Universities, chasing the startup economy, reshape urban real estate

Dennis Lower, longtime president and CEO of Cortex, a self-styled innovation hub and technology district in St. Louis, calls the sprawling, 200-plus-acre development “a handshake to the millennial workforce” in this Midwestern city.

Since 2010, when Lower arrived, Cortex, a nonprofit development and a public-private collaboration between local universities and businesses, positioned geographically between Washington University and St. Louis University, has become a nexus of the new economy.

“Every major region is trying to recruit tech companies,” says Lower. “That’s not how we’re going to get where you need to be. We need to grow our own companies, which is one of the main goals of Cortex.”

In the last eight years, the number of homegrown startups in Cortex has risen from 35 to 360, manufacturing startups have clustered in formerly abandoned brick warehouses, Microsoft just opened its first Midwest headquarters in the district last week, and the mobile-payment company Square now plans to employ 600 workers in the city’s Central West End. A former site of vacancies and urban decline has been given a second life. It’s a prime example of how a new type of university-led development has helped shape U.S. cities for the last decade, while also breathing new financial life into universities.

A changing role for universities

Universities have always been anchor institutions, large landowners, and significant economic forces in their cities. But shifts in the economy and academia have left many seeking new financial partners: According to Sharon Haar, a professor of architecture at the University of Michigan and author of The City as Campus, universities’ public funding stream has dried up, the tuition funding stream is tapped out, and they invest an inordinate amount of their own money in research.

Enter startups and tech firms, which became larger forces in the urban economy just as universities found themselves in need. Partnerships between the two kinds of institutions have helped schools see the fruits of their labor and stay relevant in a quickly evolving tech scene.

“Universities have always made money off the research products of their faculty, that’s not new,” says Haar. “But increasingly, the need to monetize research has come to the fore, in a way that it wasn’t in the past.”

The result has been a raft of innovation districts, startup hubs, and new downtown developments that help schools build out their STEM facilities and make connections with the startup economy, trying to embrace the type of academic-corporate synergy that made Stanford and Carnegie Mellon, one of the centers of Pittsburgh’s recent tech revival, so successful.

Schools’ engagement with startups and venture capital has huge payoffs for urban economies. According to a Brookings Institution study last year about the relationships between city schools and startups, downtown schools created 71 percent more startups than comparable schools in rural and suburban settings, and spent nearly $10,000 more per student on research and development. Full-time students at these urban schools represent just a quarter of enrollment nationwide among all research universities, but are responsible for 37 percent of startups and patents, 43 percent of invention disclosures, and 52 percent of licensing income.

“I think it’s a great transition,” says Scott Andes, lead author of the Brookings study, and current program director with the National League of Cities (NLC). “It does nothing harmful to the basic goals of science and education, which is a school’s primary mission, and really supports the local economy. It’s a welcome shift.”

A new commitment to community development

Universities have a long history as real estate developers, and in many cases, they hold substantial amounts of urban real estate. One of the largest urban university landholders is New York University, which owns or occupies 171 buildings covering roughly 15 million square feet, estimated to be worth $15 billion, and has plans in place to add 2 million more square feet. Columbia University, which is currently in the midst of a massive expansion in Manhattanville many fear will further gentrify West Harlem, has even more.

Part of the catalyst for the last decade’s wave of university-led development of startup spaces and incubation hubs comes from the changing conditions in big cities, which in the last 10 to 15 years have seen populations begin to rebound, real estate appreciate, and the creative class concept of economic growth take off. Many companies are now flocking back to downtowns from the suburbs.

But before the rebound, the landscape was different. When companies and white-collar workers seemed to be leaving cities behind, universities remained. According to Wim Wiewel, current president of Lewis & Clark University and co-editor of The University as Urban Developer, schools had a surplus of land and a need to create an attractive community for students and faculty. They did so by investing in and rebuilding surrounding communities.

“The options they had were to put up walls and defend the campus, which didn’t turn out to be a terribly great strategy, or engage with the community that surrounds them,” says Armando Carbonell, a senior fellow at the Lincoln Institute of Land Policy.

Universities are already physically invested in their neighborhoods, with jobs, facilities, and students, so they don’t always have alternatives to developing downtown. Regardless, universities’ oversized urban footprints—a university is now the largest employer in two-thirds of America’s 100 largest cities, and U.S. schools collectively employ 4 million people and spend over $43 billion each year—give them a unique level of resources with which to help cities succeed.

