On Erie: Where we stand, What we need, and Where to go.
On Erie: Where we stand, What we need, and Where to go.
Erie's entire real estate market value is just around $3 trillion. There is a small group in Erie whose mission is to advance the region and drive prosperity in Erie, but it seems as if they don't know their power or how even to use their balance sheet. They are excited by shiny graphics, powerful flow charts, and buzzword-filled mission statements, but they look anxious to use their money from where I stand. They want transformational change. That is very fair; I agree with that objective big time. The problem is they zoomed too far on a tiny project with lousy economics. They are focusing on one real estate development project on one intersection of Erie that was already doing fine as far as I could tell. It is a hedged bet. Sure, it seemed like people ate, went out for drinks, got coffee, etc., but that wouldn't be enough, never mind what could be potentially poor execution. All the Buildings (All the EDDC buildings, north park row, 4th street McDonald, adjacent lot) were bought very quickly before essential questions could be answered. The current tenants on North Park Row were swiftly informed that their lease would be terminating asap and to start looking elsewhere, and then more property has purchased a block down. From my perspective, and I could be wrong, it looked like a group suddenly found themselves with a nice pile of money and were told if you don’t spend this money within five days were taking it all away. It only seemed more so as they splashed the money around and quickly piled up a list of properties and more than a few fawning media hits about the change and transformation they were bringing to lower State Street. Basically, they had a fair amount of money and tried to figure out how to spend it all at once and parlayed that into chalked-up immediate wins to keep[ the media hype going. If you paid attention to the media, including national outlets, you would think a miracle had occurred; that lead was turned into gold through some super cunning use of opportunity zones (of which erie had the highest number of designated zones in the state, maybe even the country) made and defined by the recent 2017 Tax Reform legislation. When EDDC started its media campaign, it was pedaled to the floor. The accolades came flying in and then were repeated regularly. Each passing day was another major milestone. This went on for so long that at one point, no exaggeration, the head of the EDDC used a video hit to show off his eddc branded pens as if this was news that was somehow relevant to anyone in erie other than the pants of the person showing off the pen. These pants had a valid concern about the pen leaking. I joke, but for a while, EDDC dominated Erie news, and every day was another headline.
In some ways, I think the media unintentionally set them up to fail. With such high levels of hype and excitement, the bar was set very high daily, and the reality is that a lot of this stuff is boring number crunching, meeting with contractors, measuring lengths, etc. Eventually, when they made a large event by opening their new permanent office wearing hard hats, I think that was the high water moment. From then on, media coverage of EDDC started trending back to zero. That is until curling appeared. That gave the EDDC another 5-7 days in the media sun, but again, sadly, it didn’t give much color or information on the broader project and its long-term goals. To this day, I am unclear as to what the total project is to look like. I know they are building a fair number of rental units; now whether I think they can command top rents for those units is a totally different subject. Also, I am still unsure how the other properties on north park row fit in with it all. I believe my early suspicion that they bought first and asked second is backed up by the fact that a handful of buildings/units on north park row, originally purchased by EDDC, are now for sale or available to rent at very low rates.
a great example is that while several business owners lost their businesses, I need to be clear about the future of north park row. There aren't any clear visions for how all of this will come together, something that speaks for itself. From what I've heard, the businesses that have tried to make it on NPark row are struggling or can only down already. We can't make Erie a boutique destination overnight because we decided to have a food court. These things take time and entire industries to build up to support the incomes necessary to keep these things alive. And as far as the housing project goes on 4th and State, I've run the financials many times. Most of the numbers are matters of public records. Anyone that wants my workup data don’t hesitate to ask. I'll send it your way, and you will know immediately. I don't see how it will work without equity and debt getting reshuffled (that's an excellent way of saying court-ordered restructuring, aka bankruptcy) Unless the population does a massive u-turn. We start gaining residents quickly, a new tech or other economic hub comes to fruition, or another significant change happens. I don't see how the apartment complex ever manages to pay back what was put into it, and I won't even mention the new, 183124th huge ugly garage in downtown Erie. To me, the project seemed rushed; it was put in the hands of someone with no real experience with development or anything related to it - running for mayor was a tough challenge, but it also has nothing to do with real estate development, civic planning, business management, finding elements that fit well with each other, etc. and this is NOTHING against the person who had the role, it’s just a calculated assessment of what happened.
I would love to be wrong, but from where I sit, some folks got excited about the Opportunity Zone legislation and rushed to shove money out the door and buy properties. Some properties are now back on sale in the open market at discounted rates, which tells you a lot. I suspected this was done with the mindset of, please, once we get the properties, we will have plenty of time to figure out what to do with them. From what I’ve observed and heard over the past year or two, I have no reason not to think my hunch is somewhat accurate.
