Pittsburgh’s Relationship to Real Estate Development is Complicated

It is no surprise that Pittsburgh is on the upswing in various levels of prosperity: increases in tech jobs, a high quality of life, and some of the best systems (medical, education, etc.) in the country that are seemingly accessible to everyone.  A good indication of economic prosperity is overall real estate or property development in the region, defined as a business process encompassing many different activities involving land, buildings, and capital.   More specific activities include renovations and re-leasing to land acquisition and ground-up building of commercial, residential, and manufacturing facilities.  While this is not the only or even the best determinant of economic growth in a city like Pittsburgh, digging a little bit deeper into how cities handle property development can lead to broader conclusions about the future wellbeing of a city, particularly a city in transformation like Pittsburgh.

We all know the story: Steel city goes techno, built on a strong support system of universities, charitable foundations, and innovative companies like the University of Pittsburgh Medical Center (UPMC) that changed the fabric of how the city operated.  However, the development occurring today in Pittsburgh is distinctively different from that which got the city here.  The skyscraper boom that started with the U.S. Steel Tower in 1970 and lasted through the 1980’s and 1990’s is no more, with the only major skyscraper built in the last five years being the Tower at PNC Plaza (touted as the “greenest office building in the world”, achieving platinum LEED certification[1])  Universities have slowed their building and renovations recently, with the University of Pittsburgh (Pitt) having not built a major academic building in over ten years and Carnegie Mellon University (CMU) finally securing the funding necessary to build an undergraduate business school building (the Tepper Quad, to be completed in the fall of 2018) in addition to a mini boom in new acquisitions and potential developments[2].  Meanwhile, private developments in the city have skyrocketed, with various firms include Walnut Capital, the Davis Companies, Core Reality, and Millcraft Investments, completing or planning to complete hundreds of millions of dollars in a variety of development projects,  These include the various “Bakery Square” construction projects, the $100 million redevelopment of the Union Trust Building, and the mixed-use redevelopment of the old Kauffman’s/Macy’s department store in downtown into apartments, retail, hotel, and office suites (Walnut, Davis, and Core respectively).

To further complicate the story is the potential for Amazon or another large company placing a second headquarters or major facility in the city.  This creates a few issues: first we have the well-known problem of gentrification (which I’ve touched on before as an ongoing problem in Pittsburgh).  New developments of any type have the potential to displace citizens who can not afford to live in new apartments, shop at pricey new stores, or work jobs for which they do not have the qualifications.  We also have real estate speculation going on, which may or may not pay off for companies and individuals thinking Amazon will locate here.  Just a few weeks ago, an investor purchased 18 homes in the Hazelwood neighborhood (next to one of the potential locations for Amazon to develop, the 178-acre Hazelwood Green site) and spent over $1 million total on the properties, inflating their value by hundreds of thousands of dollars[3].  Finally, we have the actual proposal to attract Amazon itself, which has still not been released by the PGHQ2 team despite PA’s Office of Open Records order for the team to release the proposal to the public.  The proposal could have hundreds of millions of dollars in tax breaks and subsidies provided to Amazon, and that amount of money offered to one organization could set a dangerous precedent for companies and developers in the region looking to squeeze as much money out of their projects as possible[4].

So what is the picture we have?  We have a city with older companies and institutions who are not developing like they used to (with the possible exceptions of PNC, UPMC and CMU) and an influx of new developers catering to the potential arrival of companies and individuals with different needs and requirements.  This type of transition could upend an industry, especially if wild speculation takes hold or potential investments and people migration do not materialize.

There are examples of this type of problem, new waves of development from new developers that tank a local economy, in other cities that we can look at.  Phoenix, Arizona is a good example of a city close to Pittsburgh’s size whose overdevelopment without proper oversight and planning caused 20 properties to be under development at the same time, with no impetus for population growth to absorb that demand for residential and commercial complexes[5].  An extreme example that comes to mind is Seattle’s massive growth at the hands of Amazon’s development, causing jumps in the rental prices of apartments by 65% in the past five years, in addition to a host of other problems ranging from horrible traffic congestion to increases in the homeless population[6].

Even Pittsburgh can see the problems that improperly managed or rapidly changing development characteristics affect the city.  A good example is the recent hotel boom: between 2010 and 2016, there were over 10 hotels built in the city of Pittsburgh, prompted by the success of the Fairmont Pittsburgh which opened in 2010.  In 2017, there were 15 additional hotels under development or completed by year end[7], representing an additional 2,000 rooms potentially being added to the supply of Pittsburgh[8].  This creates incredible pains which hoteliers in Pittsburgh are all too familiar with, including drops in average daily rate and occupancy as hotels fight over the same base of travelers, pains that could have been mitigated with better city planning and oversight.

