thus, real earnings will not be under- stood by shareholders who invest in the corporation. Apparently, the only methods of showing the negative effects of real estate to the stockholder is to either produce two statements which will not distort the figures or to make a note in the report which would indicate the negative effects of the real estate investment on earnings. It is understandable, therefore, why corporations are fearful of real estate investment unless the shareholder can be enlightened as to the differ- ent accounting procedures involved. And an enlightened Board of Directors can be the catalyst to stockholder acceptance in order to pursue the rewards of real estate investment. A survey undertaken for the Society of Real Estate Appraisers and the California Department of Real Estate found that 51 per cent of the nation's largest corporatibns were active last year in real estate investment and development compared to 30 per cent two years ago.75 This survey was based on responses to questionnaires sent to the executives of 500 of the major 1,000 corporations listed in Fortune magazine. Although 23 per cent were disappointed with their realty programs, only 10 per cent planned to abandon such investments. 75Dorothy Weddell, "Corporate Realty Investments Up," St. Louis Globe-Democrat, August 14, 1973. 76 Related to improved management techniques, 44 per cent of the corporations surveyed have in-house divisions dealing with real estate and 42 per cent of the total have acquired separate real estate companies. Their primary reasons for entering real estate ventures were (1) purchase of land for expansion; (2) appreciation and develop- ment of property already owned; and (3) development of property for sale to others. The reason most often cited for disappointment was the incom- patibility between the management techniques and roles of the corporation versus real estate. The researchers concluded that firms may become more cautious about purchasing real estate companies, that there is a shortage of capable corporate real estate management, and that corpora- tions will be engaged primarily through the development of their own properties. Corporate Investment in Urban Renewal Besides the provisions of direct incentives by government to induce private redevelopment, there are different reasons fer corporate investment in renewal depending directly on their goals and needs. The renewal entrepreneur should be aware of these different corporate goals in order to improve the disposition of land. For instance, the LPA which realizes that a major industry cannot find available city land can coordinate the needs of the investor in land acquisition. Thus, marketing strategy is the key to success by having acute knowledge of potential corporate needs. 77 The following framework is suggested as a workable method to define and relate these various investment roles in renewal:76 1. Quasi-Philantropic. Some investors may participate in renewal for a profit, but not as much profit as alternative investments would derive. Their motivations are more quasi-philantropic in that profit maximization is not the prime goal. For instance, the McDonnel Planetarium in St. Louis does not yield a profit for McDonnel-Douglas Aircraft who financed the project. Griffin lists several motivations which are typical in these types of investment decisions.77 desire for power desire for prestige desire for social approval creative desire competitive impulse desire for independence a feeling of social obligation recognition of ethical standards of business ooxzoxmbmnr-a 2. Business Enterprises--Ownership_and Use of Site. Private investors in this category seek the maximization of profits according to the advantages of real estate desired such as cash flow or tax shelter. Corporate investment desiring to build facilities for its own use do not have to worry about marketability of the property, but they must be concerned about the marketability of goods and services offered at that location over a long time horizon. The amount of the investment in the structure depends on its importance. For example, increased 76Benjamin Fisher, The Renewal of Urban Land: Process, Decisigns, and Simulation (Chapel Hill: Environmental Policies and Urban Development Thesis Series #7, 1967), pp. 88-94. 77Ibid., p. 89. 78 arChitectural expenditure would relate to general headquarters compared to less outlay for a warehousing operation. In Kansas City, Hallmark Cards' $100 million Crown Center, a multi-use development, is an example of slum land owned by Hallmark converted in order to improve the area surrounding its headquarters. 3. Business Enterprises--Lease and Use of Site, Although not desiring to commit funds to renewal investment for an extended period of time, frequently prime tenants are important motivators in the early stages of the renewal process by guaranteeing tenant occupancy. Also, these prime tenants invest time and money to guarantee the program's success. This type of operation is frequently related to office development where a prime tenant desires to be located in a renewal area but does not have sufficient capital for ownership. For example, in the Evansville, Indiana Riverside Renewal Project, attempts were made to secure a major leasing tenant in an office complex in order to provide a pulling force for other tenants and to interest a speculative developer. 