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tooluther

Office Park vs. Downtown

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So I'm getting a masters in real estate development, so I should probably have a better answer to my own question (but I'm just back from spring break)...

After reading the articles on land searches by Westinghouse and Consol (at the airport and southpointe II respectively) I am trying to figure out why these two companies would rather build a new obscure headquarters out in the stix instead of having a signature building downtown. Given the current situation there's plenty of space for them, and they could get it at a steal...Not to mention they could probably slap up a big sign in time for the ASG (Like Heinz). There's even room to build a new town like PNC is.

Other options...

-Build on the Northshore on the last parcel by Heinz Field

-Technology park down by the river

-maybe even somewhere on the bluff

I don

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I wish I knew the answer. My cynical guess would be that some people will always choose the suburbs over the city. Maybe they believe that it would be too expensive to locate in the city, and haven't even done any research to find out if that is true. Maybe they are afraid of crime. Maybe they can't stand to look out their window and see anything other than a sea of parking lots.

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IMO that trend you're describing is a by-product of managerial rigidity.

The managers would have to be willing to learn new management skills to be effective in a Downtown setting. The office park setting lets them be lazy and employ a lot of subterfuge to manage people. They can for instance look out the window and see "oh, my head engineer's car is here" instead of actually going out on the floor and getting a grasp on what's going on. Multiply that by every floor of a skyscraper that they don't want to visit while they're playing tetris in their office. Likewise, the dearth of places to go on break outside the company space means that the management doesn't have to be as responsible for where their workers are at. Of course what it does is create an Office Space corporate culture that might give managers a greater sense of empowerment but it takes away from the quality of everyone else's work life.

One really good example of this are engineers and software developers who have to work in a cubicle. It's pretty much a given that for these mentally challenging tasks people need a quiet personal office to work without constant distractions. This would actually make some of the older office towers with traditional hallways lined with rooms for offices an ideal setting for a lot of high technology firms. But many companies don't care, for them the convenience and cost savings of cubicles to a manager is more important than productivity for their engineers.

So my guess is that there's just a consensus formed among managers who'd rather not give up their free reserved parking spot even if it's for the good of the company. (Everything else being equal.)

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Alot of these companies simply require large floorspaces which downtown office buildings simply do not and can not provide. If you're running a big R&D facility, for example, its better to have as many workers as possible on one floor. Thus reduces the efficiency lost when people have to transfer floors and allows for greater numbers of people to collaborate. Also, its easier to supervise. Because of this, there simply are some entities that generally migrate to the suburbs. The ones who stay in the cities are often those that care less about having a large floor space - example, financial advisors, lawyers, etc. You'll note that these are more or less solitary and sedentary professions as opposed to R&D where you often have to have a bunch of people collaborating.

Even the R&D type businesses that do locate in the city generally do not choose to locate downtown but rather in suburban-style buildings outside of downtown - Alcoa, Seagate, etc. where more floorspace can be obtained.

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This is a great question . . . I have a totally different take on it though. Instead of looking at what the companies are thinking, look at what the 190+ governments competing for each and every taxable dollar are.

The reason CONSOLIDACILLIN is the wonder drug for virtually every dilemma this region faces is once again proven true by applying it here. A corporation or a company are not like you and me, they aren't interested in how good they look or what kind of awesome digs they got, unless they are a major player Fortune 1000, most of them are run by folks looking to rip every possible penny out of thier business for personal use, if Wilkins or Monroeville give them a tax abatement or their landlord one companies are looking to go there instead of to Pittsburgh.

If Pittsburgh consolidated the county, zoning, taxes and incentives wouldn't matter, downtown would win always by a hair for road access, ease of infrastructure and the like. The city could even "steer" companies and office space downtown and keep the burbs for nature trails, parks, wildlife areas and schools, a very efficent and productive use of Pine township, instead of course you like tax and zoning abatements so the 1000 or so Pine residents can pay for brand new sidewaks, roads, sewers, lights, traffic flow studies, police and fire useage etc. etc. etc.

This competition between 190 fiefdoms is what causes whacky results when it comes to where companies or developers locate . . . common sense for the metro will once again reign supreme when there is no paper benefit to moving to the sticks.

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After reading the articles on land searches by Westinghouse and Consol (at the airport and southpointe II respectively) I am trying to figure out why these two companies would rather build a new obscure headquarters out in the stix instead of having a signature building downtown. Given the current situation there's plenty of space for them, and they could get it at a steal...Not to mention they could probably slap up a big sign in time for the ASG (Like Heinz). There's even room to build a new town like PNC is.

Studies have shown that the choice of location has more to do with where the CEO lives and how short his/her commute is to that location. Thus, back when the majority of CEOs lived in the city center, the HQ were in the downotwn area. Now that CEOs tend to live in places like Washington County, the HQ are moving to places like Southpointe.

