One of the most significant legacies of the housing collapse, which triggered the Great Recession of 2008-11, was the undermining of confidence Americans had in the venerable single-family home. For generations, owning a single-family suburban home was a linchpin of most Americans’ retirement and savings strategies. The fracturing of that doctrine coincided with the demographic rise of the millennials into the housing market. These factors combined to shift capital flows to center-city rental housing at a pace city planners could only fantasize about for decades.
While this newfound prosperity in our urban centers is exciting news for policymakers long frustrated by the post-World War II decline of these downtowns, it has brought some unintended consequences. The pace of investment in these neighborhoods has driven up the cost of space for all property types at extraordinary rates. This has been good news for those of us in real estate with significant exposure to the affected markets; however, there is another side to that coin. For many residents and institutions that have historically been located in or near center-city neighborhoods, the market is now pushing them aside at alarming rates.
Continuum was formed in 1997 around the belief that the failed urban development policies of post-war America had caused intolerable long-term stresses on our center cities, their citizens and the broader regional environments. By the early 1990s, the complex set of regulations, tax subsidies and design doctrine that accumulated to drive the great American suburb had resulted in a systemic shift of investment capital away from center cities and their historic infrastructures to the green fields of these new suburban regional centers. Since 2010, however, center-city neighborhoods in all 30 of the largest U.S. metropolitan areas gained significant market share over their suburban counterparts. Gentrification is now the new crisis city leaders are urgently mobilizing resources around. Metro areas from Los Angeles to Denver are rushing to raise new tax dollars to provide more housing assistance to low- and median-income residents.
This abrupt shift in prosperity is having a broad range of unintended consequences. One particularly unexpected effect has been the backlash against artists and cultural enterprise spaces (such as art studios and galleries), which are now seen by some vulnerable communities as the tip of the spear for fresh waves of gentrification.
It is an ironic consequence given that during the decades of decline in American urban centers, employers moved out, retailers abandoned their downtown flagships, and even the churches relocated to new mega facilities on the urban edge, but artists and the institutions that support them steadfastly remained committed to the urban cores. In many situations the leadership of the signature art museums and performing arts organizations became essential drivers of the booster network for these center cities. Their employees also found reasonably priced housing in city neighborhoods and were engaged in neighborhood activism. Over the years Continuum has been a significant supporter of these institutions—and we are now confronting the realization that our business success is severely hampering their ability to continue to prosper.
Supporting the Link Between Culture and Neighborhood Stability
From our early days as a mission-focused development firm, we saw an essential link between a robust cultural economy, neighborhood stability, and real estate value. One of our earliest projects included a new Museum of Contemporary Art for the City of Denver. My wife and I donated a piece of land to the Museum in an up-and-coming neighborhood, around which Continuum went on to develop multiple projects. In the early 2000s we funded a new contemporary art space called the Lab at Belmar, embedded in the center of a 100-acre neighborhood we transformed from a broken regional shopping mall to a new 30-block precinct in Lakewood, Colorado.
As an organization we continue to find ways to support our local arts communities; for example, we recently opened the new Hotel Born at Union Station in Denver and commissioned more than 700 original works of art from Denver artists for the building.
None of these efforts is enough, however, to stem the generation-long effects which will result if we as a society allow the diasporization of these important creative thinkers and enterprises within our communities. We at Continuum think of ourselves as human ecologists and understand the value that diverse and politically courageous voices bring to the governance of our center cities. We are committed as an enterprise to working towards more equitable housing solutions for all constituencies in our society, but we see the challenge for artists as becoming particularly complex. Over the last couple of years, this issue hit a flash point in the Boyle Heights neighborhood in Los Angeles, where artists and gallerists were aggressively harassed when they entered that neighborhood in pursuit of more affordable spaces. Some members of this historically Latino working-class neighborhood decided they needed to send a clear message to the artists, some of whom ultimately closed their studios and galleries.
The link between neighborhoods rich in cultural enterprise and rising real estate values has become a foundational principle of real estate investing. New arts districts spring up in rural towns from Oregon to Georgia; suburban communities in Kansas City are onto the trend as well. The strategy has become a key economic revitalization tool for any aspirational community in search of a marketing message. The challenge for center cities is that the romantic notion of the bohemian creative seeking out a cheap space in an overlooked ghetto is a trite memory of an era gone by. Maintaining a healthy population of creatives is something no big city mayor or civic booster can take for granted. And now, instead of the artists living peacefully amongst an underserved population linked in common neighborhood advocacy, they are viewed by those same communities as the leading edge of the bourgeoisie who will follow.
Finding New Solutions for Coexistence
Over the past 18 months, Continuum has been doing research on new ownership vehicles for real estate projects that are designed to create long-term rent security for their occupants. We are interested in establishing a new capital platform that can bring a more holistic solution to these complex societal challenges. We believe the existing capital and ownership vehicles driving this current transformation of our communities need to be reconsidered in a manner which allows more of the wealth created by the escalating values of these neighborhoods to remain in the local communities. It is our hope that through these new vehicles we can offer long-term neighborhood stability both to the artists and to the historical residents.
We expect to launch our first projects under this model in early 2019. Inherent in this model is a mechanism which would slow the rate of rent growth in high-value areas in perpetuity. The enterprises will be funded with tax-exempt debt instruments and include investments by a network of social impact investors. While our initial focus will be for members of our creative communities, over time we expect this vehicle can be extended to address other key populations such as teachers and other essential service providers in our cities.
Cities are dynamic ecologies. Stresses and opportunities shift constantly. The physical framework of our cities has deep impact, not only on the environmental footprint of our habitat but also on the social cohesion of our populations. We believe it is essential that our settlements are conceived and regulated in ways that ensure all its residents have reasonable access to jobs, education and cultural enrichment in order to maintain a healthy and durable community. It is our belief that the private sector should lead the path to these outcomes–after all, our investments depend on healthy and resilient neighborhoods to grow in value.
Photo: ©Shifting Narrative/Shutterstock
 Foot Traffic Ahead 2016 – The Center for Real Estate and Urban Analysis at George Washington University.
This is an excerpt from Cornerstone Capital’s report Creativity & The Arts: An Emerging Impact Investing Theme.
Note: Certain contributors to this report may represent asset managers or specific investment opportunities. Their inclusion is not intended to be, nor should it be construed, as a recommendation or endorsement of their products or services by Cornerstone Capital Inc. The views expressed by external contributors do not necessarily reflect those of Cornerstone Capital Inc.