Cities make use of legacy assets

By Mark Alan Hughes

and Elise Harrington

The Philadelphia Navy Yard is arguably the nation's most successful repurposing of a military base closed under the nationwide defense base-closing effort. What was once seen as an intimidating liability is now viewed as a key regional asset, with more people (10,000) employed there than when the based was closed.

The key to this innovation was the arbitrage of legacy assets into new sources of value. One example: the electrical grid built originally for national security was adapted to provide the growing office campus with state-of-the-art energy-management options.

Unlocking value from legacy assets is an emerging organizing strategy for metros across the country and around the globe. The inventory of physical assets from the accumulation of fixed and durable capital is one source of legacy. But legacy assets also come in the form of workforce demographics, jurisdictional competence, and leadership culture. These assets can harbor hidden value that, once unlocked, can accelerate a metropolitan agenda in unexpected ways.

Legacy assets can often be perceived as a burden, such as an extensive transit system with deferred maintenance challenges or a network of narrow streets that impede automobile throughput. But that's how arbitrage makes money: by seeing value where others see burden. Narrow streets do limit automobile volume and speed, but they also create the foundation for walkability and its many co-benefits. The pivot from liability to asset describes the strategy that many metropolitan areas appear to be using to chart an economic development agenda.

A city's narrow streets exist because of the inherited legacy of settlement patterns, and not because of some planner's current attachment to walkability. That legacy is a much stronger basis for arbitrage than simply a fashionable policy. And the implication is that precisely those places with the most hidden value locked into legacy assets are the sources of greatest potential arbitrage.

Philadelphia is a great illustration of these dynamics and the partnerships that drive them. The region's many refineries were all placed on the market simultaneously. What was viewed as a huge dislocation with national security implications has been recapitalized by private investors who could see a profitable future for a huge complex of refineries, pipelines, and terminals.

Other examples include 40,000 vacant parcels in the city being repositioned using next-generation information technology to improve land use as well as water and energy management. With cooperation from the state legislature, a new Philadelphia land bank is under discussion, one that would reconnect land and public revenues in revolutionary ways. The Energy Efficient Buildings Hub is trying to unlock value from our existing building stock by improving energy performance, generating jobs, and saving money to make firms here more competitive.

This October, Penn is hosting a conference on Legacy and Innovation: Unlocking Value from Regional Energy Assets. The conference will bring together local and global thought leaders to discuss the connections between legacy and innovation. This region can lead the way in repurposing legacy assets into drivers of future prosperity.