To be very clear, I want these good things to happen; I've lived most of my life in Erie and the remainder in Boston or N.Y.C. I have seen what can be done with once-neglected space, how unconventional buildings can be repurposed, iv seen communities come together with concrete plans and I've watched those plans materialize. It can happen here, but we need to think before spending all of our cash reserves and figure out how the people around a development site will react to their property - hopefully in concert with you if the proper conversation is had! But I digress; I think it will take much more than north park row getting slightly fixed to turn things around in our city. We need at least one of a range of a few things, 1. an economic miracle, 2. a Marshall Plan level program to rebuild Erie, 3. national trends to swing massively toward younger children returning to hometowns, or 4. one or two more large companies going public in the Erie area. One of those things CAN happen, an organization begging to make a change in Erie and put us on a new path and put radical transformation to work is just standing by with $357mm on the sidelines, waiting to make a move. Fixing Erie will take a lot more than 350mm. Still, I think it fair to say that the Erie Community Foundation has 1. good relationships with many well-off individuals and families, 2. good bankers who will go out of their way to keep them as a client and get them hooked up with great benefits for using their bank, and 3. a large social graph that helps them stay on top of what’s going on all across the city. I think an ECF-led Marshall Plan could be what we are looking for. I trust their intentions, and we are losing hope regarding saviors. I'm domiciling my business here in Erie, but don't hold your breath, folks; there’s only so much I can do! However, many really special things could be done with the ECF, with its 357m in the bank plus its banker contacts and its influence in city hall and county.
For context to help make this more believable:
ECF lists 357mm in assets. The Erie property market is 3,000,000,000. Many tax-exempt portions are Mercyhurst, UPMC, St. Vincent, Gannon, and other nonprofits. Much of that market value comprises blighted homes, neglected neighborhoods, run-down buildings, neglected offices, etc. You might ask, how are they supposed to fix that with only 357m? Very simply. Using their banking contacts, it should be within their reach to raise at a 4:1 or 5:1 level, meaning 1.785bn is theoretically available to impose transformation and improvement. And it doesn't all have to be giving things away; in fact, as far as I'm concerned, the smartest thing the ECF could do with its balance sheet is spin out a REIT, a real estate investment trust (90%+ of its assets have to be real estate, and it must pay a dividend as a function of the rent it collects, and for those limitations, its afforded generous tax treatment and can only use funds to improve its properties or return those funds to shareholders.) In the scenario I propose, ECF would build out a REIT and then, with the help of Erie Insurance, launch it as a free-standing REIT that you could buy or sell just like any other stock on the stock market, and ECF could fund it with 100mm, lever it up to 500m with financing from banks, and then go throughout Erie, systematically buying up neglected homes and neighborhoods, fix the areas up, put in the security systems that will stop crime or at minimum, catch perpetrators who can then be dealt with later. 400mm is a sizable chunk of a three-billion-dollar real estate market. That means 1/6 of the Erie City market is fair game. Spend the money, hire someone who demands a multi-million dollar salary (as he or she likely has the results to justify it, not to mention a huge Rolodex of serious contracts, financial or otherwise), who has a track record of reviving post-industrial cities, and has proven he knows what it takes to reinvigorate run-down areas. All of this would dramatically impact Erie for the better. Crime policy thinking shows that a less trashed, more well-kept area reduces petty crime/ vandalism incidents. Fixing neighborhoods and tearing down countless blighted properties that might have made sense when Erie was a city of 150k, but it no longer makes sense today at our current population of 97k. Where those properties once stood, return the plots to earth, take them green, and rehab the land to someday grow into fruits, vegetables, greenery, and more. Building parks and walking green spaces where those abandoned properties once stood. This is the way forward for Erie. I have gone on too long but I will end with this sign-off. What's the point of being an incredibly well-endowed foundation, to the tune of ~360mm, with a community focus, if you are too apprehensive about using your money or drawing down on your endowment? At the very least, set up a subsidiary LLC modeled after a venture capital fund and achieve philanthropic goals through market-driven competition. Erie has poor access to financing and funding for entrepreneurs. Commit 25mm and then call on other large firms in the area to match with an additional 5mm each to form the first bay city venture horizon fund LLC (just riffing, naming it is the easy part). We have resources; we have ideas; we have hungry people. Let’s get it coordinated, and let’s get it going! Sadly, I guess, you could keep waiting, and someday you’ll ultimately get to 2 or 3 billion in endowment funds, but by then, will there be much of a city left to save? My advice, move now, boldly, and swiftly. We are rapidly approaching a point of no return for our community, and I worry that we have reached that point in some areas of our community already. Sadly, this is true in some ways. But nothing is irreversible.
