Download - Nicollet Mall Economic Impact Study
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ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION
Prepared for the City of MinneapolisMarch, 2014
Redevelopment Economics, Finance and Strategy
2288 University Ave WestSaint Paul, MN 55114
ph) 651.645.4644www.donjek.com
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INTRODUCTIONNicollet Mall is a twelve-block pedestrian and transit mall that since its 1968 construction, has
served as a prominent symbol of Minnesota and its largest city, Minneapolis. During a period
of stress on downtown retail and commercial districts, public and private investment in Nicollet
Mall and adjacent structures helped to sustain downtown as a bulwark of the regional and state
economy. Today, national market trends in housing and office are shifting, and remarkable
growth in downtown Minneapolis presents a clear example of this change. Building on the
public-private partnership model that put the mall in place in 1968, the City of Minneapolis,
Minneapolis Downtown Council, and other private partners are collaborating to propose a $50
million reconstruction of Nicollet Mall.
The City has commissioned a targeted economic impact analysis to evaluate existing market
trends and quantify certain economic effects of the reconstruction project. This report summarizes
research and analysis conducted on an area comprised of over 2,000 parcels across 47 city
blocks.
HISTORY AND PLANS FOR REINVENTIONNicollet Avenues importance as a commercial spine in
Minneapolis dates to the 19th century, when value of the street
frontage supported early development of retailers such as
Daytons, Donaldsons and Powers. By the mid-1950s, many
residents of the region were choosing to leave previously
established neighborhoods for suburban areas, where more
dispersed housing was coupled with shopping centers easily
accessible by car. In response, civic and business leaders in
Minneapolis proposed and in 1968 constructed the nations
first transit mall extending from Washington Avenue to 12th
Street, to strengthen appeal both for retail and downtown investment.
Over nearly half a century, Nicollet Mall presented a model that inspired many other American
cities to introduce transit malls into their downtown landscape, including comparable cities
of Denver, Chicago, Portland, and Madison. Several of these systems have, over time, been
dismantled and returned to general use by cars, a concept considered and rejected in the past
in Minneapolis. Nicollet spans across the densest concentration of jobs and market value in the
state. Its reconstruction and elevation as a must-see destination is presented as a top priority
in the Intersections Downtown 2025 Plan developed by the Minneapolis Downtown Council,
and adopted by public and private stakeholders.
In 2013, the City of Minneapolis coordinated a Nicollet Mall design competition to invite p
roposals for the streets future. The selected proposal, submitted by James Corner Field
Operations, has been adopted by the City and its private sector partners as the framework for
investment and reconstruction of Nicollet Mall.
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NICOLLET IN CONTEXT Downtown Minneapolis, surrounding Nicollet as a central north-south connection,
maintained more stability as a center of trade and employment through the
mid- to late-20th century than many similar central business districts. Recent years
have brought a significant and visible increase in investment, primarily by private
parties in residential and office development, and firms moving to or expanding
in downtown Minneapolis. Over 130,000 people work in downtown Minneapolis
each day, reflecting both stable small firm activity and continued investment in
downtown employment locations by larger employers such as Xcel Energy, US
Bancorp, Ameriprise, Wells Fargo, and Target. Downtown, as a center for
headquarters within a region where 19 Fortune 500 firms are based, has benefited
from investment and activity required to provide research and development,
professional services, marketing and design, both to larger firms based in the
region and to larger external markets.
Goals established by the Downtown Council also suggest an opportunity to
maximize Nicollet Mall as a destination and amenity for residents. The Council is
targeting a doubling of downtown population to 70,000 residents, addition of
three million square feet of office space and 200,000 square feet of retail, and
introduction of 1,100 hotel rooms into the downtown market. The need to
leverage Nicollet Mall as a public square, providing public space for this range of
users, is expected to grow with the added concentration of people downtown.
