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Urban Land Institute looks at retail development challenges in lower-income areas


Washington, D.C. -- Site and market challenges, underwriting challenges, and operational challenges are the key factors that hamper retail development in some lower-income communities, according to a report from the Urban Land Institute.

The report, Retail in Underserved Communities, defines underserved communities as those that fall into one or more of four categories: urban locations lacking businesses, underserviced markets, locations without cultural offerings, and isolated rural or small towns.

“Although several causes are often identified as common to underserved markets, the essence of the problem is most often weak market conditions,” stated the report. “The creation of a local economy where investors, property owners, the government and retailers make market-rate decisions and obtain satisfactory returns on investment is critical to success.”

The report defines the factors hampering development as:

• Site and market challenges, including site availability and land assembly; lengthy local approval processes; difficulty matching a retailer to the market; and inaccurate or insufficient market information (such as understated household income for the area).

• Underwriting challenges resulting from lenders’ unwillingness to make loans in areas perceived as risky and unlikely prospects for additional investment and development.

• To overcome these obstacles, the report suggests using unconventional approaches to “pitch” the sites to retailers and the provision of financial incentives to retailers. It also suggests that a project be presented as contributing to a place making endeavor to benefit the community.

• In addition, it notes that non-traditional financing sources and tools should be explored.

• Operational challenges, including store size limitations that could inhibit its ability to create a critical mass; distribution and delivery challenges due to narrower streets; unreliable internet service that prevents the integration of online shopping and in-store pick-up service; national anchor store losses; inadequate employee training services; and the perception of the neighborhoods as high-crime areas.

The report, which focuses primarily on urban underserved markets, includes case studies of the East Liberty neighborhood of Pittsburgh; Union Market in Washington, D.C.; and Old Spanish Trail in Houston, exploring how retail development sparked revitalization efforts that are ongoing in each of these areas.

Among the lessons learned from the three case studies:

• Sustained leadership is essential to keep a project on track to completion.

• A “bridge” location that reaches low- and high-income populations is a plus.

• Sharing risk between the private and public sector helps ensure prospects for success.

• Public sector commitments to maintain and improve infrastructure in the area are critical.

• Focus on managing growth, rather than stemming decline or protecting the status quo.

• Capture the land value after the project is completed.

• Focusing on food responds to the national emphasis on providing healthier eating choices in underserved neighborhoods.

• The dense layout of urban underserved communities is conducive to mixed-use projects that include residential space on top of a variety of retail and commercial space.

• Retail development provides prime employment opportunities for the unemployed and under-employed, as well as opportunities for new entrepreneurs to enter the area.

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