An all-out blitz by holders of private-public dollars, development capacity, and resources, and residents vested in long-term change is ready, just waiting for a significant economic breakthrough or a coordinated message from civic leaders on how to deploy their resources in the best way to put our shared ship back on its leading path, front, and center of the fleet. Many are hoping and waiting for a start-up to form here and take wings, and this could be a considerable development/breakthrough for our community. Still, start-up or no start-up, we have all that we need to put us on a better path and start serving as an example city to others on how to move past the rust belt days rather than be consumed by them and fade into the darkness of history. Erie's entire real estate market value is just around 3 trillion. There is a group in Erie, whose mission is to advance the region and drive prosperity in Erie, but from my perspective, they don't know how to use their power or balance sheet. They are quickly excited by shiny graphics, powerful flow charts, and mission statements, but from where I stand, they look scared to use their money. They want transformational change. That is very fair; I agree with that objective big time. The problem is, focusing on one real estate development project on one intersection of Erie that was already doing fine as far as I could tell, sure seemed like people ate there, went out for drinks there, got coffee there, etc., that won't be enough, nevermind how it was poorly executed. Buildings were bought very quickly before essential questions could be answered, tenants were swiftly informed their lease would be up asap and to start looking elsewhere, and then more property has purchased a block down. From my perspective, and I could be totally wrong, it looked like a group found themselves with a fair amount of money and tried to figure out how to spend it all at once and chalk up immediate wins. If you paid attention to the media, including the national, you would think a miracle had occurred; that lead was turned gold through some super cunning use of the Ozone status. The accolades came flying in and then were put on repeat locally. I'm still not sure what they were for.
A great example is that while several business owners lost their businesses, the future of north park row is in question, and there aren’t any clear visions for how all of this will come together, something that speaks for itself. From what I've heard, the businesses that have tried to make it on North Park Row are struggling badly or are shut down already. We can't make Erie a boutique quarter of Pittsburgh overnight because we decided to have a food court. These things take time and entire industries to build up to support the incomes necessary to keep these things alive. And as far as the housing project goes on 4th and State, I've run the financials many times. Most of the numbers are matters of public records. Anyone that wants to see my workup data don’t hesitate to ask. I’ll send it your way immediately. I don’t see how it will work without equity and debt getting reshuffled (that’s an excellent way of saying court-ordered restructuring, aka bankruptcy) Unless the population does a massive u-turn. We start gaining residents quickly, a new tech or other economic hub comes to fruition, or another significant change happens. I don't see how the apartment complex ever manages to pay back what was put into it, and I won’t even mention the new, 183124th huge ugly garage in downtown Erie. To me, the project seemed rushed; it was put in the hands of someone with no real experience with development or anything related to it - running for mayor was a tough challenge, but it also has nothing to do with real estate development, civic planning, business management, finding elements that fit well with each other, etc. and this is NOTHING against the person who had the role, it’s just a calculated assessment of what happened.
I would love to be wrong, but from where I sit, some folks got excited about the Opportunity Zone legislation and rushed to shove money out the door and buy properties (some properties are now already back on sale in the open market at somewhat discounted rates, which should tell you a lot. I suspected this was done with the mindset of, oh please, once we get the properties, we will have plenty of time to figure out what to do with them. From what I’ve observed and heard over the past year or two, I have no reason not to think my hunch is somewhat accurate.
To be very clear, I want these good things to happen; I’ve lived most of my life in Erie, and the remainder in Boston or N.Y.C., I have seen what can be done with once-neglected space, how unconventional buildings can be repurposed, iv seen communities come together with concrete plans and I've watched those plans materialize. It can happen here, but we need to think before spending all of our cash reserves and figure out how the people around a development site will react to their property - hopefully in concert with you if the proper conversation is had! But I digress; I guess my point is that it will take a lot more than north park row getting slightly fixed to turn things around in our city. We need at least one of a range of a few things, 1. an economic miracle, 2. a Marshall Plan level program to rebuild Erie, 3. national trends to swing massively toward younger children returning to hometowns, or 4. one or two more large companies going public in the Erie area. One of those things CAN happen, an organization begging to make a change in Erie and put us on a new path and put radical transformation to work is just standing by with $357mm on the sidelines, waiting to make a move. Fixing Erie will take a lot more than 350mm. Still, I think it fair to say that the Erie Community Foundation has 1. good relationships with many well-off individuals and families, 2. good bankers who will go out of their way to keep them as a client and get them hooked up with great benefits for using their bank, and 3. a large social graph that helps them stay on top of what’s going on all across the city. I think an ECF-led Marshall Plan could be what we are looking for. I trust their intentions, and we are losing hope regarding saviors. I'm domiciling my business here in Erie, but don't hold your breath, folks; there’s only so much I can do! However, many really special things could be done with the ECF, with its 357m in the bank plus its banker contacts and its influence in city hall and county.
