By: Jean Hamerman, Deputy Director
May 21st, 2018
In the blog post that follows, we’re highlighting one of CCLR’s sponsors.
Urban Smart Growth identifies forgotten and historic structures in urban environments where the reinvestment is catalytic and sets out to restore not only the buildings they inhabit, but their surrounding communities. Founded in 2004 by Lance Robbins, USG has invested in abandoned properties in emerging neighborhoods in California, Rhode Island, Oregon, Ohio, North Carolina, and New Jersey.
Lance Robbins is full of so many ideas, optimism, and mottos that describe his approach to what he calls “smart growth”, that his Deputy, Aaron Iskowitz, keeps a list. Among the favorites are: “It’s not an if, it’s a when”; “Used brick is magic”, and “Good community is good business”.
All of those should resonate for any brownfield redeveloper. Lance lives by his mottos and his work is the proof in the proverbial pudding. CCLR’s Deputy Director, Jean Hamerman, sat down recently for a conversation with Lance and Aaron to talk about their approach to redevelopment and the philosophies that drive it.
Jean: Tell us about your background and how it influences USG?
Lance: I went to Berkeley in the ‘60s. That’s where this whole ethic comes from. My dad was a businessman; smart, but not sophisticated. I learned a lot from his mistakes. I decided to go to law school to make sure I could approach difficult situations from a position of strength. I’ve also always been intellectually curious and law school intrigued me. If I had gone to real estate school, I’d have never taken on any of these projects. USG is a family-owned company. I have no shareholders, which allows me to be more about mission than money. It’s true that without money you don’t have mission, but we’re a mission-driven operation. I’m always looking for good investments, and I’m pretty opportunistic. I target markets with certain characteristics, but I don’t limit myself to working only in certain areas. If there’s a potentially viable project, I’ll go kick the dirt for it.
Jean: What drives you to vacant and brownfields properties?
Lance: There is no throwaway land left if you’re within an economically viable urban core. There are really two major impediments to redevelopment: brownfields issues that are so hard to define that they become economically infeasible to remediate, and endemic violent crime. If you don’t have those two things, any big urban property in any viable Metropolitan Statistical Area (MSA)1 is reusable. I study data from the MSA to track big picture trends, most important to me is the cost of getting into these metropolitan areas, and levels of creativity.
Jean: What do you mean by levels of creativity and how does it influence your investment decisions?
Lance: The best book I’ve read that encapsulated this was Richard Florida’s Rise of the Creative Class. It’s about how culture as much as economy creates high value cities. He makes a strong case for how the creative class is transforming our economies and culture -- people in the arts, sciences, education and entrepreneurs. At the back of the book is a ranking of 168 MSAs by the percentage of the workforce population in creative industries. I see that as an important indicator of how receptive residents will be for transcendent buildings, art studios, and public spaces.
I don’t go to the high-priced cities. I look for cities that are less expensive and full of unrealized potential. That’s why I’m in New Jersey, not New York. I’m not in Boston, I’m in Rhode Island. I’m not on the curve, I’m ahead of the curve.
Aaron: (Laughing) Lance is more like two curves ahead.
Lance: Within a given city, I look for neighborhoods that have been left behind – that are also ahead of the curve. The magic is that you can bring the curve to you.
Jean: Part of bringing the curve to you is being a catalytic investor, but also having the luxury of patience.
Lance: If you’re going to wait for someone else to do it, you’re going to be there forever. If you’re going to do it, be ready to do it. That’s why land speculators can kill neighborhoods – they make it impossible for redevelopers to enter in a way that makes economic sense and that also makes it possible to take on brownfields. That's the formula: you find a city that’s ahead of the curve and a neighborhood in a city that’s ahead of the curve, and you buy big and cheap and with no leverage. You will never find the business cycle that you think you will – that’s why I stay away from leverage. You can’t do your typical Wall Street waterfall on these projects. It doesn’t work.
Aaron: There’s also the intermediate step of meeting with local officials and making sure they are interested in your project.
Jean: There are many low-income municipalities that are not on the curve or not yet in a position to bend the curve forward. They’d love to see someone like you, but no one is coming in.
