Panama case magazine

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ISSUE 001

Case Magazine SUSTAINABLE URBAN DEVELOPMENT - PANAMA CITY

2017


SENIOR EDITOR Albert Saiz

EDITORS Lyndsey Rolheiser & Arianna Salazar

DESIGN Arianna Salazar

Cover Photograph by Jose Manuel Castrellon

CONTACT

STL.MIT.EDU

CASEMAGAZINE

STLLAB@MIT.EDU

CASEMAGAZINE

CASEMAGAZINE



EDITOR’S LETTER - ALBERT SAIZ

The transformation of Panamá’s Casco Viejo neighborhood from the most part of town into to a vibrant community and popular destination for locals and tourists alike is a remarkable story. An even more remarkable subplot in the story is described in the MIT STL Case Study. The materials in the case study illustrate how Conservatorio is catalyzing a community of local entrepreneurs, investors, and residents to develop a shared vision, and their success in improving and redeveloping the previously dilapidated area of Casco Viejo. Throughout examples in the case and in this magazine, you will learn about the ability of socially-responsible real estate developers, native entrepreneurs, and proud local investors to work together over decades to regenerate a community, As a result, the neighborhood is now safer, healthier, and more livable for locals and visitors alike. While spurring a local real estate and social renaissance, the Conservatorio model has also delivered robust financial returns to investors and powered a new economic engine that sustains the livelihoods of many, and not just the usual suspects. Without Conservatorio’s effort, Casco Viejo and its residents may have suffered a very different fate. Many, if not most, dilapidated areas around the world cannot solely rely on external subsidies or interventions. Municipal budgets are tight and political administrations’ varied priorities make it difficult to obtain long-term commitment of public resources. Redevelopment that is solely driven by external forces is bound to be opposed by current residents, thereby under-utilizing key local entrepreneurial resources. Externally-imposed redevelopment, oftentimes focused on short term objectives, may also result in sterile neighborhoods, missing in authenticity and social capital. Therefore, real estate redevelopment efforts may require generating sufficient internal economic resources to support, finance, and sustain the necessary investments. As we learn from the Casco Viejo story, local business and social development are not contradictory objectives, but one and the same thing in successfully turning around a neighborhood in decline.

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The Casco Viejo story also illustrates the double value of protecting the historical character of a neighborhood, even from the point of view of the real estate developer. A historic and beautiful urban environment can generate direct economic value. Casco, as it is known by the locals, always had “good bones¨ on which a desirable real estate market could be established. After all, no developer can expect to gain a sustained competitive edge by producing commoditized “cookie cutter” products. In addition, the historical character and the sense of place it helps engender reinforced positive social dynamics and fostered loyalty among residents and local entrepreneurs. As we will see, the social, business, and historical “externalities” generated by a long-run development strategy that incorporates local resources and resourcefulness cannot be fully captured by the private agents who make the initial investments. While this is true also in this case, Conservatorio made very intelligent choices that allowed them to reap professional and financial benefits from the revitalization of Casco, allowing for further re-investment. Their strategy involved the purchase of a number of adjacent real estate assets, thereby allowing them curatorial discretion on whole sections of the neighborhood. Ownership of the main property agency in the neighborhood (handling more than 50% of all real estate sales in Casco) allowed them to weave a sales narrative attractive to buyers who wanted to live in an authentic community with cultural and socio-economic diversity. They have also channeled parts of the profits from established properties into affordable housing, local entrepreneurship, and social programs. This, in turn, helped revitalize the community, and by providing safe streets and neighbors who care, also increased the value of adjacent properties whose value was still not consolidated. Historical value, social capital, and entrepreneurship can be productively mixed to improve the lives of community residents and to unlock economic value.

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ISSUE 001

- 2017

DEVELOPER SPEAKS If Real Estate is an extractive industry, we’re finished.

ENTREPRENEUR

Laying the foundations of La Vecindad.

WAR ON GANGS Esperanza Social Venture Club

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NO . 1

Developer Speaks

If Real Estate is an extractive industry, we’re finished. TEXT: KC HARDIN & PHOTOS: SEAN HALLISEY

Before I became a real estate developer, I was an urban nomad who felt hunted by real estate developers. I made five big moves in my adult life, each one propelled in part by a lamentation of changes in the character of my adopted neighborhood.

