Does your community have a historic downtown that seems to be neglected? Despite the local history, interesting architecture, and walkable streets, many businesses locate elsewhere. On the surface, it can sometimes feel like a hopeless situation. But many small communities are discovering what works in big cities can work in their little towns, too.
A Little History
The heritage and charm of historic downtowns weren’t enough to sustain economic activity in many small places as economic conditions and consumer preferences changed over time. For many communities, this trend accelerated during the 1960s. Many local businesses were driven under by national chains. Occupants moved out. Rents declined. Eventually, building owners lost the revenue and/or the interest in keeping their properties up to date and in good condition. Sadly, many otherwise attractive buildings fell into disrepair and vacancy.
The heritage and charm of historic downtowns weren’t enough to sustain economic activity in many small places as economic conditions and consumer preferences changed over time. For many communities, this trend accelerated during the 1960s. Many local businesses were driven under by national chains. Occupants moved out. Rents declined. Eventually, building owners lost the revenue and/or the interest in keeping their properties up to date and in good condition. Sadly, many otherwise attractive buildings fell into disrepair and vacancy.
Over the last couple of decades, however, there’s been a general re-awakening on the part of businesses and consumers of the inherent attractiveness of historic downtowns. Independent businesses are willing to occupy spaces in older buildings that corporate chains and franchises eschew. A market segment emerged for small households to live in historic downtowns, even in relatively diminutive places. Unfortunately, this changing market landscape has happened when many buildings are already in an advanced state of deterioration and modern building codes necessitate significant capital investment to allow legal occupancy. So how can communities help their existing building stock capitalize on these beneficial trends?
Here are four strategies that smaller communities can implement to encourage reinvestment in their historic districts:
Here are four strategies that smaller communities can implement to encourage reinvestment in their historic districts:
Revolving Loan Funds
Smaller town investors and businesses often don’t have a large amount of cash on hand to deal with the costs of property rehabilitation and renovation. Revolving loan funds can help fill the gap by providing capital to one property or business owner, who pays back the loan over time to replenish the funds which can then be lent to others who are working on another building or commercial space. These loan funds can be capitalized by local governments, private financial institutions, federal grant programs, or local philanthropic organizations.
Smaller town investors and businesses often don’t have a large amount of cash on hand to deal with the costs of property rehabilitation and renovation. Revolving loan funds can help fill the gap by providing capital to one property or business owner, who pays back the loan over time to replenish the funds which can then be lent to others who are working on another building or commercial space. These loan funds can be capitalized by local governments, private financial institutions, federal grant programs, or local philanthropic organizations.
Modified Development Codes
A town’s building and zoning codes may be unintentionally raising extra hurdles to the economic feasibility of reusing historic buildings. Conversion of the upper floors of buildings to residential uses are often the most negatively affected by these regulations. While having good standards of health and safety is paramount, municipal codes can be modified, or subsidies offered, to make such reuse less financially burdensome.
A town’s building and zoning codes may be unintentionally raising extra hurdles to the economic feasibility of reusing historic buildings. Conversion of the upper floors of buildings to residential uses are often the most negatively affected by these regulations. While having good standards of health and safety is paramount, municipal codes can be modified, or subsidies offered, to make such reuse less financially burdensome.
Business Incubators and Co-Working Spaces
A major challenge for small businesses is having sufficient operating capital to make it through the first year or so. Even the most successful businesses are often not profitable in the beginning. While this is usually not a problem for large, well-capitalized companies, small startups may not last long enough to reach their potential. One way to mitigate this challenge is by starting business incubators. These programs can remove or lower the businesses’ occupancy expenses. Downtown organizations and local governments can work with building owners to accommodate these startups, who can become permanent rent-paying occupants in downtown if they are successful.
A recent trend for more office-oriented business startups (as opposed to retail) is co-working. Co-working spaces can be well-suited for older buildings, and are similar to incubators in that they lower the space rental and overhead expenses for these small businesses. Communities can help subsidize or facilitate co-working spaces just as they do retail incubators.
A major challenge for small businesses is having sufficient operating capital to make it through the first year or so. Even the most successful businesses are often not profitable in the beginning. While this is usually not a problem for large, well-capitalized companies, small startups may not last long enough to reach their potential. One way to mitigate this challenge is by starting business incubators. These programs can remove or lower the businesses’ occupancy expenses. Downtown organizations and local governments can work with building owners to accommodate these startups, who can become permanent rent-paying occupants in downtown if they are successful.
