Per-acre analysis: a unique way of looking at urban economics

A few weeks ago, I did a double take when I saw St. Paul’s Plan B Bar pop up in a lecture as an example of an economically thriving location. Unless my friend Rich is reading this, I’m likely the only MinnPost reader who has ever been there. It’s a Hmong-owned working-class bar on St. Paul’s Rice Street in a disinvested part of town. It’s been struggling for decades and would go on my list of the street’s most marginalized properties.

So why did an urban economics expert brought in by the St. Paul Downtown Alliance heap it with praise?

“One of our other favorite buildings is the Plan B bar,” he said. “We just loved the name and the building [and] Plan B is coming in at $3.8 million.”

The answer has everything to do with a unique way of looking at an urban economy, part of an economic analysis of Ramsey County by Joe Minicozzi, a consultant at a firm called Urban3 in Asheville, North Carolina.

Urban3 makes maps that show the value of city buildings on a per-acre basis. That last detail is the kicker.

“We make the models to provide information equity,” explained Joe Minicozzi when I asked him about his approach. “We show a financial picture of what’s going on with the cash flow. You see where the holes are, what’s doing well, what’s not doing well. You can’t see where you’re leaking your money if you don’t know what’s going on.”

Compared to most studies of urban economics, Minicozzi’s firm adopts an unconventional per-acre approach. When typically people look at a city like St.  Paul, property values are displayed in total value, so that this golf course is worth $10 million, this home is worth $500,000, and so on. Focusing on per-acre value upends many assumptions about which parts of a city are thriving.

Joe Minicozzi’s favorite metaphor to explain this is gas mileage. When asking about fuel efficiency, we don’t usually ask how many miles per tank of gas, because they are often very different sizes. Measuring the value per acre, as with miles per gallon, is a far more meaningful analysis.

The key idea is that land forms the critical commodity in any city, and infrastructure like roads, power lines, or sewers remain linear expenses. By looking at value through a per-acre analysis, you can better grasp the economic costs and rewards of a built environment.

“The imagery opens up that conversation,” said Joe Minicozzi when I called him up in North Carolina the other day. “You show the information so that people can have a baseline conversation. You don’t need to be a CPA to read our imagery.”

The resulting “value per acre” maps show that, in most cities, downtowns and older neighborhoods are very economically productive. Newer urban developments, especially places surrounded by expensive roads and parking lots, are weak economic performers.

Because he was brought in by the Downtown Alliance, much of Minicozzi’s talk focused on downtown St. Paul, which is relatively small at less than a square mile. But Minicozzi says downtown St. Paul is providing a lot of economic value to the city and county.

Guess which of the buildings in downtown St. Paul are the most economically productive, according to the per-acre analysis?

St. Paul “top 10” most productive downtown buildings per acre:

The Minnesota Building $64M
The Commerce Building $58M
Lawson Commons $53M
The Pointe $58M
City Walk $56M
Great Northern Lofts $49M
The Lowry $48M
Galtier Plaza $45m
333 on the Park $43M
Gallery Tower $41M

(By comparison, the new Mayo Clinic’s Gonda office building in downtown Rochester offers a value of $166M per acre.)

One surprise about the per-acre map is how well older buildings perform. The most valuable downtown buildings are not the modernist super-block towers, but residential buildings that are more than 90 years old.

This pattern holds true for much of the city. Call it the Plan B principle.

Minicozzi describes retail properties in similar terms, pointing to the high economic productivity of mixed-use streetcar corridors like West 7th Street and Grand Avenue. One of his favorite examples compared the vast Maplewood Mall to the historic Victoria Crossing building at Grand and Victoria. Of course, in total the Maplewood Mall pays more taxes, but it compares unfavorably to the building at Grand at Victoria when you think about it on a per-acre basis.

In other words, it would only take a few blocks of buildings like Grand and Victoria to equal the tax base value of a huge shopping center in the suburbs. And I know which of the two properties I’d rather live next to.

“The reason Walmarts, Home Depots, and Best Buys do so poorly is that they have a lot of parking and they’re really cheap buildings,” Minicozzi explained, pointing to the 20-year life span of the average big box store. “If you tax people on property value, there’s a perverse incentive to build junk in the community. The bigger picture is buyer beware. I’m trying to help citizens understand civics and the tax system.”

What does this mean for downtown St. Paul?

Because a per-acre analysis places a great emphasis on efficient use of space, it reveals the high value downtowns have for cities like St. Paul.

“It’s an interesting way to look at things,” admitted Joe Spencer, in classic Minnesota fashion.

Spencer has been leading the St. Paul Downtown Alliance over the last few years, as it has helped to create a new “downtown improvement district.” The goal of the initiative is to invest more money in improving street-level amenities and to help downtown attract more jobs and investment.

“One of things that stood out to me is that nine of top 10 properties in terms of value per acre were residential buildings, and some of them were affordable housing buildings,” said Spencer. “That speaks to the way you think about density. Per acre means that, when you have a big 300-foot by 300-foot base with tiny tower coming out of it, it’s less valuable. Whereas the Minnesota Building basically goes to the edge of its property line and stacks value all the way up.”

Another takeaway is that downtown in general is a cash cow for the city and county, what Minicozzi described as the “golden goose.” While it’s only 2% of the land in St. Paul, it’s providing 9% of the tax base. That’s in spite of the fact that half of the downtown buildings are tax-exempt.

“This is a strong incentive for our city and our county to help cultivate the downtown, because it essentially helps pay for the rest of the city,” explained Spencer.

The overall lesson of per-acre economic analysis is that rehabbing historic buildings and adding infill density around downtown could have huge benefits for St. Paul’s tax base. In other words, city and county officials should more time rehabbing older parts of the city instead of incentivizing parking lots on the edge of town.

“The other thing when I look at this analysis is that it becomes clear to me we need to do a better job of building out density as you get closer to the downtown,” said Spencer. “The close-in neighborhoods like the West Side Flats or the Sears Site [by the state Capitol] — we should be building density as you get closer. We could be packing a fair amount of residential density into those sites.”

The per-acre map suggests that reinvesting in the historic core would pay dividends for the city’s overall economic health. Not just on the edges of downtown St. Paul, but improving Rice Street, East 7th, or other long-marginalized corridors could bring lots of urban tax base to the city. It turns out that the Plan B bar on Rice Street might be worth more than most people think.