[Lexington] Shelbourne Plaza

[seicer]

Shelbourne project might get city help

Notes --

1. The city of Lexington could help finance construction of Shelbourne Plaza, and $85-$90 million mixed-use project along S. Broadway near Bolivar. The project includes 320 apartments with a grocery store and other retail shops.

2. The cost is quite high -- a one-level underground parking garage with 350 spaces would cost $13 million alone, or $30,000 per parking space. In a suburb, that cost is typically $2,000 to $4,000 per space.

3. To help defray some of the costs, the developers asked the LFUCG council to issue industrial revenue bonds and provide a 30-year tax break. The council gave an unanimous nod of approval to a resolution that would provide bonding power and a tax break. Two council readings are needed to have final approval. The developers will then approach the state for a tax break and approval.

3a. Industrial revenue bonds are issued by cities to aid in downtown redevelopment projects. They are paid back by the developer.

4. The developers have also asked the city for a 90% tax break on the property taxes over 30 years. The developers will continue to pay the Fayette County Public Schools' portion of the property tax.

4a. Once Shelbourne Plaza is complete, it would pay the city $300,000/year in property taxes. With the 90% tax break, it would pay $30,000/year for 30 years. A councilman pointed out that even with the 90% tax break, the city would still be collecting more than if the project is not built. Currently, the city collects $17,300/year from the property.

5. An agreement on the bonds and tax breaks could be reached by May 24 -- when the council is scheduled to give final approval.

6. Projects on this scale are usually only completed when there is a public-private partnership.

7. If the city and state approve of the breaks, the bonds would be sold in July. Construction would start in August or September and would be complete by July 2009.

Article information: "Shelbourne project might get city help, By Michelle Ku, Herald-Leader [Lexington], May. 02, 2007"

[seicer]

$3 million tax break planned for plaza

Notes --

1. The city of Lexington will help finance construction of Shelbourne Plaza, an $85 to $90 million mixed-use project along S. Broadway. The Urban County Council gave tentative approval on June 5 to provide the developers with a 50% property tax break over the next 22 years. The tax break amounts to more than $3 million, which is half of what the city would collect in property taxes -- over 22 years. The agreement still requires two council readings for final approval, which could happen on June 21.

1a. In addition, the city will be issuing industrial revenue bonds on behalf of the project. These bonds are issued by cities to assist in downtown redevelopment projects. The city would not be held liable for the bonds -- which would be paid back by the developer.

1b. The incentive and financing package will be a model for future development in downtown. The city has already received inquiries by two or three developers interested in using the industrial revenue bonds for financing on their projects.

1c. The agreement includes a tiered payment structure so that the developers will receive more tax relief in the first few years of the project. In the first three years, the payment to the city will be $17,281 -- what the property owner would pay on the current assessed value of the property. In years five to eight, the payment will be 10% of the property's assessed value once the project is completed. In year 20, the developers will pay 95% of the assessed value of the land.

1d. The developers had originally sought for a 90% tax break over 30 years, which would help defray the cost of a 350-space underground parking garage that will cost $13 million.

2. The project is a 320-unit apartment project that will be anchored by a grocery store and other commercial activity. It could open by July 2009.

Article information: "$3 million tax break planned for plaza, By Michelle Ku, Herald-Leader [Lexington], June 6, 2007"

[cartomanlex]

Seicer, what is your take on this project?

Is this a good thing for Lexington? Should we as a city, forgive millions of dollars in taxes so that some rich investors could get richer?

Have the previous condo projects brought a great influx of new residents to the downtown area?

Will the current residents be the ones to occupy this project? I doubt it. Even I have looked into what it would cost for me and my family to purchase a unit. I can't afford it and they don't have large enough units for us. I want to live downtown, in an active area with a local market/farmer's market/deli, where I don't need a car to get to work, sidewalk cafes, or shopping.

Will the current demographics support a "high end" grocery in this location? With the Pleasant Green Baptist Church proposing their own affordable housing project sandwiched between the historic Woodward Heights and the new South Hill townhouses, what these people need is a family grocery within walking distance not a Trader Joe's and a parking lot full of BMW's & Hummers.

Have the South Hill Station condos filled up with students renting from the original group of investor? A cursory check of the PVA website indicates that the purchased units went to families with mailing addresses in very affluent areas. Is this a "helping hand" from parents or an enterprising student making his way through school? Similar condo projects on the other side of campus are now just rental units for students packed 3-4 in a unit. Are these the type to support a "high end" retail establishment.

All the condos atop the Raddison hotel have gone to wealthy individuals or corporations who use them as a tax write-off and a place to stay in Lexington on "special occasionns" (UK basketball games). Do these people frequent the locally owned delis? Or the farmer's market? The hot night spots? The sidewalk cafes? I don't think so, they have catering and private chefs.

What this area needs is truly affordable housing for the masses, those who do and will really LIVE there.

And that I do not see in this project.

[seicer]

Should we as a city, forgive millions of dollars in taxes so that some rich investors could get richer?

Here is my reply at UrbanOhio about public-private financing, and some other topics that was related to the South Gateway Center in Columbus --

Redevelopment projects require a lot of red tape and hassle, for the most part. While rents are lower in the suburbs because of the availability of flat land and land in general, the same cannot be said for urban infill or redevelopment projects. Suburban projects rarely have red tape and discussion regarding parking, design of the buildings, and so on, while urban projects can take years just to get off of the planning board. They require major discussions on parking issues, the design of the buildings (whether they fit into the historic context, density, etc.). The land to purchase is also considerably more expensive and may require cleanup.

