Cleveland’s green plan: rehabbing a great city’s economy

Mar 25th, 2015 | By FCT

Last time, we looked at how the tiny town of Sangudo, Alberta, staked its future on the business savvy of its own talent, investing through a co-op whose success has remade the town’s economy and its real estate market. But does what worked in a microscopic rural community necessarily scale to succeed in the vast wastelands of a dying US inner city?

You don’t have to look far: the US’s economy now lives on two different planets, moving ever farther apart—and one of the “tells” defining which planet you’re on is infrastructure: the state of schools, highways, bridges, waterworks, public transport, inner city amenities, libraries, the list goes on. When the oil shock of the 1970s and the “global economy” politics of the 1980s combined to hit the old US economy right between the eyes, the first big industry to be “globalized” was US steel as Japanese and Korean factories out-innovated and out-competed the US firms.

Since the US entry into WWII in December, 1941, steel had been a critical part of a US economy driven by manufacturing. The great midwest industrial cities of Detroit, Pittsburgh, Cleveland and Gary, all had steel in their veins. But in 1978, Cleveland was the first US city to default on its bond obligations, three decades before Detroit. Derided as “the mistake on the lake,” Cleveland suffered for years, as the dire state of its inner city became synonymous with “Rust Belt”;  combined with a long titles drought for its major sports teams (the NFL Browns left for Baltimore in 1995), Cleveland was a city on the ropes, its real estate prices tanking.

Enter what the activists call “community visioning” and the picture for successful community investing—and the parallel rise in residential real estate valuations in Cleveland—and things get a whole lot more interesting. Faced with a complex set of profound third-world problems in a first-world city, a core of dedicated citizens and innovative government people began to figure out how to use “anchor institutions” like hospitals and universities, dead essential to Cleveland’s future no matter what, in combination with local funding mechanisms, to grow local businesses.

The goals were overlapping and multifaceted, and the road to a viable model long and winding, but sustainability and growing property values through community-funded private ownership drove the strategy. The flight of the steel companies from Cleveland scarred the community’s memory: Clevelanders knew 30 years ago what it felt like to see a payroll of thousands of great jobs, benefits—and mortgage payments—leave town, never to return. At first, the green economy wasn’t even on the horizon—the game was simply to survive by “keeping the money in town.”

Meanwhile, even the World Bank and the Harvard Business Review were rethinking the economic principles which gutted the US’s steel belt, the World Bank actually questioning how globalization had damaged employee rights in the US; in 2010, a pair of studies, one in the Harvard Business Review and the other from Penn State’s business school, both agreed: per capita job growth and real estate price growth were intimately linked to the success not of “big payroll” companies (who could pull up stakes, tax breaks or not) but of locally owned businesses and *their* payrolls.

So Cleveland figured out that universities and hospitals have massive procurement needs…which can be fulfilled locally, by businesses purpose-built to serve these “anchor institutions”—with a twist: the emerging small businesses which won co-op investment are “green,” dedicated to cleaning up and keeping clean one of the most infamously dirty urban environments in the US. With these suppliers/vendors growing their businesses (and their payrolls), Cleveland’s real estate market began to grow in value, slowly, in select neighbourhoods at first, then across the metropolitan region along the Lake Erie shore. The procurement scheme is called Evergreen, and you’re going to be hearing a lot more about the success as the projects grow and deepen change in Cleveland.

From sole proprietorships to co-ops, Cleveland’s discovered that there’s actually a culture of co-operation where small businesses flourish and employee-owned green companies slowly build bank deposits and tax base because the anchor institutions are “buying green, buying local.” One simple unglamorous example: a state-of-the art “green laundry” serves Cleveland’s hospital network’s huge clean linens needs—and growing payroll and tax base to boot; across town, a co-op solar company has numerous first-time homebuyers on staff and the prospects of real social mobility for families trapped for decades in urban poverty. “If it wasn’t for Evergreen, I don’t know where I’d be,” says James Harris of Cooperative Solar. “Having the opportunity to have a career, it’s just great.”

What’s this mean for property values and the real estate market? Cleveland region MLS listings and market reports show that January 2015 grew 4.7% over 2014, with dollar volume climbing 8.4% to $310M, with an average residential sale price among the US’s bargains (Cleveland has rapidly improving ‘liveability’ statistics) at US$126K. Retail vacancy rates are also declining, another good sign; commercial values are climbing too, with innovative projects like a $10M rowers’ condo complex, right on the river, in a rehabbed Victorian foundry. Very cool.

The big picture in the US is far bigger than just Cleveland: banking assets in the US are about $8 trillion but securities assets are over $30 trillion. If even a fraction of Cleveland’s residents, like Sangudo’s did in the last post by EXPERT/ease , moved their investments from out-of-town financial instruments to backing a neighbour’s business, it’d be one smart investment in their own property values—and the future of their city. Cleveland is a slow-moving miracle, its “green procurement strategy” a signal advance in the explosion of employee owned companies in the US, from tech to microbreweries to clothing.

Here’s a wrap-up, from Sangudo, Alberta’s Don Ohler, naming the foundational pieces for community investment that works:

Common vision
In the course of facing down a serious threat, residents develop a clear idea of where they want to go

Trusted leadership
A number of locals habitually do things for the good of the whole community, while not trying to steal the show

Economic strategy
The investment co-op fights to retain the town’s core businesses largely on the strength of local savings

Wider agenda
Finally, local leaders press for reforms to government policy so others can win too. While thinking and acting in the here and now, they’re looking to their “greater neighbourhood”—other small towns and what they can achieve together, given some strategic government action

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