4. Business Enterprises--Intendingto Own, Sell, or Sell and Manage Site. Although this type of investor does not want to use the site for his own operations, this type of investment acts as an income- producing property providing long-term capital gains and cash flow. This type of investor can be broken down into two obvious classifi- cations: (1) those firms participating in renewal primarily as a method of demonstrating and advertising their products or promoting the 79 public image of the firm itself, and (2) those firms participating in renewal as a direct means of making money.78 The first classification is represented by various firms involved in building construction products. Alcoa and Reynolds Aluminum have financed redevelopment projects throughout the country, especially in Pittsburgh. Emphasis focused on new techniques of construction and aluminum products, but the long-run capital gains are also an incentive for investment. National Gypsum, Pittsburgh Steel, U.S. Gypsum, and U.S. Steel are other examples of product-promoting corporations. With the emphasis of industrialized housing by HUD in the Operation Break- through program, further product experimentation should be an expanding investment role. Businesses interested in direct profit potential are either 1. those which intend to own the renewed property 2. those which intend to sell the renewed property 3. those which intend to sell but retain management of their renewed prOperty.79 Firms interested in owning but not using property are interested in long-term capital gains and steady cash flow whereas those wishing to sell are interested in short-term capital gains. These types of firms are similar to most suburban developers or "packagers" of real estate deals. And frequently these types of investors are interested in steady income from management operations. Thus, the needs of the investor determines the type of property expectations. If this framework of corporate investment roles is well under- stood by those decisionhagents involved in renewal, coordination and 781bid., p. 96. 791bid., p. 97. 80 communication would be greatly enhanced. With both the knowledge of the rationale for corporate real estate investment per se and the knowledge of the varying investment roles for corporations in urban renewal, the renewal entrepreneur can more effectively influence corporate investment through sound marketing strategy. The renewal entrepreneur must also consider the development-redevelopment continuum of land successions and its effects on investment decisions. For example, a major corporate headquarters desiring a campus-like suburban atmosphere may be difficult to entice into redevelopment even if land were available. The success of the renewal program, therefore, hinges on the renewal entrepreneur's ability to seek out those potential investors who could be made interested in central city redevelopment. CHAPTER V RENEWAL EFFORTS IN ST. LOUIS, MISSOURI A framework for analyzing the role of private enterprise and the emergence of corporate investments in urban renewal has been described in prior chapters. An histOrical perspective depicted the declining conditions of urban areas, and economic rationale for public involvement in urban redevelopment according to urban economic theory has been outlined. Land use succession theory showed the barriers to redevelopment and recurring economic consequences of blight. As a means to eradicate blight, the federal urban redeveIOpment program was originated in 1949 as an attempt to combine the efforts of both public and private enterprise, although there were inherent difficulties of coordinating the activities of each. Lastly, as supply sources of mortgage capital are "drying up," the importance of corporate involve- ment in real estate investment and the alternative roles that corpora- tions can act in urban redevelopment were identified and evaluated. As an illustration of these elements of urban renewal, a case study of renewal efforts in St. Louis, Missouri will be presented. From this general overview of St. Louis renewal activities, a case study of a specific corporate undertaking by Ralston Purina Company 81 82 of St. Louis in the LaSalle Park urban Renewal Area will be described in the fellowing chapter. Trends of Decline80 St. Louis has been no exception to the problems of urban decay as large portions of the City were much deteriorated prior to World War I. Early proposals for redeveloping the blighted riverfront, where now the Jefferson National Expansion Memorial (the Arch) is located, were displayed in 1907 after civic renaissance was enlightened by the 1904 World's Fair. As depicted in a 1936 City Plan Commission study, the outward population shift to suburbia had begun in the 19205 as rehabilitation of central city property was deemed infeasible. There was virtually no open land for new construction in the City as early as the 19305 due to apparent political shortsightedness which fixed the City's political boundaries in 1876 in order to discontinue providing municipal services "out in the country." And as people moved to the City after the Depression for employment opportunities, a housing shortage and serious overcrowding resulted. Due to poor zoning and code enforcement, and due to the lack of construction activity during the Depression and World War II period, many large, expensive homes were converted from single-family to multi-family tenements. As a consequence, good neighborhoods filtered down to the lower classes. A 1973 Rand Corporation study stated that St. Louis's housing stock was older compared to most cities and that a large amount of peripheral deveIOpable land made the suburban migration easier, 80St. Louis City Plan Commission, History of Renewal, 1971. 