ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

Transcription

1 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION Prepared for the City of Minneapolis March, 2014 Redevelopment Economics, Finance and Strategy 2288 University Ave West Saint Paul, MN ph)

2 INTRODUCTION Nicollet Mall is a twelve-block pedestrian and transit mall that since its 1968 construction, has served as a prominent symbol of Minnesota and its largest city, Minneapolis. During a period of stress on downtown retail and commercial districts, public and private investment in Nicollet Mall and adjacent structures helped to sustain downtown as a bulwark of the regional and state economy. Today, national market trends in housing and office are shifting, and remarkable growth in downtown Minneapolis presents a clear example of this change. Building on the public-private partnership model that put the mall in place in 1968, the City of Minneapolis, Minneapolis Downtown Council, and other private partners are collaborating to propose a $50 million reconstruction of Nicollet Mall. The City has commissioned a targeted economic impact analysis to evaluate existing market trends and quantify certain economic effects of the reconstruction project. This report summarizes research and analysis conducted on an area comprised of over 2,000 parcels across 47 city blocks. HISTORY AND PLANS FOR REINVENTION Nicollet Avenue s importance as a commercial spine in Minneapolis dates to the 19th century, when value of the street frontage supported early development of retailers such as Dayton s, Donaldson s and Powers. By the mid-1950s, many residents of the region were choosing to leave previously established neighborhoods for suburban areas, where more dispersed housing was coupled with shopping centers easily accessible by car. In response, civic and business leaders in Minneapolis proposed and in 1968 constructed the nation s first transit mall extending from Washington Avenue to 12th Street, to strengthen appeal both for retail and downtown investment. Over nearly half a century, Nicollet Mall presented a model that inspired many other American cities to introduce transit malls into their downtown landscape, including comparable cities of Denver, Chicago, Portland, and Madison. Several of these systems have, over time, been dismantled and returned to general use by cars, a concept considered and rejected in the past in Minneapolis. Nicollet spans across the densest concentration of jobs and market value in the state. Its reconstruction and elevation as a must-see destination is presented as a top priority in the Intersections Downtown 2025 Plan developed by the Minneapolis Downtown Council, and adopted by public and private stakeholders. In 2013, the City of Minneapolis coordinated a Nicollet Mall design competition to invite p roposals for the street s future. The selected proposal, submitted by James Corner Field Operations, has been adopted by the City and its private sector partners as the framework for investment and reconstruction of Nicollet Mall. 2 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

3 NICOLLET IN CONTEXT Downtown Minneapolis, surrounding Nicollet as a central north-south connection, maintained more stability as a center of trade and employment through the mid- to late-20th century than many similar central business districts. Recent years have brought a significant and visible increase in investment, primarily by private parties in residential and office development, and firms moving to or expanding in downtown Minneapolis. Over 130,000 people work in downtown Minneapolis each day, reflecting both stable small firm activity and continued investment in downtown employment locations by larger employers such as Xcel Energy, US Bancorp, Ameriprise, Wells Fargo, and Target. Downtown, as a center for headquarters within a region where 19 Fortune 500 firms are based, has benefited from investment and activity required to provide research and development, professional services, marketing and design, both to larger firms based in the region and to larger external markets. Goals established by the Downtown Council also suggest an opportunity to maximize Nicollet Mall as a destination and amenity for residents. The Council is targeting a doubling of downtown population to 70,000 residents, addition of three million square feet of office space and 200,000 square feet of retail, and introduction of 1,100 hotel rooms into the downtown market. The need to leverage Nicollet Mall as a public square, providing public space for this range of users, is expected to grow with the added concentration of people downtown. PROPOSED RECONSTRUCTION The City of Minneapolis and the Minneapolis Downtown Council propose to take advantage of the need to reconstruct Nicollet Mall, by drawing on forward-thinking design that reflects a range of current and intended uses. The proposal, developed by design firm James Corner Field Operations, is intended to emphasize the close proximity of the Mississippi River, the core of the downtown business district, and the Loring Park area. More specifically, the plan focuses on three sections to propose changes to Nicollet Mall: Build a Mississippi Woods segment along the northern section of Nicollet between Washington Avenue and 4th Street, to provide public space for new development that includes a 26-story apartment tower, recently announced development of the Ritz Block, expected expansion of Xcel headquarters, and the Minneapolis Central Library. Adding trees and gardens, performance space and lighting, and maintaining street right of way for bicycles and buses is designed to support projected residential and office growth in this zone of Nicollet. Prioritize the heavily used middle segment between 6th and 8th Streets by establishing the Nicollet Island area, to support the core of the downtown Minneapolis employment concentration. Reconstruction in this segment is proposed to include wide stairways facing each other and connecting the skyway level and street level, with intermediate space used for the farmer s market and seasonal events and amenities. ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 3