Lance: It can be tough. There are some things that local governments can do. I take my projects to the local government, and we talk through what zoning and use permits I need, what kind of parking, Tax Increment Financing, tax credits or other incentives, and you become real partners. When I’ve gotten a “no” on those, I’ve left. Usually you get a yes – local governments are as keen to see these places redeveloped as I am, but unless the local government is really committed, it’s not worth it. To make this work, I need a historic building on a big site in an emerging town with a supportive government. I look for secondary neighborhoods in secondary cities. If you read about it in the paper, you’ve missed the opportunity.
Jean: Let’s go back to your comments about scale. What size of property are you typically looking for?
Lance: Anywhere from 2.5 to 25 acres is my sweet spot. Big old industrial sites are perfect – that’s exactly the scale at which I prefer to work. Abandoned schools are also great for adaptive reuse, but they’re usually not brownfields.
Jean: You mentioned three factors in human psychology that drive your work: height, light and God. Let’s talk about those.
Lance: Those three words describe the theory that drives my redevelopment projects. Fundamental to the human psyche is a sense of higher purpose and a longing for permanence. Restoring transcendent buildings with high ceilings and extra light creates a bond that people react to disproportionately. I look for properties with historic buildings that can be restored, where I can create an emotional connection. The reaction is strong and delightful. Used brick is magic. It’s a discernible, objective model. This is not just my own quirky perspective.
Jean: USG has also been successful in creating spaces that people want to come to, including bars, restaurants, artist studios, and event spaces. You’ve mentioned that your available space is oversubscribed at many of your locations.
Aaron: That hearkens to another of Lance’s mottos: “Don’t play in someone else’s ballpark, create your own.” When you create a place where people really want to be, the results will often surprise you.
Jean: As the climate changes and demand for city living among baby boomers and millennials continues to grow, do you see commercial real estate needing to adapt?
Lance: Real estate is ultimately about people: everything we do is for human beings. Today, we live increasingly de-personalized lives, partially as a result of the technology that’s supposed to help us.
Aaron: Some of that lack of social interaction comes about from an increase in working remotely – you’re even working in isolation, not just living in isolation.
Lance: Right, and yet our desire for human contact has not decreased. We want community spaces where you can rub elbows with some other breathing human being. Another factor that supports all this is our mobility -- we’re increasingly mobile, not tied to homes with mortgages. When you create community spaces, even if they’re small or dense, people go to them.
For example, I own almost 600 apartments in LA, and I’m converting almost half into co-living spaces. I create community spaces that can co-exist with the present tech mentality. People will pay high rents and create lots of value in small spaces for the ability to be together. We’ve hit the limits of desire for isolation and aloneness. It’s almost a return to the 1960s, with a desire for communalism, as opposed to an isolated existence. Those psychological things are what drive markets, so the commercial market needs to respond to that, and a lot of people don’t get it.
Jean: It sounds like you think about your work as the business of creating spaces where people want to be.
Lance: Right. And it’s a great balance, especially because almost every single one of my projects has brownfield issues.
Jean: Lance, you’re clearly someone who doesn’t run from a challenge. What’s a project you’re particularly proud of?
Lance: My “home run” case study in brownfields redevelopment is 400 West Rich in Columbus, Ohio, which just won an award from the Urban Land Institute’s Columbus chapter for excellence in small-scale development. It’s been written about a lot and I’ve presented at Urban Land Institute meetings about it. In 2007, I initially bought 5 acres of land in East Franklinton, an area comprising about 270 acres in downtown Columbus, Ohio for $300,000. I paid cash. I subsequently bought 2 additional acres with an 80,000 sq. ft. building for $1,000,000 and subsequently invested $800,000. The land I purchased for $1/sq. ft. is now valued at $50/sq. ft. I don’t mind sharing numbers because if I can motivate people to do the same thing or show them how, that’s great, and it’s all part of the work. I’ve developed only 3.5 acres, so still have 4.5 acres -- over 60% of the land remains – and the project’s internal rate of return is over 35%.
400 West Rich, an award-winning redevelopment project that has turned a former factory into artists' studios and gallery space. The project won a 2017 ULI Columbus Excellence in Development award. Image from UrbanSmarthGrowthLLC.com
Jean: What factors made this property so successful?
