The chicken and egg of Trenton’s revitalization
November 28th, 2009 | 
Author: One of the most maddening debates you can have in Trenton is about city investment in new business vs. residential living.
Almost, to a person, the political elite in Trenton will tell you that investment in business is the top priority. I’ve had this debate countless times and you can see it in the political rhetoric of our candidates. However, when pushed by the logic of residential development, they’ll eventually say, “well it’s really a chicken and egg” problem.
What they’re saying is “I really don’t know”. It’s a bit daft to call something like this chicken and egg in the first place. If you believe in creationism then the chicken came first. If you believe in evolution, then the egg did. Either way there is a correct answer. Just like there is for business vs. residential.
Politicians are so conditioned to tell you Trenton needs jobs that they’re blind to the economics of the situation. I’m going to attempt, without the support, of hard economic analysis to convince you that residential development comes before business.
First let’s frame the problem.
All business aren’t the same. They fall in to two big buckets: retail and commercial.
Retail obviously includes shops and grocers, but it also includes restaurants, law offices and doctors. These businesses supply goods and services to the local population. The more and better selection of retail business we have, the better our quality of life. However, retail businesses won’t go anywhere near a city without disposable income to spend.
Commercial businesses make products or deliver services that can be exported out of the region. Trenton used to have lots of this and now I’m hard pressed to come up with current examples. Manufacturers, big banks and machine part businesses count as commercial. Cities need commercial businesses in order to create wealth and jobs. Commercial business won’t locate in cities without an educated workforce, nice homes for its executives and amenities (i.e. retail) for the workers.
Residential investments includes home improvements, new developments both rental and for sale and of course the purchase of a house. Residential development depends on retail to some extent but in general homeowners will buy for many reasons other than proximity to shopping. In a region like Central Jersey, close proximity to a job is entirely unimportant.
First consider the decision making process for each type of investment.
Renters take very little risk when they move to Trenton. If they don’t like it they can leave. As long as landlords can keep their costs low (read low taxes) they can attract bargain hunting renters to Trenton.
Homeowners take a bit more risk but also are more prone to make uneconomic decisions. A quick survey of 30 or so new Trenton homeowners found driving reasons like: being close to a black church, being near a gay community, affinity for urban living and availability of interesting architecture. Homebuyers all take a risk, but their home is a somewhat fungible commodity and can be sold in a well organized market.
Of course both renters and homeowners value retail amenities. The availability of retail amenities both makes the real estate more expensive and attracts new residents.
However, retailers make much more sound business decisions on where to locate (as do their banks). It would be a questionable decision for an upscale retail shop to open in Trenton. The few residents with disposable income are spread throughout the city and can easily shop in nearby towns. A new movie theater, hotel or restaurant will never bet that residents will follow them in to Trenton. Rather they’ll happily open a new store in Hamilton or Ewing and hope to attract some Trenton residents.
Commercial businesses are even more careful. Typically they look for an educated workforce (which Trenton doesn’t have), a favorable business climate (Trentononians helped to drive away several large industries) and a great site with (we’ve got some brownfields). We really don’t have much going for us and this shows in our anemic economy. Commercial businesses are more likely to locate in a city with a variety of housing stock, retail amenties and low crime. I recall attempting to convince my former company which was then in Plainsboro and considering a move, to look at Trenton. I got laughed at.
Because residential investors are not making purely economic decisions, they are the most likely to invest in Trenton.
New residential development will beget new retail. In addition new residents, especially high wealth residents, are most likely to form and invest in new commercial business.
Residential development, especially high income development, lays the foundation for everything. And, because residents don’t worry about risk so much they’re easier to attract.
However all residents aren’t created equal. We need new residents who don’t consume expensive city services like schools, social services and jail cells. Empty nesters, gay couples and young professional are the typical target segment a city attempts to attract.
These market segments demand specific types of homes. They aren’t looking for large detached single family homes. Rather they want smaller homes with less upkeep or a more exotic home that reflects a certain lifestyle.
Trenton has relatively little housing that will appeal to these market segments. Hiltonia, Glen Afton, Cadwalder Heights, Berkely Sq and Mill Hill would appeal to this market but represent a relatively small portion of Trenton’s housing stock. They couldn’t possibly absorb the 20,000 or so new high income residents we need to make Trenton attractive to new retail. Also, we couldn’t possibly expect a large commercial enterprise to locate in Trenton if its mid-managers couldn’t find a place to live.