4 Highlight Nicollet s arts and entertainment focus, and point toward Loring Park, by creating the Loring Woods segment south of 12th Street. This section is proposed to include a wide variety of tree types and sizes, to provide a destination for visitors, residents and workers downtown. The City and the Minneapolis Downtown Council have together proposed financing the $50 million reconstruction project with public and private sources: Assessments are expected to be used to raise capital from benefiting owners of property on and near Nicollet Mall. 4 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

5 ECONOMIC BENEFITS OF NICOLLET RECONSTRUCTION The reconstruction of Nicollet Mall has been designed and proposed as an investment in a next era of use and success for downtown Minneapolis. Over the last 45 years, Nicollet Mall has provided a unique addition to the central business district s network as downtown s only transit and pedestrian mall. Following a protracted public dialogue about the transition of Nicollet to transit mall, the new mall s transformation prompted $50 million of redevelopment in the following three years. The current proposal is to reconstruct Nicollet Mall, rather than transition from typical street to transit and pedestrian mall. The opportunity is also different: The reconstruction is proposed to support and coincide with a marked increase in the development appetite for residences and office uses downtown, particularly along Nicollet. As a result, economic benefits will be directly produced by, or in other cases supported by, the reconstruction of Nicollet Mall. These benefits are produced primarily in six interconnected ways that merit individual discussion. Stimulating statewide business activity and employment. Initial economic impact of the Nicollet Mall reconstruction will occur during design and construction of the project. The budgeted $50 million of spending will flow through the economy, creating additional economic activity and jobs in the Minneapolis-Saint Paul region and statewide. These impacts will occur in the construction sector and in other sectors, as dollars are spent and cycle through the regional economy. The estimated economic consequence of the $50 million reconstruction is $105.5 million in additional spending within Minnesota, and creation of 860 full-time equivalent jobs ( FTEs ). Expanding visitorship. Convention and meeting visitors attending events in downtown Minneapolis are important to the Minneapolis-Saint Paul region, and to Minnesota. In 2012, nearly 28 million visitors spent $6.88 billion in the region. Visitors spend an average of $79 per day of their visit, and an average over $185 per trip, excluding transportation costs. Nicollet Mall reconstruction will strengthen the region s attractiveness for convention business, which could translate to increased visitors over time. Such increases translate into elevated spending levels, and additional collections of Minnesota s sales tax as well as local food, liquor and hotel sales taxes. In 2010, business and visitor activity in the Nicollet Mall area generated $13.8 million in city sales tax receipts, which are levied as 0.5% of sales. Citywide, local sales tax receipts increased over 20% between 2004 and 2012, exceeding $32.5 million. The Nicollet Mall area comprises a concentration of economic activity, helping drive the $485.5 million in Minnesota sales taxes collected in The effects of increased visitorship, it should be noted, will unfold over a longer time horizon than spending, development and tax base benefits also outlined in this report. The longer time frame is due primarily to the extended planning schedule required for convention business and time required for information about the experience to spread. Sustaining current trends. Reconstruction of prominent public space on Nicollet will reinforce private redevelopment already underway. Such investments concentrate property value and downtown residents, boosting state and local property and sales tax receipts. These trends are exemplified by new construction of the Nic on Fifth, a 26-story, 253-unit apartment tower with a reported construction budget of $76 million. Anticipated development on the majority of the Ritz Block at Nicollet and 4th Street offers another example of new investment focused on the Nicollet Mall spine. ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 5

6 Extending market certainty about downtown. The Nicollet reconstruction project also demonstrates an ongoing public commitment to the prominent landmark and property on the blocks it connects between Washington Avenue and Grant Street. Implementation of a plan for reconstruction adds certainty to decision making by individuals and organizations choosing to live, locate or expand downtown or in alternative locations. Development projects anticipated to move forward in the coming months, sited on blocks facing Nicollet, represent an estimated $185 million, including $145 million in publicized pre-development phase. An additional $168 million in development is projected for those areas one block distant from Nicollet Mall, including $112 million in a pre-development phase and expected in the market in the next months. Projects representing $35 million more are in semi-public discussion, but not yet in pre-development. Office development currently underway and projected for the near term, will provide office space estimated to add over 1,900 employees to downtown s job center. Generating appreciation in property values. Studies demonstrate that improving street designs for pedestrians can produce market premiums witnessed in higher lease rates and higher market values for nearby property. Evaluations of comparable redesign efforts within commercial districts point to lease rate and property value increases up to 5%, and retail receipt increases up to 10%. For the purposes of this analysis, only blocks facing Nicollet Mall or immediately adjacent have been considered, as rendered in darker and lighter blue in the graphic. This analysis forecasts modest appreciation attributable to the Nicollet Mall reconstruction of 1.0% for Nicollet-facing blocks, and 0.50% for adjacent blocks. At this level of appreciation, property located within the blocks in the study area is forecasted to grow in value by $57 million or more as a result of Nicollet Mall reconstruction. Compounding market value and property tax capacity. Downtown Minneapolis is well served by public utilities and transportation infrastructure, which elevate potential for continued development. Residential and office growth near Nicollet Mall provides long-term tax capacity for state and local property tax levies. Under Minnesota law, property taxes are levied on residential and commercial property downtown by the City of Minneapolis, Hennepin County, Minneapolis Public Schools, and multiple special districts. In addition, the State of Minnesota collects a property tax on commercial property, including office and retail. Tax base created by the development trends described above, and the appreciation attributable to the Nicollet Mall reconstruction project, are estimated to generate additional annual property tax revenues at today s tax rates: Projected Annual Property Tax Revenues City County School District Special Districts Total: Local Governments State of Minnesota $5,020,000 $3,445,000 $1,795,000 $680,000 $10,940,000 $2,170,000 6 ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

