Businesses Play Key Role in Revitalization & Gentrification

An August 26, 2015, Sustainable City Network article analyzed the key role businesses can play in revitalizing and gentrifying a failing neighborhood. Many urban areas that are undergoing revitalization struggle between attracting established business brands, like Starbucks or Whole Foods, that attract growth and small businesses that maintain the character and flavor of the neighborhood. From the article:

Have you heard of “the Whole Foods effect?”

In the real estate world it’s considered a phenomena whereby the arrival of a Whole Foods, an upscale grocery store featuring organic produce and products, can predict a neighborhood’s gentrification. The event supposedly signals a tipping point, leading to rising property values in the neighborhood and the addition of similarly upscale stores, boutiques and retail outlets nearby.

As it turns out, the theory has some evidence to back it up. According to a 2012 Salon magazine article, “Evidence suggests that Whole Foods can accelerate gentrification in particular ways. A new Whole Foods may not cause property values to shoot up on its own, but it can set into motion a series of events that change neighborhoods.” …

While risky, the promise of untapped markets in new areas appeals to many businesses, especially those with deep pockets and a household name. For example, coffee giant Starbucks is thought to be capable of kick starting the gentrification of a previously under-served neighborhood via market-savvy calculation about where to open its stores.

The location of new businesses, both large and small, can act as an anchor for revitalization efforts and be used as a selling point for new home buyers or tenants:

[A 2012] Business Insider article cited a real estate expert who was very straightforward.

“One of the best ways to stretch your buying dollar is to find a neighborhood that is in transition,” he said. “Called fringe or transitional neighborhoods, they are typically close to major metropolitan areas and were once neglected and less desirable. Is there a trendy restaurant where a tattoo parlor used to be? These neighborhoods are now beginning to enjoy a new life and your goal is the find them.”

In a lengthy report on gentrification by American Public Media’s “Marketplace” program, one Los Angeles professional house flipper explained how he markets revitalizing neighborhoods to potential homebuyers. He admitted he relies on the small businesses that set up shop in a revitalizing neighborhood, going so far as to call them a “seed of transformation — something he could point to and say, look, this neighborhood is changing. He needed to convince potential home buyers of this, yes. But just as important, he needed to convince the people who were giving him money to flip those homes.”

The article also discussed how some communities are trying to protect neighborhoods from the negative effects of gentrification, which can include the displacement of small businesses and existing residents:

In response to the issue, concerned New York City business owners, residents and advocates have brought the Small Business Jobs Survival Act before the New York City Council which, if passed, would allow commercial tenants more negotiating power in the lease renewal process and place certain restrictions on rent increases.

While gentrification’s increased costs are often the main reason for controversy among neighborhood residents, the changes also have brought unexpected financial savings in some cases. A recent New York Times article detailed how some New York City co-op residents were able to offset building maintenance costs by opening the ground floor to upscale restaurants and shops willing to pay a great deal in rent for the location.

The article details how, as a result of the opening in one building of a Mrs. Green’s Natural Market and a restaurant focusing on gluten-free dishes, one resident’s monthly maintenance fees went from $816 per month to just $20.40, and a “special assessment” fee of $170 per month was eliminated as well.

Locating in a residential building can be a win-win for businesses as well as residents, [Urban Land Institute Senior Resident Fellow Ed] McMahon said. …

There are lessons to be learned from small communities as well, confronted less by gentrification but seeking the same preservation and retention of unique, small businesses and social places to meet as their neighbors in larger cities. Paul Bruhn, executive director of the Preservation Trust of Vermont, helped launch “community-supported enterprises” in a number of Vermont towns, which directly engage the community in helping to open or maintain local businesses by selling “shares” to defray operation and equipment expenses.

“Community ownership of the real estate, equipment and furnishings protects the community’s investment as well as the charitable investment,” Bruhn wrote on the organization’s website. “It also makes it possible for a start-up business to start-up without debt. Most of these enterprises are more likely to succeed if there is limited or no debt. If the community owns the space, equipment and furnishings; and one business fails, the infrastructure is still there for the next edition.”