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Fall 2005

From Wall Street to Your Street: New Solutions for Smart Growth Finance By Robert E. Lang, Jennifer LeFurgy, and Steven Hornburg Metropolitan Institute at Virginia Tech

This paper was written by Robert E. Lang, Jennifer LeFurgy, and Steven Hornburg for the Metropolitan Institute at Virginia Tech. The views expressed here are solely those of the authors. The Funders’ Network is publishing this paper to spark conversation and challenge assumptions about smart growth financing. © 2005 Funders’ Network for Smart Growth and Livable Communities 1500 San Remo Avenue, Suite 249, Coral Gables, FL 33146 www.fundersnetwork.org

From Wall Street to Your Street: New Solutions for Smart Growth Finance Introduction “Despite its imperfections, the overall American real estate finance model works well in attracting Wall Street capital to Main Street homes and businesses.” (Hornburg 2001: p. iv). “Perhaps the single greatest challenge facing smart growth is finding inventive ways to adapt highly focused financial instruments to comprehensive development practice.” (Danielsen, Lang, and Fulton 1999: p. 532). The above passages still hold true today— by and large, the American real estate finance system works quite well, and smart growth1 must become better integrated with this market if it is to succeed. But the financing part of smart growth may be the toughest nut to crack. This paper reassesses the current methods for smart growth finance. It sketches out two different “fixes” for the problem of financing smart growth. The first fix directly addresses the financial instruments underlying development. Most of the literature on financing smart growth focuses on how to improve and reform these instruments. We2 extend this literature by offering new finance fixes for smart growth.

The second fix focuses on urban design. This is the less intuitive strategy, but one that is just as important to the future of smart growth as fixing its finance. The actual urban form of the built environment can influence whether or not a project is fundable. We argue that there are more urban design possibilities for accomplishing the goals of smart growth than are now being considered, and that some of these alternative designs can be funded with current financial products. And the two fixes are linked—innovations in finance can open up new urban design possibilities, and using a greater range of urban design options can open up new finance alternatives. This paper also addresses the history of both finance and the built environment in the United States. To put our current situation in context, we need to better understand the past. This is not a trivial concern—there have been numerous assumptions made by people in the smart growth movement based on a specific historical read. For example, many people have assumed that development before the mid-20th century was long-term oriented, while post-war development has been driven by short-term interests. We now reverse that view and argue that development in the United States has, for the most part, always been about the short term.

Editor’s note: The authors use the term “smart growth” to describe a set of principles, policies, and characteristics that recognize the connection between development and community. For more information on smart growth principles, visit www.smartgrowth.org. 2 Editor’s note: “We” and other possessive views expressed here do not necessarily reflect pronouns in this paper refer to the authors. The those of the Funders’ Network. ______________________________________________________________________________________ From Wall Street to Your Street 2 1

Additionally, many argue Wall Street has forced standards on developers in a kind of “form follows finance” argument. We argue that the opposite may have occurred—Wall Street found development already standardized and then put its official stamp on the categories. This paper starts with a brief statement of what we mean by smart growth development, including a comparison table that shows the degree to which mixed land uses and transit access exist across metropolitan America. This section is followed by a brief history of finance and development. The paper then examines design approaches for smart growth, analyzes a retail investment category, and provides several case examples from the Washington, D.C., area (see Appendix). What is Smart Growth Development? Based on a preliminary read of the recently published studies on metropolitan growth patterns, a complicated relationship exists between land uses and built density (Ewing, Pendall, and Chen 2002; Fulton et al. 2001; Galster et al. 2001; Lang 2002, 2003). Some places are dense with mixed uses, while others are

dense but without them. Still more places are just plain low-density. Consider the relationship among high built housing densities, mixed land uses (including retail and office), pedestrian friendliness, and access to rail-based public transit (see Table 1 on page 4). These combined elements are considered the “Holy Grail” of smart growth. Most smart growth design and policy solutions are intended to move metropolitan America closer to a world where all four qualities intersect in one place. Table 1 shows this relationship based on a hierarchical scaling of areas in six locations: Boston, Washington, New York, Los Angeles, suburban South Florida, and suburban Atlanta. The six locations in Table 1 were picked to represent a range of built environments that reflect varying degrees of mixed uses and transit access. We also picked these cases from a diverse array of metropolitan areas. Table 1 also approximates a measure of sprawl, with the top of the smart growth hierarchy (the areas demonstrating the most smart growth elements) being the least sprawling area and the lower ones the most sprawling areas (Ewing, Pendall, and Chen 2002; Galster et al. 2001).

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Table 1. A Smart Growth Hierarchy—Comparing Housing, Retail, Office, Pedestrian Orientation, and Rail Transit Access High Mixed-Use Pedestrian- Rail Transit Mixed-Use Place/Feature Housing Retail Friendly Access Office Density Orientation Back Bay of Boston

X

X

X

X

West Side of Manhattan Washington, D.C.’s AdamsMorgan

X

X

X

X

X

X

X

West Side of Los Angeles

X

X

Sunrise, Fla.

X

X

Fayetteville, Ga. Compare the relationship of the features listed in Table 1, starting with Boston’s Back Bay. The Back Bay has all five elements: housing, shopping, office employment, and rail-based-transit access all laid out in a pedestrian-friendly atmosphere (except in the dead of winter). People live, work, and play all in the same area. Back Bay is a smart growth ideal. The West Side of Manhattan has every smart growth element that the Back Bay of Boston has, minus the significant office development. People may have to commute to work by rail transit, but many personal errands, such as running out for milk, are done on foot. Washington, D.C.’s Adams-Morgan neighborhood has all the elements of Boston, minus offices and convenient rail transit access.

Throughout much of Los Angeles’ West Side, two of the five conditions also exist. This part of Los Angeles is both relatively dense, with small-lot single-family homes and modest-sized apartment buildings, and has retail lining its boulevards. The problem is that the city’s boulevards are often wide, multi-lane roads built for cars, not people. A pedestrian feels overwhelmed by the auto dominance of the street. Also, the stores along the boulevards are mini-malls with parking out front, which have lost a classic main street connection with the sidewalk. The structure of Los Angeles’ streets and stores encourages people to drive, even to get some milk. But at least the milk run is often just around the block.