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Developer Speaks

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Developer Speaks

I grew up in early 1980s Coconut Grove, Florida, Miami’s oldest neighborhood. Known in my parents’ time as a sort of sub-tropical Greenwich Village, downtown Coconut Grove was still a funky tree-lined hamlet where an 8-year-old kid on a skateboard shared the sidewalks with hippie sailors, homeless addicts, Cuban refugees, monied yachties, and even more monied drug lords, none of which occurred to his parents as cause for worry so long as he was home before dark. Real estate market dynamics changed all that. The late 80’s boom hit downtown Grove like a neutron bomb, leaving most of the one and two-story buildings intact, but erasing much of its human character. That gentrification was undoubtedly seen by most developers and owners as progress; a “tidying up” that allowed the Grove to capitalize on its history and physical charm, attracting new and more populated customer segments. The cycle culminated with the construction of CocoWalk, an open air mall that set retail rent records and ignited a nationwide trend of lifestyle shopping centers still going today. Then it all went bust. Downtown Coconut Grove is in its second decade of stagnation, while much of the rest of Miami booms. Retail space now rents for one quarter or less than nearby Lincoln Road, Ocean Drive, Wynwood and Design Districts—neighborhoods unknown South Floridians in Coconut Grove’s heyday, but now international brands. The residential neighborhoods surrounding downtown Coconut Grove are still among the most expensive in the city, but the once iconic and vibrant commercial district’s brand value is so thoroughly depleted that there is currently a movement to rename it.

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Developer Speaks

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Developer Speaks

I can’t help linking that economic bust to my personal reasons for leaving Coconut Grove. I was 17 years old, used to an eclecticism and quirkiness that had been slowly replaced by t-shirt shops, frat bars and chain stores. The surf shop I worked at after school changed hands and philosophies, shedding actual surf boards from its inventory and loading up on flamingo adorned beach wear and other items useless to the generations of hard core surfers who considered the place their second home. Cliques of crotch rocket jockeys and shirtless teenagers in bassed-up Cameros created a perpetual spring break scene on weekends that was repellant to all but themselves, attracting ever more bars seeking competitive advantage through ever more noxious promotions. To landlords, all this just looked like more foot traffic justifying higher rents. Tourists still flocked to Coconut Grove, largely because it was one of the few walkable areas in the city, and fast food restaurants and touristy retail shops fought for space to serve the daytime tourists plus the young evening and weekend clientele, while neighborhood retail complained about the higher rents and loss of their regular clientele who, whether priced out, aged out or grossed out, simply got out of the habit of going to downtown Coconut Grove. What I think the landlords hadn’t considered, however, was that they were diluting the Grove’s brand value, setting their own properties up for future decline. Landlords and business owners that rent from them had traded loyal regulars whose deep connection to Coconut Grove was a matter of personal identity, for the equivalent of municipal mass market tourists, whose decision to patronize was driven by convenience, price and buzz, all of which any good marketer knows are temporary market advantages that provide low barriers to competition. They had made a classic business mistake by trading the greatest competitive advantage this side of monopoly—iconic brand identity and a loyal following—for short term profits.

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Developer Speaks

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Developer Speaks

With locals doing their daily routine elsewhere and bars focused on weekend evenings, weekdays in downtown Coconut Grove smelled like spoiled beer and felt so deserted that even tourist traffic waned, leaving the local economy over-dependent on one pillar. As with all systems that lose their resilience, collapse was inevitable. The combination of the early 90s recession, the rise of South Beach (where I moved) and city ordinances cracking down on the rowdier aspects of nightlife kicked downtown Coconut Grove into a tailspin from which it has never recovered. Perhaps things in Coconut Grove would have turned out differently if landowners had read Stanly Plog’s article, “Why Destinations Rise and Fall in Popularity” (Plog, 2001). In the 1970s, Plog identified a fundamental dynamic that destination marketers have been refining ever since: adventurous, independently-minded customers are opinion leaders who influence the preferences of less adventurous followers. Those leaders tend to make up their own minds rather than depending on opinions of others (probably part of why we follow them), and where the leaders go, the followers eventually follow. Plog’s deep psychographic interviews revealed a virtual chain, running from a leading edge of highly adventurous people that make up a few percent of the population, all the way to a roughly equal number of extremely unadventurous people who only walk the most well-trodden paths. The rest of us are evenly distributed along a bell curve of adventurousness, with the statistical bulk necessarily being in the middle. Plog mapped levels of adventurousness to spending habits, discovering that the more adventurous segment of the psychographic tended to spend proportionately more of their income on travel, even at the same income level. They prized authenticity and were repelled by things and places they felt were fake.

