REAL ESTATE - Carlini's Comments

INTELLIGENT INFRASTRUCTURE: KEY TO MIDWEST VIABILITY

Filed Wednesday, August 20. 2008

Some cities and regions are dying because they haven’t provided the right “platform” to attract and maintain new corporate endeavors. Cities and regions need to understand that their infrastructure can either attract or repulse new corporate facilities.

They also need to understand that – when they talk about infrastructure and adding or improving upon it – they need to be more encompassing and include all layers of infrastructure. They can’t just include the “traditional view” that includes roads and bridges, public transportation (rail) and highways. I call this the “1950s vision”.

It was focused on building more infrastructure to support the first three levels. These include driving on roads and (from a metropolitan standpoint) adding more stops on the rail lines. Economic development means creating jobs and jobs keep regions viable.

When jobs leave a region, increased crime and drugs move in to replace them. When people are working, tax revenues keep municipal services alive and vibrant. When tax revenues go down, crime and more social programs go up.

Good government fosters good commerce. Bad government fosters no commerce. The definition of critical infrastructure needed to support commerce for a city or region can be seen below in this eight-layer model.

CHART 1: CRITICAL INFRASTRUCTURE: PLATFORM FOR COMMERCE

LEVEL

LAYER

SPACE (FUTURE)

(INTERPLANETARY)

BROADBAND CONNECTIVITY NETWORK

(ELECTRONIC HIGHWAYS)

AIRPORTS

POWER (GRIDS, NUCLEAR POWER)

TELEPHONE NETWORK (VOICE ONLY)

RAILROADS

ROADS/BRIDGES

PORTS/ DOCKS/ WATER

Ten Dying Cities

There was a recent Forbes article that reviewed the 10 dying cities in America. The list included Canton, Ohio; Cleveland; Dayton, Ohio; Youngstown, Ohio; Detroit; Flint, Mich.; Scranton, Penn.; Springfield, Mass.; Buffalo, N.Y.; and Charleston, W.Va.

Out of the top 10, it’s interesting to see that more than half of the cities are in Michigan and Ohio. They are the typical Midwestern manufacturing cities that need to adapt to a changing global economy. Ohio is very hard hit and comments on the article really tell the story better than the author’s perspective. This is from the Cleveland area:

I currently live in a suburb of Cleveland and grew up in the Cleveland area.
I can tell you why Cleveland is one of the dying cities of the rust belt. The central city has about half the population it had in 1950 while the region is balkanized with some 50 odd suburban city, village and townships in the county.
In addition, the city and county has what amounts to a one-party political system leading to heavy patronage and incompetence in local government. Until this byzantine system of local government is changed, Cleveland will continue to decline.

This is from the Toledo, Ohio area:

The entire way Toledo … is run is so backward that you would think our city council is from the former Soviet Union. Homes actually go down in value here [rather than] up like they are supposed to. The crime is getting bad. It’s almost like nobody [cares].

From a political perspective, one reader summarized the article’s observation with this:

Canton, OH --             Mayor=D,                  Governor=D
Cleveland, OH --        Mayor=D,                  Governor=D
Dayton, OH --            Mayor=D,                  Governor=D
Youngstown, OH --     Mayor=I,                   Governor=D
Detroit, MI --             Mayor=D,                  Governor=D
Flint, MI --                  Mayor=D,                  Governor=D
Scranton, PA --           Mayor=D,                  Governor=D
Springfield, MA --      Mayor=D,                  Governor=D
Buffalo, NY --             Mayor=D,                  Governor=D
Charleston, WV --      Mayor=R,                  Governor=D

Though there were some people defending their cities, most were agreeing with the author’s conclusions. Another Midwestern city that suffered the same job erosion and other corporate closures is Fort Wayne, Ind.

The big difference between Fort Wayne and places like Canton and Dayton is that the political leaders saw what was coming and they got out of a traditional mode of approaching economic development. They were faced with some real challenges that included growth and the necessity to service more area without adding to the budget.

FORT WAYNE, IN 1999 2006 % Chg

Population 190,000 252,000 33%

Miles of Roads 850 1200 41%

Square Miles 79 109 39%

Employees* 936 950 2%

*non-public safety employees

Today, Fort Wayne also has fiber to the premise (FTTP) to more than 128,000 subscribers. This $100 million investment made by Verizon has helped changed the declining direction of Fort Wayne.

The 10 dying cities need to review what they have as far as infrastructure and analyze what needs to be done in order to build a solid platform for commerce. They need to revitalize their infrastructure (including their network infrastructure) and not think like it’s the 1950s.

This is what many business writers, economic commentators and traditional industry perspectives are missing: 1950s solutions will not solve 21st century problems.

Traditional city politicians, economic development consultants and the traditional business and municipal advisors of lawyers and accountants don’t understand this concept. A revitalization of the first three layers of infrastructure defined in the platform for commerce above doesn’t address the broadband connectivity needs of today and tomorrow.

In Illinois, a $30 billion roads program looks like a “good investment in the infrastructure” to many politicians. A better investment would be to take 10 percent of that money and build several fiber optic-based highways across Illinois concentrating on areas for high-tech and sophisticated specialized developments.

Antiquated Utilities Approach

My recent white paper entitled “Intelligent Business Campuses: Keys to Future Economic Development” discusses the new approach to master planning for new developments. One of the new key concepts is the idea of including planning for network and power requirements in advance before the road is built, the parking lot is laid and the landscaping is planted.

This not only saves a lot of money but also helps to more clearly define the “platform for commerce”. Many traditional real estate and business park developers have yet to adopt this approach and continue to build for the wrong century.

Thinking about where utilities should be brought in and how much capability should be brought in actually saves money on a project. This extra planning step adds significant value as the target market for tenants becomes more sophisticated and those regions that can offer more will attract a higher level of potential tenants.

Horse-and-buggy approaches that include one connection to one central office of the phone company for network services and one connection to one power company from one station (or power grid) are obsolete. That’s just the status quo.

Double the connections and the carriers on each of these two intelligent amenities and you just have ascended into providing a more rigorous platform for a whole new tier of sophisticated corporate facilities. This is what site-selection committees are looking for above and beyond the status quo.

Carlinism: There is no magic bullet in economic development. You need to spend money to make money.

Notice how they didn’t bloat the government to service the added population. If anything, they looked at new ways to perform day-to-day operations as well as provide a better platform for doing business for corporations looking to locate new corporate facilities.