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Suburban South Florida—for example, Sunrise—has a relatively high housing density. Houses often occupy small lots, as the whole area presses up against the Everglades. Yet suburban Sunrise is not especially a mixed-use community. Subdivisions stand isolated from neighborhood shopping centers and office parks. It is indeed very rare for an adult to arrive at one of these neighborhood centers on foot. Sunrise has the costs associated with a dense region such as congestion, but it achieves few of the benefits, such as walkability, from its densely built environment. Fayetteville in suburban Atlanta lacks any of the crucial urban elements. It is low density, mostly lacks mixed uses, and pedestrians are an endangered species. And like most of suburban Atlanta, Fayetteville is not in tune with smart growth. Now consider the development strategies that relate to all six places in terms of making them match the goals of smart growth. In Back Bay, the built environment is fine, but there is some concern about gentrification pricing out less affluent residents. The same is true for Manhattan’s West Side and Washington, D.C.’s Adams-Morgan neighborhood. The West Side of Los Angeles has an urban design problem. Steps might be taken to improve the pedestrian orientation of the street and maybe add some sidewalk cafes in for good measure. Sunrise, Fla. is more of a problem. It needs to have retail better integrated into its subdivisions and an improved streetscape within them. It thus has land use and urban design problems that could be markedly improved by mixed-use finance. Then there is Fayetteville, Ga. To

transform Fayetteville, it would be necessary to first build denser, then integrate stores, and then focus on the street—or more likely, start from scratch. Fayetteville has, as does much of suburban Atlanta, a smart growth deficit writ large. A key challenge for the smart growth movement is thus the Sunrises and Fayettevilles of America. And there are plenty of these places—they still represent the dominant development trend in most of the United States. Fixing smart growth finance will have its biggest impact on exactly these types of sprawling suburbs. Just getting a Sunrise or Fayetteville to have mixed-use, pedestrian-accessed retail would be a major accomplishment (Lang 2000a). Deconstructing the New Urbanist History of Development Christopher Leinberger states, “Building for the ‘ages’ has been a motivation for real estate developers for centuries. It is the reason pre-World War II retail emporiums, office buildings and apartment building are proudly referred to as ‘pre-war’ when they are sold or leased” (2002). Newer construction, it is argued, acts at the behest of Wall Street, which demands a quick return and therefore encourages a slapdash built environment. On its face this argument seems reasonable. But think about it. Did people really think in the long term in the 1920s and build for the ages? This was, after all, the Jazz Age—complete with flappers and bootleg gin. It was also a period of enormous stock and real estate speculation. The old read of the 1920s was that it was all about the short term— which led to a financial panic in 1929. These folks were less likely thinking about the ages, and more probably thinking

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about next week. Many of the buildings erected during the 1920s were disposable and not grand monuments for the ages. Americans are inherently not castle builders—with the exception of the White Castle hamburger restaurant chains that emerged during this decade (which were housed in faux miniature castles complete with parapets). Yet the 1920s were hardly an aberration. In fact, the entire history of American real estate development is one of speculation—and short-term thinking (Jackson 1987). Consider that the first real economic depression in the United States—the Panic of 1837—was due in large part to land speculation in the Midwest (Wade 1996). Also consider that the United States has a long-standing tradition of building innovations that produce low-cost and short life-cycle structures. These innovations include: • •



False fronts on stores (popular in the mid-19th century Western United States);3 Balloon framing (or nailing frames together rather than using mortise and tendon connections, which was used to speed the reconstruction of Chicago after the great fire in 1871); Taxpayer strips (or early 20th century retail strips comprised of temporary, one-story frame stores instead of traditional multistory brick “main street” stores; the buildings were only needed to pay the real estate taxes on the property in the short term until



more intensive forms of development followed.); and Mail-order houses (or early 20th century houses that came in kits and were sold by large retail chains such as Sears).4

The American habit of building temporary structures and then abandoning them has been quite common even in this country’s early history. The noted German geographer Friedrich Ratzel observed on an 1870s tour of the United States that, for such a young country, America was filled with “ruins” (Ratzel 1873). The ghost towns that dotted the nation from Upstate New York to California intrigued Ratzel, who dedicated a whole chapter of his book on American geography to the topic. American construction techniques were so varied and unregulated before World War II that the Federal Housing Administration had to establish minimum standards for home construction starting in the late 1940s (Jackson 1987). Given America’s history of preferring the temporary to the permanent, our current built environment full of mini-malls and subdivisions should shock no one. Yet a big difference between the old temporary structures and our new ones is the technology and material used in construction. In the 19th and early 20th centuries, durable materials were used in temporary structures. Thus, many of the assumed “temporary” one-story buildings in taxpayer strips still stand. Our current engineering practices and material science enable us to use much lighter and less Mail order houses were so common in the early 20th century that even president Richard M. Nixon grew up in one in Yorba Linda, Calif. Target stores sell small, stand-alone pre-cut buildings (for about $10,000) that can be used as home offices and guest rooms. 4

3 False architectural elements that visually inflate the size of structures still turn up in modern buildings, such as false columns on McMansions. ______________________________________________________________________________________ From Wall Street to Your Street 6

durable materials than in the past without risk of building failure. We are the inheritors of the American tradition to build quickly and cheaply, but we have the technology to put up the flimsiest—yet ironically safest—structures in history. The problem is not that we have suddenly developed a taste for the temporary (which is the standard New Urbanist charge), but that we now possess the tools to put up cheap looking but technically sound buildings. Design Fixes Design fixes for improving smart growth finance are diverse in type and scale—they range in focus from individual buildings to entire business districts. We offer several cases in which a change in the design and uses of buildings will fit the current structure of finance. The solutions we offer fit the spirit of smart growth and New Urbanist5 development, but in some instances are not standard practices. To us, smart growth is synonymous with mixed-use development. Smart growth’s major goal is to increase built density while saving open space, improving opportunities for mass transit, and reinvigorating urban cores. Yet higher-density development in and of itself will not necessarily produce better places (Lang 2003). Mixed-use development at the neighborhood level is needed for higher-density growth to work. Consider again the case of Los Angeles, which has the highest density of any large region in the nation based on the

population density of its urbanized area (Lang 2002). Yet metropolitan Los Angeles has become the very symbol of urban sprawl. While Los Angeles has a high density, it remains largely automobile-dependent because it features little mixed-use development; the city does not benefit from its density because people still need their cars for most trips. Smart growth prescribes mixed-use development, especially combining employment and housing. Building Mixed-Use Retail The number-one obstacle to implementing New Urbanism (or smart growth development),6 according to a study commissioned by the Congress for the New Urbanism and conducted by the University of Pennsylvania’s Wharton School of Business, is resistance to financing mixed-use projects (Gyourko and Rybczynski 2000). Penn researchers uncovered resistance among lenders to neighborhood retail in general and town centers in particular. Some early New Urbanist proposals included large town centers that could not be supported by the new community alone—even after buildout—and therefore made the project risky to finance (Gyourko and Rybczynski 2000). New Urbanist design often placed the town center in the middle of the development and away from a main road. It also limited the amount of parking. These two factors discourage the use of town centers by anyone except those living in the development, a market area that is too small to sustain them.