It doesn't even have to be a conscious decision. Rather, the CEO likes a certain place, surrounds himself with people who also like that place, and then the people in charge decide to move the HQ to that place.

As a more extremem example - look at Alcoa. The CEO decided to live in New York and now the HQ moved there as well.

The solution? Pgh will have to encourage more and more executives to live within the city. I guarantee that if the majority of execs live in teh city, the drain of HQ out fo the city will stop. Look at NY. Manhattan has become the "in" place for execs to live and, as a result, many HQ are in NY, even though in today's day and age or telecommuting and the internet there's less reason for HQ to be in NY over NJ or Kansas.

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Studies have shown that the choice of location has more to do with where the CEO lives and how short his/her commute is to that location. Thus, back when the majority of CEOs lived in the city center, the HQ were in the downotwn area. Now that CEOs tend to live in places like Washington County, the HQ are moving to places like Southpointe.

Correct.

When Katrina devastated New Orleans the building holding Ruth's Chris Steakhouse headquarters was flooded out. The CEO lives in a suburb of Orlando. Guess where the headquarters were permanantly relocated to? Yep, about 5 miles from where the CEO lives.

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The solution? Pgh will have to encourage more and more executives to live within the city. I guarantee that if the majority of execs live in teh city, the drain of HQ out fo the city will stop. Look at NY. Manhattan has become the "in" place for execs to live and, as a result, many HQ are in NY, even though in today's day and age or telecommuting and the internet there's less reason for HQ to be in NY over NJ or Kansas.

That's a really valid point and a good place to start, but IMO it still doesn't fully solve the problem. I think it's right as far as the general region that the main office is located but not necessarily where the main operations take place. It also doesn't really address the issue of why an office park versus high-rise even when it's within the same metro.

I do think that many of the older office towers are actually better for teams of engineers or developers. This is increasingly true as consulting and outsourcing are really dwindling down the in-house staff to just the core functions that a firm specializes in. It was never really a valid excuse that a single floor with a thousand engineers working in cubicles was more efficient, anyway. Highly skilled, intelligent workers really don't work well in cubicles and it's really a misconception that thousands of people colloborate on anything in such a way that makes it easier to have them all in one giant room with crazed managers running around. Cublicles were really invented at a time when companies were growing so rapidly that scores of accountants and secretaries functioned as a sort of human database and reams of paper had to be processed all in one place by many people quickly without the benefit of a formal IT department, but this just isn't the nature of most modern firms anymore.

There's an exception for high tech firms that may need very specialized labs or want to have some production lines on-site. But I think there's enough firms in office parks close enough to Downtown that it doesn't make sense why some of them aren't taking up the vacancies there. I think we'll actually start seeing more of them move Downtown soon when they come to their senses. OTH the government has to come to it's senses also and provide the LRT that makes living and working Downtown more practical for everyone and investors who see it coming should start to modernize their older properties now.

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I think O'Connor and Rendell Should be talking to Westinghouse about moving their whole opperation in from Monroville. Possibly putting the corp. offices into the Steel Building (if Heinz moves out) or the Equitable Building (if Heinz doesn't move out). I think The Steel Building would look cool with a dull blue "W" lit up with led's on top of either building. They could put additional opperations on the north side in one of the two remaining office pads over there.

As for CONSOL, same team plus the county government can put together a package to keep them at least in the county (at best in the state rather than jetting to WV). If they can't locate downtown I can see them building a sizable opperation on the other side of the hot metal bridge to expand the technology park.

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That's a really valid point and a good place to start, but IMO it still doesn't fully solve the problem. I think it's right as far as the general region that the main office is located but not necessarily where the main operations take place. It also doesn't really address the issue of why an office park versus high-rise even when it's within the same metro.

Actually it does affect where the HQ goes within a metro. CEOs like to be close to their HQ and where the HQ is or moves to has been shown by studies to correslate with where the CEO lives or moves to. The studies I'm referring to were conducted in the NY metro area and it was found there that HQ moves often trace where the CEO lives or moves. Thus in the 70's and 80's you had many HQ moving to NJ and CT (where the CEOs often lived). Now, with Manhattan becoming more and more popular among the upper class, many CEOs are either staying put there or moving from the suburbs to there and the HQs have been migrating into Manhattan (or nearby Jersey City whcih is easiyl accessible from Manhattan) or staying put in Manhattan.

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^^I think NYC is a bad example to overlay with other metros, it is so massive and just a bridge or two away from whole other tax structures (otherwise known as states), that for a CEO moving to Purchase or East Orange is very doable. Pittsburgh and other average metros don't have the range of metropolitanism infrastructure through almost their whole DMA or Census defined area.

