The Cost of Downtown Vacancy

Published by: Brian O'Connor | Published on: 16 May, 2018
The Cost of Downtown Vacancy

The City of Killeen is not alone when it comes to unprecedented retail development along its frontage roads. Interstate-14 (I-14) is like I-35 in that both corridors are the victim of unintended consequences of sprawl and consumer preference for fast food and convenience services. There are now more than 7,000 miles of frontage roads along freeways in Texas, much more than any other state.
 
However, Killeen can challenge the trend by placing a renewed emphasis on the redevelopment of its downtown. In 2008, a Downtown Revitalization Partnership Committee was formed to study the situation and articulate its intention and broader community benefits. The City declared downtown a historic district between North 4th and North 8th Streets and from Santa Fe Plaza to Avenue B. It established architectural standards and created a mechanism to capture new tax dollars that could be reinvested into programming and  capital projects as the district grew in value. Unfortunately, new private investment failed to materialized and little, if any, property appreciation occurred.
 
The downtown is an ideal place for encouraging social gathering which is imperative for a community with a large transient population to celebrate its authenticity and cultural diversity. Third spaces, or spaces outside of the workplace and home, are essential for building strong communities. These spaces help people connect within their community around shared interests. If successful, third spaces not only serve to connect people, but become places the users will defend and protect. Urban writer Jane Jacobs in The Death and Life of Great American Cities believed that neighborhoods were held together by an almost unconscious, network of voluntary controls and standards among people and enforced by the people themselves.
 
Large and small cities alike now recognize that their downtowns are multiple traffic generators and capable of cultivating a steadier year-round customer. As a result, the City of Houston spent $57 million to acquire land and another $125 million to build and landscape Discovery Green, a 12-acre downtown park to facilitate community gathering and commerce. Dallas spent $44.5 million to suspend a deck over the Woodall Rodgers Freeway to create Klyde Warren Park, a 5- acre urban greenspace, to connect the downtown with the Dallas Arts District. These community leaders envision a place where people can build new traditions, share experiences and have fun in the center of their city. Yes, there are challenges and costs associated with revitalizing any downtown, however, there are also costs to doing nothing.
 
Preservation Economist Donovan Rykpema of Place Economics has determined that a vacant retail establishment that would normally generate $300,000 in gross revenue will cost a community $222,000 in lost revenue. The lost revenue is realized in terms of property taxes, utilities, payroll, rent, insurance, marketing, accounting and attorney fees, vendor services and others. These figures can be equally applied against each vacant and underutilized property and do not include the depreciation that a vacant building typically has on surrounding value.
 
While downtown Killeen is no longer the heart of retail commerce, it retains its importance as a government, financial and cultural center, and has symbolic importance that affects residential and business location and investment decisions community-wide. There are numerous strategies that could be attempted in downtown Killeen. Downtown should be heavily merchandised toward food and beverage using Character Zones to focus physical and cultural elements to define the character of an area. Local community banks might work with the public sector to form a lending consortium to pool low-cost capital to draw business downtown. Branding is another strategy that should be considered to accentuate the downtown’s character and purpose. The City of Bastrop branded its downtown a Culinary District. The City of Sulfur Springs launched its downtown revitalization by branding itself Celebration City that is reinforced with music and arts programming over 200 days a year.



More than 30 years ago, downtown Fort Worth’s Sundance Square was little more than a series of derelict buildings and vacant surface parking lots. Johnny Campbell, CEO of Sundance Square has publicly acknowledged that the initial steps required combatting the negative stereotypes that plague most downtowns, crime and cleanliness.

     

Unquestionably, it took vision and great personal risk for Sid Bass to see the downtown’s potential. As with downtown Fort Worth, there have long been market forces and demographic shifts in Killeen that discouraged private investment in the area. Investor apathy has led to downtown Killeen’s most pressing problem of underutilization and abandonment. This occurrence follows a predictable cycle of decline as the cost of maintenance and repairs exceeds the apparent value of the property.
 
This cycle occurs regardless of whether the market is intrinsically capable of supporting continued use of the property, or that inaccurate information leads property owners to that conclusion. Once the abandonment cycle begins, perception becomes reality and a self-fulfilling prophecy. The fact is that the longer a property remains abandoned, the higher the cost of renovation and the cycle of abandonment persists even when market conditions improve.

Vacant buildings reduce municipal tax revenues in three ways: 1) properties are often tax delinquent; 2) their depressed market value means they generate little in taxes; 3) they debase property values across an entire spectrum of properties.
 
In 2001, researchers in the City of Philadelphia found that single-family homes within 150 feet of a vacant or abandoned property, despite their appearance, experienced a net loss of $7,627 in value. Properties within 150 to 300 feet experienced a loss of $6,819 and those within 300 to 450 feet experienced a loss of $3,542.
 
Merchants who operate in an area with an increasing number of vacant buildings begin to feel isolated, weakening the community. A large number of vacant buildings in a neighborhood symbolizes that no one cares, increasing the likelihood that property values will continue to decline and that further abandonment will follow. In the case of vacant properties, the problem is out in the open, for all to see. The aesthetic and social impact of abandoned properties, while not easily quantified in dollars, is another cost.
 
The root of the problem is not beyond the control of this community. However, short and mid‐ term strategies are needed to encourage greater investment. It is critical that community leaders, policy makers, and stakeholders take a longer view of downtown to ensure that substantial investment finds its way to the core.
 
Every year a dozen or so new shops pop up in downtown San Antonio in time for the holiday shopping season. The OPEN Downtown Pop Up Shops is a City of San Antonio initiative in cooperation with Federal Realty, REATA and Service Lloyds Insurance Company. The initiative offers business owners a no‐cost, short‐term lease for the holiday season. “The pop-up shop concept has gained popularity in other cities.
 
The goal of OPEN is to activate underutilized and vacant downtown properties by introducing new, dynamic and temporary retail locations that create an environment that engage customers and authenticates downtown as a vibrant urban space for long‐term investment. The pop-up shops also encourage innovation, benefit local entrepreneurs, keep downtown an active and attractive destination, and connect retail and real estate by transforming underutilized properties.
 
Downtown Killeen’s historic building stock and broad cultural mix represent strong assets from which to build. A good deal of work has already been done, and if set in motion could greatly benefit the community for years to come.