Reimagining Cities-Disrupting the Urban Doom Loop

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Many WalkUps, especially in Downtowns, elect to create place management organizations, providing the 5th level of governance. However, many have failed to demonstrate outperformance over the 2019 2023 timeframe, possibly because of legacy decisions on portfolio mix—something that is particularly true for Downtown WalkUps where the product mix is most over-indexed to Work. WalkUPs with place management organizations under-performed WalkUPs without place management generally speaking. Most place management is performed by business improvement districts (BIDs), whose name says their mission is to “improve business” and since the stakeholders and funders of BIDs are property owners, this should mean superior PPSF compared to non-BID managed WalkUPs—we did find that this was the case. Almost all WalkUPs lost PPSF valuation from 2019-2023, primarily due to the decline in office values. Thus, the question is, did BIDs minimize valuation losses during this time period? The research shows that across multiple measures, including valuations, WalkUPs with BIDs did not outperform those without them. (One exception was GDP growth in Downtown WalkUPs, where BIDs did show outperformance.) We explored the effects of portfolio mix on this result and found that, had WalkUPs with BIDs been more diversified like their non-BID WalkUPs, NOI PSF growth would have outperformed. This reveals the impact of too little diversity and being over-officed generally—again, this is particularly true for Downtown WalkUPs with BIDs. Given that, on average, place management organizations have an annual budget of $5.1 million across our WalkUPs, research should not have to normalize product portfolios to show managed progress. Every dollar a place management organization spends is a dollar reduction in NOI for an income property. At a 5% cap rate, that translates into $20 in decreased PPSF valuation. That means place management must, at a minimum, increase average PPSF valuation by $20 for every dollar of the annual budget.

82 Cushman & Wakefield