The addition of new residents into downtown is a boon to both landlords and commercial tenants, creating a new (or enhanced) source of revenue for landlords with vacant upper floors or dated apartments, and a reliable stream of accessible customers for retailers and restaurants. Since residents within walking distance of a business have been found to frequent local shops twice as often as driving-distance customers, and with the average downtown household in Wisconsin making $9,000 worth of discretionary purchases within the state, the addition of only a few units can result in a dramatic increase in local spending. According to downtown Darlington business owner Angie Thuli, downtown residents are frequent visitors to her coffee shop, and take full advantage of the proximity of downtown businesses to conduct much of their personal business.
Of course, the increased income generated by a property typically results in increased property values over time. A survey of Wisconsin downtowns found that fully occupied buildings were valued at 200 percent of the value of underutilized properties, and 150 percent of the value of those with upper floor vacancies. For downtowns with a Business Improvement District (BID) in place, this can mean a significant boost in funding for the betterment of downtown. From a municipal perspective, this further supports the
importance of downtown to the local economy and the municipal bottom line. While downtowns typically represent between 10 and 15 percent of retail and restaurant sales in a community, the concentration of civic uses result in only 5 percent of assessed property value being located downtown. Increasing this percentage by raising property values boosts the perceived value of downtown as a source of tax revenue.
Although many property owners cringe at the thought of paying higher taxes, the increased payments are often more than offset by the increase in rent from an upper-floor renovation. For a majority of downtown properties, the rent from upper-floor tenants is sufficient to cover the mortgage and other operating costs of the building, making first-floor commercial space rent a profit center for the landlord. This also benefits the downtown business mix, giving landlords the freedom to select first-floor tenants based on local market demand and marketability, as opposed to simply selecting the tenants that are most bankable. The need to guarantee first-floor cash flow to pay the bills is a prime factor in the rise of service-industry tenants on the ground floor, as these tenants are typically more established and require less in the way of buildout than local retailers or restaurateurs.
What’s more, increased revenue makes additional discretionary funds available to landlords to assist with tenant renovations that might be necessary to attract quality retailers to the space, improving the appearance and aesthetics of the downtown as a whole. Examples of tenants-as-amenities, shown in the images at right, include the Commonwealth Coffee Company in Fond du Lac, which was built into the Riverside Apartment complex by the developer and then leased out to operators, as well as the Phoenix Building in Beloit, which incorporated several restaurant-oriented spaces into the ground floor plan to attract new types of restaurants to the district in support of residential expansion.