Diving Deeper into DPD’s January Downtown Report

A few weeks ago, I explored the a Downtown Vacancy Report prepared for Lowell’s City Council by the Department of Planning and Development (DPD) and compared it to a similar report issued one year ago. The council discussed the report at their next meeting, praising its comprehensiveness while lamenting that some landlords are less aggressive at marketing their property than others.

The report is the first in a series of planned reports every six months, which will give a richer picture of trends than a single snapshot in time. It was a response to a motion by Councilors Leahy and Kennedy, who suggested a report in the wake of announcements of La Boniche and Giovanni’s Trends’s closure. Councilor Kennedy said, “I think it’s important that the City Council and the administration monitor just what’s going on downtown.”[1]

However, it raised questions for me: Why was the amount of commercial space shrinking? Are rents comparable to other cities? What are the factors that are influencing businesses to close? I reached out to the City’s Economic Development Officer, and she was incredibly generous with her time to discuss these and other issues related to the Downtown.

What’s the source for the information?

The Lowell Sun recently reported that the report was a result of “a recent study commissioned by the city”, but city staff actually continuously update the City’s commercial property database.

For the total number of square feet of commercial and residential space, the DPD uses the assessor’s database—the same database that powers the City’s public map app.

Sample Site Finder Report.

Example page from Site Finder Report. Lowell produces reports tailored to businesses’ needs.

DPD uses a variety of sources to track the tenants of each property. For most of the larger properties, they can find information with their subscription to CoStar, a company that communicates with real estate brokers and property owners across the US daily to provide up-to-date information to real estate professionals and urban planners. Smaller properties are more difficult to track. For those, the city keeps in constant contact with the property owners or the real estate brokers who work with those owners.

The City feeds all of this information into a database application called SiteFinder. That way, they can give reports of many available spaces to individuals looking to start or expand businesses. Some cities, such as Somerville, make this information available online. However, DPD would rather individuals contact the City for the information, so that they can begin a personalized conversation and better determine the needs of the individual business and offer appropriate assistance programs.

To prepare a Downtown Vacancy Report, they just need to double-check their records are up-to-date, use the information they already have, and write notes on key properties.

Why did the total commercial Square Feet shrink?

Interior of Counting House Lofts Apartment, Lowell

Interior of Counting House Lofts Apartments (Image: Counting House Lofts)

One of the most striking differences between this and last year’s report was that commercial square footage dropped by about 800,000 square feet. The City reported that the bulk of the change was conversion from commercial space to residential, such as:

  • Countinghouse Lofts, converted about 100,000 square feet to residential
  • The former Adden Building, adjacent to Counting House Lofts, converted 85,000 Square feet into 70 mixed-income residential (80% market rate)
  • 226-228 Central Street, being converted into condo-style apartments
  • 24-26 Merrimack Street (above Dunkin Donuts), converting 60,931 square feet into 47-market-rate residential units
  • A portion of Boott Mills West, converted into 77 market-rate residential units by WinnDevelopment

What about rents?

Vacancy is only part of the picture, and average rents are another important part. The City shared CoStar reports about downtown Lowell and surrounding communities.

Per Square Foot average Annual Rent (2014, 4th Quarter)

Retail Class C Office*
Downtown Lowell $12-$15 $11-$12
Greater Boston Average $16.14 $17.31
Southern New Hampshire $12.34 $16.39
Worcester $15.88
Rt. 3 North $15.92

*Real estate professionals categorize office space into three classes. Class C is the lowest, which may be in run-down buildings, in less-desirable areas, and/or need renovation for modern use.

Average rents must be taken with a grain of salt: many smaller properties offer negotiable rents, and some rents include utilities or common space, while others don’t. With those caveats in mind, Downtown Lowell’s retail rent range appears comparable to the area, slightly lower than the Greater Boston average but in-line with Southern New Hampshire. However, downtown offices appear to command low rents, and this may be one clear reason why commercial-to-residential conversions happen more quickly than new office development. For example, new Boott Mills apartments can provide nearly $24.00 PSF of revenue annually.[2]

Low rents might tell a story of a struggling downtown, with property owners only making enough to pay taxes. However, high rents and high vacancy may represent landlords overvaluing their properties.[3] That doesn’t appear to be the case with downtown as a whole, but it might be true for certain properties, with some landlords seeking rents that are comparable to Class A or B space even though they don’t have basic amenities such as internet access.

What does DPD currently do to help businesses?

The original motion requesting the report wasn’t just about vacancy. Councilor Leahy said, “I’m surprised we don’t get some semi-annual reports or annual reports [from DPD] to keep the Council informed on what they’re working on, where we’re going, what the direction is.”

I was made aware of a few of the active programs to promote business:

One of the marquee programs still available is the Downtown Venture Fund. This program was started in 2001 as a partnership between the City of Lowell, the Lowell Development and Finance Corporation, and several banks to provide low-interest loans to individuals that want to start restaurant or retail establishments in the core of downtown Lowell. Over 300 businesses have taken advantage of the fund in the last twelve years, including Blue Taleh and Old Court. I’m sure there are a lot of stories about the loans being critical pieces of dreams made true—a Boston Business Journal article explained, “To a person, the [interviewed] entrepreneurs said they could not have gotten their businesses off the ground without the Venture Fund…”

The Merrimack Valley Small Business Center provides microloans, workshops, and mentorship programs to small businesses in Lowell, Lawrence, and other towns. They also run a community kitchen and the outdoor summer Farmer’s Market. They have helped many small businesses in the downtown area.

The Sign and Façade Program grew out of the City Manager’s Neighborhood Impact Initiative, which ran from 2009-2013 under City Manager Bernie Lynch. The former program concentrated on a different neighborhood each year, targeting sidewalk, security, façade, and other improvements in a coordinated way. The funding pool is now being used partially for a grant of up to $2,000 for any eligible business throughout the City to improve its appearance, including paint, lighting, awnings, or signage.

These, along with communication with brokers, landowners, and prospective tenants, are largely the same programs that were around during the last downtown improvement report.

What else could be done?

Pop-Up Stores

Pop-up store in Holyoke, 2013.

Pop-up store in Holyoke, 2013. Image: Spaces of Possibility

Pop-ups are stores that might be only open for a weekend or a season, filling a vacant storefront temporarily, either as an expansion of an existing business or a whole new business. Some pop-ups are successful, and evolve into year-long businesses, while others fill a specific niche at a specific time. Either way, they create a sense of liveliness and draw an audience that helps neighboring, permanent businesses.

I have been told that many landlords require a two-to-three year lease, wanting to lock-in stability rather than deal with the increased workload and uncertainty of shorter terms. This is common, as short-term leases are relatively new: an article about Washington DC might as well be written about Lowell, even with the City interested in promoting the concept. What may be needed is a legal framework and model lease to make it easier for reluctant landlords.

Window Displays

Downtown display for First Thursday im

Downtown display for First Thursday (Image: Mary Hart)

DPD is working closely with COOL to make it possible for more artists to display public art or other installations in vacant stores. However, they’ve been encountering difficulty when property owners cite insurance and liability concerns. During the City of Lights parade, artwork was displayed in some windows, and one of the pieces disappeared, either stolen or accidentally thrown away. These incidents create even more doubt that an arrangement is possible without clear legal terms.

Notably, we can also build on many success stories. For example, a local artist and a property owner worked together to showcase a colorful display about Lowell’s First Thursdays 2015.

Architectural Lighting

Notes from September Business Summit

  • More lighting, brighter lights
  • Surveillance cameras around downtown
  • Cleanliness
    • Windows cleaned on a daily basis
    • Planters (consistent)
  • Public bathrooms (Is there one in John Street garage? Why not in Market Street garage?)
  • Panhandlers/element
  • Valet parking for business (Dudley’s)
  • Lack of retail
  • Survey residents for their shopping habits
  • Meals tax
  • Permitting
  • Real Estate taxes
  • Investment by property owners
  • BID
  • Shop Lowell campaign
  • Future Downtown Business Summit
  • Street cleaning during early morning
  • Off-street parking
  • Better removal of snow during snow parking bans
  • No parking in John Street garage
  • Loading zones at the corner of Central/Merrimack Street
  • Old Court corner

A primary concern raised by some of the dozens who attended the September Downtown Business Summit (see sidebar) was the need for more lighting downtown. I was told that the City hoped to add brighter bulbs for the Victorian lamps downtown, but other interesting ideas have been raised.

The DPD may look for funding to help property owners install architectural lights that would brighten downtown and show off downtown’s greatest physical asset: its architecture. Additionally, there may be ways to encourage downtown businesses to leave storefront lights on during the night to showcase their window displays. This may involve education or finding funding for low-cost LEDs to reduce electricity bills.

Upgrading Office Space

Finally, another issue of concern is that property owners’ options for securing low-interest loans, grants, or other assistance for renovations are limited. Businesses looking to grow or expand can often obtain state financing from sources such as MassDevelopment, and developers creating housing can find funding from historic and low income tax credits.

However, property owners wishing to renovate offices with elevators, improved wiring and heating, internet connections, or other work without a tenant lined up have no such options. It’s a catch-22, as a tenant could secure financing, but few tenants are interested in considering old buildings without renovations. It may be another reason we see more apartment conversions than office development.

DPD is continuously looking for ways to help property owners finance renovations to attract new office tenants. However, it’s clear that speculative renovation carries its own risks. Trinity Financial renovated 110 Canal Street for $14 million, finishing in spring 2013, but it still took until spring of 2014 to officially secure UMass Lowell’s Innovation Hub and M2D2 Expansion as a tenant for two of the four floors, and UMass Lowell won’t finish the interior improvements and move in until at least summer 2015. Still, it’s unclear if UMass Lowell would have selected that site for expansion without those initial improvements made two years ago.

Is Downtown in a Good Place?

The critical question remains: is downtown on the right track? When the City Council discussed the January Vacancy Report, they seemed to be optimistic. Councilor Belanger said, “We have a fantastic planning and development dept. We will be getting another update in six months and believe it will further improve… Downtown is going in the right direction; there is no doubt in my mind.”

Their discussion focused largely on “problem” landlords. Councilor Kennedy said, “I know it’s difficult, because we don’t own that property, so it’s not like we can do anything we want. It’s really up to the landlords to determine just how aggressive they’ll be renting out their property, but I imagine everybody would like to be at full occupancy if they could,” and others echoed his sentiments.

City Manager Murphy agreed. He relayed a story of the City lining up a tenant for a large storefront downtown, but the property owner declined, planning on selling the building and believing that the property would be more valuable empty than with a tenant.

Councilor Kennedy suggested engaging a retail expert or commercial broker to provide suggestions, and the City Manager said that the City would provide a report on the efficacy of doing such.

It is still unclear why downtown seems to have been hit particularly hard in the last year, with several long-term tenants closing shop. The Sun reported that Giovanni’s Trends owner said that the two-way traffic conversion was a factor, but Councilor Belanger expressed surprise at this in the City Council meeting; he said that conversations he had with business owners about the change had been largely positive.

An often-cited reason for optimism is the expansion of UMass Lowell and transformation of Lowell into a college town. The latest UMass Lowell alumni magazine described an event in which the Chancellor of UMass Lowell and the City Manager reached out to a crowd of 100 students on how to Lowell could better serve students. The article explored the question of what a “college town” is and what benefits colleges could bring. The article ended with a quote from Paul Marion: “It’s not going to happen on its own. And it will take time. But the right starting steps are being taken.”

Indeed, it does appear that new businesses are moving in to serve a college crowd. Bishop’s Legacy Restaurant is serving food in a more to-go than sit-down setting, and Jimmy John’s, a national sandwich chain famous for their campus locations, is moving in the Giovanni’s Trends space.

Coming soon, we will write about two other exciting initiatives, the development of a Downtown Business Improvement District and Downtown Business Association. Additionally, the City Manager is planning a follow-up summit with property owners in the near future. In the meantime, please let us know whether you have any other questions about DPD or downtown!

Notes

[1] Councilor Kennedy mentioned that Giovanni’s Trends mentioned a negative impact of the two-way conversion and wanted to survey business owners to better understand what impacts they experienced. Councilor Leahy also mentioned derelict storefronts, including those on Fletcher Street near the senior center.

[2] Residential and commercial property can’t be compared directly. For example, residents don’t pay for common space like laundry rooms, while offices pay for common space like lobbies. Residents don’t pay for repairs, while offices might. An empty store costs less to build than an empty apartment. Finally, offices are almost always have more time between tenants than apartments. Therefore, property owners use more extensive analysis when considering converting commercial into residential units.

[3] In a very large market, it’s possible to determine whether rents are appropriate by comparing them to the amount buildings sell for, but in a small market with only a few sales like downtown, it’s harder to make these estimates.

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2 thoughts on “Diving Deeper into DPD’s January Downtown Report

  1. Good report. I was wondering why the city doesn’t offer tax incentives to bring much-needed businesses downtown such as adult clothing stores, food stores with fresh produce. It would be nice to live downtown and be able to walk to stores for basics. Too many speciality retails.

  2. Pingback: The 2015 Downtown Vacancy Report | Learning Lowell

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