5 New Urbanism is an urban design movement 6 Editor’s note: Hereinafter, the authors use the concerned with real estate development reform. terms smart growth development and New Characteristics of New Urbanist neighborhoods Urbanism interchangeably. To learn more about include walkability and diverse ranges of housing New Urbanism, visit www.cnu.org. and jobs (source: www.cnu.org). ______________________________________________________________________________________ From Wall Street to Your Street 7

Difficulty in financing is not intrinsic to New Urbanist design; it is a problem for any smart growth mixed-use development (Lang 2000a). While it is easy to estimate the risk on various components of mixeduse projects, bundling them into one package complicates the calculation. Lenders prefer standard products with proven performance records. Standard products, such as single-family homes, also afford lenders more liquidity because they can sell the loans to a large secondary market. For this reason, retail is not often part of the neighborhood/subdivsion development process. How then was so much neighborhood retail built in the past? Much of it was built before the age of the automobile, and it sprang up close to densely built neighborhoods. As the automobile became more commonplace, retail adapted its form and parking allotments. By contrast, building a new town center— New Urbanist style—assumes that the last century of development never happened. In fact, a whole body of literature exists that shows that even in the early 20th century, neighborhood retailers slowly moved to automobile accessible locations (Longstreth 1999). The retail shift from “Main Street to the Miracle Mile” took decades (Liebs 1985). At first, automobile access was improved, but eventually the highways and main roads filled with cars; in many places, a trip to the store now meant sitting in traffic. While accommodating the car drew retail away from neighborhoods, zoning ordinances ensured that it stays away. Zoning developed as a means to separate incompatible land uses, especially to keep noxious uses away from middle-class

housing; however, some zoning protects people from hazards that no longer exist. In the past, living above or near a store was not considered an amenity, but today’s retail is considerably more regulated and sanitary and so proximity to a store is less of a nuisance. Still, many homeowners continue to resist the idea of any type of mixed-use development for various reasons, including the concern that it might lower their home’s value. Removing zoning obstacles is a first step to building more retail stores in residential areas. If zoning does not already permit neighborhood retail development, regulatory barriers will be factored in as part of the financing risk. Zoning that allows and even encourages mixed-use development is a standard feature of smart growth. Over the next few years, many municipalities will adopt smart growth ordinances that lower barriers to neighborhood retail in residential areas, but many barriers will persist. Smart growth advocates should focus on reforming these regulations. “Not-in-mybackyard” (NIMBY) opposition to mixeduse development also remains. Most people justifiably object to big-box retail as a neighbor—the traffic alone can be a major nuisance. But small-scale retail that fits into the neighborhood context should encounter less resistance, especially as such projects become more common and people find them to be a benefit rather than a detriment to their quality of life. A key issue in financing mixed-use projects is finding creative ways to slowly incorporate retail into subdivisions. The timing and size of retail projects can influence the finance and approval process. Some early New Urbanist projects tried to rush the process by settling for conventional strip

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development (Kentlands in Montgomery County, Md., for example). But more flexible approaches to neighborhood retail—by New Urbanists and others— now are being tried. Not all methods will work in all situations, but with innovative design, pedestrian access to retailing slowly could be improved. Taxpayer Strips New retail strips can be built to accommodate both cars and pedestrians; old retail strips can be retrofitted to do the same. The fronts of hybrid retail strips will still need plenty of parking and good highway access, while the backs will require innovative design to integrate them into new and existing neighborhoods. The most important relationship will be between hybrid retail strips and multifamily housing. In many places a buffer zone exists between retail strips and single-family homes that often is filled with townhouses and garden apartments, but most multifamily housing is laid out in a way that provides little benefit from increased density. Residents typically lack pedestrian access to the very strip malls their units adjoin, and in many cases they must get on the highway to reach a store within sight of their home. Shopping strips may prove a good place to test out variants on smart growth design. Redesigning them also could help reestablish an early 20th century urban design tradition, hybrid shopping strips. As retail development evolved at the start

of the last century to accommodate cars and trolleys, lower-density elongated forms of Main Street emerged called “taxpayer strips”—so named because developers built small, usually single-floor stores intended just to generate enough revenue to cover property taxes in new suburbs where they expected higherdensity development to occur (Liebs 1985). The developer would then sell at a profit, and the temporary store would be replaced by a more substantial and costlier structure. Yet in most cases, more intense development never occurred, because the automobile created a far more decentralized metropolis. Many taxpayer strips remain in older suburbs, and most still balance the needs of cars and people successfully. The problem is that the art of building taxpayer strips has been lost as neotraditionalist architects and planners focus instead on restoring an earlier vision of Main Street that predates cars. New Urbanists could use taxpayer strips as a model for a new generation of neighborhood retail strips that accommodate cars and pedestrians. Figure 1 on page 10 shows the relationship between transit type and neighborhood retail. It traces the evolution from foot traffic to trolley to auto-based retail (see Appendix for photo illustration). The transition was a long, multi-step process of retail transformation from Main Street to today’s strip shopping.

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Figure 1. The Relationship Between Transit Type and Retail Form

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This retail evolution process should be considered when looking at real estate finance categories—the “old style” of mixed use is no longer viable due to zoning and lack of comparables, while the contemporary strip center relies too heavily on auto traffic. The intermediate point between an old town center and the current power center represents a compromise between the pedestrian and the car. In particular, early to mid-20th century retail strips accommodated cars without being overwhelmed by them. A revival of an “auto accommodating” environment is needed. The old dichotomy of an “auto excluding” town center and an “auto dominated” strip mall is false. A host of blended retail environments exist and can be a source for design guidance in new mixed-use projects (see Appendix for examples). Flex Spaces and Compartmentalized Projects People once lived above the store, and they can now do so again. In new developments around the country, live/work units—the name given small mixed-use buildings—are going up, most in New Urbanist projects such as Vermillion in Huntersville, N.C.; Middletown Hills in Madison, Wis.; and Orenco Station in Hillsboro, Ore. Live/work units usually are three-floor rowhouses, with the top two floors serving as residential space and the first floor available for business use. They can rent out this space, start their own business in it, or simply use it as expanded living quarters. The workspace and residential areas in live/work units should be treated as a single housing unit for financing purposes. A person applying for the home loan cannot use the expected rent from the

workspace to help qualify for a mortgage; to do so would force the lender to assume that the workspace always will be rented, which in turn will increase the risk. The challenges of developing live/work units was the topic of an article in New Urban News (November/December 1999) that noted that the “regulation of these units varies significantly.” In many places, building code reviewers still do not know what to make of live/work units; some places treat them as businesses, while others regard them as home offices. Developers complain that regulation can drive up the costs of units, especially when local codes require that the workspace meet regular commercial standards. Despite these barriers, live/work units generally are selling well. Live/work units provide retail and commercial space in small increments, so they are sensitive to market forces and can thrive in even the smallest market areas. They also can create entrepreneurial opportunities for their owners, who can try out a business without having to rent space, or can rent the space to another small business owner. Either way, there is little risk because the space was purchased with the financial calculation that it would remain vacant. The credit market for housing is quite different from that for neighborhood retail. If all the elements are packaged together, the risk from retail projects can raise finance costs. Finance Fixes Understanding Old-Style, Mixed-Use Finance An important starting point in developing new methods for financing smart growth is looking at the past. The key element of old-style, mixed-use finance is that it was

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not a comprehensive effort to fund a single integrated project. Rather, it represented concurrent investment, or multiple investments, in the same location. Because zoning did not segregate land uses until the early 20th century, retail, housing, and commercial development occurred in a mix, but with different investors. In other words, old-style, mixed-use finance was a direct result of land use practices that allowed different types of development (with different investors) to be mixed at a fine grain. Thus, there is no ancient practice of mixed-use finance. In fact, the term “mixed-use” did not even exist but has been invented by a generation that seeks to recapture this once vernacular land use practice. Old-style, mixed-use development also was primarily driven by local investors, as was almost all development except for big infrastructure improvements, such as the subways in New York (with much of its finance originating in London). Local money still drives mixed-use finance. But the challenge is to link even modest-scale, mixed-use development to the national and international capital markets. Without access to these markets, mixed-use development will remain at a distinct competitive disadvantage. Consider that mortgagees who finance even affordable homes have direct access to international capital markets through a large secondary market and the power of such a system becomes self-evident. The only current practice for developing mixed-use neighborhoods that reflects an older building method is infill development. There are many urban infill projects that are mixed use in character despite the fact that they are exclusively residential.