7 CONCLUSION Public and private parties are considering substantial investment in a $50 million reconstruction of Nicollet Mall, providing a new design and program for the 45-year-old transit mall. The economic dynamics analyzed during this study include market momentum already occurring in the project area, benefits of the reconstruction spending, and forecasted property appreciation resulting from the improvements. These individual measures are summarized below: Metric Direct, indirect and induced spending resulting from reconstruction Statewide employment generated by project Development currently underway on or adjacent to Nicollet Mall Development anticipated in months, on blocks facing Nicollet Mall Development anticipated in months, in areas one block distant Finding $105.5 million 860 FTEs* $76 million $185 million $168 million Estimated employees added in converted and new office space 1,900 Estimated appreciation of existing property resulting from reconstruction Estimated annual property tax revenue, collected by local governments Estimated annual property tax revenue, collected by State of Minnesota $57 million $10.9 million $2.1 million * A full-time equivalent of FTE represents hours equal to a full time position for a year. Images: Minnesota Historical Society; Megan Dobratz; James Corner Field Operations ### ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 7

8 METHODOLOGY Initial Economic Impact: Spending While the exact effect of such a construction project can never be measured with complete accuracy even after completion, the best estimate of its overall impact can be obtained using a standard multiplier analysis. For this analysis, multipliers from the Regional Input-Output Modeling System (RIMS II) of the Bureau of Economic Analysis of the U.S. Department of commerce were used. The RIMS II system uses a sophisticated model of the interaction of different sectors of the economy to trace through what the spending of a dollar in one sector will generate in other sectors. Analysts partition the different impacts of additional spending in a given sector into three categories: Direct spending is just the actual dollars spent on the product or project whose impact is being analyzed. Indirect spending includes the second round of spending by companies and individuals that provide materials and services to the project. Induced spending includes all of the additional economic activity generated in subsequent rounds of spending as the direct and indirect dollars are cycled and recycled through the economy. The RIMS II multipliers summarize the total effect of all three types of spending generated by direct spending in a particular economic sector in a given geographic region. The system includes multipliers that are customized for any particular region to take account of the presence (or absence) of different goods and services in that region. For example, if a construction project uses many tons of concrete but it is located in a region where no concrete is produced, the system assumes that the concrete will be imported from elsewhere. Thus, the multiplier for that region will be less, reflecting smaller indirect and induced effects. So the effects of spending of a given type can be different depending on the geographic area included in the analysis. In order to estimate the full impact of the Nicollet mall reconstruction, multipliers for the entire state of Minnesota were used. While it is true that the majority of the impact will be felt in the Twin Cities metropolitan area, services and materials will undoubtedly be drawn for a wider area. In addition, the $50 million of overall spending was broken up into hard costs (labor, equipment, and materials) and soft costs (design, engineering, legal, consulting, and other services). Different multipliers were applied to these two categories of cost reflecting the fact that these dollars cycle through the regional economy differently. ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION

9 As Table 1 below shows, the estimated impact of this project is $105.5 million. That total includes $75.5 million of impact generated by the hard costs and $30.0 million in estimated impact from the soft costs. TABLE 1 Economic Impact of the Nicollet Mall Reconstruction Inside the State of Minnesota Category of Spending Direct Spending Impact Multiplier ($ per $) Total Impact Construction (labor, equipment, and materials) Soft Costs $35.0 million $75.5 million $15.0 million $30.0 million Totals $50.0 million $105.5 million Source: U.S. Department of Commerce RIMS II system and Donjek estimates A project like the Nicollet Mall reconstruction generates jobs both in the construction sector and also through the impact of the indirect and induced spending described above. The RIMS II system also includes multipliers which capture the estimated regional employment effects of spending in different sectors. As Table 2 below indicates, the reconstruction project is estimated to produce a total of 864 in Minnesota, measured as full-time equivalent for one year. This total includes an estimated 626 jobs generated by the construction activity and 238 jobs generated by the soft costs of the project. TABLE 2 Employment Impact of the Nicollet Mall Reconstruction Inside the State of Minnesota Category of Spending Direct Spending Employment Multiplier (jobs per $1 million) Total Employment Impact (FTEs) Construction (labor, equipment, and materials) Soft Costs $35.0 million $15.0 million Totals $50.0 million 864 Source: U.S. Department of Commerce RIMS II system and Donjek estimates ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION