Public Open Space: Public and Private Bene�T* Howard Kozlo�**

Public Open Space: Public and Private Benet* Howard Kozlo**

Urban parks provide a competitive advan- lost in the accolades is the tremendous tage for most forms of real estate—and the impact the rejuvenated park has had on the bump in value is measurable. The concept of real estate submarket. focusing on leveraging public open space to create real estate value is not new in urban After Bryant Park was completed and investment and redevelopment. But often lost reopened in 1992, the park renovation and in the approach to building-specic advan- its new management structure created a tages and liabilities is the contextual value- strong amenity for the local oce market. add potential of open space. Maybe just as important as the addition of positive activities was the removal of unde- Activity at the front door of a property— sirable park elements—among them an ac- whether oce, residential, retail, hotel, or tive drug trade, prostitution, a persistent urine other use—can sometimes hurt real estate odor, overowing trash cans—which elimi- value. But when properly nurtured and per- nated a drag on the submarket. ceived as an amenity, activity can provide tremendous upside. Though it is a tale of As a result, asking rents of buildings urban revitalization that started decades ago, bordering the park outperformed those in Bryant Park still demonstrates the ability of surrounding submarkets. As better tenants public spaces to create and add real estate were attracted, the credit proles of buildings value. improved and a virtuous cycle ensued whereby the market value of real estate Thirty years ago, in response to a per- bordering the park increased. This was ceived public need for a public space worthy documented by Ernst & Young in its 2002 of the soon-to-be-renovated main branch of study How Smart Parks Investment Pays Its the New York Public Library, the city em- Way. barked on a multiyear eort to rejuvenate Bryant Park. Today, the wildly successful For example, the Grace Building on 42nd result attracts large numbers of people even Street saw asking rents rise rapidly after the on regular, nonevent days, and the park has park opened—climbing more than 114 per- featured prominently in the emergence of a cent through 2002, according to the Ernst & more welcoming New York City. But often Young study. Competitive submarkets, with-

*This report is a revision of an earlier iteration of this material by the author, edited and updated for the Real Estate Review. Reprinted with permission of Urban Land, a publication of the Urban Land Institute, copyright 2012 by the Urban Land Institute. **Howard Kozlo is managing partner at Agora Partners, a New York–based real estate investment, development, and advisory rm operating on both U.S. coasts.

Real Estate Review E Summer 2013 © 2013 Thomson Reuters 61 Real Estate Review out the benet of Bryant Park, did not fare park on nice days to eat lunch, take advan- quite as well over the same period: asking tage of the park's programming, and clear rents rose 67 percent at Times Square, 55 their heads.” In short, construction of a $2 percent at Grand Central Terminal, and 41 billion building was in part prompted by a percent at Rockefeller Center. public amenity—public open space at its front door. A $10-per-square-foot ($108 per sq m) increase in rent at the Grace Building trans- Continuing that trend, Hines announced in lated to $13 million in additional rent for the mid-June of 2012 a deal with JPMorgan 1.3 million-square-foot (121,000 sq m) build- Chase to nance construction of a 470,000- ing, says Dan Biederman, founder and head square-foot (44,000 sq m) oce tower on of the Bryant Park Restoration Corporation. Sixth Avenue overlooking Bryant Park and to Using a capitalization rate of 6 percent, the be known as 7 Bryant Park. increase in value was $216 million, according But the value impact of public parks is not to an owner of the Grace Building at the time. limited to Bryant Park, of course. Comment- With 26 buildings and 10 million square ing on New York City's much-lauded High feet (930,000 sq m) of space in the district Line, Amanda Burden, the city's planning fronting the park—nearly all oce space, director, remarked in a June 2011 New York except for the Bryant Park Hotel—Bryant Times article that apartment prices in one Park created over $1 billion in real estate building bordering the High Line have doubled value, the owner calculates. since it opened. And big surprise then that Central Park—always a prized amenity in But that was a decade ago. A more recent crowded New York City—delivers a premium example of the park adding value is Bank of for the typical sale of an apartment on the America's $2 billion building, completed in park; “more than double that for apartments May 2010. The 2.1 million-square-foot in surrounding neighborhoods last year,” ac- (195,000 sq m), 1,200-foot-tall (370 m) cording to a May 2012 article in the Wall tower was developed and is managed by the Street Journal. New York City based Durst Organization. Lo- In September, CBRE Global Research and cated at the corner of 42nd Street and Sixth Consulting released a report, “Premiums on Avenue, the building is called the Bank of the Park,” that nds a 44% rent premium for America Tower at One Bryant Park. Adopting oce properties bordering ve New York City the name of the park and capitalizing on its parks as compared to comparable buildings image and popularity were key to the only one block away. Using Bryant Park, development. Madison Square Park, the High Line, Hudson “Bryant Park is integral to the building's River Park and Battery Park as case studies, identity,” says Jordan Barowitz, director of Bryant Park had the highest percentage external aairs for the Durst Organization. increase at 63%, with “on park” buildings' “The building's principal facade is oriented to lease rates at nearly $100 per square foot, the park to maximize views from and of it. compared to approximately $60 per square The park serves as the building's front yard, foot one block away. The park-front rent providing the ultimate amenity for its tenants. premium at Madison Square Park is 54%, One Bryant Park's workers swarm into the High Line is 51% higher, Battery Park is 39%