83 especially with improved highway transportation and FHA programs which encouraged the financing of low-risk, suburban areas. As the typical flight of middle-class families to the suburbs with the simultaneous in-migration of lower-class rural families to the City occurred, many economic and social problems faced the City. In 1953, a City Plan Commission housing survey showed that 53 per cent of the City's housing supply was in varous stages of deterioration with approximately 27 per cent cited for complete clearance. No new office construction had been erected in the Central Business District for over twenty-five years as the CBD and the central core of the City was losing its economic vitality. Since St. Louis grew westward from the CBD located on the Mississippi River which was I the Missouri-Illinois border, the CBD ultimately lost its centrality as Illinois growth has stagnated due primarily to the deteriorating effects of the railroad industry located directly opposite the CBD. See Figure 1, "Regional Location." City decay became a threat not only to the slum dweller, but also to every other section of the growing metropolitan community. "Businessmen saw their investments threatened; civic leaders saw the tax base threatened; and middle-class homeowners saw their property values threatened."81 In accordance with national trends, the population of the City of St. Louis has declined since World War II with a loss of 100,000 inhabitants from 1950 to 1960 resulting in a population of 756,000. During the decade of the sixties, another loss of 100,000 residents occurred, leaving around 650,000 residents within the City. During 811bid., p. 2. 84 EAST- WEST GATEWAY COORDINATING COUNCIL 51' TUDY ARIA // -./- REGIONAL LOCATION Figure 1. Regional Location. 85 this same period of time from 1950 to 1970, white population shifted from 82 per cent to 54 per cent, thereby leaving the City with both low-income minorities and a large portion of dependent population groups such as the elderly and the very young. Meanwhile, St. Louis County, a separate jurisdiction from the City, immediately west and surrounding the City on the Missouri side of the Mississippi River, shifted from approximately 400,000 population in 1950 to 700,00 in 1960 to 1,100,000 in 1970. Two Redevelopment Laws From these blighted and deteriorating conditions, the federal urban renewal program was utilized as an attempt to revitalize the City and to spur private redevelopment. Two Missouri Laws have been influential in St. Louis redevelopment activities, both public and private. In 1951, the State of Missouri enacted enabling legislation, the Land Clearance for Redevelopment Authority Law, Chapter 99, which allowed the City of St. Louis to establish in 1951 a Land Clearance for Redevelopment Authority (LCRA) to handle federally-assisted urban renewal areas. This Act is the typical arrangement for state urban renewal legislation authorizing the Local City Council both to approve the creation of an LCRA and to designate areas "blighted" in order to qualify for federal assistance. Since its inception, the LCRA has been involved in the revitalization of numerous urban renewal areas throughout the City. An innovative feature of the renewal effort in St. Louis has been the Missouri urban Redevelopment Corporation Law, Chapter 353, as enacted in 1945. Under "353," the City is allowed the right to 86 grant the power of eminent domain to limited-dividend corporations allowed a maximum 8 per cent profit. This Act provides a necessary tool to aid in the process of land assembly towards redevelopment. A major incentive of the Act allows the redevelopment corporation tax abatement during the initial twenty-five years of deve10pment. For the first ten years, the Act stipulates that taxes will be paid on the valuation of the land prior to improvement, and then for the next fifteen years taxes will be assigned at 50 per cent of the assessed value of both the land and the new improvements. Full taxation will be imposed after the twenty-five-year period. Since the City would lose taxes on only the land being taxed during the first ten years, the Board of Aldermen passed an ordinance which stipulated that during the first ten years, taxes would be paid as is presently on both the land and the old improvements, thereby guaranteeing no loss of taxes to the City. Even though the same tax dollars would be paid under this arrangement, the City probably gains since that property would have declined in value, resulting in less prOperty tax. Although the "353" Law was initially limited to the Central Business District, it is presently being utilized as an incentive towards private neighborhood redevelopment. This tool is obviously an important incentive to private enterprise where land assembly and property taxation has hindered private efforts towards redevelopment.82 A5 a prelude to the corporate undertaking of Ralston Purina Company, a brief description of successive City urban renewal projects 82However, the City of St. Louis is one of the few cities in the country having a property tax rate below the rest of the juris- dictions in the SMSA. 87 is needed in order to appreciate previous efforts by private entreprise in St. Louis. Since proponents of the renewal program feel that renewal acts as a catalyst to non-publicly aided redevelopment, these past activities should be analyzed with regard to Ralston's ultimate decision to enter the renewal process. See Figure 2, "Development Status Map" for the location of St. Louis urban renewal activities (refer to back pocket). The following projects preceded the Ralston entry and served as crucial