Urban Economy 411 - Reputation, not the facts, may be biggest hurdle to economic investment in South LA

Austin Beutner, the first deputy mayor of Los Angeles and the city’s economy chief, noted the irony: Fresh & Easy has opened up three inner-city grocery stores while Safeway, based in Pleasanton, and Trader Joe’s, with headquarters in Monrovia, watch on the sidelines.

“It takes a company from the U.K. to see the opportunity in the L.A. marketplace,” said Beutner, referring to Tesco, the British parent company of Fresh & Easy.

To Brendan Wonnacott, communications manager for the neighborhood market chain, said it was just good business to open grocery stores at South Central Avenue and Adams Boulevard in South Los Angeles, in Glassell Park in northeast Los Angeles and in Compton.

 “The stores make money. Some of them are among our top performers,” Wonnacott said. “The bottom line: it made sense.”

The south portion of Los Angeles encompasses about 100 square mile and is home to nearly a million people. Yet it’s essentially bereft of many of the
retailers that others around the city take for granted.


Innocuous numbers perhaps. But taking density into the equation, South L.A.’s annual income earned per acre is somewhere around four times higher than for the city as a whole: $350,000 a year per acre on average, compared with $91,000 per acre citywide.

The vacancy rate for office properties during the first quarter of 2004 for South
Los Angeles was 5 percent, compared to 16.1 percent for Los Angeles County. For industrial space, the vacancy rate for South L.A. was only 1.2 percent compared to 3.3 percent for L.A. County.
The 2004 figures were the latest available.

 

The facts will surprise you

The results are surprising,” wrote Jack Kyser, author of the report
that included the vacancy rate findings. “The South Los Angeles area's low
vacancy rates do indicate a healthy ‘demand’ for space in the area.”

 

And though South Los Angeles residents account for 32 percent of the city’s total population, only about 28 percent of the city’s crime occurred within the area – meaning the amount of crime in South L.A. is less than its proportionate share when evaluating by population size.

“Crime rates in South L.A., therefore, are disproportionately low, which is in sharp contrast to many perceptions,” noted the South Los Angeles Comprehensive Economic Development Strategy, which defines South Los Angeles as including Wilmington and San Pedro.

 

The document, prepared for the city of Los Angeles went on: “Many neighborhoods within South L.A. endure long-standing
negative images of high crime rates and must begin economic development
programs and activities with an effort to correct misperceptions.”


The current director of the Los Angeles Economic Development Corporation, Nancy Sidhu, said these numbers must be pushed out.
 
“Safety and security” are important, Sidhu said. “The media is reporting and the people
are reading about cops and robbers and killings and they are
calling out South L.A. a lot.

“If the numbers are coming down, accentuate the positive. It’s time to call out
that set of facts. Who’s been out telling them this about South L.A.?”


Who indeed. Crime in all of Los Angeles is at a rate that hasn’t been seen in 50 years.

In 1992 approximately 1,200 people were murdered in Los Angeles and nearly 600 in 2001. Last year that number plummeted to 314. Boston, Phoenix, Ariz., and Omaha, Neb., have similar numbers per capita.

There are dozens of reports and studies over the past decade that research the economic plight of South Los Angeles. Sometimes the numbers are bad, such as unemployment and the Census-derived median income, which has been criticized. But most of the numbers were average. Some were good.

The reports stated the facts but didn’t always analyze the numbers, often not
providing the context to show whether they were good, bad or indifferent.

 

Ignore the numbers, listen to your gut

The numbers all retailers pay close attention to are the total
number of households and household income.


Retailers also commonly cite two other barriers to investing
in inner-city neighborhoods: land availability and evidence of market demand
for a particular business.


That’s in general. In urban areas the recipe changes, according to anonymous interviews the nonprofit Social Compact conducted for the International Council of Shopping Centers.

“All interviewees agree that, in urban areas, determining a site’s suitability
involves not only income or the number of households per se. … (That is)
in addition to social characteristics such as home ownership, educational
attainment and average household size, as well as physical characteristics
concerning traffic, access, visibility and nearby competitors.”


And don’t forget the gut instinct. The study, “Inside Site Selections: Retailers' Search for Strategic Business Locations,” confirmed that locations depend,
“in large part, on retailers’ intuition and experience in particular markets
and the field.”


A number of researchers have found that banks and supermarkets opt to not locate in poorer zip codes, leading the authors to conclude “retail locational
decision
may hinge on facts in addition to an area’s market
potential
.”