Lance: First was the selection of the property. When my daughter graduated from Ohio State University, I took the opportunity to scope out downtown. I saw an abandoned area of over 270 acres, together with an old broken-down factory with a “For Sale” sign. This was all within walking distance from Ohio’s capitol dome and Columbus’ thriving downtown in a neighborhood called The Bottoms. The Bottoms hadn’t seen investment in decades, and it was also home to three housing projects that were dilapidated and drug-ridden.
I knew that the takeoff point was “not if, but when.” “When” turned out to be ten years, some of which was remediation time, and during that ten years, only two people showed up – the Mayor and I. Everyone else thought we were nuts.
Second was a $1 million cleanup grant from the State of Ohio. The state’s investment in that project was critical: we would never have gotten started but for this grant that took care of concerns about radiation and other more conventional contaminants like PVCs and petroleum.
Third was the ability to convert the existing building and our decision to build art studios, event spaces, and a restaurant. Being in that space is so dramatic; that’s what got people there; that’s what changed the neighborhood.
Fourth was the relationship I developed with the Mayor and his team. When the City tore down the sixty-year old housing projects as part of its own redevelopment project, the Mayor asked me to invest. The last housing project was demolished in 2014, and I opened art studios by repurposing a second 100,000 square foot building I had purchased by that time. Across those four years, I can’t keep up with demand for these studios. I’ve rented to about 150 artists who now work in my space. I also run a 15,000 square foot ballroom and event space, which is more profitable than some other aspects of this real estate.
All this relatively quick and easy redevelopment had a major impact: it changed the perception of The Bottoms from crime-ridden to safe. It also represented a major step forward for the East Franklinton Redevelopment Plan, where I was named a catalytic developer and participated in the working group that developed the plan.
Aaron: The East Franklin Redevelopment Plan guided our work. In 2014, the American Planning Association chose that plan for its National Planning Excellence Award for Innovation in Economic Development & Planning. The Congress of New Urbanism also acknowledged that same plan in 20132.
When we opened the restaurant, Strongwater, we didn’t expect it to be profitable. Now it returns in the mid-five-figures each month.
Lance: It’s a good example of how good community is good business. We have corporate events every weekend and are doubling our event space because our existing 7,000 square feet isn’t enough. Once these projects take off, they start to run you as opposed to you running them.
Jean: Do you feel like you have competition?
Lance: Not really. If you’re a fund, you have a three to five year life cycle from start to finish. Insurance companies could do this because they have long visions, but I don’t think they have the risk tolerance for it. This is a family business, so I have more freedom. This is a really good program for family money that is patient, and has a mission as well as a vision.
Interestingly, when I presented 400 West Rich at the Urban Land Institute’s Spring Meeting this May, the other project that was featured in the session was also a family investment project called the Hotel Emma in San Antonio, TX. Conde Nast just named it one of the best hotels in America. The developer who built the project for the family told them not to do it. The investors pushed ahead, and the developer built a project he didn’t believe in, but it turned out to be a big success.
Aaron: No one wants to hold land on their balance sheet for ten years if you’re reporting quarterly earnings. That’s why all the home builders stopped buying land ten years ago – they could buy entitled land and build the next day, and earnings reports were not impacted.
Jean: What do you wish someone had told you when you were first starting?
Lance: I never had a mentor. Nothing that I’ve ever done has ever been somebody else’s model. I really haven’t – except one building with one partner -- ever had a real failure. You’ve got to be a patient contrarian. You’ve got to believe that non-pecuniary return is as important as pecuniary returns.
CCLR is thankful to Lance Robbins for taking the time to speak with us, and for giving us the opportunity to understand his model. Lance participated in CCLR-organized sessions at several recent conferences, including the 2017 National Brownfields Training Conference in Pittsburgh, and the 2018 New Partners for Smart Growth Conference in San Francisco.
1. Note: Metropolitan statistical areas serve to group counties and cities into over 400 specific geographic areas for the purposes of a population census and the compilation of related statistical data.
2. The East Franklinton Redevelopment plan was awarded a 2014 National Planning Excellence Award for Innovation in Economic Development & Planning from the American Planning Association, as well as a 2013 Charter Award Honorable Mention, Block, Street, and Building Category from the Congress for the New Urbanism.
Blog image from Strongwater Food & Spirits, one of Lance's redevelopment projects in the long-disinvested neighborhood of East Franklinton in Columbus, OH.