“It’s a somewhat self-serving situation,” says Haar. “But at the same time, the university actually has the capacity. There’s definitely a savior narrative in there that’s historically had some problems, but there have been moments in time where a university is one of the few things left in a neighborhood or city to build off of.”

The pace of change and development has sped up in the last decade, according to NLC’s Andes. Consider huge developments like Harvard University’s Allston Yards development, an enterprise and tech center being described as a “new neighborhood.” He says that of the roughly 200 institutions of higher learning across the country that spend $50 million or more a year on research, maybe 5 to 10 percent were focused on the innovation and entrepreneurship economy five years ago. Now, that’s closer to 30 percent.

That’s shifted the real estate focus of universities from expanding residential space into something more akin to place making and economic development.

“For a huge number of universities making this shift, investing in new physical infrastructure is important but difficult,” Andes says. “They often don’t have the right spaces for startups or other nontraditional activities. That’s why pooling resources off campus can be important.”

In addition to the building boom near campuses, the premium placed on innovation has led to a new generation of satellite campuses. One of the most prominent is on Manhattan’s Roosevelt Island, currently the home of a new Cornell Tech campus.

An oft-cited case study of university-led urban development concerns the University of Pennsylvania’s West Philadelphia initiative, a large-scale neighborhood development plan that started in the early 1990s. The school didn’t merely build new dorms or academic facilities, according to Slate, it helped shape the neighborhood. The program included expanded police patrols; the construction of non-academic buildings, including a public school; and even employee housing assistance for those who settled near the campus. University City, the area where most of the investment took place, is considered an overall success.

But the investment also had downsides. The Penn program has led to what many Philly residents call “Penntrification.” Between 1990 and 2010, as the area’s overall population expanded and rent skyrocketed, the area’s black population fell by 29 percent.

And Penn is far from alone. As Carbonell points out, similar developments have led to rising rents and displacement in cities from Cambridge, Massachusetts, to Seattle, Washington.

“It’s not a blessing without costs and downsides,” says Carbonell. “Most cities would love a big university research center stimulating all these great jobs, but great challenges come from those attracted to these jobs.”

Even if university-led development only adds a few buildings or housing units, the increasing interplay between universities and startups, and ancillary economic activity, can lead to further development and speculation. And often, university-led developments, seen as long-term investments by respected local institutions, gain public support and powers beyond those of private developers. The Cortex development, a quasi-public agency working off a city-approved master plan, can abate taxes and has the power of eminent domain. Lower needs to personally approve every building permit in the district. But he feels these are, in the hands of a responsible developer, necessary tools for transformation.

“We have those powers because the city trusts these institutions,” he says. “They went nowhere when other companies left the city. They’re not ephemeral. They’ve been here 100 years, and they’ll be here another 100 years. They built up public trust.”

Can expansion go hand in hand with equity?

Can these types of developments be both educationally beneficial and equitable for the surrounding community? Lower says that Cortex has community benefits built into its foundation. Its goals include increasing the city’s tax base and adding jobs. Equity initiatives, including a $10 million fund to support minority- and women-owned construction firms and plans to add six new board positions for women and minorities, will make sure the developing neighborhood doesn’t replicate the tech sector’s lack of diversity. A new study, to be launched later this year, seeks to find more concrete answers as to the neighborhood’s true community impact.

Other recent programs have also promised to put equity first. Andes says that Drexel University’s plans for the multibillion-dollar Schuylkill Yards redevelopment is taking a proactive approach (though other community projects have faced significant backlash), and Arizona State University is doing great work with its recent biomedical campus expansion into downtown Phoenix. Johns Hopkins is also engaged in a new 88-acre expansion into downtown Baltimore in partnership with the Annie E. Casey Foundation, a nonprofit committed to social justice and inclusion that just launched the Higher Education Anchor Mission Initiative to help schools “leverage their capacity to strengthen local communities.”

“Sometimes it’s good and sometimes it’s bad for local communities,” says Andes. “Innovation investments need to be outward facing. Those types of facilities will make a difference for the communities they’re located in. The ones that don’t will be the ones that fail.”

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