Friday, November 23, 2007

In Philadelphia, at least, “socially patient” capital

We are told that the justification for the size of certain projects, like Atlantic Yards and the New Domino in Williamsburg, is the inclusion of affordable housing and other social goals, but another justification is certainly the expected return by the developers—which remains a mystery.

But we shouldn’t think that for-profit developers are making a major sacrifice—the social goals are factored in, subsidized by the public, and offset by market-rate units that would bring the expected (yet unspecified) profit. Yes, risk and vision should reap reward, but that deserves some public vetting when there are so many public dollars at stake.

By contrast, nonprofit developers—which, it should be said, may not always have the institutional weight and expertise to pull off large projects—can factor in other goals. In her book The University and Urban Revival: Out of the Ivory Tower and Into the Streets, by Judith Rodin, president of the Rockefeller Foundation and former president of the University of Pennsylvania, calls it “socially patient” capital, not expected to bring typical financial returns but to bring other returns.

Broader parameters

Rodin writes:
The usual financial parameters for returns on the University’s investment in its endowment were not plausible in this case; we needed to establish much broader ones, and once against the vision and commitment of our trustees was laudable—and critical. Besides using patient, social-investment rates of return, they allowed us to include a number of nonfinancial returns as metrics for success: an increase in median income in the area… increase in value of noninstitutional real estate holdings of the university.

Of course, for Forest City Ratner, Atlantic Yards should bring an increase in the value of its two malls, Atlantic Center and Atlantic Terminal, across Atlantic Avenue. Not only would new residents and arena visitors shop at the malls and patronize the restaurants/bars, the much-reviled Atlantic Center mall is poised for some new Frank Gehry towers to transform it.

That's not to say that Columbia University or other nonprofits, working in New York City’s superheated real estate market, have it as easy (in retrospect) as Penn. Some of Rodin’s examples, in contrast with New York, seem almost laughable. Penn’s trustees initially allocated $2 million to rehabilitate vacant housing. Another $5 million investment was used to “attract other investors with ‘socially patient’ capital.” That won’t get you far in Brooklyn.


Those involved in Penn's West Philadelphia Initiatives aimed to keep the neighborhood from gentrifying, “or ‘Penntrifying’ as detractors would say,” writes Rodin. Though that was more doable in Philadelphia, even there it didn´t quite work.

Rodin cites a 2001 Brookings Institute report by Maureen Kennedy and Paul Leonard, Dealing with Neighborhood Change: A Primer on Gentrification and Policy Choices:
Maureen Kennedy and Paul Leonard theorize that if residents, developers, officials, and interest groups spent more time developing strategies to avert or address the adverse consequences of gentrification, and less time opposing or supporting the market-driven process itself, they would increase the chances of building strong, economically diverse communities in our cities. This is something Penn tried hard to accomplish… Nonetheless, the housing interventions did substantially increase area property values, which benefited long-term residents but at the same time placed a greater burden on hopeful prospective residents. On the plus side, we did not cause any involuntary displacement or original residents, which is a key feature of gentrification, according to Kennedy and Leonard.”

That’s because there was enough vacant housing stock, and places to expand. Beyond that, Penn tweaked its program—for example offering low-cost loans in the neighborhood immediately around the university, then later shifting the incentives away from a stabilized zone to a much less revitalized area.

It´s tougher to meet such goals in New York; that ratchets up the controversies.

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