Another localized example in Pittsburgh is the redevelopment going on in East Liberty, which has already caused headaches for local residents.  It’s hard to place a beginning on East Liberty’s “re-emergence” but the profile of the neighborhood was raised significantly with Google taking up residence in Bakery Square in 2006[9].  Since then, a mix of apartments, restaurants, retailers, hotels, and office buildings have driven rents up for current residents and incited a costly legal battle between one developer and the City of Pittsburgh which cost $10 million by the end of case[10].  I provided positives and negatives for East Liberty’s redevelopment in my aforementioned gentrification article, but the ultimate conclusion I came to then and now is that development without proper planning and oversight means everyone loses in the end.

So what does the future hold for the state of Pittsburgh’s future development, and how should community leaders react?  It’s first and foremost about engaging in meaningful dialogue with city leaders about the purpose and aim of development and where the money is flowing.  Pittsburgh is already doing this, as the community forum on Amazon’s potential arrival last week sparked a more lively and broad debate about community development’s purpose in transforming a city[11].  More discussions like these need to happen, and community leaders shouldn’t just be focused on the big investments.  Smaller development projects add up, as we’ve seen in Phoenix and Seattle, and they have the potential to change the fabric of a community, sometimes for the worse.  Pittsburgh is a wonderful, growing metropolis, and as Pittsburghers, we should safeguard its development so that it continues to grow and remain wonderful.

 

[1] https://www.nextpittsburgh.com/city-design/the-tower-at-pnc-plaza-opens-as-the-greenest-office-building-in-the-world/

[2] https://www.bizjournals.com/pittsburgh/print-edition/2015/10/30/cmu-s-building-boom.html

[3] http://www.post-gazette.com/local/city/2018/01/26/Developer-buys-18-Hazelwood-properties-near-potential-Amazon-site/stories/201801250199

[4] http://triblive.com/local/allegheny/13220106-74/pittsburghs-amazon-hq2-proposal-should-be-made-public-state-rules

[5] http://www.multifamilyexecutive.com/design-development/the-overdevelopment-watch-three-cities-that-could-see-an-apartment-glut_o

[6] https://www.forbes.com/sites/zillow/2018/01/19/what-amazons-growth-has-meant-for-seattle/

[7] https://www.visitpittsburgh.com/media/news-releases/hotel-updates-2017-2019/

[8] https://www.hotelmanagement.net/development/pittsburgh-s-supply-boom-not-a-long-term-concern-for-hotels

[9] http://www.post-gazette.com/business/tech-news/2014/12/07/Google-effect-How-has-tech-giant-changed-Pittsburgh-s-commerce-and-culture/stories/201412040291

[10] https://technical.ly/2017/06/02/lawsuit-pittsburgh-development-cautionary-tale/

[11] https://www.geekwire.com/2018/community-forum-amazon-hq2-pittsburgh-looks-avoid-becoming-next-seattle/

 

The North Shore Development Project Revisited


It has been sixteen years since two professional sports stadiums opened their gates in Pittsburgh’s North Shore. Those stadiums, Heinz Field and PNC Park, have played host to Pittsburgh’s respective National Football League and Major League Baseball franchises. Since the sports complex in the North Shore was completed, the city of Pittsburgh has enjoyed multiple championship parades (two of those stemming from the Steelers’ victories in 2006 and 2009 – respectively.) However, the joys of hosting the local teams in state of the art facilities comes at a price to citizens in both Allegheny County and the state of Pennsylvania.

In August of 1994, it became public that the Pittsburgh Pirates were for sale. When this  announcement came to light, Major League Baseball disclosed that a new ballpark was a requirement for this sale to occur. A little over one year later in October of 1995, Steelers president Dan Rooney publicly announced that Three Rivers Stadium needed to be extensively renovated or replaced for the team to be able to “remain competitive.” Later on in 1996, the Pirates were sold to Kevin McClatchy, with the stipulation that a new stadium would have to be constructed for the team by 2001. As all of these pieces of information come to light in the late nineties, it starts to become very apparent that there is going to be a big push by several powerful players to get these new facilities built. These press releases, quotes and plans culminate in late 1997 and early 1998 as the preliminary plans for financing these facilities were announced. 

 

In November of 1997, several key pieces of information regarding how this developmental project is going to be financed were announced. They included a 1% increase in county sales tax beyond the 6% base sales tax, a 7% tax on hotel and motel rooms rented in Allegheny County as well as revenue generated from parking and a payroll tax on athletes that are not residents. In short, the contributions from local and state residents in addition to federal and state funding amounted to 72% of the costs associated with this plan.

This is an oft-debated about issue in today’s society, but it was also highly contested in 1998, when this plan was being voted on. The decision to back the billionaire owners of sports franchises were not anywhere close to unanimous. When meetings were held on the matter of this plan, public opinion was incredibly split. Local sports fans opined that the construction of these stadiums was vital to the city’s future as a host to professional sports teams. However, there were many angry local residents who expressed their displeasure towards the fact that their tax dollars will, in part, be going towards the construction of this stadium. In fact, even before this public funding was committed, voters in Allegheny and surrounding counties voted 530,706 votes against and 281,336 votes in favor of the plan to construct these new facilities.