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Developer Speaks

The real power of Plog’s observation comes when he combined the two observations. By distributing travelers on psychographic bell curve of adventurousness and showing that the direction of influence runs from the adventurous to the timid, he showed that, statistically speaking, any destination that appeals to the bulging middle bracket must always be concerned that behind them is a steadily decreasing number of increasingly risk-adverse and tight-fisted travelers. The bulge is great business while you have it, but they aren’t terribly secure in their choices, and always have one eye on where their more adventurous friends are going next. Importantly, the bulge require more massive infrastructure and demand more generic offerings that, unless handled skillfully, tend to alienate the leading edge, almost ensuring that decline will eventually follow boom. The result of this dynamic is that in in travel there are relatively few perpetually successful winners that compete solely on price, convenience and product offering. Mainstream destinations like Orlando or Las Vegas pull it off through exceptionally organized (and centralized) destination management, but more common are places like Atlantic City or 1950s Miami Beach that quickly over extended and declined because they ceased to stay relevant. In marketing terms, most of the evergreen destinations are cities with iconic brand identity that keep them perpetually relevant. You know what Paris, Rome and New Orleans stand for, and they quite intentionally leverage their iconic images into sustainable competitive advantages. In many cases they make hard choices. Santa Fe, New Mexico fights to maintain its identity through strict zoning, subsidies and refusing to expand its airport to accommodate commercial traffic. New Orleans would have inevitably been consumed by Bourbon Street but for an extraordinarily deep sense of identity that balanced out the profitability of t-shirts and margaritas, keeping the chaos and chintz confined to a relatively small area and earning the city the most coveted of all destination badges: “authentic”.

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Developer Speaks

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Developer Speaks

It’s a classic niche strategy of forgoing short-term profits for long-term brand loyalty based on an emotional connection with customers that is well-known in commerce, but exceptionally hard to pull off at the scale of a destination because of the lack of centralized control and political continuity. I believe these same dynamics apply to neighborhoods within cities, and that even landlords and business owners who don’t care about displacement and cultural homogenization can benefit from understanding them. The perpetual commercial success of Midtown Manhattan is virtually assured by the mere mass of humans who work and transit it every day, but neighborhoods like my childhood Coconut Grove and Jane Jacob’s Greenwich Village compete for niche markets based largely on unique brand identity that is as much tied to their people and culture as it is to their buildings. While some amount of displacement of residents and businesses with lower capacity for payment is undoubtedly financially beneficial for developers and landlords, my experience is that landlords eventually reach a point of diminishing returns where the incremental rent increase erodes its brand equity and, consequently, its future earning ability. I realize this economic justification for inclusive development is unlikely to convince most real estate investors or go far enough to satisfy most planners, but I’ve been pleasantly surprised at how many enlightened landlords I’ve meet who have had experiences similar to mine. By aligning seemingly opposed value systems it provides the basis for a more productive and profound dialogue between investors, residents and planners about the interaction between social, cultural and economic capital.

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NO . 2

Graduate of the Esperanza Program

Using music for positive things TEXT: EXCERPTS FROM INTERVIEW WITH NICO & PHOTOS: MIT CASE STUDY

we used the music for negative things, and when we changed the style and we were trying to do something positive, that’s when we thought, "Why don’t we start with a recording studio?" And now we are using music for positive things.