What sealed the deal for Fresh & Easy was a bus tour where the executives got out, talked to people and visited a dry cleaner, Wonnacott said.

Go with what you know

Personal experience is key, Ken Lombard agrees. Lombard knows more than most about investing in the inner city because he’s been doing it for 18 years, first with retired Lakers star Magic Johnson’s host of businesses and now as president of Capri Urban Investors, which owns the Baldwin Hills-Crenshaw Plaza.

People who are not from South Los Angeles cannot make a “60,000-foot look” from an airplane and decide to invest in South L.A.

“You have to get them in the car and drive through the neighborhoods - Leimert Park, Ladera Heights, View Park, Inglewood,” Lombard said. “They walk away with an entirely different perception.”

For Keyshawn Johnson, the former USC and retired NFL wide receiver, it wasn’t a difficult decision to invest in South L.A.

“It is his neighborhood; it’s where he’s from,” said Jerome Stanley, Johnson’s
lawyer and business partner. “He believes the area is underserved and rich in
opportunities.”


Johnson was an investor in Chesterfield Square, an early foray into the L.A. inner city that attracted a Home Depot, IHOP and a Starbucks, on the corner of South Western and West Slauson avenues. Stanley said it’s natural for people with money to invest in the areas they know. And rare is the case where the inner-city investor is the lead on a large project and decides where the money goes.

“Where does capital come from? The source already has an affiliation from a certain area,” Stanley said. “So it makes sense.”

One solution, Stanley said, is a campaign by the city to show investors where a retail presence would work, both by the numbers and the location.

“You have to make people aware it makes sense,” Stanley said. “To a degree that is a subsidy. When you show them land, now they save the money because they don’t have to look for the land.”

Carson Mayor Jim Dear knows all too well the importance of shepherding the deal in an area considered urban or ethnic. He believes his middle-class city of 90,000 can support sit-down restaurants, movie theaters and more but since there’s a dearth of options, they all drive to other nearby cities to spend most of their money. And the retailers know it.



Despite a regional mall with a Target, Sears and an Ikea, restaurants like Red Lobster told him that to keep their Lakewood and Torrance locations thriving, they weren’t planning on opening in Carson. “They didn’t want to pirate their customers,” Dear said.

A chance encounter at a charity benefit with Magic Johnson led to seven Starbucks opening in Carson. And a face-to-face during the International Council of Shopping Centers convention in Las Vegas led to a Chili’s restaurant.

The Chili’s was Carson’s first sit-down restaurant in 17 years and it ranks as one of the chain’s top five performers out of 800 restaurants. Despite the success, the city has only managed to attract two small area restaurants in the five years since.

The bright side of South L.A.

Inglewood’s Century Boulevard is a bustling thoroughfare of big-box stores and restaurants. Compton has a Target and T.G.I. Friday’s. Plans are in the early stages for a Target and a Fresh & Easy on Crenshaw Boulevard.

“It’s not as much as I’d like to see, but it’s the beginning of a track record and a story,” Lombard said. “We are not moving farther way, we are moving closer.”

And the table is set for Baldwin Hills-Crenshaw Plaza to renovate the old Magic Johnson movie theater and have a national chain run it again, which Lombard recently announced. The movie house, the only one for miles around, opened to great fanfare 15 years ago. But sorely needed technical updating and remodeling when it was closed in May.

 


“Doing deals in urban locations is not easy,” Lombard said. “But I like to look at the brighter side.”

The partnership with Rave Motion Pictures was months in the works and many in the community worried that the delay in finding a replacement operator meant the theater would not re-open.

“We could have stayed with the existing operator, but we opted to say no and
continue with the commitment that the residents of this community have the
finest entertainment experience,” Lombard said. “There were risks.


“But most developers don’t understand the sophistication of this customer base. L.A. is a mobile city. If you don’t provide the best experience, they will drive to a location that will.”

There is a much larger benefit than pure convenience in having these amenities close to residents who would patronize them. Jobs are created. It’s better for the environment. The money spent locally has a better chance of staying locally.

“Local private amenities such as grocery stores, restaurants, banking facilities and other retail services, can also have important quality of life implications for
neighborhood residents,” according to “Bodegas or Bagel Shops: Neighborhood Differences in Retail and Household Services.”


Clint Rosemond of the Leimert Park building improvement district was succinct in his assessment.

“People in this community are hungry for places to spend money locally.”



 



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