models for further endeavorszss #1 Plaza Square After the establishment of the St. Louis Land Clearance for Redevelopment Authority (LCRA) in 1951, Plaza Square became a federally- assisted Title I Urban Renewal Project. Execution began in 1954 and rebuilding of the l6-acre, $20 million Plaza Square Apartment Project was completed in 1962. The Urban Redevelopment Corporation of St. Louis was formed under "353" as a cooperative effort of the local business community sponsored by the local newspaper, the St. Louis Post-Dispatch, which pledged $250,000 followed by seventy other firms which, together, provided $2 million equity participation. The project contains 1,090 apartments in six multi-story buildings and includes two rehabilitated churches with expanded sites, a small park, shopping facilities, and a $2 million office building for Blue Cross. The Plaza Project has also been a significant link in the concept of the axial park-mall extending from Aloe Plaza in front of the Union Station eastward to the Riverfront Arch. 84The following discussion is based on unpublished source material and documents of the St. Louis Land Clearance for Redevelop- ment Authority. 88 In the mid-19605 occupancy lagged in the Plaza Apartments and the Bethesda Foundation took tile to one of the buildings containing 156 units. The Bethesda Foundation is a non-profit residence for senior citizens who lease the apartments for life. Presently, there is an extensive waiting list for residency in the Bethesda Apartments and the Plaza Apartments have 98 per cent occupancy. The conspicuous success of the Plaza Square Project has had beneficial long-range effects, since it was the first renewal project in the City. This development encouraged private redevelopment and provided a stimulus for future reivtalization projects such as the Civic Center area which includes Busch Stadium. #2 Mill Creek Valley» The Mill Creek Valley Project, the City's second project and one of the largest in the nation, began in 1958. In 1954, a survey conducted by the LCRA delineated the extensive decay in Mill Creek. The report indicated that approximately 99 per cent of the structures in the area were in need of major repairs, 80 per cent were without private bath and toilet, and 67 per cent lacked running water. Infant mortality was twice the city's average and the crime rate was four times. The area was an economic drain on City finances as the annual property tax for the entire 454—acre area was $365,000 or only one- seventh of the City's expenditure for fire, police, health, and welfare services in the area. The redeveloped Mill Creek Valley contains housing for approximately 2,036 moderate-income families, encompassing 65.9 acres of the 4S4-acre site. This includes the internationally-known 89 221 (d) (3) LaClede Town Development, a 655-unit complex of well- designed townhouses by Chlotheil Smith who developed a similarly-styled project in Washington, D.C.‘s Southwest Renewal Area. Additional housing developed includes the 132 low-rise unit Grand Forest Apartments and 120 low-rise Laclede Park Apartments. Other residential develop- ments include 264 high-rise units in the Grant Tower Apartments, 251 high-rise units for retired teachers in the Heritage House, and 600 high-rise units for the elderly in the Council Plaza Development developed by the Teamster's Union. An additional 464 units have been completed on two separate sites under the Operation Breakthrough program of new industrialized construction. Other land in the project is devoted to industrial activity, commercial establishments, buildings for public and private non-profit institutions including expansion for St. Louis University, and a new expressway. Clearance and redevelopment produced 132 acres of industrial sites and 26 acres for commercial expansion. Approximately 174 acres of cleared land are utilized for City and State rights-of—way. Site improvements for the Mill Creek Project include new and/or improved streets, sewers, sidewalks, street lights, and improvements to the water supply system. A new Fire and Police Alarm System, and a telegraph and civil defense system have also been included in the project. The St. Louis Redevelopment Corporation, organized by local real estate interests, was formed to handle all of the industrial, most of the commercial, and one-fifth of the residential development. The remainder was handled by University Heights, Incorporated which involved New York money interests. 90 With local and outside interests desiring redevelopment projects, politics was influential in the decision-making process as most local Boards of Commission of urban Renewal Agencies desire to use local money for better community relations. An interesting con- frontation occurred with William Zeckendorf of Webb 6 Knapp, a famous speculative developer involved with Alcoa.84 In the early planning stages of Mill Creek, Zeckendorf wanted to redevelop the whole site and, of course, local politics desired to "spread the wealth" to local interests. However, the LCRA Director was partial to the large-scale approach of Zeckendorf and pursued its acceptance by the Board. The Board consisted of five prominent community leaders and the LCRA Director finally felt that he had a 3-2 decision for Zeckendorf's proposal. At the Board meeting, William Zeckendorf was unable to make the formal presentation and sent his son as a replacement. The son immediately overwhelmed the Board and presented an over-determined case fer their proposal which antagonized the Board, especially a labor leader who was influenced by the Director towards favoring the Zeckendorf proposal. Although the LCRA Director was immediately aware of the antagonistic presentation, he could not persuade the Board otherwise and the labor leader switched his vote resulting in a 3-2 decision against the proposal. One can see, therefore, both the political implications and the economic effects for redevelopers, especially since the redeveloper spends a large amount of "up-front" money fOr preparation of a proposal 84See Philip David, Urban Land Development, 2p, cit., for a series of interesting case studies. 