Take, for example, the “Harrison Square at the U Street Metro” project that was built in Washington, D.C.’s U Street neighborhood. Eakin-Youngentob Associates, Harrison Square’s developer, built 98 rowhouses on one large city block that used to be occupied by the Washington Children’s Hospital. While the developers did not include any retail with the project, they were locating their residences in a mixed-use area. Thus the neighborhood character itself allowed Eakin-Youngentob to promote their project by offering “A Vibrant World at Your Doorstep” and showing the trendy shops along U Street (Eakin-Youngentob 2000). While it may be easy to develop in the dense, mixed-use neighborhoods of Washington, D.C., Eakin-Youngentob has its work cut out for it in the suburbs. The firm’s new “Brownstones at Wheaton Metro” project is going up in a decidedly more suburban setting in Montgomery County, Md. While both Harrison Square and the Brownstones feature attached (and expensive) row housing near Metro stops, the latter development cannot count on an existing mixed-use neighborhood to provide its prospective residents with retail services. Even though Eakin-Youngentob promises a nearby eclectic mix of shops and restaurants at Westfields Shoppingtown Mall, the access is by automobile. Therefore, a key smart growth element of pedestrian orientation is lost at this site. Eakin-Youngentob, a forward-thinking developer of upper-end, high-density housing that tries to locate its projects near public transit, is reduced to showing a shopping mall on its website promoting the Brownstones. Clearly, this is one site where more effective mixed-use development and finance strategies would

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have helped an already smart growth– themed project to become fully pedestrian oriented. It would have moved the project up the smart growth hierarchy shown in Table 1 (on page 4). Form Follows Finance or Finance Follows Form? Architect Ludwig Mies van der Rohe’s famous line to describe the Bauhaus ethos that “form follows function” has been appropriated by smart growth advocates to read “form follows finance.” The argument is straightforward: development is shaped by what Wall Street (or the national and international capital markets) will finance. Wall Street categorizes the development world into a dozen plus standard products and directs capital into such projects (Leinberger 2001). The charge that form follows finance is manifestly true at this point. Wall Street increasingly drives what gets built, but this was not always the case. In fact, Wall Street was rather late to the development finance game—perhaps as late as the past decade. This conclusion stems in part from a conversation with noted real estate consultant Chris Leinberger (2003). Leinberger argues that Wall Street’s role in development finance dates to the savings and loan (S&L) bailout of the early 1990s.7 The S&L crisis was brought on mostly by

commercial real estate speculation. A federal agency, the Resolution Trust Corporation, was set up to repackage and resell liquidated properties. A major debate initially occurred on whether to market the properties individually—a longer but possibly more lucrative retail process—or to bundle the properties into like categories and sell them in bulk—a wholesale orientation potentially yielding less revenue but quicker disposition. In the end, Wall Street became heavily involved in the process and had a relatively easy time fitting most real estate products into categories that could be bundled and sold to investors. Wall Street may have fixed the categories, but it was dealing with an existing portfolio of loans that were not induced by any standards. This existing commercial real estate was easily categorized, meaning that finance followed form. Thus, Wall Street discovered development forms that already embodied standardization. Long before Wall Street “determined” what could get financed, what was getting built was hardly smart growth friendly. Most of the nation’s malls, shopping strips, and even speculative suburban office parks were developed prior to Wall Street’s heavy hand in the finance process. In other words, if “form follows finance,” then how is it that the effect (or form) seemed to exist years prior to the cause (or finance)?

We concur with Leinberger that the S&L bailout firmly cemented Wall Street’s role in real estate America’s built environment was moving finance, but suggest that the roots of this involvement run deeper. The single-family home toward standardization before Wall mortgage securitization boom, a contributing Street’s involvement courtesy of the thrift factor to the failure of the savings and loan crisis. Perhaps Wall Street found a set of industry, and the massive federal loans sales of the pre-existing, roughly standardized Reagan era, laid down the framework and development types, which institutional established the principles for the standardization and securitization of real estate finance. These investors then seized on and formalized. principles were then applied on a massive scale Perhaps the pressure to move a massive during the operations of the Resolution Trust inventory of liquidated loans accelerated Corporation. ______________________________________________________________________________________ From Wall Street to Your Street 13 7

and telescoped a process that would have occurred naturally over time. If true, then finance (or Wall Street) would have originally followed form (or existing development standards). Once Wall Street codified these practices, increasing quantities of cheaper capital could flow to these forms. Consider also that other forces promote standard development practices. These forces include the emergence of national chains that had standard space and parking requirements for its buildings. Such chains will still no doubt demand standard development even if their model does not meet Wall Street’s standardized categories. Simply put: Wal-Mart does not take direction from Wall Street on where and how to build. Another factor driving standardized building types—especially in retail—is the increasing economies of scale gained by large facilities. The current American habit is to shop big—and even to shop with big vehicles, such as SUVs (Brooks 2002). People go to places such as Wal-Mart and Costco to stock up. Shoppers practically need a forklift to load their trunks. This trend favors large-scale retail. Even within chains such as Wal-Mart, the trend is toward superstores. A regular Wal-Mart, which itself is far too oversized to ever serve as neighborhood-level retail in a typical subdivision, is going the way of the corner store and being replaced by super Wal-Marts. Thus, most new chain stores must meet some minimum threshold—in terms of square footage, parking spaces, loading docks, and highway access. The size and location standards place these stores outside traditional town centers and even newer subdivisions.

In sum, multiple forces now promote standardized building types. Finance is one part of the equation, but it is nonetheless an important one. More importantly, we have established that the relationship between form and finance is not unidirectional. In fact, form can—and does—drive finance. The next section addresses some of the ways to fix smart growth finance so it shifts, in the language of old community activists, “from being part of the problem to being part of the solution.” Standard Building Types Real estate consultant Chris Leinberger identifies “19 Standardized Real Estate Products” (Table 2 on page 16) that Wall Street is willing to finance (Leinberger 2001). One means of expanding the diversity of built places would be to increase the number of these types, in particular those that encourage smart growth development. The first question that we raise here is why 19? Why are there not 50 or 100 types? The fact is that the 19 types have arisen more by historic accident than with any thought as to how best to rationally fund real estate development. To quote Henry Ford, “You can get a Model T in any color—as long as it’s black.” The smart growth movement essentially charges (and we agree) that “you can get development in any form— as long as it sprawls.” The one size (or color) fits all philosophy nearly sank Ford in the 1920s as it was challenged by General Motors, which was quite willing to offer multiple colors and models to an increasingly sophisticated consumer market. Looking at Table 2 on page 16, we notice that several so-called standard types seem

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more like custom development categories. For example, the categories “build-tosuit” under office and industrial do not seem a type to us. Both should be

eliminated from the list. We would also pull the entire “miscellaneous” category, which constitutes a very small part of the built environment.

