Anti-displacement strategies help preserve what’s special about commercial corridor ecosystems

Photo courtesy of Blaise Danio of Buhlaixe Studio.

Roosevelt Row, the stretch of downtown Phoenix made popular by artists and small business owners, is a lot of things to a lot of people. Today, it is also well-known for what it is not: It is nothing, goes the common lament, like it used to be. 

Redevelopment removed a lot of the physical character and the people who made the cultural vibe in the Roosevelt corridor so popular that developers wanted to be part of it, even if it meant capitalizing with projects that caused displacement.

A segment of the Phoenix-area commercial real estate sector that has a place-based focus is pursuing anti-displacement solutions as a hedge against what happened on Roosevelt Row. LISC Phoenix is behind two notable efforts to strengthen commercial corridors as part of a comprehensive, equitable neighborhood preservation and revitalization strategy. One is a new commercial loan product; the other is a grant to research best practices for alternative commercial property ownership.

Terry Benelli, executive director of LISC Phoenix, said vibrant commercial corridors with businesses and services supporting residents in its neighborhood are important to our economic ecosystem and our civic life. 

“Main Street businesses are not only transactional places but also natural gathering spaces,” Benelli said. “Our strategies to create an equitable city are based on the vision of community. Engaged local businesses, often owned and operated by neighbors who are immigrants and people of color, are integral parts of thriving community and commercial corridors.” 

As an intermediary, LISC Phoenix has parlayed a grant from Wells Fargo into low-interest loans for community-centric developers whose tenants are small business owners with strong, long-term ties to neighborhoods. Small developers often are forced to use high-interest private lending because they don’t meet current commercial bank standards for market-rate loans. 

Seasoned developer Will Rodriguez owns several properties in central Phoenix, including Roosevelt Row and the “Miracle Mile” segment of the McDowell Road corridor. He calls access to market-rate capital the second biggest barrier to commercial development success. The first is experience and education, he said.

“At this point in my life, I do not understand the way banks lend on real estate,” Rodriguez said. “From my experience, the tenant is a much bigger factor in a loan than the property, and ‘credit’ tenants (think Starbucks) are the only ones they want seemingly without regard to the loan to value of the property. This forces small investors with local tenants to look elsewhere for loans.”

Rodriguez is the first commercial property owner to receive the special, below-market rate LISC Phoenix loan. More are in the pipeline. 

Private, interest-only loan money, which is the financing Rodriguez had on his McDowell Road property, is expensive money. 

“Frankly, with the private money, interest-only loan, I pretty much broke even on the property,” Rodriguez said. “It would make much more financial sense for me to sell the building and re-invest the profit in another project or lend it out through a private money lender.  Fortunately, I really like my tenants and don’t want to risk selling the property and having the new owner raise rents or get new tenants. … I would feel really bad looking in the mirror, knowing that they built their businesses and their clientele, and they’re forced to close for someone new who could pay more rent.”

Instead of being in a constant cycle of interest-only loan refinancing, the LISC Phoenix loan  product sets up the possibility of Rodriguez owning the property, where a thriving Ethiopian grocery market and a barber shop that serves a primarily Latino clientele are located, outright in five years. 

“I really just like that neighborhood from an investment standpoint,” Rodriguez said. “It’s a cool neighborhood. I prefer those kinds of areas.” 

Emerging cool neighborhoods are at risk of becoming like Roosevelt Row.

LISC Phoenix and nonprofit Trellis have partnered in commercial corridor revitalization projects, including along McDowell Road. Trellis responded to a LISC Phoenix request for proposals to research best practices for preserving commercial properties through ownership as a hedge against displacement. 

Joel McCabe, vice president and chief operating officer at Trellis, said now is the perfect timing for the nonprofit community development corporation to evaluate what alternative ownership tools are possible in the McDowell Road corridor. Ideally, Trellis’ research will find anti-displacement practices that can be replicated elsewhere, he said. 

“We have a great corridor that people love, and the neighbors use it,” McCabe said. “Hopefully, we can help bring in more businesses; there’s a lot of vacancy. But then also help the ones that are there grow, expand, and hopefully become owners.”

Michael Kelly, commercial corridor coordinator at Trellis, said there are examples throughout the nation of neighborhoods fighting displacement by acquiring commercial property. Some possibilities include community cooperatives and commercial real estate investment trusts, where people could buy shares of a key neighborhood properties.

“We want to help Phoenix grow and have that character in many other places because that’s what attracts these big businesses and innovative artists to come live here,” Kelly said. “They’ll say, ‘Oh, wow, there’s a cool place to live. So many neat places we can go.’ ”

Anti-displacement strategies help ensure those neat places - and the people who create them -  are not erased from the scene.