For context to help make major positive change more believable:
Erie Community Foundation lists 357mm in assets. The Erie property market is 3,000,000,000. Many parts of the tax-exempt portion are Mercyhurst, UPMC, St. Vincent, Gannon, or other nonprofits. Much of that market value comprises blighted homes, neglected neighborhoods, run-down buildings, neglected offices, etc. You might ask, how are they supposed to fix that with only 357mm? It's very simple. It takes two parts chutzpah and 1 part familiarity with financing. Using their banking contacts, it should be within their reach to raise to a 4:1 or 5:1 level, meaning 1.785bn is theoretically available to finance transformation and improvement. And it doesn't all have to be giving things away; as far as I'm concerned, the smartest thing the ECF could do with its balance sheet is spin out a REIT, a real estate investment trust (90%+ of its assets have to be real estate, and it must pay a dividend as a function of the rent it collects, and for those limitations, its afforded generous tax treatment and can only use funds to improve its properties or return those funds to shareholders. In the scenario I propose, ECF would build out a REIT, take it to NYSE, list it as an ongoing REIT, sell all its shares in its offering, recoup a considerable amount of the money it spent building it, and let the REIT trade free-standing, with small residual payments, kicked back to the ECF and the new operating group who is tasked with managing the REIT now finds themselves responsible for keeping up the property and ensuring the value of its holdings do not go down. This could be done even more smoothly with the help of Erie Insurance, launching it as a free-standing REIT that you could buy or sell just like any other stock on the stock market. Buy 100mm houses in the City of Erie market, define the trust entity that holds them, take the trust through the ropes of going public, and in short order, Erie real estate can be tapped into and funded by anyone in the world with a brokerage account. They could go even further, use the 100mm, lever it up to 3-400mm, buy vast swaths of underdeveloped or neglected properties, use proceeds to fix properties and get them rentable, even up to 500m with financing from banks. Then partner with another large co, for example, Erie Insurance, and systematically buy up all the neglected homes and neighborhoods, fix the areas up, and put in the security systems that will stop crime or, at minimum, and at worst, catch perpetrators who can then be dealt with later.
400mm is a sizable chunk of a three-billion-dollar real estate market. That means 1/6 of the Erie City market is fair game. Spend the money, hire someone who demands a multi-million dollar salary (as he or she likely has the results to justify it, not to mention a huge Rolodex of serious contracts, financial or otherwise), who has a track record of reviving post-industrial cities, and has proven he knows what it takes to reinvigorate run-down areas. All of this would dramatically impact Erie for the better. Crime policy thinking shows that a less trashed, more well-kept area reduces petty crime/ vandalism incidents. Fixing neighborhoods and tearing down countless blighted properties that might have made sense when Erie was a city of 150k, but it no longer makes sense today at our current population of 97k. Where those properties once stood, return the plots to earth, take them green, and rehab the land to someday grow into fruits, vegetables, greenery, and more. Building parks and walking green spaces where those abandoned properties once stood. This is the way forward for Erie.
I have gone on too long but I will end with this sign-off. What's the point of being an incredibly well-endowed foundation, to the tune of ~360mm, with a community focus, if you are too apprehensive about using your money or drawing down on your endowment? At the very least, set up a subsidiary L.L.C. modeled after a venture capital fund and achieve philanthropic goals through market-driven competition. Erie has poor access to financing and funding for entrepreneurs. I think this needs to be fixed. Even though our access to financing for a property is suspect in Erie, it can be hard to find a bank that will do a fair ReFi with you, let alone anything more exotic than that. Commit 25mm and then call on other large firms in the area to match with an additional 5mm each to form the first "bay city venture horizon fund L.L.C." (just riffing, naming it is the easy part). We have resources; we have ideas; we have hungry people. Let's get it coordinated, and let's get it going! We have the opportunity. As for the ECF, you could keep waiting, and someday you'll ultimately get to 2 or 3 billion in endowment funds, but by then, will there be much of a city left to save? My advice? Move now, boldly and swiftly. We are rapidly approaching a point of no return for our community, and we have reached that point in some areas of our community already. Sadly, this is true in some ways. But nothing is irreversible. Only an all-out blitz by holders of private-public dollars, development capacity, resources, and residents vested in long-term growth ready for change just waiting for a significant economic breakthrough or a coordinated message from civic leaders on how to deploy their resources in the best way to put our shared ship back on its leading path, which is rightly at the front, and center, of the fleet. Many are hoping and waiting for a miracle tech start-up to form here and take wings, and this would be a considerable development/breakthrough for our community. However, start-up or no start-up, we have all that we need to put us on a better path and start serving as an example city to others on how to move past the rust belt days rather than be consumed by them and fade into the darkness of history as countless smaller rustbelt communities have done before us.