Table 2. 19 Standardized Real Estate Products Income Products: Office: Build-to-Suit Speculative Suburban Low-Rise

Apartment: Low-Density Suburban High-Density Suburban

Industrial: Build-to-Suit Speculative Warehouse Research and Development/Flex

Miscellaneous: Self-Storage Assisted Living

Retail: Neighborhood (80–120,000 sq. ft.) Power (120–400,000 sq. ft.) Urban Entertainment

For Sale Products: Residential: Entry Level Attached Entry Level Detached Move Up Detached

Hotel: Limited Service Full-Service Business

Move Up Attached Executive Detached

Source: Robert Charles Lesser & Company 2001.

We are now left with 15 types of standardized development—one office, two industrial, three retail, two hotel, two rental housing, and five ownership housing.8 We will examine the origins of power centers to understand the basis for how such development categories become formal. Our analysis of power centers shows that standardization predates the Wall Street category system. Power Centers and Standardization Robert Charles Lesser & Company’s (RCLCO) 19 Standardized Real Estate

Products came into being basically in the same way: they were proven profitable investments over a period of time and after the S&L crisis of the early 1990s, they were reliable categories in which to invest under the new, stricter lending climate. Yet as Leinberger states, they are not fixed categories and are subject to change due to market conditions and overbuilding. Although seemingly rigid and sprawl-producing, each category does have a history and evolution. The methods of financing development products can become more progressive. Until that happens, we suggest working within these categories and combining them to achieve products that are not inherently sprawl-producing. These categories are not static and fixed, but have evolved over time. By stretching the

We do note, however, that the categories “selfstorage” and “assisted living” in the Miscellaneous category offer encouragement for expanding the list of standard real estate types. If these can be standardized, there is hope for multiple types of smaller and/or emerging category developments. ______________________________________________________________________________________ From Wall Street to Your Street 15 8

boundaries of current product type, bending them toward smart growth objectives, advocates can push future evolution of these forms into more benign and desirable outcomes. Power centers and their history offer insight into modern retail form and how it can evolve. Power centers are often characterized as the poster children of sprawl: big, bland, and gobbling up farmland everywhere. They are seen as the destroyers of downtowns and forces that dominated the suburban landscape overnight. Yet power centers are actually the result of the merging of several different types of retail form: the downtown department store gone suburban, the factory outlet store, and the discount store. Power centers and big box retail are the inheritors of these categories, borrowing from them form, management, and financing to achieve market domination and eventual standardization. Analyzing all 19 categories is beyond the scope of this paper, but power centers illustrate the evolution of the standardization process. The retail category under RCLCO’s “19 Standardized Real Estate Products” is a snapshot of modern, monolithic superretail forms. The term “shopping center” has several different meanings and its various incarnations have been identified based on form, function, and market area served. The three subcategories listed on RCLCOs list—Neighborhood, Power, and Urban Entertainment—are obviously not the only types of shopping centers being built in the United States. Other types include regional centers, super regional centers, fashion/specialty centers, festival centers, outlet centers, and the recent category of lifestyle centers. The list, dated 2001, represents the most profitable investment categories. They are

somewhat dated due to the faddish and economically dependent nature of retail shopping. For example, neighborhood retail has resurged after being beat out by power centers during the mid-1990s. Power centers lost favor at the end of the 1990s due to the shrinking availability of zoning-friendly, vacant land and market saturation. Open-air, pedestrian-friendly lifestyle centers are au currant and would mostly likely be added to the RCLCO standard real estate products list. Each of the retail categories serves one of two functions while simultaneously fitting a predictable, easily financed mold: 1) to capture browser traffic through capitalizing off the unexpected; or 2) to serve day-to-day and/or practical shopping needs. Urban Entertainment, a category that once portended downtown revitalization, has come to mean as little as off-ramp chain retail with a movie theater attached. For Urban Entertainment to thrive, it must draw upon the unique and attract patrons to something that otherwise does not exist in the market area. Neighborhood and power centers rely on exactly the opposite ethos—they depend on the mundane aspects of shopping and usually have utilitarian national tenants with strong sales performances, simple layouts, wide selection, and relatively low prices. Lifestyle centers have become the antidote to the waning popularity of regional malls in an effort to keep the “shop ‘til you drop” mentality going, while power centers focus on “get in, get, and go.” This welcomed predictability made power centers such relatively solid investments. Urban Entertainment is interesting, but risky mostly because it is difficult to replicate and therefore does not lend itself to a model. What one market area considers entertaining, another may

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consider passé or uninteresting. This combination of uncertainty and regional deviations make them difficult to finance and lease. Gradually, urban entertainment projects became less urban (i.e., in a downtown with a diverse mix of tenancies and cultural attractions) and more suburban (i.e., located along a highway with national chain tenants and a multiplex theater). With bankable tenants and cheaper land costs in the suburbs, the category became more easily replicable, more predictable, and easier to finance, in turn becoming standardized. Power centers, on the other hand, started out predictable. They have no such dependency on regional tastes, urban appeal, or keeping customers curious. Customers do not come to power centers to browse or be amused; they come to buy and buy big. Typical power center tenants include: Home Depot, Bed Bath & Beyond, Wal-Mart, Target, and Best Buy—places where consumers buy in bulk, or at least bulky merchandise. Because of the large amount of space needed for their inventories and vast parking lots for the vehicles necessary to haul away large items, these businesses sought large quantities of cheap land near major roads. This combination was often located in the outlying areas, and thus the big box/power center became a main ingredient in suburban sprawl. These buildings are as bland as they are ubiquitous, but they drove much of the 1990s retail economy and proved reliable investments (Cohen 2003). What exactly makes power centers standard investments will be examined, but first, what are power centers and where did they come from? Power centers, as defined by the International Council of Shopping Centers, have between 250,000 and 750,000 square feet,

have at least three big box anchors occupying 60 percent or more of the gross leaseable area, and typically are located near a regional mall. Big box stores are bigger than 50,000 square feet, derive their profits from high sales volume rather than price markups, and have no-frills site development. The tenants can be discount department stores, “category killers,” or warehouse clubs. The power center is actually an amalgam of different retail types that proved successful in their own right before being “big boxed” and coming together. During the 1930s, retailers began moving from the central downtowns to the suburbs. The first stores outside of central downtowns were often built on large sites surrounded by parking lots in order to accommodate automobiles (Goldberger 1997; Sears 2004). During the 1950s, enclosed suburban shopping malls became popular with consumers, and by 1954, total retail sales in suburban centers exceeded the retail sales volumes in major cities (Miles 1999). During this era, retail businesses were usually family-owned, and shops were built with minimal outside investment. Along with regional malls, the 1950s upward swing in consumerism ushered in the era of the discount store. Discount stores offered shoppers low prices on a variety of goods, but the tradeoff was a very basic shopping “warehouse” experience. These stores proved successful with frugal suburban families and were easy to build and replicate (Helyar 2003a). Discount chains started turning up everywhere under the names of FedMart, Kovettes, GC Murphy, and Kmart to name a few. Sol Price, founder of FedMart, went on to found Price Club, the membership discount club. Due to their need to sell in volume, these