PROPOSED RECONSTRUCTIONThe City of Minneapolis and the Minneapolis Downtown Council propose to take advantage
of the need to reconstruct Nicollet Mall, by drawing on forward-thinking design that reflects
a range of current and intended uses. The proposal, developed by design firm James Corner
Field Operations, is intended to emphasize the close proximity of the Mississippi River, the core
of the downtown business district, and the Loring Park area. More specifically, the plan focuses
on three sections to propose changes to Nicollet Mall:
Build a Mississippi Woods segment along the northern section of Nicollet between
Washington Avenue and 4th Street, to provide public space for new development
that includes a 26-story apartment tower, recently announced development of the
Ritz Block, expected expansion of Xcel headquarters, and the Minneapolis Central
Library. Adding trees and gardens, performance space and lighting, and maintaining
street right of way for bicycles and buses is designed to support projected residential
and office growth in this zone of Nicollet.
Prioritize the heavily used middle segment between 6th and 8th Streets by establishing
the Nicollet Island area, to support the core of the downtown Minneapolis employment
concentration. Reconstruction in this segment is proposed to include wide stairways
facing each other and connecting the skyway level and street level, with intermediate
space used for the farmers market and seasonal events and amenities.
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Highlight Nicollets arts and entertainment focus, and point toward Loring Park, by
creating the Loring Woods segment south of 12th Street. This section is proposed to
include a wide variety of tree types and sizes, to provide a destination for visitors,
residents and workers downtown.
The City and the Minneapolis Downtown Council have together proposed financing the $50
million reconstruction project with public and private sources:
Assessments are expected to be used to raise capital from benefiting owners of property on
and near Nicollet Mall.
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ECONOMIC BENEFITS OF NICOLLET RECONSTRUCTIONThe reconstruction of Nicollet Mall has been designed and proposed as an investment in a next
era of use and success for downtown Minneapolis. Over the last 45 years, Nicollet Mall has
provided a unique addition to the central business districts network as downtowns only transit
and pedestrian mall. Following a protracted public dialogue about the transition of Nicollet to
transit mall, the new malls transformation prompted $50 million of redevelopment in the
following three years.
The current proposal is to reconstruct Nicollet Mall, rather than transition from typical street to
transit and pedestrian mall. The opportunity is also different: The reconstruction is proposed
to support and coincide with a marked increase in the development appetite for residences
and office uses downtown, particularly along Nicollet. As a result, economic benefits will be
directly produced by, or in other cases supported by, the reconstruction of Nicollet Mall. These
benefits are produced primarily in six interconnected ways that merit individual discussion.
Stimulating statewide business activity and employment. Initial economic impact of the Nicollet Mall reconstruction will occur during design and construction of the project. The budgeted
$50 million of spending will flow through the economy, creating additional economic activity
and jobs in the Minneapolis-Saint Paul region and statewide. These impacts will occur in the
construction sector and in other sectors, as dollars are spent and cycle through the regional
economy. The estimated economic consequence of the $50 million reconstruction is $105.5
million in additional spending within Minnesota, and creation of 860 full-time equivalent jobs (FTEs).
Expanding visitorship. Convention and meeting visitors attending events in downtown Min-neapolis are important to the Minneapolis-Saint Paul region, and to Minnesota. In 2012, nearly
28 million visitors spent $6.88 billion in the region. Visitors spend an average of $79 per day
of their visit, and an average over $185 per trip, excluding transportation costs. Nicollet Mall
reconstruction will strengthen the regions attractiveness for convention business, which could
translate to increased visitors over time. Such increases translate into elevated spending levels,
and additional collections of Minnesotas sales tax as well as local food, liquor and hotel sales
taxes. In 2010, business and visitor activity in the Nicollet Mall area generated $13.8 million
in city sales tax receipts, which are levied as 0.5% of sales. Citywide, local sales tax receipts
increased over 20% between 2004 and 2012, exceeding $32.5 million. The Nicollet Mall area
comprises a concentration of economic activity, helping drive the $485.5 million in Minnesota
sales taxes collected in 2011. The effects of increased visitorship, it should be noted, will unfold
over a longer time horizon than spending, development and tax base benefits also outlined in
this report. The longer time frame is due primarily to the extended planning schedule required
for convention business and time required for information about the experience to spread.
