Chicago now offers developers the chance to build bigger buildings in its booming downtown area if they pay into a fund that goes towards economic development in poorer parts of the city. Developers took them up on the offer: in a little over a year, the city has received commitments to pay $35 million into the Neighbourhood Opportunity Fund, and it recently ran the first round of grant funding from a $4 million pot. Thirty-two applicants received grants to acquire, build or renovate properties for projects, from bakeries to cinemas, that add value to their historically underserved neighbourhoods.
Results & Impact
In just over a year, they have received $35 million in commitments. They recently ran the first round of grant applications for a total of $4 million. 700 applications were received; 32 were selected. Examples include helping establish a brick-and-mortar location for the more than 20-year old Nut’n’Egg Bakery and Catering, and helping Sisters in Cinema acquire and develop a property to house a non-profit that pays homage to African American storytellers.
The Department of Planning and Development, The City of Chicago
Chicago began by altering the zoning code for its downtown area. First, it expanded the area that qualifies for downtown coding. Then it changed the downtown floor area bonus system, essentially allowing companies to build higher if they paid into the Neighbourhood Opportunity Bonus system. For an extra square foot of floor area they would pay 80% of the median cost of land per buildable square foot. The funds generated from this are split between three development funds. One supports the restoration of official landmarks, another infrastructure within a mile of the development; but the largest is for commercial and cultural development projects in underserved areas. Areas are judged as underserved based on demographic criteria such as average income and employment. Projects were evaluated on the basis of their viability, the value they would add to the area, and the track record of those behind them.
Entrepreneurs, low-income people
Cost & Value
In a little over a year, developers have committed $35 million.
Running since June 2016
Chicago has made a deal with its developers: you can build higher buildings downtown so long as you pay into a fund that will go towards economic and cultural development in poorer neighbourhoods. Developers have jumped at the offer: in a little over a year the city has received $35 million in commitments.
It all stemmed from two changes the Department of Planning and Development made to the city’s zoning code. First, they expanded the downtown area. Then they changed the bonus system for developments.
“We, like other cities, had a density bonus system downtown, where developers of new projects were allowed to exceed the zoning constraints at a given site by providing certain amenities in exchange,” said Peter Strazzabosco, Deputy Commissioner of the Department of Planning and Development.
“But we were looking for more ways to leverage local markets that were strong to benefit those that were weaker,” said Strazzabosco. “And that’s how we came up with this program: let’s monetise it and use the proceeds to support economic development in underserved neighbourhoods.”
In doing so they gave developers an alternative. Rather than getting permission to build higher by adding amenities like underground parking, they could simply pay into the Neighbourhood Opportunity Bonus system. For a given increase in square footage, they pay 80% of what the median cost of that land would be.
“At the start, we thought that this program would bring in approximately $10 million a year,” said Strazzabosco. “But in the first year it’s already generated commitments of $35 million. So far, the money from individual developments has ranged from approximately $1 million to $19 million.”
The money raised is split three ways. 80% is allocated as grants through the Neighbourhood Opportunity Fund. The other 20% is split between an infrastructure fund that supports the infrastructure around the development in downtown, and a fund that maintains designated city landmarks.
In 2017 they gave out the first round of grants – totalling $4 million – from the Neighbourhood Opportunity Fund.
Only certain areas of Chicago were eligible, based on analysis of individual census tract data from the past 40 years. Data taken into account included the number of individuals under 18 years of age, below the poverty line, or unemployed. They also considered how many households were fatherless or receiving food stamps.
Altogether, 700 applications were received, and they were evaluated by staff within the Department of Planning and Development.
“There are a variety of criteria that the city is looking for,” said Strazzabosco. “They involve a given location and neighbourhood’s needs. Also project viability: what does the business plan look like, what is their track record? And then, what are the expenses that the funding would pay for?”
Legitimate uses of grant money include, for example, building acquisition and renovation, small business owner training or local hiring subsidies.
In the end, 32 applicants received grants.
“A typical grant is around $100,000 for build-out costs on the site they are operating in or expanding into. That money is provided after the work is completed,” said Strazzabosco. “So the money is not front-funded, but it does not have to be repaid—the project just has to be done. That’s one way the city can protect its investments: this makes sure the city’s money is spent on brick-and-mortar improvements that will stay in the community for years to come.”
The grants go to support a range of endeavours. Examples include helping establish a brick-and-mortar location for Nut’n’Egg Bakery and Catering—a business that has been around for more than 20 years. On the cultural side of things, there are projects such as Sisters in Cinema; their grant has helped them acquire and develop a property to house a non-profit that pays homage to African-America storytellers.
Construction is booming in Chicago and the Neighbourhood Opportunity Fund program is helping to spread some of the rewards a little wider. It’s unlikely to bring in $35 million every year, and the model requires a level of demand from developers that might not exist in other cities, but it’s still an extra avenue for cash that cities everywhere can explore.