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businesses required large stores surrounded by parking and located for the most part in suburban locations. By the 1970s, outlet malls began springing up across the United States. Like discount stores, outlet malls offered low-cost goods and a no-fills shopping experience. Factory outlets are often located at the fringes of the metropolitan areas so they do not compete with their full-price counterparts. They are known for their large size, ability to sell in volume, and low prices. Power centers are the result of the combination of the evolution of large retail stores that moved out of cities and the retail competition that slashed prices, sold in volume, and held bargains in higher esteem than an elegant shopping experience. These two types of big suburban retail developed a long, tested track record, and were “big box” before it was an official category. Big box retailers did not just appear overnight—they were started decades ago and were constantly altered and streamlined to stay competitive. They were cheap to build (and replicate in different regions of the country), developed strong credit ratings, and had millions of dollars in sales revenues due to their ability to sell in volume. Not only did shoppers like big retail—local governments did too. Localities often welcomed them because of their ability to bring in sales tax dollars, especially after the residential property tax revolts of the 1970s.9

combine them? The first “power center” was built in Colma, Calif., in 1985 by Terranomics (which also claims to have developed the first lifestyle center).10 The Colma power center brought together discount department stores, off-price retailers, and warehouse clubs in one location. The idea of combining “value retailers” was new and popular with shoppers, especially during the economic downturn of the late 1980s and early 1990s. This was also post-S&L crisis when investors were particularly cautious and selective lending for commercial purposes prevailed. Power centers were a relatively safe investment, and this is reflected in their standardization. Although their mid1990s increases have not been matched, the number of power centers in the United States as of 2003 was about 1,100 (Cohen 2003). Power centers, learning from their large, discount predecessors, have several distinctive elements that make them attractive to investors: •





If individual mammoth retailers proved successful in their own right—why not

Most big box retailers have strong, established corporate credit ratings and therefore are trusted by institutional investors. Anchor stores make up most of the lease-able space. Therefore, cash flow is more predictable, developer risk is reduced, and management is less complicated. Minimum common space and amenities make them less expensive to maintain and manage.

Colma is located outside of San Francisco and is known for becoming San Francisco’s burial In The Reluctant Metropolis, Bill Fulton (1997) ground after the city banned cemeteries in 1900. effectively describes the sudden appearance of Cemeteries make up over 74 percent of the land “Sales Tax Canyons” planted along California area, but it also has over 1.7 million square feet of highways to reap the “rich harvest of sales tax retail with just 1,100 residents. revenues” (p. 258). ______________________________________________________________________________________ From Wall Street to Your Street 18 10

9







They offer a variety of merchandise selection that can respond to current consumer demands. They are often financed through tenant credit leases that rely on a retailer’s creditworthiness, instead of the developer’s pro forma. In turn, the tenant assumes most of the operating costs. Because the tenants are responsible for the operations and associated costs, a shopping center management company is not needed, further reducing costs.11

Yet power centers have limited potential for rent growth due to anchor tenants setting long-term fixed rent periods, often at a very low price. They are not dynamic, but they are stable, predictable, and can quickly turn a profit. It is better to have a higher number of national big box anchors and relatively few smaller retailers (known as in-line stores), as this guarantees volume and stability. Power centers saw a dip in popularity in the late 1990s due to market saturation, but after an “adjustment” (meaning bankruptcies and consolidations), confidence has rebounded (Cohen 2003). It is easy to see how power centers have become a reliable investment through convenience, discount shopping, ubiquity, and being pretty much exactly the same everywhere. Any deviation from standardization would certainly cause problems with financing, especially in markets that are so fast moving, fickle, and competitive. To combat consumer fickleness, retail has essentially been divided into two camps: those that offer a “shopping experience” and depend on the

unique (elegant department stores, upscale malls, gallerias, festival marketplaces, and lifestyle centers) and those that rely on value and convenience (big box stores, outlet malls, price clubs, neighborhood retail). The form of these approaches has changed (from spartan warehouses to outlet villages or from Southdale to the Mall of America), but the messages remain the same: experience versus convenience.12 Leinberger states that only two of the standardized forms of real estate do not encourage sprawl: urban entertainment and high-density rental (although many of these end up being built along suburban highways.). Yet new forms of retail that contain big box tenants along with inline stores are starting to appear in pedestrianfriendly infill locations in the form of lifestyle centers. This is yet another example of merging standardized retail forms into something new for consumers, potentially profitable for investors, and satisfactory for localities in terms of generating tax revenue and meeting smart growth goals. Lifestyle centers are a mix of large-scale chain tenants and unique stores and offer open-air, pedestrian friendly, aesthetically pleasing environments—a prime example is The Market Common Clarendon outside of Washington, D.C. (see Appendix), which includes not only big box tenants (Barnes & Noble, The Container Store), but office and residential uses as well. These are not places one goes in search of a bargain or bulk, but they are an interesting mix of power center, neighborhood retail, and pedestrian plaza. These amalgams of retail forms will continue to define retail and, in turn, the

12 Southdale, built in 1954 in Edina, Minn., was the From a 1995 report issued by the New Jersey Office of State Planning. first enclosed mall in the United States. ______________________________________________________________________________________ From Wall Street to Your Street 19 11

way the metropolis grows. Investors are willing to experiment, if only slightly: the financing and tenants may be somewhat traditional, but the form is not. New Approaches to REIT Finance of Mixed-Use Projects A recent article in the National Real Estate Investor highlighted how one real estate investment trust (REIT), Colonial Properties Trust, funds mixed-use projects (Culp 2003). The piece noted that Colonial attempts to manage all phases of mixed-use development in house. As its executive vice president Robert Jackson observes, doing mixed-use projects in this way: “…enables us to reduce coordination time and multiple ownership complexities associated with having other developers execute the master plan…we are careful to introduce into the marketplace whichever [development] segment is most in demand at the time.” (Culp: p. 1). Colonial is doing in real estate what many firms have traditionally done when they face market failures born of coordination difficulties—they manage the entire market process from within. The business historian Alfred Chandler in his Pulitzer Prize–winning work, The Visible Hand: The Managerial Revolution in American Business (1977), documents how entire industries, such as railroads and meatpacking, owe their early evolution to the efforts of a few key firms that managed their market complexity.

markets that businesses need to internalize the entire production process. He termed the process through which a single business sees to completion the multiple steps in the production process that used to be divided among multiple firms “vertical integration.” Chandler would account for Colonial’s actions in a similar vein. Colonial simply cannot trust the multiple markets and players that developers need to do mixeduse projects to mesh in a way that works. Therefore, Colonial has reached a management solution. If these markets do not work with multiple firms, they need to be “vertically integrated” under one. The current state of mixed-use development, which as we argue in a contemporary sense is a brand new market, is not sufficiently mature to work with individual firms taking on a single component of the work. Interestingly, Chandler notes that as vertically integrated businesses mature, they can begin to disintegrate as parts of their enterprise become so routinized that they can progressively become more independent components in the production process.13 Chandler notes that big efficiency gains result as this externalization occurs because the visible hand of management fades away and the invisible hand of the market emerges. An original market failure gets fixed and the new market that emerges produces more and better products.