Sustaining current trends. Reconstruction of prominent public space on Nicollet will reinforce private redevelopment already underway. Such investments concentrate property value and
downtown residents, boosting state and local property and sales tax receipts. These trends are
exemplified by new construction of the Nic on Fifth, a 26-story, 253-unit apartment tower with
a reported construction budget of $76 million. Anticipated development on the majority of the
Ritz Block at Nicollet and 4th Street offers another example of new investment focused on the
Nicollet Mall spine.
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Extending market certainty about downtown. The Nicollet reconstruction project also demonstrates an ongoing public commitment to the prominent landmark and property on the
blocks it connects between Washington Avenue and Grant Street. Implementation of a plan for
reconstruction adds certainty to decision making by individuals and organizations choosing to
live, locate or expand downtown or in alternative locations. Development projects anticipated
to move forward in the coming 24-36 months, sited on blocks facing Nicollet, represent an
estimated $185 million, including $145 million in publicized pre-development phase. An
additional $168 million in development is projected for those areas one block distant from
Nicollet Mall, including $112 million in a pre-development phase and expected in the market in the
next 24-36 months. Projects representing $35 million more are in semi-public discussion, but
not yet in pre-development. Office development currently underway and projected for the near
term, will provide office space estimated to add over 1,900 employees to downtowns job center.
Generating appreciation in property values. Studies demonstrate that improving street designs for pedestrians can produce market premiums
witnessed in higher lease rates and higher market values for nearby
property. Evaluations of comparable redesign efforts within commercial
districts point to lease rate and property value increases up to 5%, and
retail receipt increases up to 10%. For the purposes of this analysis, only
blocks facing Nicollet Mall or immediately adjacent have been considered,
as rendered in darker and lighter blue in the graphic. This analysis fore-
casts modest appreciation attributable to the Nicollet Mall reconstruction
of 1.0% for Nicollet-facing blocks, and 0.50% for adjacent blocks. At
this level of appreciation, property located within the blocks in the study
area is forecasted to grow in value by $57 million or more as a result of
Nicollet Mall reconstruction.
Compounding market value and property tax capacity. Downtown Minneapolis is well served by public utilities and transportation infrastructure, which elevate potential for continued
development. Residential and office growth near Nicollet Mall provides long-term tax capacity
for state and local property tax levies. Under Minnesota law, property taxes are levied on
residential and commercial property downtown by the City of Minneapolis, Hennepin County,
Minneapolis Public Schools, and multiple special districts. In addition, the State of Minnesota
collects a property tax on commercial property, including office and retail.
Tax base created by the development trends described above, and the appreciation attributable
to the Nicollet Mall reconstruction project, are estimated to generate additional annual property
tax revenues at todays tax rates:
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$5,020,000 $3,445,000 $1,795,000 $680,000 $10,940,000 $2,170,000
City County School District Special Districts Total: Local Governments
State ofMinnesota
Projected Annual Property Tax Revenues
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CONCLUSIONPublic and private parties are considering substantial investment in a $50 million reconstruc-
tion of Nicollet Mall, providing a new design and program for the 45-year-old transit mall. The
economic dynamics analyzed during this study include market momentum already occurring in
the project area, benefits of the reconstruction spending, and forecasted property appreciation
resulting from the improvements. These individual measures are summarized below:
Images: Minnesota Historical Society; Megan Dobratz; James Corner Field Operations
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ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION 7
Direct, indirect and induced spending resulting from reconstruction $105.5 million
Statewide employment generated by project 860 FTEs*
Development currently underway on or adjacent to Nicollet Mall $76 million
Development anticipated in 24-36 months, on blocks facing Nicollet Mall $185 million
Development anticipated in 24-36 months, in areas one block distant $168 million
Estimated employees added in converted and new office space 1,900
Estimated appreciation of existing property resulting from reconstruction $57 million
Estimated annual property tax revenue, collected by local governments $10.9 million
Estimated annual property tax revenue, collected by State of Minnesota $2.1 million
* A full-time equivalent of FTE represents hours equal to a full time position for a year.