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Entrepeneur

“We provide access and opportunity for local musicians to develop and show their talent. That has been one of the pillars for my work. I’ve liked music since I was a child. Music is a way of freedom; you express everything through it. If you are sad, then you look for sad songs. You want love songs when you are in love, aggressive songs for an aggressive state of mind. So music is everything to me.”

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Graduate of the Esperanza Program

We have the dream every musician and producer have, which is to live through music. You can’t do something small because you’re afraid, or you won’t do anything, something mediocre and not worthy. So the idea is to do something big.

LISTEN TO MUSIC

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Entrepeneur

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NO . 3

War on Gangs

Making the community safer and more resilient TEXT: EXCERPTS FROM INTERVIEW WITH MATT & PHOTOS: MIT CASE STUDY

When I ďŹ rst arrived to Casco Viejo in 2006, bullets were ying on a regular basis. Tourists were getting hit. We lost a little 8-year old boy right on Fourth street which was almost the end of the line. We decided something needed to be done. We knew the guys that were causing most of the problems, by face, by names, by passing through the streets on a daily basis. But what never existed for these particular guys, the ones who were causing the problems, was some way to get out, to break out.

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War on Gangs

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War on Gangs

How does the Esperanza Social Venture Fund Work? We ask them to, over the course of about a week, develop a proposal and an argument for their business. competitive advantage. They have to present the proposal in front of a panel of judges and a bunch of neighbors and friends who are interested in seeing them succeed, and we either approve it or decline it. Some ideas work, some of them don't. When they do accept the seed capital from the fund, they also receive access to mentors who are specialists in that particular area. Participants also have access to the full suite of everything that Esperanza can offer-- from accounting help to marketing help to English classes to legal assistance. And that's all donated entirely by our friends and family. So to give you the example, Alexis started his own electrician company. He has two mentors. One is the manager of my hotel, Ivana, who is a dream with customer service, which is one of Alexis' big challenges. And another is an architect, Ricardo, who is an amazing architect and has great contacts in the neighborhood. In the end, what we have now is two years worth of results. The most profound and concrete changes that we've seen, which we feel best introduces the Esperanza program and why it works, is the Fortaleza tour. Simply because it brings attendees through what used to be the most dangerous series of blocks in the entire neighborhood.

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War on Gangs

Could you tell us a little more about the Fortaleza tours? Fortaleza Tours is a company that leads walking tours through the former red zone. It was an idea from a group of Esperanza participants. The entire tour was planned by them. The idea was not to be poverty tourism, but rather, “we're going to tell you our stories, we're going to show you the human patrimony of the neighborhood”. And it's taking off. The guys are making their own living. There's five of them and they do tours on a regular basis. They have contracts with big hotels and resorts. Last week they hosted bloggers from Vogue Magazine, and weekend before that they had GQ and Travel and Leisure Magazines. They're now entrepreneurs. They're now feeding their families and being good role models, but they're also legitimate community leaders. They reunited a foundation and they do these things because they want to be community leaders.

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War on Gangs

Could you give an example of another successful case? Another example would be Juan, who used to sell drugs very proliďŹ cally. And he's now selling seafood with a company that he started called, Hope Seafood. He wheels and deals clams and pulpo (Octopus). All the restaurants buy from him because he provides the best product in town. He's using those exact same strengths that made him successful previously.

Do you see Esperanza as a model for other programs? We never ask those questions when we're making small decisions. The question when we're making small decisions is, will it improve our situation right here? Yes or no? When you start to look at the big picture and look at what mechanisms and trends seem to lend themselves to our success, I think there are some really good core fundamentals that could be applied. I think that there's so many stars that have aligned in this particular series of events, that you couldn't say, here's Esperanza model, apply it to another neighborhood. But you could say, OK, here's a marginalized population in a small village, or a historic district that's compact just like this, or here's the model for you as a developer to take and work on integrating the different groups. I think there are components of it, but we haven't had the time or the perspective yet to be able to say concretely, yes or no.

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War on Gangs

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War on Gangs

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Bibliography

Plog, S. (2001). Why destination areas rise and fall in popularity: An update of a Cornell Quarterly classic. The Cornell Hotel and Restaurant Administration Quarterly, 42(3), 13–24.