Sunday, June 24, 2012

What does the 9th and New Hampshire proposal teach us about out development controls?

What does the 9th and New Hampshire proposal teach us about our development controls?

Lawrence lacks proper development controls. The absence of proper controls prevents the City from reviewing major projects and allows developers to dictate the pace of growth. This is a mistake.

The problems with the 9th and New Hampshire proposal are a text book example of failed planning.

Quick history:

The City approved zoning on the 900 block of New Hampshire for the Downtown 2000 project. The Downtown 2000 project failed. It was supposed to pay for one-half of the New Hampshire Street parking garage. When the project failed, the taxpayers had to pick up the tab for the garage.

Despite the failure of the project, the zoning lives on at the site. This permits the developer to proceed with a hotel without normal planning review. If the developer wants to build a 3-story hotel and does not want subsidy, it can be built without planning review. The proposed hotel never went through the Planning Commission and as such, the community at large and the neighborhood in particular was not given the opportunity to weigh in on the strengths and weaknesses of this project.

The only reason that the project is going before the City Commission is because it happens to be located adjacent to historic properties making it subject to review by the Historic Resources Commission (HRC), and the project failed to win HRC approval.

The process going forward:

The City Commission will hear an appeal of the decision of the HRC. The scope of the City Commission’s review is narrow. It is to determine whether or not the owner of the property can develop feasible projects under current zoning that will not harm adjacent historic properties. In this setting, feasibility means that a development will earn enough cash flow to attract investors. Generally, this cash flow has to return about 10 percent annually over a period of 10 years. There is little question that feasible alternatives exist. Three-story projects are feasible if no parking garage is included. Town Peterson demonstrates this in his submission to the City Commission. If a parking garage is added to the development, then a project is probably not feasible without deep subsidy. The report from Springsted finds that subsidy will be needed to make a project feasible if it contains a parking garage.

The City Commission cannot, in good conscience, find that no feasible alternative exists under current zoning. It is clear that a three-story retail/office facility will generate a competitive return on investment.

To the developer, the problem is not the percentage return on investment with a three-story project; it is the dollar amount of profit. The developers can make more money with a larger development that includes five or six stories, a hotel, and a parking garage with that garage paid for by the taxpayers.

How did Lawrence get into this problem?

Lawrence is in this problem because of a lack of proper development controls. Because the zoning did not end with the death of the Downtown 2000 project, the City has lost much of its capacity to control this project.

Some version of the proposal at 9th and New Hampshire may be a development that the City, the East Lawrence Neighborhood Association, the Historic Resources Commission and the community at large may all support. But we will never know under the current development controls because there is no opportunity to debate the project. There is constrained review of its impact on adjacent historic properties, but the HRC review is not supposed to go beyond this narrow issue. Assuming that the developers will seek deep subsidies on the property, there will be some debate over whether or not the project should be given costly subsidies, but again, the debate will be unfairly narrowed to this topic.

The process as being played out now will not permit the community to weigh in on the height of this project, the timing of this project nor the impact of the project on our downtown and other hotel projects.

What should be done about this problem?

Lawrence needs a set of development controls that permit the City to dictate not only the height, bulk and use of a project but also the timing of when these projects are built.

Zoning dictates the height bulk and use of a project. Clearly our zoning does not do this well. The current proposal seeks to go higher than the rules permit, but this decision is not reviewed by the Planning Commission or the City Commission. The development controls of the city should mandate that any significant project must go through review by the Planning Commission with a public hearing procedure.

Lawrence needs a set of development controls that allow it to set the pace of growth. In this, the City is woefully lacking. The City’s development controls assume that once zoned, the private market knows best how to time development. We are now in the fifth year of a real estate driven recession because of the error of this assumption. The private market is prone to overbuilding as developers seek to cannibalize business from each other, a practice the leaves cities pock marked with failed shopping centers and neighborhoods with too much vacancy and disinvestment.

Lawrence is paying the price for letting the development community dictate the pace of growth.

Lawrence’s retail space grew faster than retail spending. From 1997 to 2007, retail spending grew by 26% but new space added 36% to the stock of space, producing over 500,000 square feet of surplus space. The surplus resulted in chronic vacancies downtown, along 23rd Street and in various neighborhood centers. The market has consumed about one-half of that surplus, but with the current economic downturn, it will take a long time to work through the remainder of the surplus. Yet the City continues to approve more retail space as if the problem does not exist.

Lawrence’s housing stock expanded faster than the growth in its population. From 2000 to 2007, the counts of households grew by 4,500, but developers built 5,700 housing units, creating a surplus of 1,200 units. The surplus is equivalent to a dozen large subdivisions, enough to cover the city’s needs for more than 6 years, devastating the housing industry.

Now the City is confronting a similar problem with its hotels. The taxpayers invested $11 million in the Oread Hotel. The City has an interest in the Eldridge Hotel surviving because it uniquely defines our historic downtown. Recently the City approved zoning for a hotel as part of the North Mass Development. The City is rezoning property at 6th Street and the South Lawrence Trafficway for a sports complex with a retail shopping center and a hotel. As if all of this is not enough, the developers of 9th and New Hampshire propose yet another hotel.

The City lacks development controls that place it in a position to: 1.) Determine that pace at which it can absorb new space, and 2.) Regulate the pace of new construction so as to prevent overbuilding.

Right now, no one in the planning process seems to know how many additional hotel rooms the City can absorb without harm to its existing hotels and its existing investments. Even if this was known, the City does not have the power to control the pace at which space is added. Once zoned, the developers control the pace of development, even if that pace is harmful to City investments and City interests.

What should the development controls include?

Market Analysis: The City’s development controls should provide for the City to study its own markets and determine how much space it can absorb each year, whether the space is composed of housing units, retail stores, offices or hotel rooms.

Growth Management: The City’s development controls should provide mechanisms for the City to set the pace of development so as to keep the pace of growth within the capacity of the City’s market to absorb that space. If we learn nothing else from the crash of 2008, we should learn that the real estate industry does not pace itself well. Rather than allowing developers to create problems, we should force developers to compete against each other so that only the very best projects go forward.

Benefit-Cost Analysis: The City’s development controls should examine the benefits and costs of each significant development. For too long, we have assumed that each project, if properly zoned, is good for the community. This assumption is wrong. Many new projects serve only to pull demand away from other, usually older, neighborhoods and shopping districts creating depressed values and disinvestment. The City needs to better understand the implications of each new development upon existing properties. Often the benefits of the new development do not justify the costs to the older neighborhoods.

Feasibility and Efficiency Analysis: The City’s development controls should examine project feasibility where subsidies are requested. The City does this, but too often, the City takes the approach that if the project is not feasible without subsidy, then the subsidy should be granted. Full feasibility analysis should examine whether other, less costly, alternatives will serve the City’s needs adequately. We should not give the presumption of validity to the developer’s proposals. Often an alternative proposal, including doing nothing, will serve the community’s interests better. Searching for this better alternative needs to become a part of the development process.

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