Real Estate Review E Summer 2013 © 2013 Thomson Reuters 62 Public Open Space: Public and Private Benet higher, and Hudson River Park's premium is lots within 100 feet of parks, a 10 percent roughly 14% higher. premium at 300 feet, and a negligible premium at roughly a quarter mile,” Wetli wrote. In a press release, Pamela Murphy, Senior Vice President, CBRE Research, noted that, Although not all parks will have such a these parks clearly provide an economic ben- measurable impact—location, maintenance, et to landlords, including increased NOI, as local neighborhood characteristics, and other well as an economic benet to the City of factors also play a role—there is certainly New York. enough documented research to no longer question the power of public space to create But, New York is not the only city in which real estate value. However, the careful reader parks create real estate value. Responding may question whether it is the “public” nature to such examples in New York City and of the park, so much as it is that it is open elsewhere, cities are becoming smarter when space creating the value. implementing urban revitalization strategies. Increasingly, public spaces are the center- Other questions come to mind such as Is pieces of such endeavors and are growing in there a dierent premium for passive parks importance and exposure as urban in migra- versus active playgrounds and etc? Again, tion continues. further research would be needed to distin- guish whether a “public” park space delivers In “Leveraging Real Estate Value with Pub- a higher premium than private, or common lic Open Space,” an August 2010 white open space. Builders have known for a long paper, Matthew Wetli, an associate at St. time that the lots backing up to restricted Louis–based Development Strategies, noted woods—whether community owned, privately a number of specic examples: or publically owned—command a “lot premium.” E New Town St. Charles in suburban St. Louis: Land premiums for lots fronting In 2010, a Trust for Public Land study canals are roughly 50 percent. entitled, “The Economic Benets of Denver's Park and Recreation System,” attributed $4.1 E Upper Albany, Columbus, Ohio: Homes million in increased property tax revenue fronting the village green garner 25 “from the increase in value of certain resi- percent premiums. dences because of their proximity to parks.” E Clayton, Missouri: Oce properties in The study also attributed over $3 million to the business district fronting Shaw Park the city of Denver from “sales tax receipts “achieve the highest lease rates in the from tourism spending by out-of-towners St. Louis region, and operate at high who came to Denver primarily because of its occupancies.” parks.”

Wetli also cited Texas A&M University On a larger scale, a 2012 study, “Amenity professor John L. Crompton, who has found Values of Proximity to National Wildlife that public parks in the Dallas/Fort Worth Refuges,” by researchers at North Carolina region have a measurable eect on real State University for the U.S. Fish and Wildlife estate values. Crompton's study “demon- Service, cited an increase in value of homes strated a 20 percent property premium for in urbanized areas located in close proximity