Metric Finding
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METHODOLOGYInitial Economic Impact: SpendingWhile the exact effect of such a construction project can never be measured with complete
accuracy even after completion, the best estimate of its overall impact can be obtained using
a standard multiplier analysis. For this analysis, multipliers from the Regional Input-Output
Modeling System (RIMS II) of the Bureau of Economic Analysis of the U.S. Department of
commerce were used. The RIMS II system uses a sophisticated model of the interaction of
different sectors of the economy to trace through what the spending of a dollar in one sector
will generate in other sectors.
Analysts partition the different impacts of additional spending in a given sector into three
categories:
Direct spending is just the actual dollars spent on the product or project whose impact is being analyzed.
Indirect spending includes the second round of spending by companies and individuals that provide materials and services to the project.
Induced spending includes all of the additional economic activity generated in subse-quent rounds of spending as the direct and indirect dollars are cycled and recycled
through the economy.
The RIMS II multipliers summarize the total effect of all three types of spending generated by
direct spending in a particular economic sector in a given geographic region. The system
includes multipliers that are customized for any particular region to take account of the
presence (or absence) of different goods and services in that region. For example, if a
construction project uses many tons of concrete but it is located in a region where no concrete
is produced, the system assumes that the concrete will be imported from elsewhere. Thus, the
multiplier for that region will be less, reflecting smaller indirect and induced effects. So the
effects of spending of a given type can be different depending on the geographic area
included in the analysis.
In order to estimate the full impact of the Nicollet mall reconstruction, multipliers for the entire
state of Minnesota were used. While it is true that the majority of the impact will be felt in the
Twin Cities metropolitan area, services and materials will undoubtedly be drawn for a wider
area. In addition, the $50 million of overall spending was broken up into hard costs (labor,
equipment, and materials) and soft costs (design, engineering, legal, consulting, and other
services). Different multipliers were applied to these two categories of cost reflecting the fact
that these dollars cycle through the regional economy differently.
ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION
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As Table 1 below shows, the estimated impact of this project is $105.5 million. That total
includes $75.5 million of impact generated by the hard costs and $30.0 million in estimated
impact from the soft costs.
TABLE 1Economic Impact of the Nicollet Mall Reconstruction
Inside the State of Minnesota
Source: U.S. Department of Commerce RIMS II system and Donjek estimates
A project like the Nicollet Mall reconstruction generates jobs both in the construction sector
and also through the impact of the indirect and induced spending described above. The RIMS
II system also includes multipliers which capture the estimated regional employment effects of
spending in different sectors.
As Table 2 below indicates, the reconstruction project is estimated to produce a total of 864
in Minnesota, measured as full-time equivalent for one year. This total includes an estimated
626 jobs generated by the construction activity and 238 jobs generated by the soft costs of the
project.
TABLE 2Employment Impact of the Nicollet Mall Reconstruction
Inside the State of Minnesota
Source: U.S. Department of Commerce RIMS II system and Donjek estimates
ECONOMIC IMPACT OF NICOLLET MALL RECONSTRUCTION
$35.0 million 2.1572 $75.5 million
Category of Spending Direct Spending Impact Multiplier ($ per $)
Total Impact
Construction (labor, equipment, and materials)
$15.0 million 1.9976 $30.0 millionSoft Costs
$50.0 million $105.5 millionTotals
$35.0 million 17.8845 626
Category of Spending Direct Spending EmploymentMultiplier (jobs per $1 million)
Total Employment Impact (FTEs)
Construction (labor, equipment, and materials)
$15.0 million 15.8941 238Soft Costs
$50.0 million 864Totals