The CEOs of NYC area companies move out of city proper more for the competing tax structures of the Tri-State, whereas mid-sized cities, CEOs are trying to find lower ways to tax their corporate profits even if they have to commute longer distances.

Not saying that the home to office commute is not relevant but for cities not like 3 different CEO income taxes in the metroplex, it is a chicken and an egg argument. The property taxes and infrastructure costs as well as incentive packages of the surround 190 munis here have much more influence on corporate HQ then the WV and OH state income taxes do to determine which metroplex state the CEO lives in.

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I don't think any CEO will be moving to East Orange, NJ (known in those parts as "Illtown") :P !

Anyway, the thing is that CEOs in the Pgh area tend to prefer living in the suburbs or exurbs. As a result, they often prefer to have their companies HQed in the suburbs or exurbs - either because they like the area, they like the shorter commute, or both. I beleive this is why Consol is in Upper Saint Clair (b/c thier CEO probably lives there) and why so many firms chose to locate in Southpointe (b/c many CEOs like Washington County). Yes, I know that the state encouraged the development of Southpointe but it would not ahve been the runaway success it is today had it not been for the willingness of CEOs to have their firms HQed over there (and many of these CEOs I bet live in Washington County or in places near there like Upper St. Clair).

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If you compare Metro Pittsburgh to most other major metros in the country, you'll find that PGH does a much better job at keeping its jobs in the core city compared to Cleveland, St. Louis, Baltimore, etc etc. The daytime city population surge of 41 percent is a testament to the strength of the city job sector (though unfortunately this also attests to the small slice of the metropolitan pie that actually lives in Pittsburgh). However, as much as we like to talk about SouthPointe and Monroeville... there is no suburban market that comes anywhere close to the city market. This is a different story than most major cities, which have already lost the battle to booming edge cities. Downtown Philly's job market is dwindling while King of Prussia and other suburbs boom. Downtown Detroit has less workers than suburbs like Troy and Southfield (Detroit is also one of the few major cities that sees a daytime population DECLINE). Pittsburgh is similar to Boston (though without state govt functions) in that it is the unquestioned economic heart of the region.

The PG did an article on this phenomenon a couple months ago:

http://www.post-gazette.com/pg/06015/638256.stm

Some selected quotes:

"More than 180,000 suburbanites flow into Downtown, Oakland and other city neighborhoods each day to work, boosting Pittsburgh's population by 41 percent, the fourth-highest proportional "day surge" among large cities in the nation."

The top day surge cities are "relatively small cities within large regions... that have managed to maintain a vibrant job market in its downtown and other city neighborhoods."

Pittsburgh is only 15 percent of the population of the metro. This is largely because of antiquated boundaries that have not changed to meet the dynamic urban reality of the past 100 years. However, peer cities like Cleveland, Cincinnati and St. Louis have been hemmed in by tiny boundaries and have not cultivated the vibrant job market within their core cities. Take a trip to Clayton, MO and see how much more massive that suburban job market is compared to Monroeville or SouthPointe.

"In Pittsburgh's case, the number of jobs actually has increased over the last decade... from about 300,000 in 1992 to 320,000 in 2001"

Pittsburgh continues to hemmorrage population (mostly due to decrease in household size and die-off of seniors, combined with lack of international immigration), but the city job market has continued to grow. Pittsburgh may not be seen as a place to live by most of the metro... but it is seen as the obvious place to work. The city remains much more at the forefront in many facets of life compared to many of our peer cities. The job market has continued to grow through boom and bust... which is a much different story from say... Philly city.

In addition, city jobs are much more lucrative... averaging 10,000 dollars more per year than in the rest of the metro. The city is still seen as the best location for high-end jobs in most sectors.

"The salaries that commuters earn contribute to the payroll taxes that Pittsburgh firms are paying to the financially-strapped city, but such big nonprofit employers as UPMC and the University of Pittsburgh don't have to pay that tax. The city also gets nothing from the suburbanites' real estate taxes."

While the city and region are truly lucky to have powerful institutions like UPMC and University of Pittsburgh, they do have a negative side effect for the city. Unfortunately, a large percentage of Pittsburgh's land area is consumed by tax-exempt institutions (a problem the suburbs don't usually have). This is an enormous burden on the city. Another burden is that the suburbanites who make their money in the economic heart of the region do not pay their fair share for the infrastructure and services that use in the city. While I'm sure suburbanites and suburban municipalities would scoff at any plan for a real commuter tax, there needs to be a discussion on the issue. Suburbanites need to be enlightened about their role in the fate of Pittsburgh.

In conclusion, despite the fears offered in this thread, the suburban job markets have not threatened Pittsburgh's dominance. However, the city needs to do something to recapture the wealth it generates. A commuter tax would be a rather "incendiary" message (though I would support it). However, the current boom in downtown housing should help. If Pittsburgh can attract people living in Upper St. Clair... to live where they work... downtown... then Pittsburgh can keep some of that money the city generates.

