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/

 

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