This was the story of the single-family mortgage market’s evolution in the 1980s as, increasingly, the functions of loan funding, origination, Chandler’s model shows that at their servicing, underwriting, insuring, etc.—all previously housed under one roof, typically in a inception, some industries are so savings and loan institution—were unbundled and logistically complicated in terms of became specialized business functions that could multiple elements and uncoordinated be performed by independent firms. ______________________________________________________________________________________ From Wall Street to Your Street 20 13

This is where we see mixed-use development. It is now in its nascent phase, but as it becomes a more common practice, it will begin to develop standards. Some of these standards will be pioneered by vertically integrated businesses that force order on the process. That is why a REIT such as Colonial is so important to mixed-use development. The management steps that it innovates internally will someday become the external basis for mixed-use projects. Conclusion In sum, we find that, rather than being a helpless victim facing the relentless pressure of a financial market that only produces sprawl, smart growth stands at a point where it can be a real market maker. We see two major fixes that can evolve practice to the point where capital can begin to flow more freely, easily, and cheaply into smart growth. Our first conclusion is that smart growth advocates too often let the perfect be the enemy of the good. Clearly, advocates of smart growth have a point when they argue that demand is artificially inhibited because of a lack of examples that can expose and educate local leaders and consumers to this form of development. Generalized resistance to density sometimes melts when presented with a well-integrated mixed-use development. Some smart growth advocates say that more examples embodying the perfect (i.e., fully reflecting all smart growth principles) form of smart growth must be developed around the country. This exemplifies letting the perfect be the enemy of the good. Our analysis shows how existing development can be gradually pushed toward smarter growth. Such incremental movement is more

consistent with the history we present on how other asset classes, better connected with capital markets, evolved and gained that access. Furthermore, our deconstruction of the ahistorical and romantic view of historical mixed-use development also opens new opportunities to better integrate smart growth principles in the fabric of our cities and suburbs. Our discussion of taxpayer strips highlights the continuing role that intermediate forms of development can and do play, and their potential role in promoting broader acceptance of smart growth principles. We believe that the purity of ideals is not tainted by partial attainment. Easier and cheaper development money requires standardization. Standardization is required to gather comparable data on performance of an asset. Enough performance data reduces the risk to an investor, which induces either more and/or cheaper investment.14 This does not, however, preclude developers from expressing local vernacular and creating unique places. More importantly, a movement has principles that are expressed in physical form. If these principles cannot be reduced to a consistent set of asset characteristics that can be evaluated, advocates have no movement. So we applaud efforts that seek to gather data on existing and new transit-oriented developments in a consistent manner. Smart growth development will not gain momentum if developers have to personally cajole lenders. Instead, it must

14 This clear and basic connection is not lost on the smart growth movement, considering that performance data collection and analysis is one of the five main strategies of the newly formed Center for Transit-Oriented Development. ______________________________________________________________________________________ From Wall Street to Your Street 21

be a consistent commodity with clear performance characteristics. Not only do clear performance characteristics remove risk for investors; such data can remove a major regulatory overhang for this style of development. As noted previously, lenders and mortgage bankers care about what their regulators think. Regulatory scrutiny and tolerance for risk vary with the business and economic cycles, but there is still a clear memory of the S&L crisis. Risky lending—which is what smart growth developments now are—is frowned upon. Smart growth advocates need to set their sights on regulators of their financiers. The movement needs to better understand what will convince regulators, as well as investors, that these are good deals. Furthermore, if these developments bear out as we expect, there is no reason not to go one step further. If smart growth advocates are, in fact, concerned with diversity in income, race, and ethnicity, then affordable housing has to be an essential part of the vision. Assuming performance is addressed, the inclusion of affordable housing also gains access to a number of potential regulatory and programmatic incentives from government. For instance, the Community Reinvestment Act (CRA) has been widely credited with improving capital flows to underserved neighborhoods and communities. Smart growth finance could be brought into the realm of loans and investments that score favorably with CRA regulators if affordable housing is included. Alternately, the Low-Income Housing Tax Credit has been slowly but surely gaining more provisions that establish preferences for proposals with certain characteristics, including geography. This has been

happening at the state and the federal levels. Why not a preference for tax credit projects in smart growth developments, where low-income residents can share in the beautiful and unique communities being created? Finally, performance data create the basis for creating new asset classes, thus paving the way to create more asset classes for Wall Street to securitize, thus creating a positive “finance driving form” dynamic. This may be as simple as an asset class for transit-oriented development or as complex as a continuum of smart growth product reflecting different mixes and investment time frames. Again, Leinberger has pointed the way with his sophisticated approach to financing the redevelopment of downtown Albuquerque, N.M. (Leinberger 2001). Leinberger has cobbled together a variety of investors with different time horizons for returns on their investments, and matched them in various “tranches” of the overall redevelopment project. Smart growth is poised to become a serious niche investment for the real estate world. In fact, over the next ten to 20 years, as quality of life becomes more and more of an issue, smart growth development could become one of the best-performing asset classes if its continued evolution and integration with financial markets is handled with a greater degree of sophistication. While one would like to see the financial community recognize the intrinsic value of this form of development, history suggests that lenders follow rather than lead. Rather than continue to be a voice in the wilderness with purity of vision, the smart growth movement needs to embrace and nurture the very market forces that its followers feel currently oppress their industry.

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About the Authors Robert E. Lang is Director of the Metropolitan Institute at Virginia Tech and an Associate Professor in Urban Affairs and Planning. He is currently working on a book (with Jennifer LeFurgy) titled Boomburbs: The Rise of America’s Accidental Cities for the Brookings Institution Press. Jennifer LeFurgy is Deputy Director of the Metropolitan Institute at Virginia Tech. Steven Hornburg is Principal of Emerging Community Markets. The authors thank Ben Starrett at the Funders’ Network for Smart Growth and Livable Communities and Kristen Pauly at the Prince Charitable Trust for funding this paper. Thanks also go to Christopher Leinberger for his advice.

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Appendix Examples from the Greater Washington, D.C., Region

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Washington’s Connecticut Avenue Corridor: A Quick Tour of Retail Forms Driving north along Connecticut Avenue from the center of Washington into Maryland, one passes a series of nodes and strips that reflect the history of retail development from the late 19th century until today. Connecticut Avenue, starting at Farragut Square in the heart of the District’s downtown, is lined mostly with office buildings until it reaches Dupont Circle. Once north of the Circle, the street enters a residential, mixed-use environment. From Dupont north to the D.C. border lie at least six discrete shopping districts, each one progressively less dense and less urban in feel. The

following photo essay shows this progression. Several of the places depicted here have stations on the Washington region’s Metro rail system: Farragut Square, Dupont Circle, Woodley Park, Cleveland Park, and Van Ness in the District. Note that while the cases covered here are good indicators of historical development trends, they also remain works in progress. The areas around the Metro stops in particular are in transition because a subway station tends to generate much denser development over time.

