Monday, June 25, 2007

I hate to say I told you so...

In 2004, I wrote an essay for the now defunct Pulp, criticizing the Pittsburgh Urban Redevelopment Authority for giving a loan to Mt. Lebanon developer Bernardo Katz to purchase several buildings in Beechview. (It's no longer available online, but the text appears at the bottom of this post.) Katz thought he could bring high-end development to the troubled South Hills neighborhood, but he couldn't find enough private lenders who shared his vision.

Well, three years later, those buildings sit nearly vacant, and Katz now seems to be incognito:

URA Executive Director Jerry Dettore said it's been more than a year since Katz made payments on the three mortgages the URA holds for 1600, 1601, 1602 and 1619 Broadway. URA officials have discussed purchasing all of the buildings Katz owns along Broadway, Beechview and Fallowfield avenues.

"We're reluctant to foreclose on the four properties because we don't want to get into an adversarial position with him," Dettore said. "He could very well then not want to sell us the remainder of the properties."

Somehow, if I failed to make a payment for a year on my mortgage, I'm guessing my bank would not be so forgiving. I'm guessing it would take less than a year before my lender decided to get into an "adversarial position" with me.

But it gets better:

"Say what you want of Bernardo, he did assemble a number of properties," Dettore added. "In controlling property, you have a better chance of getting a really healthy mix of different tenants."

Assembling multiple buildings was an approach former Pittsburgh Mayor Tom Murphy took without success along Fifth and Forbes avenues Downtown and in the North Side near the Garden Theatre. Bell was dubious of such a strategy.

"I don't understand the logic," Bell said. "We have investors and developers who are interested in these buildings. We're not in a position to act on 16 properties, but we could act on four. If four were open and running, the others would follow suit."

Surprise, surprise, Beechview residents would rather have several owners running businesses out of a handful of buildings, rather than a single owner allowing all of them to rot. What's truly shocking, however, is that the URA continues to follow a strategy for neighborhood redevelopment that has failed for at least 12 years. And if you think about it, it's the same strategy for urban redevelopment that has failed for 50 years.

Now, I'll concede that the URA's strategy in Beechview might have worked had Katz proven himself to be a more conscientious developer. Private banks also make plenty of bad loans. But if the URA is not willing to take action against developers who use its money to become absentee landlords, then the authority becomes responsible for promoting urban decay. And it's really a shame, too, because Beechview, for all its problems, seems to have a lot of character and a lot of potential. Obviously, there are people who care about the place. But Bernardo Katz isn't one of them, and I'm not sure the folks at the URA are, either.

Here's the text of my Pulp article:

The Urban Redevelopment Authority has decided to give a developer a $580,000 loan to breathe life into Beechview’s moribund Broadway Avenue business district, and City Councilman Sala Udin couldn’t be happier. Udin treated the loan as proof that the URA still has a vital role to play in reviving the city, despite its critics’ belief that, in light of the city’s budget woes, it should be scaled back or even liquidated.

Curious that Udin thinks an agency under attack for spending too much money on private development projects should answer its critics by spending money on a private development project. As reported in the Post-Gazette, Udin said that despite what critics say, the URA is necessary because commercial banks aren’t willing to risk their own money in places like Beechview, where developer Bernardo Katz says two nuisance bars are scaring away investors. (The URA loan will enable Katz to buy the two bars, which he has promised to shut down by June. He is planning a $2.2 million project that would include restaurants, coffee shops, offices and residences.)

Actually, Udin didn’t refute URA opponents’ arguments; he affirmed them. Critics of the URA don’t believe that taxpayer dollars should subsidize developments that private investors think are too shaky to risk their own money. That’s the reason no one outside the mayor’s office or the URA are surprised that Lazarus and Lord & Taylor are closing their taxpayer-subsidized Downtown stores. If there was enough of a market Downtown to support those department stores, the city wouldn’t have had to have bribed them to come in the first place.

Critics of Mayor Tom Murphy have often said that he has neglected city neighborhoods in favor of supporting large-scale development projects Downtown and on the North Shore. But what holds true Downtown holds true in the neighborhoods. Nothing in the URA’s track record would suggest that it knows better than the private market whether or not a project is a good investment. If banks (the lone exception, according to the developer, being the S & T Bank) don’t think there’s enough of a market to support new restaurants in Beechview, why should the URA?

Of course, not every taxpayer-subsidized retail development in the city has folded. In 2000, an $11 million Home Depot store opened in East Liberty with $4.6 million in city support. It’s still open and apparently doing well. But what did close was Rolliers Shadyside Hardware, not far away on Shadyside’s Walnut Street. The store had been in the neighborhood for 75 years. The new Home Depot was one factor the owners of Rolliers cited when they shut their doors for good. It’s one thing when a business has to close because it can no longer keep pace with the competition; it’s quite another when government, which is supposed to remain neutral, calls in the fix.

The other danger posed when government gets into the retail development business is that eventually, no developer will want to invest in the city—or the entire region, for that matter--without some kind of subsidy. The city is not the only guilty party here; Allegheny County and several suburban governments have been more than happy the past several years to give handouts to commercial developers. (Some of the nails in Rolliers’ coffin were pounded by The Waterfront in Homestead.) At this point, a developer looking to do business in Allegheny County would have to be crazy not to seek a subsidy. Their first obligation is to the bottom line, and if they can shift some of their costs to the taxpayers, so much the better for them. Like the spoiled children of overindulgent parents, you can hardly blame them for their behavior.

The fact is, it’s the government’s responsibility to say no. In 2002, when Continental Real Estate, the Columbus, Ohio, developer of The Waterfront, went begging for tax-increment financing to redevelop the Galleria mall in Mt. Lebanon, the Mt. Lebanon School Board—which had to approve the deal along with the county and municipal governments—refused. And guess what? While Continental made some noises about not having the cash to make every improvement they would have liked, they went ahead with the project anyway, and the Galleria has attracted high-end retailers such as Anthropologie and Pottery Barn Kids.

It’s a lesson that the URA and its apologists would do well to heed. If you put your foot down enough times, eventually your children will do what you want.

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Blogger O said...

Here's an interesting question: who were Katz's political supporters at the time and where are they now?

9:00 PM


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