91 that he is not sure of Board acceptance. This brief case study summary shows explicitly some of the internal politics which can effect renewal decisions which can and does discourage private participation in urban renewal. Today, the Mill Creek valley Project is essentially completed with a total investment, both public and private, amounting to approxi- mately $140 million. The total cost of clearance was $28 million and private investment presently is over $112 million. It is estimated that the final property tax yield to the City, after the tax abatement period under "353," will be almost four times the amount paid by the area in 1957, the last full year before the start of the project. #3 Kosciukso The third urban renewal project, Kosciukso, was a clearance project begun in 1960. A survey conducted prior to initiation of the project showed that 97 per cent of the 2,941 residential structures were substandard. Of the 221 acres in the project area, 89 were utilized for streets and alleys and the rest was for commercial, industrial, and institutional developments. Although preliminary plans by the LCRA designated this area mainly for residential reuse, an organization known as the South Broadway Merchants Association organized to rehabilitate their own area. The Association consisted of many small businessmen who had been located there for years and wanted to remain because they had a sense of belonging to a traditional neighborhood market. The Kosciusko Area had land available for local industry to expand existing facilities. Since the Area is adjacent to much of the City's industrial base, it 92 was still ideally suited for industrial expansion with access to major transportation arteries and facilities. The initial stage of Kosciusko provided sites for expansion of industry and business in or adjacent to the renewal area. The first structure was completed in 1962 and was in the new South Broadway Shopping Center which provided off-street parking facilities for 3,000 automobiles. Of the 221 acres in the project, 134.2 have been allocated for industrial use, 24.4 for commercial activities, and 62.4 for public facilities and street rights-of-way. The total public-private dollar investment is over $36 million. The renewal program has contributed to the maintenance of the industrial base since additional land was made available for industrial reuse. Of 85 industrial firms which relocated from other areas into Mill Creek and Kosciusko, 80 originated in St. Louis, thereby showing the potential fer renewal to retain the existing industrial-commercial base of the City. #4 Grandel The Grandel Project, which is located immediately to the north- west of Mill Creek, was a total clearance project undertaken by a group of local black businessmen. The successful Grandel Project serves primarily as a neighborhood shopping center for the low-rent housing residents of the adjacent Blumeyer Public Housing development. Acquisition occurred in 1967 with 3.6 acres used for commercial activities and 3.1 acres fer public rights-of-way. The Grandel Project was completed in 1970 with a public cost of approximately $500,000. 93 f§*West End A new approach to urban renewal activities was undertaken in the West End Project which focused on rehabilitation and conservation. Derelict buildings considered infeasible to rehabilitate are presently being cleared, and total clearance of blighted conditions are utilized to provide large tracts of land for new low and middle-income housing. The area was declared "blighted" in 1963 and became a Title I project. At that time, the West End consisted of 693 acres, 75 blocks of over 2,600 structures, 8,330 dwelling units, and 26,000 inhabitants. The 2,604 structures in the area were residential. A 1964 survey noted that over two-thirds of the families, which were predominantly black, had occupied their quarters for less than three years. One-fifth were broken families and 27 per cent of the families had incomes less than $3,000. Having been one of the first major rehabilitation programs in the nation, difficulties of determining rehabilitation costs and of finding expertise in the rehabilitation field ultimately resulted in cost over-runs which delayed continued funding. Major prOblems occurred in the renewal area since its inception as major population shifts occurred, especially from middle-income white to lower-income black. Since lower-income groups have difficulty financing rehabilitation efforts, the newness of rehabilitation resulted in little positive benefit. £6 DeSoto-Carr The DeSoto-Carr Renewal Area is presently a clearance project with limited rehabilitation of existing commercial and industrial structures. Declared blighted by the Board of Aldermen in 1959, this 94 370-acre area is located on the deteriorating near north side of the City. The Area was finally approved by HUD under the Neighborhood Development Program and execution commenced on July 1, 1970. The first phase of the project area has been devoted to the new St. Louis Convention Center approved by