In order to create the chicken (economic development) we need to lay the egg (residential investment).
As politicians craft their economic plans and voters review them. Look for stimulating upscale residential development at the top of the list. If you don’t see it run the other way, the politician has another agenda besides fixing Trenton.
Posted in Making Trenton Fun, Real Estate Development, Schools | 
Tags: chicken, disposable income, egg, NJ, politician, residential development, revitalization, Trenton
Dan -
I like simple, clear examples and arguments as much as the next guy but several important considerations don’t make it into the tight confines of your piece. I don’t pretend to respond to all of your points, but some thoughts:
The retail industry considers market segments – generally three: Neighborhood commercial shopping (think convenience stores, bodegas, hair salons, dry cleaners, drugstores), which can be walked to by very local customers. Next, Community shopping centers, usually anchored by a large grocery store, plus a mix of stores such as those we see in the Roebling Market and the Pennington Avenue Shopping Center. Community shopping centers typically draw customers from a 3 to 5 miles radius.
The third segment is regional shopping centers. For our region, examples would be Quakerbridge Mall, Nassau Park; you get the picture. This segment of the retail market can draw customers from a very large radius – 10 to 25 miles. Trenton is not going have this type regional shopping center. We don’t have the large sites that are required, nor do I think many Trentonians want the kind of displacement that big box retailers and chain department stores would necessitate. Further, nationally, chain stores are not locating in small urban centers and it is unrealistic to think that, in the face of national trends, something different will happen here in Trenton.
Each of our wards has one or more neighborhood shopping districts. I live in the South Ward and have noted two things. First, our neighborhood commercial districts could use some serious sprucing up along the lines of the “Main Street” Program, that was begun but then allowed to wither and die once Alan Mallach and his team left the City. Second, in spite of this neglect, small businesses have been opening up in empty storefronts where the condition of the buildings has allowed occupancy. That’s because these small local retailers are not confined by the stringent location criteria of a national chain retailer and they understand that we urban dwellers have disposable income.
While you want wealthier people to move into Trenton, I would be quite satisfied with a sprucing up of our neighborhood commercial districts and some guidance and incentives to help retailers improve their storefronts, signage, displays, etc. I live here now and would like some focus on this part of the quality of life equation, whether the new people you so anxiously await ever arrive or not.
I am not totally opposed to your desire to see upscale shopping in the Trenton. I think our regional draw should be our downtown, and we should work toward attracting unique, non-chain retailers, restaurants, nightclubs cafes, etc. to occupy our unique, historic buildings, which might serve to create a regional draw, for people inside and outside of Trenton who welcome relief from the chain store, chain restaurant suburban landscape.
I could go on and on – but just one last thought: the chicken and egg formulation, while simple to understand, is probably not all that helpful as we explore economic development strategies.
Anne
Thanks for the note Anne. I had thought of discussing this with you before I posted. But felt I had enough of the thought formed to start the discussion.
The main thing I’d like to get a bead on is the formulation for “critical mass” necessary to support the types of retail you discuss.
I wonder if you have access to this kind of information.
In fact it was Alan Mallach who reminded me to think about this.
I suspect Trenton does not have a critical mass of disposable income to support the increase in retail investment you mention. I’d imagine you have this kind of discussion all the time.
My assumption would be that in order to support another restaurant we need x number of residents in the $150,000 – $200,000 income band, y in the $100,000 – $150,000 band and z in the $50,000 to $100,000 band.
The math should lead lead us to weight x, y and z differently because each band has a different level of disposable income. I did an article comparing retail spending in each band earlier this year.
My question is what is the formula? How much disposable income does it take to support a new clothing shop targeted to the middle class (e.g. Anne Taylor, or Jos. A Banks) both of whom have urban formats. How about a grocer? A movie theater? And on and on.
My assertion is that because we have very little retail we don’t have critical mass of disposable income. Certainly other small cities do.
Can you help put flesh on the discussion by pointing to these rules of thumb for locating a retail establishment in an area like Trenton?
Dan –
First, Trenton, with some 85,000 people, has the critical mass to support the retail segments I mentioned. Our community shopping centers don’t have significant vacancies. Within our neighborhood commercial districts, the vacant storefronts are a mix of buildings that require renovations costing more than market rents justify, or seedy environments that need concerted public/private partnerships to make them more appealing.