In the end, however, the plan was approved 6-1 by the Regional Asset District Board (RAD) and the local funding was approved to build these two stadiums and expand the convention center. Ralph DeStefano, the outlier on the RAD board who voted against the plan was very outspoken as he opined that it was time to “stop the insanity with sports salaries” as he likened the decision to use public funds as contribution to these stadiums as “corporate welfare.” Though many have their opinion over whether this was a decision that was right or just, the stadiums certainly do create both positive and negative externalities on the public.

The city kept their teams. Whether you are a sports fan or not, this is something that certainly adds to the cultural dynamic of a city. Having two of the most recently successful sports franchises (Penguins and Steelers) in your city attracts a lot of fans and tourists to the area. They go to the games at these stadiums, they populate local bars, restaurants, shops, hotels, etc. The North Shore has undoubtedly felt incredible economic growth since the early 2000’s, and the stadium project undoubtedly served as a direct catalyst.

The main issue that many take with cases like this is how these stadiums are funded. Certainly, in the case of this developmental project, there is a dangerous line that now exists due to the precedent that has been set with the public contributions towards funding these stadiums. Just this past March, the Pittsburgh-Allegheny County Sports & Exhibition Authority board approved nearly $300,000 in reimbursement payments for inspection services and structural steel painting. Though this payment was unanimously approved, there is currently a heated debate over who is going to pay for twenty-five million dollars in upgrades to the stadium (such as installing new Wi-Fi systems, an expansion within the stadium, and the purchase of a new scoreboard in the south end zone.) Obviously, it is troubling for the future if billionaire sports ownership groups are able to strong arm the local and state governments into forcing local residents to pay for their investments.

We are not yet at the point where public outcry against the use of public funds has led to notable drops in attendance across professional sports, but the general population is certainly becoming more aware. In recent years, there have been many people across the nation pushing for owners of franchises to finance their own stadiums. However, we probably won’t be seeing this type of debate come up in Pittsburgh anytime soon, barring any drastic expansions or renovations to these local stadiums. It seems as if Art Rooney and Kevin McClatchy had just enough time to work with to get these stadiums built – just like Ben Roethlisberger had for his game winning drive in Super Bowl XLIII.   

 

 

Pittsburghers Gentrifying and Promoting Pittsburgh? What This Means for Everyone Involved.

Nearly everyone knows that Pittsburgh has been undergoing a transformation for some time.  From the last steel mill closing in Southside in 1997 to companies like Uber, Apple, Disney and now Ford moving into the city (the latter making a $1 billion investment in Pittsburgh-based autonomous-vehicle research firm Argo AI[1]), Pittsburgh has certainly been reinventing itself.

However, a lot of people stand to be “left behind” in Pittsburgh’s rapid redevelopment.  This includes everyone from expatriates of the city to those who could be pushed out if gentrification overtakes them.  I like to think there are ways of including everyone in the city’s success, and there are some people, companies, and organizations who are paving the way for that success.

Pittsburgh is Calling You Home

Take Holly Brubach, an esteemed journalist, consultant and now real estate developer who after a career in numerous cities outside of Pittsburgh, is returning to the city to build a boutique hotel.  The Forbes, as it will be known, will be situated in the historic Granite Building in downtown Pittsburgh.  This truly independent hotel will absolutely stunning with three bars, a brasserie style restaurant, and 104 gorgeously furbished rooms.[2]

None of this would be possible without Holly, a Strip District native who has repatriated because of her connection with the Steel City.  “Coming back is a way to reconnect with other people who share the same outlook on life, which to my mind has to do with kindness, hard work, and humility,” says Holly of herself and other “boomerangs” who grew up here but left and are now finding themselves coming back to the city.  “There’s something genuine here, at a time when so much of what we see and deal with seems superficial and fake.”

The genuineness is also apparent in the many more recent college graduates returning to the city to make their marks on the city.  People like Victoria Snyder, who graduated from the University of Mount Union in Northeast Ohio and left a job at Robert Morris University to move closer to the city and work to highlight Pittsburgh’s diversity.  She founded Diversity Partners, a conduit organization that offers consulting services and training on diversity to organizations.  She speaks highly of her role as being a “servant leader” and of “connecting people together to support not only the Pittsburgh community, but the greater Pittsburgh community.”

Another Pittsburgher making an impact in a more interesting way is Danielle Pastin, contractor and real estate developer by day and professional opera singer by night.  Yes, that’s correct.  Danielle travels all over the country to perform in operatic productions, including for Pittsburgh Opera, but retains her residence in Brighton Heights in addition to the various properties she manages and invests in around the Pittsburgh area.[3]  She’s constantly looking for more real estate to invest in, and this Jill of all trades doesn’t see her opera career slowing down anytime soon.