the voters in a 1972 bond issue. Adjacent related facilities will be developed by the Convention Plaza Redevelopment Corporation under "353." Plaza East will include a 600-room convention headquarters hotel, a two-level retail shapping mall, and a 1,500 automobile off-street parking facility. Plaza West will include a 300-room motor hotel, two office building complexes, and three parking garages for a total of 2,000 vehicles. Although other phases of the total project area are delayed by the present HUD moratorium, plans call for a major portion of the project area to be for low- and moderate-income residential reuse including related institutional and commercial facilities. Also, light industry for an employment base in the area will be emphasized in the renewal plan. #7 LaSalle Park The last renewal area in St. Louis, to date, is LaSalle Park which was approved by HUD on January 31, 1972. Description and data for this project is to be presented in detail as an integral element of the participation of Ralston Purina in an urban renewal endeavor. 95 Renewal Data85 Information indicating the number of acres developed and the dollar value of consturction in the renewal areas of St. Louis, excluding the LaSalle Park Project is presented in Table 2, "St. Louis urban Renewal Data." Data are given for various land uses. Dollar value of construction cost includes these developments which are presently underway. However, there are still several vacant sites for further construction and this cost is not estimated. Total dollar value of construction completed 6r underway for all seven Title I projects is $186,442,831 with 44.7 per cent, or $83,304,000 expended for residential development. Private commercial, industrial, and institutional developments accounted for 25.5 per cent of the total, or $47,454,000. Table 3, "St. Louis Urban Renewal Acquisition-Disposition Costs," delineates the market value at acquisition and that market value at which the land was sold to redevelopers. The determination of the writedown and the local-federal shares involved is determined by the Gross Project Cost (total of the acquisition cost, the cost of relocation, cost of clearance or rehabilitation, and the cost of site improvements and supporting facilities) mipgs_the Disposition Cost of the land, thereby determining the Net Project Cost to be shared by local and federal government, and the local-federal shares involved. The following cost features should be noted: 1. Plaza Square had an acquisition market value of $3,423,755 and was sold to redevelopers for $2,517,000. The City's share totaled $870,247, while the Federal government contributed 85Data are based on unpublished sources of the St. Louis Land Clearance for Redevelopment Authority. 96 £33203 332— .3%5 «neon—gonna 03» new .9352: 53095380 mo 03.; veuoonoua on» how meadow»: on one 32:... 63:30.3 on we: «3: 9:63 .20 .9530: we 3?: «5003280 no on: 05 no 0300ch oaa.~wa.~au ooo.van.-» ooo.oonn ooo.mae.o. ooo.o-.aa» ona.ooH.om» ausuoeas eeauoauuneou mo unna> eouuonoua oflm.-a.m~» ooo.van.N~» ooo.ems.ac» ooo.»e~.m~» ooo..on.ne» ~n¢.~vv.oaan coauuauunaou mo oases nudges . ~.ma ».an~ ”.mn o.o~a n.Hoe eoaoaosoa nou0< Hence 0 o o o o o 503.325 603030380 mo 31> eouoonohm o o o o o o seine—5 waxes vouoHB-ou 33030380 we 37> » o o o o o o 3932,09 new: saga cadence $936.3 o o o o $936.3 anions: 83030380 mo 33> 3009.38 ”ma.ae~a o o o o mma.meaa aazuoeaa ao\eea pouoaaaou eoauusuunnau mo o=Ha> . c o o o o a 39326: nou0< 55-388 9.4.62.3 o o o 8062....» 815.323 anions: 83030380 mo 31> e333:— ooo.nwo.HH» o ooo.oo~.H» ooo.weea ooo.oo~.a» ooo.a~m.-u aaxuoeaa uo\p:a caucus-o0 composuoneou mo osua> » . N6 3 n; 13 .8398 38¢ ppm anon .. o o o c o ausuovas eoauuauunaoo mo cages eouuonoua mmfi.am» o ooc.noH.H» o o mm_.aoa.au . aasuoeas uo\pau panama-cu coauusuuaaoo mo asau> » . o n.n o o n.n eoao~o>oo nouu< "avenue .. ooo.amo.n. ooo.oon» o o ooo.ooa.n» xasuouea eosuuauuneou mo o:~.> eouuofioua omo.ae~.e» coo.Hmo.m» ooo.oae.ca» ooo.omn» o omo.eva.u~» auzuoeaa uo\peu eouoaaaou acupunuuneou no oaaa> » .. o.m n4: 5; 0 9.4.3 eomongoo neuu< 9.9533 .. ooo.noo.w» o ooo.ma¢.o» ooo.oco.m~» ooo.wna.on» Razuopea eoauoauuueou mo o=He> eouoonoua nnm.-o.aaa ooo.noo.m» ooo.oeo.m~» coo.omc..H» ooo.~em.nm» nmn.o~n.oaau suspense uo\eea pounds-o0 coauusuunaou mo o=~a> » . H.~o w.wHH n.v~ «.mo a.~a~ eoaoaosoo aouu< aoouu "an: a. o o o o c 53.33.: gmuuaumeou mo 3~e> vouoengm ”Ha.~om» o ooo.ooo.~» o ooo.~am.o~» «Ha.nnm.n~» aqueous: uO\peu panama-o0 asauonuuneou mo nudes » . 0 ~ N NH o.o~ eoaaao>oa nouu< damn nonuaaaoaa unansa aux-mo-uugua¢ ouasaua nausea aaaucopaaoz peeaao~o>oa anemone uo\e=- nausea new aacoauspaunen can sauce 3:33895 comm Ill] axon? . 3.80m . Harman—65 . “380560 . June "255 fink: 333 Junta 0.3-». Table 3.--St. Louis Urban 97 Renewal Acquisition-~Disposition Costs. Plaza Square Market Maine Market Value Mill Creek Valley_ Market Value Market Value Kosciusko Market Value Market Value Grandel Market Value Market Value West End Market Value Market Value DeSoto-Carr Market Value (First and Market Value at at at at at at at at at at at Second Years Only) at Acquisition Disposition Acquisition Disposition Acquisition Disposition AcquiSition Disposition Acquisition Disposition Acquisition Disposition $ 3,423,755.00 2,517,000.00 $0,132,538.00 16,369,871.00 13,169,250.65 5,020,000.00 380,101.00 163,000.00 10,797,207.63 698,000.00 2,382,102.00 *Dollar figures presented in Table 3 relate only to properties acquired or disposed as of July, 1972. 