Figure A-1. Dupont Circle

Figure A-1 (above) is a photo of Connecticut Avenue just north of Dupont Circle. North Dupont is a traditional late 19th century main street. It has multistory buildings that are deep and narrow. The

store frontages are small and designed to grab a pedestrian’s attention. The block shown in the photo is both mixed use and pedestrian friendly. The scene is a New Urbanist’s dream. It is the kind of place

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that they would love to attach to their large-scale suburban greenfield developments, but the financing for such a project is difficult to obtain because it provides poor auto access. Just north of Dupont Circle along Connecticut Avenue is Woodley Park (see Figure A-2 below). The strip shown in the photo is a main street in transition. It was developed in the early 20th century, when the street car line was extended over Rock

Creek. Woodley Park has a mix of building types, including some traditional main street stores, but it is dominated by lower slung, single- and double-story taxpayer buildings. The neighborhood is mixed use, but there are very few dwellings above the stores, unlike the more traditional downtown at Dupont. Overall, this retail strip remains inviting to pedestrians. The sidewalks in Woodley are so wide that virtually every restaurant along Connecticut has outdoor seating.

Figure A-2. Woodley Park

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Moving north, Connecticut Avenue enters the southern part of Cleveland Park (shown in Figure A-3 below). This area developed around both the car and the trolley. The stores lining Connecticut at Cleveland Park have gaps between for small parking lots. There is a mix of store types here, but most are a single floor (or a ten-footer) and even the two-story buildings have no one living in them.

People arrive to this strip by car, Metro, and on foot. Note that on the far side of the street in the photo there is a service (or frontage) lane for parking, which allows double parking in front of businesses. The wide sidewalks found in Woodley Park have been sacrificed to accommodate more cars, but this is still a place that successfully balances the needs of autos and pedestrians.

Figure A-3. Cleveland Park The photo in Figure A-4 (on page 28) shows the north side of Cleveland Park. The store frontage has broken with the street to create an L-shaped shopping center. The center typifies the retail strip in the immediate post-war years, where the car finally beat out the pedestrian and came to dominate the street. The Park ‘n’ Shop center in the photo is famous for being the first of its kind in the nation— or the first to have multiple rows of parking in front of the stores (Longstreth 1992). The development dates to 1930

and was a good two decades ahead of its time.15 The Park ‘n’ Shop had two “supermarkets” when it first opened: an A&P and a Piggly Wiggly (Longstreth

15 During the Great Depression of the 1930s, and World War II in the 1940s, Washington was one of the few places in the nation to keep developing. That was due to its important role as the place in which the response to these two national crises was organized. The other significant place to develop during he depression was Los Angeles, which also saw major innovations in retail form (Longstreth 1999). ______________________________________________________________________________________ From Wall Street to Your Street 27

1992). As planned, no one lives in the center. But as can be seen in the photo, apartment buildings are close by, making the immediate neighborhood mixed use.

As Figure 4 shows, there is a Metro station escalator that emerges directly in front of the Park ‘n’ Shop, but it is cut off from the stores by a row of parked cars.

Figure A-4. Park ‘n’ Shop

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Still further up Connecticut Avenue, near the District border with Maryland, is the Chevy Chase, D.C. shopping strip (see Figure A-5 below). This area is built to accommodate the car. Many of the stores are set back from the street and small parking lots break up the street’s continuity. Cars zoom by, with parking

prohibited during rush hour to accommodate more lanes of traffic. In the distance are some apartments, but singlefamily homes are prevalent in the surrounding neighborhoods. Unlike the previous three retail strips, there is not a Metro station here that could anchor denser development in the future.

Figure A-5. Approaching Chevy Chase, D.C.

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The last stop on the Washington retail tour is deep within the Maryland suburbs, north of the Beltway (in Wheaton) and about a mile west of Connecticut Avenue. The contemporary auto strip (shown in Figure A-6 below) is far removed from the road and buried behind a multi-lane sea of cars. This is exactly the type of strip that is all too often attached to neo-

traditional developments because of the need for it to service a market base that extends well beyond its immediate surrounding subdivisions. Note that that the anchor store is a specialty Korean supermarket, which indicates the spread of the region’s foreign-born population well past the bounds of the central city.

Figure A-6. Retail Center in Wheaton, Md. This quick tour through Washington’s retail centers shows the diversity of retail types that can line just one major corridor of the metropolis. The point is to debunk the notion of a simple dichotomy between the pedestrian-oriented main street and

the auto-dependent mini-mall. Multiple retail forms exist. Developers and financers should consider the retail form that best fits a particular mixed-use project, which very often will be an updated version of the taxpayer strip.

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Blended Retail Environments: The Village at Shirlington and The Market Common Clarendon, Arlington, Va. The Village at Shirlington, developed by Federal Realty Investment Trust in 1995, offers street-level retail and restaurants. In its classification, it falls somewhere between a town center and a lifestyle center. Located in an established part of Arlington, Va., it is an infill project with upscale boutique tenants, and is a noble attempt at car- and pedestrianaccommodating strip retail. The project runs about two city blocks and the ornate street furniture, awnings, plantings, twoway traffic, and parallel parking spaces

contribute to its pedestrian friendliness (Figure A-7 below). However, this quaint, small town main street feel is juxtaposed with nearby major highway off-ramps and a surrounding asphalt parking lot (Figure A-8 on page 32). Projects such as these, with “teaser” parking (parallel street parking for aesthetics’ sake) and traditional parking lots around the periphery of site to handle the real demand are “faux urban” (Leinberger 2004). (Author’s note: In mid-2004, the parking lot of the end of Shirlington’s main street—shown in Figure A-8 on page 32—is undergoing development.)

Figure A-7. Shirlington’s Main Street

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Figure A-8. Large Parking Lot at the End of Shirlington’s Main Street

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The Market Common Clarendon development is also an infill project located in Arlington, but was developed almost a decade later than the Village at Shirlington. It is a larger project than Shirlington, but it blends parking demand through not only street-level “teaser” parking but also garage parking. It combines big box tenants (Barnes & Noble, Crate and Barrel) and boutique, inline retailers (Apple, South Moon Under, Williams Sonoma) with office and

residential uses into a pedestrian “experience” complete with landscaping, benches, and other kinds of street furniture. The developers, McCaffery Interests, made a concerted attempt blend the project into the surrounding neighborhood through design elements, scale, and street alignments (Figure A-9 below). In 1994, Arlington County and local residents rejected a proposal for a big box Home Depot on the same site (Chamis 2001).

Figure A-9. Aerial View of the Market Common Clarendon Comparing both projects, one can see the attempts to balance retail with neighborhood scale and automobiles.

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