VEGAS

01.16.14

A Tech Millionaire Bets on the Urban Revival of Downtown Las Vegas

Zappos CEO Tony Hsieh is building a tech utopia out of the rubble of downtown Las Vegas. Can a shoe salesman save Sin City?

Detroit and New Orleans are low hanging fruit for the spank bank of disaster porn.

Boarded-up opera halls, decrepit homes, and record setting poverty levels—and yet they are becoming havens for urban renewal; artists in search of a 1980s era New York or 1800s Montmartre flock for cheap studio space and enough despair to paint a million pictures. Perhaps though, no city was as silently-failing-nor-publically-rehabilitating as Las Vegas.

Tourists flock to the frenetic energy of “Vegas”, a 4-mile strip that sits just outside city limits, while the real city lays claim to only 25% of the area’s population and a downtown zip code (PDF) that is the poorest in the metropolitan area.

And it is there where Zappos founder Tony Hsieh has bet $350 million of his own money.

Once one of the wealthy Nevadans who lived outside of Las Vegas proper, Hseih (pronounced “Shay”) has moved himself into The Ogden, a luxe new apartment complex in the heart of downtown Las Vegas, where he hopes to build a bustling urban center in the midst of low-end restaurants and dusty casinos—the type that have never seen a Tiesto fueled pool party.

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Roof of The Ogden, Las Vegas ( Sarah Kunst )

Oh, and the pawnshops. They’re everywhere.

But a recent visit to Sin City’s seedier side showed that the transformation is already underway—and it couldn’t have come at a better time.

In Downtown Vegas, the codes of Sin City are still intact—there are casinos, neon lights and nightlife. The scale, opulence and fantasy so prevalent a few miles away on the Strip is nowhere to be found. There are casinos, but they don’t make you want to gamble, they are better suited for those who gamble compulsively, unluckily or both. El Cortez, the longest running downtown casino, prominently advertises a Subway as the restaurant of choice. The only showgirls down here are composed of brightly flashing lights. There is a Denny’s restaurant in the middle of the Fremont Experience—a garish neon outdoor food court.

It also is home to the Heartattack Grill, an ode to caloric overload where ‘350 lbs and over eats free’. Surprisingly free of homeless people or a visible criminal element, downtown LV is an area where local teens and 20-somethings pile into small bars and clubs on the weekend to dance and drink sans bottle service. Luxury high rise apartments hold gluten free restaurants and are surrounded by pay by the week flophouses. In the air is a Fear and Loathing in Las Vegas vibe, a little campy, a little naughty and a lot raw.

“The problems that startups try to solve in Las Vegas or Detroit or New Orleans are simply different than those addressed by companies in San Francisco or New York.”

While rents hover around record highs in New York and San Francisco, the rising cost of living and lack of real income growth are forcing some Americans to consider relocation as a cure-all. But where will they go? Increasingly, cities long left to rot are rising from the ashes of blight as they try to become shining examples of new urbanism. The influx of millennials, 88% of whom want to live in urban areas, means that many more cities might reclaim the density and productivity long thought lost to suburbs.  

Vegas Tech Fund, the economic lodestone of Las Vegas’ revival, sees building a thriving downtown as key to attracting ‘collisions”, the serendipitous accidents of brilliance that occur when people interact and anything can result. Funded entirely by Hseih, they aim for a level prescribed by Economist Edward Glaeser, author of Triumph of the City, a treatise on the importance of urbanism and saving American cities He also informs their larger mission. Vegas Tech Fund partner Andy White, the fund’s only full-time investor, SAYS, “One important point is that major metropolitan cities typically don’t go away. So there’s great value in working with areas that have been hit hard by a downturn.”

One way Hseih and the gang are drawing talent to the downtown area is by partnering with Venture for America. The non-profit borrows from public service juggernaut Teach for America with its model of sending bright college grads into underserved cities to work at startups. Then, at the end of their 2 year stints, it is hoped they become entrepreneurs themselves. Says Yang: “We need to create as many areas of innovation as possible throughout the country in part because the industries in each city are so diverse. The problems that startups try to solve in Las Vegas or Detroit or New Orleans are simply different than those addressed by companies in San Francisco or New York.”

“Plus,” he adds, “robust job growth in different cities is an end in itself.”

How is the Downtown Project—the renewal effort’s flagship tasked with changing a downtrodden area into the next San Francisco— solving problems?

Well: With fire-breathing praying mantis sculptures brought home from Burning Man, and shipping containers rehabbed into BBQ joints. That, and a fleet of 100 Tesla electric cars meant to encourage residents to ditch their own wheels while staying within the confines of a city that’s banned the Zipcars and Ubers de rigueur in urban areas on both coasts.

Hsieh and the Project purchased and converted the Gold Spike, an old casino originally opened in 1976, into a co-working space with a bar and restaurant where the most connected of the downtown Vegas movement often gather late at night—but command little in the way of VIP treatment.

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The Gold Spike, Las Vegas (Sarah Kunst )

Former Zappos employees spin-off to well-funded side projects like the Stitch Factory, A creative space and production center that offers local designers a place to create their wares. It is said to be working on plans to employ military wives from a nearby base.

$200 million of the $350M nest egg that Hsieh hatched has earmarked is destined for real estate—and with acquisitions like a $5,000 pair of railroad cars to house a new barbershop, that will buy a lot of storefronts.

Another $50 million is reserved for education, and some of it is already being deployed at 9th Bridge, a $15,000 a year private school that aims to fill the gap in a city with notoriously horrible schools

The last $50 million is fittingly deployed into the industry that’s afforded Hsieh his largesse—technology investments. Companies like LA hatched menswear startup Combantant Gentleman have relocated to Las Vegas for reasons largely economic (Vegas Tech Fund requires involvement in the downtown area as a condition of funding). They call it R.O.C., a return on community, and it’s the core performance metric of their fund.

To ensure the companies grow past the early stages at which they fund them, Hsieh, White and other partners are often jetting around on the circuit of tech’s 1%. Ted Talks, SXSW and Burning Man are seen as opportunities to evangelize the brand and often net visits from top investors, CEOs, and tech-enabled celebrities like Kanye West.

They stay at a “crash pad,” which are highly stylized apartments found at The Ogden, just floors below Hsieh, where they are ferried around on tours of the downtown area, Zappos HQ, and off to mentor local startups.

When the sun sets of a Las Vegas in transformation, they are encouraged to explore the carefully curated building blocks of downtown—coolly esoteric but casual restaurants and bars that bring to mind Austin, Brooklyn or LA’s Silverlake area.

From some vantage points, the Stratosphere on the strip is visible, but it feels light years away. Like most things that Hsieh hath wrought, this too is by design.

When asked how visiting VIPs got to the strip to play while in town, a Vegas Tech Fund partner simply shrugged and said, “That’s their problem.

“We stay down here”.