I’ll say it again- Trenton is not going to have upscale national retailers that have to draw from across a large regional market. Those stores will always locate near the highest income area in the region, knowing that the members of our Trenton community that can afford and want their merchandise will come to them. You say that Anne Taylor and Jos. Banks have urban formats? I say those are formats that work in first and second tier cities: NYC, Chicago, Philly. Those urban downtowns have a density of retail offerings that make them regional shopping centers (even though they don’t look like malls.) They cannot be equated to a small city like Trenton.
I’ll go even further and say that no New Jersey cities are large enough to support the upscale retailers you seem to want. The success that is downtown New Brunswick is the best example. It is comprised of eating and drinking establishments and local gift and novelty type shops. The New Jersey downtowns that have upscale national chains (think Princeton, Westfield) are known for their wealth.
You may see me as being very negative, but the truth is, my conclusion in this regard doesn’t disappoint me one bit. Those types of stores hold no appeal for me at all. I know where to find them if I need them, but would much prefer to see us nurture more unique retail offerings in our downtown.
As for your search for a formula to determine how many people are needed with how much disposable income to support a new restaurant or three? I am sure there are consultants that have crafted formulas of that sort. I think it is more art than science involved. New Brunswick during my college days looked nothing like it does now. Their restaurant cluster occurred because a small number of local entrepreneurs took a chance. I would bet that they based their investment more on their gut than on consultants’ market studies.
First came Tony Tola’s “Stuff Yer Face” on Easton Avenue, a quirky, casual, fun restaurant and bar that spurred the Momo brothers’ first restaurant, Teresa’s Pizza. Then others took over seedy storefronts along that street. About the same time, J. August’s opened in a small storefront, which was followed by the Frog and the Peach. Both of those restaurants, with success, (and some relocation payments) moved and renovated larger, grander buildings. Others came later. New Brunswick’s central business district now is a regional draw, serving as the downtown not just for New Brunswick, but also for much of Middlesex and southern Somerset Counties. I think that Trenton should play that role for Mercer, central Bucks and Northern Burlington Counties.
People in this region have plenty of chain stores and chain restaurants. We need to focus on attracting and then supporting the alternatives. We also need to support our existing establishments. Shop locally and I’ll see you around town!
Anne
Here we go again. Why is it that some people cringe on the mention of the word “chain”. You mean like “Starbucks”? which Trenton doesn’t have. Isn’t Dunkin Donuts a chain, Anne? What about Rite Aid? or Norman’s?.
A mid to upper level chain restaurant is exactly what downtown Trenton needs. I am so sick and tired of these rundown mom and pop places that pop up, have no idea what they are doing, let their places deteriorate till they look like crap and then are forced to close. They are a dime a dozen. I am not begrudging someone from trying to make a living, but that is not the way to do it and it does nothing but make the city look forlorn and forgotten. A chain can sustain losses and the vagaries of the consumer far longer than a sole proprietor, and certainly better than one that has no experience in the retail market.
Jason – I’m not cringing at the mention of chain stores or restaurants. I’m just not gonna hold my breathe waiting for them to arrive. Our demographics don’t match the profiles for the upscale variety, even in a good economy, so they really can’t be expected to be on the horizon now. The chains that do match our demographics are here: Subway, Dunkin Donuts, Taco Bell. I just don’t think that is what Dan and you are looking for.
So while you say that an upscale chain is exactly what we need, given their generally quite stringent location criteria, it is clear (to me at least) that the odds are long on anyone delivering on that. We need to set our sights on what we can realistically attract and support.
The very same low barriers to market entry that allow inexperienced operators to set up shop (low cost of a liquor licenses, comparatively low rents) ought to be used to attract stronger, more experienced, albeit independent operators.
In talking to hospitality professionals, I have been told that visitors to a new city, while preferring to stay in a name brand hotel, generally want to try out local, non-chain restaurants. Its part of what marks a place as unique.
My answer to the rundown independents is to simply not patronize them, while definitely patronizing those that are making the best effort.
Well, back to my original point. I’m a bit indifferent as to whether independent or chain stores open. I’ll not assume all chains cater to the middle class or all independents cater to the poor.
Rather my original argument parrots Candidate Marge Caldwell-Wilson’s comments yesterday from her announcement. Trenton’s per capita income is low and among the lowest in the state (there’s always Camden).
That needs to change in order to attract more retail. It’s a fundamental truth that a retail economy will be more stable when there’s more money to spend.
My suggestion therefore is for Trenton to focus it’s meager resources on addressing the impediments to residential immigration.