Issue: January/February 2013
How to Brand A City
Real estate experts at December’s Deal Maker Forum explained why attracting innovators in culture and technology is crucial to the future of downtown districts.
A real estate visionary from Forest City Enterprises Inc., the nationwide urban development company headquartered in Cleveland, took the stage at Cleveland’s Renaissance Cleveland Hotel on Dec. 6 to share the secrets to the recent revival of San Francisco’s SoMa (South of Market) district in the downtown area.
Alexa Arena, senior vice president at Forest City San Francisco and featured speaker at the 12th Annual Commercial Real Estate Deal Maker Forum, stressed the importance of creating a productive environment that accentuates the unique traits of the location.
Her brainchild is a development project called 5M, a harbor for technology startups and innovative ideas. A collaboration between Forest City and several other San Francisco-based organizations, the four-acre site has been transformed into a cultural innovation center packed with spaces to live, work and socialize.
“There’s a need to move away from linear-based thinking, because innovation is truly a social process,” Arena said. “There must be transparency around different ideas, and the talent has to be contained in a productive environment.”
She said cultural diversity is a key ingredient in shaping a hub for innovation. Some of the best ways to promote diversity are restaurants, trendy corner shops and community events — all staples of 5M’s plan. These places also help to build networks among residents, another ingredient essential to an innovation center.
Arena cited a survey of about 1,000 CEOs conducted by Forest City, in which fewer than 20 percent of respondents said they believe tech innovation will come from large corporations. The vast majority think true innovation will come from small businesses and individuals in response to societal needs.
“Classically speaking, we’re used to companies moving in first and talent following later on,” she said. “Today the cities that are really winning within this context are the ones that are attracting talent first, with the companies coming as a result of the talent.”
In SoMa, she said, rental rates for business spaces have now surpassed those of offices in the city’s financial district, which was unheard of even 10 years ago.
Arena joined Forest City in 2006 and thrived as a developer because of her ability to recognize the shifting social dynamic occurring in San Francisco, according to Forest City President and CEO David LaRue.
“The skills she brought to the company have allowed us to leap forward many years in terms of our thoughts about real estate,” LaRue said as he introduced Arena to the audience.
According to Arena, San Francisco and Cleveland are cities with very different dynamics, but these differing dynamics allow for great opportunities when it comes to urban development. The challenge is to recognize the dynamics of the city and develop a reputation — a “brand” — that attracts residents and business.
Gourmet food trucks in the SoMa District played a huge role in developing the area’s brand, Arena said. “The food trucks are local and they’re interesting and they’re different,” she added.
Turning a city into a brand isn’t an easy task, but it’s spurring growth in locations across the country. Arena talked about Austin, Texas, a city that has quickly popped up on the national radar as an innovation hotbed. She particularly credits Austin’s annual South by Southwest (SXSW) music and film festival, which has grown in popularity every year since its start in 1987.
Last March, SXSW attracted tens of thousands of guests and added over $1 million to the local economy, but that is only part of the story, according to Arena. More importantly, the festival has branded the city as a chic spot with innovative ideas.
“If you ask a company where they would like to establish a business presence, Austin would be near the top of almost every list,” she said. Facebook, Apple and Google have already opened offices in Texas’ capital city, and the presence of Fortune 500 companies there continues to grow.
Arena said that in the Midwest, Pittsburgh is the city that has been most successful at creating an environment that has attracted talent and business. Google set up shop in downtown Pittsburgh in 2011, and plans are under way to open an Ace Hotel, one of the country’s trendiest chains with locations in Portland, New York and Los Angeles.
But what does Pittsburgh have that Cleveland doesn’t? Arena said Pittsburgh has simply had the advantage of time when it comes to developing a new brand. “Cleveland’s industry survived longer when Pittsburgh was struggling,” she said. “This gave Pittsburgh a head start when it came to rebuilding.”
Despite Cleveland’s rich industrial history, the real estate market in Cleveland has been suffering for the past decade, according to Brian Hurtuk, managing director of Colliers International’s Cleveland branch, who addressed the forum. Rental rates have remained largely stagnant for going on 10 years in downtown’s premier office spaces, he said.
But the situation has begun to shift for the better. Two million square feet of Class B office space will soon be converted into new residences. “For the first time in years, landlords will see their rental rates start to increase,” he said. “That’s something that we’ve needed for quite some time.”
And according to Bill Gagliano, chair of the real estate practice at Ulmer & Berne LLP, a sponsor of the forum along with Inside Business magazine, Cleveland is already seeing several tech companies re-enter the market. “This will bring even more young talent to the city,” he told the forum.
But Arena urged Cleveland developers to explore ways to bring in the talent first. Bring in the best entrepreneurs, she said, and innovation will follow. The goal is to develop an ecosystem around the Cleveland brand so that the city can flourish.
“If you take something that’s great about a city, exacerbate it and then concentrate it, you can create something interesting that leads to a movement,” she said. “Or maybe something even bigger.”
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