News Release: ULI Report Examines Retail Development Challenges in Lower-Income Neighborhoods

NEW URBAN LAND INSTITUTE REPORT, RETAIL IN UNDERSERVED COMMUNITIES, LOOKS AT OVERCOMING CHALLENGES TO RETAIL DEVELOPMENT IN LOWER-INCOME NEIGHBORHOODS

WASHINGTON (September 17, 2014) — A new report from the Urban Land Institute explores factors that hamper retail development in some lower-income communities and offers solutions to overcome the dearth of shopping options for neighborhood residents.

Retail in Underserved Communities defines underserved communities as those that fall into one or more of four categories: urban locations lacking businesses, underserviced markets, locations without cultural offerings, and isolated rural or small towns. “Although several causes are often identified as common to underserved markets, the essence of the problem is most often weak market conditions,” says the report. “The creation of a local economy where investors, property owners, the government and retailers make market-rate decisions and obtain satisfactory returns on investment is critical to success.”

Authored by ULI Senior Resident Fellow Maureen McAvey and Bridget Lane, director of Business Districts Inc. in Evanston, Ill., the report is based on observations from industry experts at a ULI forum held in February 2014 that included representatives from ULI, the U.S. Department of Housing and Urban Development, and the International Council of Shopping Centers.

The report cites several factors contributing to underserved markets:

• Site and market challenges, including site availability and land assembly; lengthy local approval processes; difficulty matching a retailer to the market; and inaccurate or insufficient market information (such as understated household income for the area).
• Underwriting challenges resulting from lenders’ unwillingness to make loans in areas perceived as risky and unlikely prospects for additional investment and development. To overcome these obstacles, the report suggests using unconventional approaches to “pitch” the sites to retailers and the provision of financial incentives to retailers. It also suggests that a project be presented as contributing to a place making endeavor to benefit the community. In addition, it notes that non-traditional financing sources and tools should be explored.
• Operational challenges, including store size limitations that could inhibit its ability to create a critical mass; distribution and delivery challenges due to narrower streets; unreliable internet service that prevents the integration of online shopping and in-store pick-up service; national anchor store losses; inadequate employee training services; and the perception of the neighborhoods as high-crime areas.

The report, which focuses primarily on urban underserved markets, includes case studies of the East Liberty neighborhood of Pittsburgh; Union Market in Washington, D.C.; and Old Spanish Trail in Houston, exploring how retail development sparked revitalization efforts that are ongoing in each of these areas.

In East Liberty, the catalyst was a Home Depot committing to locate in the neighborhood, drawing lower-income as well as more affluent residents, and ultimately resulting in additional retail development community reinvestment. Union Market’s revival was spurred by an emphasis on fresh, local food and the provision of space for community events, positioning it as vibrant gathering place. At the Old Spanish Trail area, the development of a neighborhood center by a community development corporation partnership brought retailers, a grocery and medical service providers as well as other services to the area. Parks and civic space are planned as the revitalization continues.

Among the lessons learned from the three case studies:

• Sustained leadership is essential to keep a project on track to completion
• A “bridge” location that reaches low- and high-income populations is a plus
• Sharing risk between the private and public sector helps ensure prospects for success
• Public sector commitments to maintain and improve infrastructure in the area are critical
• Focus on managing growth, rather than stemming decline or protecting the status quo
• Capture the land value after the project is completed
• Focusing on food responds to the national emphasis on providing healthier eating choices in underserved neighborhoods
• The dense layout of urban underserved communities is conducive to mixed-use projects that include residential space on top of a variety of retail and commercial space
• Retail development provides prime employment opportunities for the unemployed and under-employed, as well as opportunities for new entrepreneurs to enter the area

“Little question exists that many parts of America have inadequate access to needed retail goods and services. Yet, real signs of optimism and opportunity have emerged,” the report notes. “With the rapid change in the retail sector – changing formats, more mixed use, acceptance of new locations – the options to revitalize neighborhoods are expanding and can add more choice to underserved communities.”