Finally, even Pittsburghers from as far away as San Francisco are making their way back home.  Website developer Brittany Martin, who has designed websites for top organizations and events like the Pittsburgh Cultural Trust and the Three Rivers Art Festival, is returning home for a number of reasons she outlines on her blog.  The vibrant tech community, low cost of living, high level of safety, and amount of family and friends in the city are all positive aspects she points out for returning to the city.[4]

Hi Ho, Hi Ho, Off to Pittsburgh We Go!

More than just Pittsburghers see the value in coming back to Pittsburgh for continual investment and development.  A number of developers have been returning to Pittsburgh to invest more money into more projects that support jobs, industries, and communities in the city.  Chuck Hammel, owner of Pitt Ohio Express, has previously developed lofts and apartments in the Strip District.  The businessman is now teaming up with his wife Kristen to convert an old warehouse in to 11 private apartments, costing about $18 million.[5]  Jack Benoff of Philadelphia-based Solara Ventures has been a frequent investor in Pittsburgh property, and his newest venture is another 35-40 unit apartment complex along Smallman  Street, with a budget of about $8 million dollars.[6]  Finally, Dan McCaffery of Chicago-based McCaffery Interests has just won the rights to redevelop the Pittsburgh Produce Terminal, a $50 million project that will add office, retail, residential, and hotel space to the 100 year old property.[7]  And more development is poised to spring up all over the city, with undeveloped land and abandoned warehouses located on nearly every street.

There’s a Gloomy Side to Every Situation

All of this investment in Pittsburgh has its ups and downs.  By including outsiders and insiders in Pittsburgh’s development, the community can ensure that at the end of the day, Pittsburgh works for everyone, not just for those that can afford to have a voice.  The city also gets notoriety from involving a wide variety of groups in its progress; as the quantity and variety of interested citizens grows, so do the opportunities for more unique investments from the likes of Ford or Holly Brubach.

The downsides are just as relevant.  All this investment means a lot of gentrification, and whether you like or dislike the idea of gentrification, there are significant challenges to overcome.  Minority displacement, spikes in crime associated with gentrification (due to neighborhood destabilization and new targets for theft), and other problems need to be addressed head on.  One solution would be to involve the groups most at-risk in the development process in high-level decisions and solutions to co-create value for everyone involved.  For example, Pittsburgh City Councilor Daniel Lavelle notes that African-American women are the fastest growing entrepreneurial demographic in the country but have some of the lowest average incomes not only in the Pittsburgh region but also in the entire nation.[8]  Identifying and supporting investment and development that includes this critical and high-growth demographic, particularly in the associated impacted regions, is the best way to make sure that all involved parties benefit from Pittsburgh’s comeback.

Another downside happens to be Pittsburgh specific: how does a city ranked as the “Most Livable” by the economist six times since the year 2000 also rank second from the bottom in economic opportunity for African Americans?  Carl Redwood of the Hills District Consensus Group of Pittsburgh says housing issues and zoning laws have been the toughest on the African American community.  There is too much leniency for developers of high-income buildings and not enough support for those buildings and programs that benefit poorer citizens.  A two-pronged approach is necessary to provide the necessary relief; the city government must not neglect the citizens who make Pittsburgh what it is, after all the titles and office complexes are gone.  In addition, people like Victoria who make an impact through supporting those most at risk to the negative side of gentrification need just as much support and notoriety as Uber or Apple.

At the end of the day, what we see as Pittsburghers, whether old or new, is growth and progress on a fantastic scale.  To keep up with the pace, everyone needs to be considered and included, whether you were born here, have a vested interest here, or have something to lose here.

[1] http://triblive.com/local/allegheny/11928395-74/pittsburgh-ford-argo

[2] http://www.nextpittsburgh.com/city-design/granite-building-downtown-restored-cool-boutique-hotel/

[3] http://www.post-gazette.com/life/lifestyle/2017/01/05/Pittsburgh-s-creative-forces-12-people-to-meet-in-2017/stories/201701050144

[4] http://sfviapgh.com/blog/2015/5/2/why-were-moving-back-to-pittsburgh

[5] http://www.bizjournals.com/pittsburgh/print-edition/2015/04/03/corner-of-smallman-and-big-deals.html

[6] http://www.bizjournals.com/pittsburgh/blog/the-next-move/2014/06/benoff-ready-to-bring-new-condo-project-to-strips.html

[7] http://www.nextpittsburgh.com/features/dan-mccaffery-profile/

[8] http://www.cc-ds.org/2015/12/unfortunately-in-pittsburgh-we-have-a-tale-of-two-cities/