Spotlight on Inclusive Economic Development Without Displacement

Empty towers and potential consequences

In downtowns around the country known for their hustle and bustle, things are eerily still.   

LISC’s work is rooted in communities across the country but our physical headquarters are in Lower Manhattan, where every day seems quiet compared to pre-pandemic times. And the numbers back it up: there is 96 million square feet available to lease in Manhattan, an area more than twice the size of downtown Boston. Many estimate that New York’s in-office attendance is about 50% on an average weekday, and a recent report found that empty office space could fill 26 Empire State Buildings.

It’s not just New York: even as the overall economy has rebounded from the pandemic, the office landscape remains starker. In tech-heavy San Francisco and Seattle, vacancies are around 30 percent and 24 percent, respectively, and the country’s overall office vacancy rate of about 17% stands higher than it did during the height of the Great Recession. Working from home has become a global phenomenon, though research shows it more common in English-speaking countries.

Combine these trends with higher interest rates and uneasy investors, and many foresee trouble for office buildings. Brookfield Asset Management and Columbia Property Trust, two of the largest real estate firms in the country, recently defaulted on loans backed by office properties in Los Angeles, New York, San Francisco, Boston, and Jersey City.  Some estimate that $1.5 trillion in commercial real estate debt (which includes also apartment buildings) is coming due by 2025, including almost 10,000 office buildings.

While vacancies and maturing debt may be bad news for commercial landlords, the implications for the broader public may also be profound. Depending on the city, taxes on office buildings can be a major source of revenue: in New York, they represent about 10% of its total tax revenue. Public pension funds invest heavily in commercial real estate, and small businesses around downtowns have experienced closures as foot traffic has fallen substantially, impacting owners and workers.

The fact of extensive downtown vacancies and the nation’s affordable housing crisis has sparked interest around the country in adaptive reuse. Though various tools and incentives are being developed to help convert vacant office space to mixed income or affordable housing, HUD’s recent research overview found that the work is challenging due to design, zoning, and financial realities.

Common causes, different symptoms

The pandemic clearly changed some ways that companies do business, but many of the dynamics hitting downtown aren’t about remote or hybrid work. Houston, for example, has the highest office attendance in the country, but it also has the highest office vacancy rate in the country, at 23%. In that city, there’s an excess supply of office buildings, driven by developers and investors betting on future demand, with low interest rates fueling this growth.

This same story – low interest rates driving sometimes speculative investments – has deeply impacted communities beyond the downtown. For example, research by LISC shows that speculative finance – using low interest rates to extract relatively cheap debt from properties – was a leading signal of harm to tenants, including maintenance violations and evictions.

Small businesses, especially in those in gentrifying neighborhoods, are feeling the same pressures that residential tenants are experiencing, as landlords who acquired buildings at a premium push out longstanding community pillars, often owned by entrepreneurs of color.

In other words, what’s affecting downtown landlords also impacts neighborhood businesses, because they both are different symptoms of a winner-takes-all system of profit-taking emphasizing short-term gains, a system which fuels speculation and displacement.

In this Spotlight for the Institute for Community Power, we lay out compelling strategies to prevent small business displacement, building on work in Charlotte, Puget Sound and Bay Area.

LISC Charlotte has been working in the city’s Historic West End, the traditional center of Black civic, cultural, and commercial life. LISC has three local partners in the neighborhood through its administration of Fifth Third Bank’s Empowering Black Futures Program: Historic West End Partners, West Side Community Land Trust, and For The Struggle. These organizations are collectively pursuing a holistic agenda that includes housing preservation and development, homeownership counseling, small business growth, commercial corridor improvements, and capacity building for grassroots organizations. LISC is providing financial and technical support to build community partner capacity to achieve their vision. LISC is also working with the City of Charlotte's economic development office on efforts to prevent commercial displacement and support BIPOC entrepreneurs as market pressures begin to affect the neighborhood. In addition, LISC raised $1,000,000 to establish the Historic West End Commercial Development Fund, which will offer technical assistance and financing for small business and commercial developers with plans to develop in the Historic West End corridor. 

LISC Puget Sound is working collaboratively with community leaders to create an economic inclusion agenda in neighborhoods including Casino Road, a neighborhood in south Everett, WA that is home to many Latinx immigrants and other people of color. Two new Sound Transit light rail stations are planned for the area, providing both a challenge and an opportunity. Though they will bring greater connectivity, the community is concerned about the risk of displacement due to the new infrastructure and related development, and one station site that the city prefers would displace 25 immigrant business owners in a small strip mall that serves as the commercial center for the community. LISC is working build local CBO economic development capacity so that there will be organizations in the community that are ready to take on this work as new investment opportunities arise. Local priorities include building capacity to support small businesses, establishing new workforce development programming, and helping the community organize around land use and development opportunities in the neighborhood.

LISC Bay Area is supporting an economic inclusion agenda on West Oakland’s 7th Street, a place known for decades as the Harlem of the West. Even though West Oakland’s population decreased by 20 percent between the 1950s and the 1960s, as large infrastructure projects displaced residents to facilitate the movement of goods and people through the San Francisco Bay, today, 7th Street is home to more than 71 businesses and nonprofits both on and off the corridor. The area is also slated for nine future major real estate development projects — two owned and being developed by community organizations and all with a promise to bring more retail to the neighborhood. One such partner is East Bay Permanent Real Estate Cooperative (EB PREC), which helps BIPOC and allied communities cooperatively organize, finance, purchase, occupy, and steward properties. This approach takes properties off the speculative market and preserves their affordability and use as assets for the community in an increasingly competitive real estate market. Another partner is Oakland and the World Enterprises, which is launching and sustaining for-profit businesses for cooperative ownership by formerly incarcerated and other economically marginalized people. 7th Street’s Economic Inclusion Strategy —coined 7th Street Thrives—is a multi-year, place-based effort to advance a collective vision of economic revitalization that honors the history and legacy of the corridor. Through this initiative, EB PREC as Community Advisor and LISC Bay Area as capacity builder are supporting the activation of underused space, assisting Black-owned businesses and other entrepreneurs of color on the corridor, and reviving the community character of the 7th Street corridor in inclusive, regenerative ways.

In these places, LISC went because we were invited by residents and small businesses who asked for support. We built trust with people who have lived the harms of cycles of disinvestment and development that accelerated displacement of friends and family members.  We did our homework – rather than planning and replanning when people had already voiced their need, we learned from past efforts and helped deliver results. And we helped build capacity among newer organizations who have real community relationships, connecting them to resources that help them grow.

The tie we want to make between empty towers and community pillars is that there are better ways forward.  The inclusive economic development strategies documented in this spotlight are not just ways of producing better outcomes for long-excluded entrepreneurs but a process to get there – allowing meaningful community decision-making, mobilizing existing expertise and assets, and ultimately directing investment in ways that do not displace existing residents or businesses.

Feature

The LISC Institute for Community Power spoke with LISC Bay Area, Charlotte, and Puget Sound offices and community partners about their efforts to advance community-led economic development without displacement with BIPOC and immigrant communities.

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