A recent trend for more office-oriented business startups (as opposed to retail) is co-working. Co-working spaces can be well-suited for older buildings, and are similar to incubators in that they lower the space rental and overhead expenses for these small businesses. Communities can help subsidize or facilitate co-working spaces just as they do retail incubators.
Pop-up and Temporary Businesses
In many small towns, after years of low vacancy rates, historic districts end up with a reputation for being “boring” or “uninteresting.” Of course there’s the occasional festival or event, but other than that, many residents and visitors don’t think about downtown. More big events would be great, but planning and implementing these can take significant planning and resources—requisites often beyond many small governments. The answer—think smaller scale. City staff, civic groups, and community volunteers can work with property owners to accommodate “pop-up” businesses, which might be startups or just secondary locations of existing businesses. These pop-up businesses can occupy empty commercial spaces or vacant lots during “happy hour” times, weekends, or holidays. Concurrent, small scale events can include concerts, food truck gatherings, or wine/beer tastings, and craft/farmers’ markets. Any leftover empty spaces can feature passive attractions by local artists or student projects from nearby schools. While some existing businesses may feel uneasy at first about the new competition, the increased traffic downtown will benefit all—potentially leading to new private investment and new longer term tenants.
In many small towns, after years of low vacancy rates, historic districts end up with a reputation for being “boring” or “uninteresting.” Of course there’s the occasional festival or event, but other than that, many residents and visitors don’t think about downtown. More big events would be great, but planning and implementing these can take significant planning and resources—requisites often beyond many small governments. The answer—think smaller scale. City staff, civic groups, and community volunteers can work with property owners to accommodate “pop-up” businesses, which might be startups or just secondary locations of existing businesses. These pop-up businesses can occupy empty commercial spaces or vacant lots during “happy hour” times, weekends, or holidays. Concurrent, small scale events can include concerts, food truck gatherings, or wine/beer tastings, and craft/farmers’ markets. Any leftover empty spaces can feature passive attractions by local artists or student projects from nearby schools. While some existing businesses may feel uneasy at first about the new competition, the increased traffic downtown will benefit all—potentially leading to new private investment and new longer term tenants.
Suggested links:
http://www.cdfa.net/cdfa/cdfaweb.nsf/ordredirect.html?open&id=rlffactsheet.html
http://www.georgiacitiesfoundation.org/LoanFund.aspx
http://www.cctexas.com/Assets/Departments/Development-Services/Files/requirements-permits-forms/Sec%20%207%2012%20Adaptive%20Reuse%20Ordinance%20YD-DWB%20FINAL.pdf
http://www.downtownsanangelo.com/incentives.php
http://www.dothaneagle.com/townnews/commerce/downtown-retail-incubator-lets-startups-focus-on-business/article_2a49bf12-1f90-11e6-a8a9-9ff579d93814.html
http://www.thetimesnews.com/news/20160710/downtown-group-seeks-input-on-shared-work-space
http://www.mlive.com/news/muskegon/index.ssf/2012/08/muskegon_retail_incubator_focu.html
http://pilotonline.com/business/consumer/suffolk-hoping-pop-up-shops-help-downtown-revitalization-efforts/article_9345963e-da0f-525c-ad6e-f64d93de6550.html
http://www.cdfa.net/cdfa/cdfaweb.nsf/ordredirect.html?open&id=rlffactsheet.html
http://www.georgiacitiesfoundation.org/LoanFund.aspx
http://www.cctexas.com/Assets/Departments/Development-Services/Files/requirements-permits-forms/Sec%20%207%2012%20Adaptive%20Reuse%20Ordinance%20YD-DWB%20FINAL.pdf
http://www.downtownsanangelo.com/incentives.php
http://www.dothaneagle.com/townnews/commerce/downtown-retail-incubator-lets-startups-focus-on-business/article_2a49bf12-1f90-11e6-a8a9-9ff579d93814.html
http://www.thetimesnews.com/news/20160710/downtown-group-seeks-input-on-shared-work-space
http://www.mlive.com/news/muskegon/index.ssf/2012/08/muskegon_retail_incubator_focu.html
http://pilotonline.com/business/consumer/suffolk-hoping-pop-up-shops-help-downtown-revitalization-efforts/article_9345963e-da0f-525c-ad6e-f64d93de6550.html
About the Author: Steve Spillette is President of CDS Community Development Strategies and has performed a variety of market studies and financial pro-forma analyses for both private and public clients. Mr. Spillette has several years of experience in retail market analysis and multiple degrees related to real estate and planning--including an MBA from Texas A&M University.
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