Real Estate Review E Summer 2013 © 2013 Thomson Reuters 63 Real Estate Review to a National Wildlife Refuge. Specically, Donsky notes that owners are “thinking homes located within one-half mile of a ref- more broadly about public space, under- uge and within eight miles of an urban center standing that it's not just parks and plazas.” realized values that are 7-9% higher in the Equity Oce, the private owner of South Sta- Southeast region, 4-5% higher in the North- tion in Boston, a major northeastern transit east region, and 3-6% higher in the hub, is in the process of transforming the California/Nevada region. building's public spaces into an “indoor park” with an eye toward improving station activity Ben Donsky, project manager for Bieder- and retail sales, which in turn will boost rents, man Redevelopment Ventures (BRV), the says Donsky. private consulting company run by Dan BRV was hired to help energize the space. Biederman of the Bryant Park Restoration BRV was also brought in to advise on pro- Corporation, notes another specic ex- gramming the public space at City Place Mall, ample—Museum Tower in Dallas. “In addition a traditional shopping mall in Silver Spring, to adding value to existing assets, great pub- Maryland, with the goal of retaining and at- lic spaces create better development op- tracting tenants. The Mall is right next to a portunities,” he says. “The new 42-story revitalized retail Life Style Center with private, Museum Tower in Dallas's Arts District, for but open to the public, open space, water instance, was originally proposed in 2007 fountain outdoor eating, theaters and more, following the announcement of $40 million which activity does not currently connect being committed to the development of Klyde shoppers and visitors to City Place and its Warren Park.” traditional stores.

This ve-acre park, Donsky explains, is A high-quality public realm can attract currently being built as a deck over the more people, which translates into more Woodall Rodgers Freeway; it will include a shoppers and revenue. Nick Egelanian, pres- promenade, a botanical garden, a children's ident of SiteWorks Retail, an Annapolis, garden, a pavilion, a stage, an iconic fountain, Maryland–based retail consulting rm, also and other features. “It's hard to imagine a recognizes the role high-quality public spaces luxury residential building bordering a sub- play in creating value at retail centers. merged expressway, but easy to imagine “Without good public spaces, you're relying such a project next to a world-class park,” entirely on the quality of the shops alone, he notes. and very few places work on the quality of shops alone,” Egelanian says. In another BRV project, Prudential has announced plans to build an oce tower in Specialty retail thrives on emotion, on the Newark, New Jersey, across the street from ability of shops to convince a shopper that the six-acre Military Park, which is being they should spend their precious time and revitalized. The Newark-based Berger Orga- money in their place of business. Likewise, nization LLC, which owns most of the prop- he adds, “Good public spaces evoke a strong erty on the Park Place side of the nearly tri- emotional reaction.” This is the key to spe- angular park, in a recent press release, cialty retail and is why retailers should also specically cited revitalization of the park and consider the value of including and building in noted its potential for value creation. the cost of public spaces in dierentiating

Real Estate Review E Summer 2013 © 2013 Thomson Reuters 64 Public Open Space: Public and Private Benet their real estate and making it the chosen needs long term is still critical. Balanc- destination over the countless other options ing public and private interests in terms vying for consumers' time. of how they aect land use decisions and development is also of utmost Developers and public ocials alike, as importance. well as organizations such as the Urban Land Institute, NAIOP and the International Council E Connecting capital and real estate of Shopping Centers, though geared toward through value. Generating value in the real estate and land use, would be well ad- built environment that is greater than its vised, in their own self interest to focus on cost is a cornerstone of leveraging pub- public spaces by: lic space to create real estate value. This is also among the best ways to E Promoting intelligent densication and ensure the attractiveness of real estate urbanization. The relationship between as an investment. a high quality of life and open space is E Integrating energy, resources, and uses. undeniable. A dynamic society gener- Public space helps reduce the negative ates a thriving economy, and public impact of the built environment on natu- spaces add to urban dynamism. ral resources and the climate.

E Creating resilient communities. Adapting Jonah Lehrer notes in his book Imagine: and reusing existing real estate to elimi- How Creativity Works, “This is the purpose nate obsolete space creates thriving of cities: the crowded spaces force us to communities. Using open space as a interact.” Crowded spaces become that way catalyst or amenity for this reuse makes because people want to be there. sense economically and socially. Crowds in the real estate realm translate E Understanding demand and market into demand, and demand leads to value forces. Not all public space will auto- creation. Although public space is not a pan- matically be successful in creating real acea for urban ills, it has the potential to be estate value. Understanding what the another arrow in the quiver full of real estate market wants short term versus what it development and investment strategies.