ROI (Return on investment): The economics of vision

In Texas, in 1980 (as the stories go), all a body needed was an Armani suit and a Lincoln Town Car to get a $5 million loan. As a natural result of this state of affairs, the development and construction business flourished—subdivisions, strip malls, and office parks proliferated. Often, such projects lacked tenants, lacked a business plan, lacked long-term economic vision. But they were built anyway—they had capital.

Those days are obviously long gone.

Increasingly, cash-strapped cities are turning to private enterprise (or private/public partnerships) for large scale development projects. Simultaneously, financing for such projects, both public and private, is increasingly difficult to secure. These days, a business plan—and preferably a good one—is definitely required. Such a situation can be both an opportunity and a challenge for potential developers and their partners (architects among them). In such a cautious marketplace, the need for inspired and inspiring ideas is even more pressing. Cities require economic innovation as much as urban innovation. And, increasingly, urban interests and economic interests are intrinsically connected. There are neighborhoods, downtowns, whole cities all struggling to create, and recreate, viable public spaces. A first step in this process must be creating, sustaining, and maintaining new market activity. Enlightened development can offer the possibility of transformation.

Today’s enlightened developer combines conventional economic tools—market analysis, business development—with innovative ideas, a willingness to take risks, and a hefty dose of patience. It’s not enough to have a good, even an amazing idea. The development process is just that: a process. The dialogue can involve anyone and everyone from neighborhood associations to governmental regulatory bodies, to various city and state planning departments. (For example, there were 16 different agencies involved in the entitlements for The Exploratorium, for which EHDD is the design architect.) The developer must be prepared for their idea to evolve, and such discussion can be hugely beneficial to the overall concept.

Nonetheless, it’s also important for the developer not to lose sight of the larger goals. Much of this dialogue involves negotiation with rules, regulations and constraints. Creative—and flexible—approaches to a project will allow the developer to steer an innovative concept through the process without killing the idea.We’ve worked on a number of projects which are relevant in this regard—projects in which an economic and social vision led to the creation of unusual or innovative projects. These are singular projects that nonetheless subsequently transformed the larger area around them.

Monterey Bay Aquarium

In the 1970’s, Cannery Row was a ghost town. Abandoned sardine canneries lined the empty street—there was no business activity at all. Periodically, one of the warehouses would burn down under suspicious circumstances. Nonetheless, even such drastic and legally questionable strategies proved largely ineffective. The agent of transformation, in this case, were David and Lucile Packard, who were asked by their daughters, marine biologists, to finance a small aquarium and research center on Cannery Row. Instead, the Packards decided to finance “the best aquarium in the world”. Initial estimates suggested that an aquarium in Monterey would be lucky to get 1 million visitors per year. The opening year’s attendance was 2.3 million. The aquarium proved to be a catalyst for the transformation of the entire Cannery Row. Today, average annual attendance is 1.5 million, and the stores along Cannery row generate significant tax revenue for the city of Monterey. 

Monterey Bay Aquarium, Monterey, CA
Photo by Jane Lidz

The Aquarium of the Pacific

Long Beach’s waterfront had no abandoned canneries. However, it had very little else, either. Although the city had constructed a large public park, it got very little use, and even less desirable and legal use. (Joggers and dog walkers in the morning gave way to drug dealers by the afternoon, making the park largely unusable by the general public.) Like Monterey, business was nonexistent. The Aquarium of the Pacific was the result of opportunistic action by the city manager, who seized the moment with a progressive city council and a progressive mayor in order to push forward an innovative, and risky idea. The aquarium was financed by $153 million in bonds. Since its construction, previously vacant lots around the waterfront were sold and developed into both housing and retail, turning an abandoned urban edge into an active, and economically viable, neighborhood. Currently, the housing seems to be flourishing, while the retail struggles.

Aquarium of the Pacific, Long Beach, CA
Photo by Timothy Hursley

San Mateo Public Library



In San Mateo, although the downtown was not as economically or culturally barren as in Long Beach or Monterey, the city government was still concerned about a lack of activity. They wanted to get more people—and more businesses—into the downtown, and looked to a  new, large, public project in order to do so. The new San Mateo Public Library was conceived as a social center; it incorporates public gathering and seating spaces as well as more traditional library uses. The increased use of the library has led to increased downtown pedestrian activity, which the city hopes to leverage into future business development as well.

San Mateo Public Library, San Mateo, CA
Photo by Doug Snower

In all of these projects, a development entity—private, public, or public-private—took on a significant amount of risk in pursuing an unusual or unconventional project. However, in all cases, the project resulted in considerable returns—for both the developers and the cities in which the developments were built. The final project, in all cases, was a result of intensive, and ongoing negotiation between many parties. Although such back-and-forth can be frustrating—and it can certainly take time—the continuous dialogue also ultimately strengthened each project. The desire for change, on the part of the municipalities provided a way for developers and architects to negotiate better—and more profitable—solutions, which ultimately benefitted everyone involved. These strategies are critical for both architects and developers going forward.

- Chuck Davis, FAIA
  Founding Principal