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Interesting article. I actually think this also fits into the CEO theory. Pgh may have contrained boundaries but - unlike most cities - it is lucky enough to include some posh semi-suburban neighborhoods like Squirrel Hill, Shadyside, and Point Breeze which do appeal to CEOs. Thus CEOs who live in the city tend to favor in-city locations for their HQ. By contrast, you can't find any neighborhoods like that in Detroit - anywhere. This isn't even because of Detroit's decline either. I don't think they ever had neighborhoods like that within the city limits since, unlike Pgh, Detroit started out small in the early 20th century and then mushroomed uncontrollably in size in the first several decades so that, by the time the landed gentry put down roots, they had to do so well outside city limits in places like Bloomfield Hills. The CEOs who lived in Bloomfield Hills ended up favoring nearby areas for their HQs, thus the rise of Southfield and Troy as corporate centers.

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Alain Belda now can be a poster child . . . when are 401kers, shareholders and local loan holders going to take back the corporate board rooms?

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The fundamental question of office park versus Downtown still has nothing to do with where a CEO lives. Where a CEO lives in relation to his or her firm is a chicken or egg question. CEOs might have the weight to move a company where they want it, but making those decisions is their job! At the same time CEOs also have the wherewithal to live in the most comfortable location with a short commute to work, no matter where the company moves to. So you can claim that Manhattan is trendy because CEOS like it and move their companies there or you could claim that there are a lot of reasons for companies to move there (ie immense human capital resources) and CEOs just happen to be able to adapt to and take advantage of the best lifestyles that any place has to offer.

Perhaps the commuting masses should all take a page out of CEO lifestyle choices and realize that sitting in a car on a turnpike or expressway isn't the best way to spend a lifetime. It is the worker's willingness of to commute that gives CEOs of some companies the choice of where they want to relocate to. Look at the R&D office shortage in Oakland and the development of the PTC in close proximity to the universities. The fact is a lot of the workforce in Oakland doesn't have a car, the time, or the gas money for suburban-style commutes. CEOs in this case have no choice. This really shows the difference made by a key resource that's not willing to travel as far near as Downtown versus a resource that's willing to commute across 3 counties to get to work. But the question still remains, why does the PTC strive to have a "suburban" office park aesthetic?

There are office parks within 3 minutes of Downtown. Moving a firm out to Washington County is an entire different set of considerations that's irrelevant to this. The questions should be why are companies moving to Pittsburgh moving to locations just outside of Downtown in office-park settings, are they really better off or are they failing to fully embrace the city, and what can be done to improve things for Downtown?

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I agree blue, seriously folks we should have an experiment on seeing how many companies move and where they end up when all taxes, excises, incentives etc. are equal. Do you realize how many American companies are registered in Delaware? In Bermuda? How many move just outside of Cali or NY State, how many avoid major cities ala Chevron, et. al. because of corporate taxes, regulations and personal income taxes?

If you talk to someone like a Guiliani or LaGuardia, a Lawrence or a Dailey they will tell you point blank that there are two ways to bend the populus to city hall's will in a democratic fashion, the law and the tax/incentive code. When we talk about why one region is doing world's better then the other it almost always boils down to what the state, city, county or congressman on the federal level is doing to tweak those two dynamics.

A CEO or a company can choose to ignore those benefits or punishments and stay where they are, but 8 out of 10 times political willpower gets them. Like growing a garden ;).

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But the question still remains, why does the PTC strive to have a "suburban" office park aesthetic?

Well, a lot of it has to do with zoning. Apparently when the PTC was built, the area was only zoned for offices. Now more development is planned there, and a change in zoning means there will be more than just offices. It should become a bit more like the SouthSide Works.

Not that I don't think the PTC is layed out poorly, but perhaps this new development will fill it in and make it better.

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Well, a lot of it has to do with zoning. Apparently when the PTC was built, the area was only zoned for offices. Now more development is planned there, and a change in zoning means there will be more than just offices. It should become a bit more like the SouthSide Works.

Not that I don't think the PTC is layed out poorly, but perhaps this new development will fill it in and make it better.

Do you have any details ("links?") about these proposed development plans? As it is, the PTC is a slightly embarrassing design.

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Some of what I know, I know because I work there. We were all given a survey about the types of things we'd like to see added to the site. It asked about hotels, shops, restaurants, services (e.g. drycleaning and banks), etc.

Here are a couple of general links about the expansion:

http://pittsburgh.dbusinessnews.com/showne...&type_news=past

http://www.ura.org/pdfs/pressReleasePTC.pdf

That second link says "a small amount of retail space" so it may not be as much as I had hoped. But I am pretty sure there was talk about a hotel, and that isn't mentioned.... So we'll see what happens.

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