98 $1,740,000. Private sector involvement totaled $17,500,000, thereby providing for a total amount of investments to $20,110,000. Mill Creek Vall§y_had an acquisition market value of $30,132,538 and was disposed to redevelopers for $16,369,871. The City invested $7,037,058 in the area and the Federal Government has spent approximately $30,000,000. Private investment for new construction totaled $96,000,000 with rehabilitation of $1,788,000, thereby providing for a total investment of approximately $135,000,000. Kosciusko had an acquisition market value of $13,169,250 and was disposed at a cost of $5,020,000. The City's share was $4,022,280 with the Federal expenditure of $12,066,842. The private sector accounted for $20,000,000 with a total investment of over $36,000,000. Grandel had an acquisition market value of $380,101 and was disposed to private redevelopers for $163,000. The City provided $121,887 and the Federal Government spent $365,662 in the area, while private investment totals $463,000, thereby providing for a total public-private investment of $950,549. The West End acquisition market value was $10,797,207 with disposition of property at $698,000. Since the project is still active, no determination of private investment has been made although presently around $17,000,000 has been privately developed. It is anticipated that total investment in the area upon completion will be approximately $54,000,000. 99 6. Acquisition of land in DeSoto Carr_presently has totaled $2,382,102 although there has been no disposition of land as yet. The total cost of this project will be over $40,000,000 as the convention facilities are completed. It is apparent, therefore, that St. Louis renewal efforts have induced substantial private investment although the costs and benefits of such endeavors cannot really be evaluated. Although criticism has discredited the renewal program nationally and locally, especially because of early relocation efforts, these areas of St. Louis are definitely viable and are continually cited in the media for their positive effects. From the public decision-making viewpoint regarding the selection of these project areas, most renewal projects appear sensibly located as a catalyst for continual renewal. Selection of these areas presents beneficial externalities to adjacent improvements as areas designated fer both public and private redevelopment can "fit" into the location puzzle. Looking at the recent surge of private redevelopment activities in the City, virtually all of these areas under study for feasibility are directly or immediately adjacent to designated renewal areas. See Figure 2, "Development Status Map," for the location of recently-announced private efforts and note their relationships to urban renewal areas. Also, note Appendix A, "Some Recent Private Investments in the City of St. Louis," which describes these develop- ments. According to a real estate market analyst in St. Louis, approximately one-third of city property is presently under consider- ation by private developers and are related directly to these renewal areas . 100 Private Redevelo ment--Outside the Urban Renewal Process Although Busch Stadium and the Arch on the southern flank of the CBD spurred some brief redevelopment activities in the mid-sixties, the CBD continued to stagnate as industrial parks and office develop- ments dispersed to concentrated suburban locations. Local equity money of $20 million was raised by the business community for the Stadium, as the Civic Center Redevelopment Corporation, formed under "353" which allows twenty-five-year tax abatement, obtained a $31 million loan from the Equitable Life Assurance Company. The City provided $6 million by an approved bond issue for public improvements. The $109 million non-federally assisted project includes Stouffer's Riverfront Inn, Pet Milk Headquarters, the Gateway Mall (a landscaped boulevard), the Equitable Office Building, the Spanish Pavilion from the New York World's Fair which is being converted from a cultural center to a hotel-convention facility, and a branch bank. This development has flanked the southside of the CBD, but the CBD proper continued to decline into the early 19705. In order to act as a flank on the northside of the CBD, plans for the new convention center and adjacent plaza to be located in the DeSoto-Carr Renewal Area were announced. Altough a bond issue to finance the convention center was failed initially by the voters in 1971, excellent public relations displayed the extensive proposed developments to be constructed in the CBD upon development of a con— vention facility which was finally approved by the voters in November, 1972, for a $25 million bond issue. Since passage of this bond issue, over $400 million of new development has been announced for the CBD 101 and will be sponsored heavily by the downtown lending institutions which had not previously taken a very positive stance towards redevelop- ment of downtown. Also, several new private residential developments of major proportions are being planned in several large areas of the City related 1. Presently, the new surge of private activity in the City is directly to these points: The total CBD has been declared eligible fer "353" tax abate- ment provisions. The Convention Center and adjacent plaza in the DeSoto-Carr Urban Renewal Area is scheduled for completion in 1976. Designation of various neighborhood areas for "353" eligibility. Designation of various historical areas as an incentive to control rehabilitation. Designation of a potential new-town in-town on both sides of the Mill Creek Valley Urban Renewal Area. Land Reutilization Act recently passed locally allows the City to foreclose on tax-delinquent properties at a faster rate, thereby allowing for land banking. Extensive neighborhood community pride. Improved City-County cooperation, trying to pursue problems on a metropolitan-scale. Lastly, but most importantly, the financial community has become more enlightened with new leadership, with competition from new banks, and with a new image of the financial com- munity's interest in the redevelopment and improvement of the central city. Evidently, the financial community became 102 embarrassed over its reported "red-lining" and non-investment in central city mortgage finance. Both profit and pride are the major reasons for interest of the private sector in central city redevelopment. Possibly, the spreading of blight into suburban areas has shown private interests that blight is not just a central city problem. The profit role of the financial institutions is indispensable since they finance major real estate developments. In the St. Louis metropolitan area, suburban development has continually been financed by the downtown lending institutions since they have the sources of necessary capital. Thus, their non-investment in the City does not make economic sense, especially since they hold most of the mortgages in the central city. Pride is the other incentive since national prestige for economically- booming areas such as Atlanta, Houston, Chicago, and others is directly related to the progressive attitudes of the local lending institutions. With the recently-released Rand Report which criticized the local St. Louis financial community for virtually leaving central city redevelopment to the federal government, the conservative image of the St. Louis financial community has become a stigma and has injured its national reputation . Obviously, these nine points depict signs of vitality which should stimulate the private sector towards more redevelopment activities. With selected public projects such as urban renewal, with use of tax incentives and powerful land assembly techniques, and with continued community pride, private enterprise will aid in the redevelopment of the City to a greater degree. 103 The following chapter offers a case study of a major U.S. industrial corporation located in St. Louis which is voluntarily engaging as a prime participant in a renewal endeavor just south of the Stadium Development. Combined with other activities in St. Louis, these effbrts act progressively as catalysts towards further re- development. CHAPTER VI A CASE STUDY OF PRIVATE AND PUBLIC PARTNERSHIP: THE LASALLE PARK URBAN RENEWAL AREA This case study focuses on the role of Ralston Purina Company as a corporate entity involved in the urban renewal process. Barriers to private redevelopment are described as well as the rationale for Ralston's decision to undertake an urban renewal project. The economic ramifications of LaSalle Park for the City and for Ralston, the advantages of renewal for Ralston, and the corporate investment roles played by Ralston are analyzed in detail. Also, an extensive analysis of the difficulties of private-public coordination is included. Several years prior to the recent upsurge of private investment proposed for the City, the LaSalle Park Area was declared blighted and eligible for urban renewal by the Board of Aldermen on February 20, 1969. This area is less than a mile south of the Stadium Complex and the Central Business District, with the Kosciusko Urban Renewal Area immediately adjacent to the southeast. Refer to Figure 2, "Development Status Map." The area is one of the oldest residential areas in the City and is occupied by predominantly white residents although a minority-dominated, 1950-styled high-rise public housing project is immediately west of the project area. Virtually all of the area is 104 105 cited for clearance. The boundaries are generally defined as: 12th Boulevard on the west; Gratiot Street on the north; with 7th Street and Interstate-55 on the east and south. The total area is approxi- mately 140 acres with broadly mixed land uses composed of 32 per cent residential, 29 per cent non-residential, and 39 per cent streets, alleys, and public rights-of way. See Eigure 3, "Project Area." Due to lack of Federal funding nationally, in order to get the project underway, the area was divided into three phases. The first phase, consisting of 44 acres, was funded under the conventional renewal program on January 31, 1972, and is considered by HUD as one urban renewal project with no guarantee of continued funding. A distinction should be made between the conventional renewal program and the neighborhood development program (NDP) which was authorized in 1968. Funding for conventional renewal is provided on a project reservation basis whereas the NDP approach is based on annual increments in renewal planning, funding, and execution. Under conventional renewal, the LPA would prepare a survey and planning application which requests an advance of federal renewal funds to carry out the planning activities. Also, a reservation of federal capital grant funds is made to pay the federal share of the local net project cost. After survey and planning funds are approved, planning is finalized and an application is prepared for acceptance by HUD which commits funds for the total project over its entire life-span. Under NDP, planning occurs as close to execution as possible with 12-month action-year plans, financed by annual arrangements. Although federal funds can be cut any year by the federal government $0.2 Hummer—Ewan 3.3m: .8 0.5»; Ii 106 i i I: {E [jéfl E E. 1.5 9 :3 >WZWE z>m2mm 2