Take Pullman Square, developed by Columbus' own Metropolitan Partners. Pullman is a lifestyle development in Huntington, West Virginia. For 30 years, the massive tract of land in downtown was undeveloped -- the land was too expensive, needed cleaning, and there was an uncertain market for urban infill projects on that scale. Today, in the Ashland Independent was this article about what Ashland needs to do in order to gain tenants and destinations. For instance, there has been a shift in consumer preferences in what has been referred to as a "spatial relationship" between the retail structure itself and their environment. The latter has a good case study: Easton Town Center, an open-air complex that was very risky to develop but ultimately successful.

"A downtown development, also, is only as successful as the city itself. Pullman Square was able to succeed because the city was committed to redeveloping the downtown. Public-private partnerships are also very important. While developers in the past located malls and plazas on flat, available land, today's urban developers require more dependence on the public sector. For instance, Pullman Square would not have been possible without public funding for the parking structures. In return, the developers must be able to demonstrate that the new projects will add to the tax base of the community."

"The presentation by Bill Dargusch was invaluable considering that Metropolitan Partners have had a proven record of success."

When you build expensive, new structures from scratch, they will command higher lease payments because of the very high land prices, the costs of doing business with the government, and etc. And you drive away some 'mom-and-pop' businesses in the process, but you also gain some national tenants. And this is from the Lexington DDA -- outsiders tend to view a development as being successful by the amount of national tenants. If they are persuaded as much to stay in a new downtown development project in comparison to a suburban mall, they will certainly spend their money in the downtown. And what is happening, especially with the higher gasoline prices, is that they will typically move into the inner city or near the shopping district.

Over the years, the development will mature. Businesses will come and go -- all part of the overall free market system that we have -- but it should not be a 100% indicator on the success of a project. If it increases tax revenues, if it generates more interest in the district, if it causes some surbanites to relocate into the city, and etc., then that's how you should be judging it, not solely on a few empty storefronts.

--

The short version of it is: Infill projects are vastly more expensive all-around. They are almost impossible to build anymore without some sort of public financing or incentive, and a partnership with the city helps foster and strengthen developer-city ties and will help attract more developers to the city.

Have the previous condo projects brought a great influx of new residents to the downtown area?

Will the current residents be the ones to occupy this project? I doubt it. Even I have looked into what it would cost for me and my family to purchase a unit. I can't afford it and they don't have large enough units for us. I want to live downtown, in an active area with a local market/farmer's market/deli, where I don't need a car to get to work, sidewalk cafes, or shopping.

[cartomanlex]

I don't think this is infill, it is more brownfield re-development of tobacco warehouses. As first presented, the developers showed two levels of subterrainean parking.

They should have known that it was on limestone rock. The local authorities should have known also. Now we're down to one level. The rooftop gardens are also missing from the latest drawings and who knows what else will disappear so that it becomes another "dull beige box" of anywhere USA.

I wouldn't say it has brought in a huge influx because not all are complete yet.

[gt7834a]

I don't think this is infill, it is more brownfield re-development of tobacco warehouses.

How is that not infill? Quote'Infill Development: A type of development occurring in established areas of the city. Infill can occur on long-time vacant lots or on pieces of land with dilapidated buildings, or can involve changing the land use of a property from a less to a more intensive one-i.e. from a parking lot to an office building.' http://www.ci.austin.tx.us/zoning/glossary.htm

What is typical grocery? Kroger? Some of which will grow to 125,000 sq.ft. in the near future. The project representative said that it will be a "high end" ($) grocery when he presented to the Council work session Tuesday.

Any grocery would be a bonus at this point. A grocery can't be all things to all people. Many people that live downtown would love a high end grocery. Also, most high end groceries tend to have a large amount of pre-made food which would serve the downtown business people for lunch. I think by typical, they just mean not a boutique grocery. Something in the 25-35k SF range, ie a typical traditional grocery size.

We don't need more "empty nesters" or "student housing". What is needed is a place for families with kids as a part of the mix. 1400-1500 sq ft under $200k. Walk-to shopping/entertainment/mass transit/work.

Thats what we are not getting

Those, for the most part, are the people that want to live downtown. Most families don't want a condo anyway. Downtown ussually has worse schools, no yards, etc and does not appeal to most families, hence they are being marketed to empty nesters and others without kids. There are some, but in Lexington that market is tiny.

It is basically impossible to build a new mixed use building and sell 1400 SF for $200k. Basic costs alone, including no profit or sales cost, for downtown buildings are over $150/SF depending on finishes. Considering the risk, the large amounts of capital invested and the time and energy required to build these projects, you are not going to see anything under $200/SF unless it is not in the downtown core or the city gives the developer the land.

Why don't we need more empty nesters? Because you want to live there and can't afford it? Why do you deserve to live downtown, but not young proffesionals or empty nesters?

As I said in a nother thread, there are lots of houses with yards for sale downtown from Short to Sixth. Most are over $200k, but that is just a market reality. I want to live on Gratz Park, but I only want to pay $250k. Guess, what, I am out of luck.

As for Shelbourne, it is apartments. I imagine it will be filled with some students, mostly young professionals, people not wanting to buy and some wanting to try out living downtown without making a major commitment. The more people you get downtown, the more active it becomes, the more viable shopping becomes, the better your city looks and feels. Downtowns need people and activity, and not just form 9-5. A project like this requires HUGE risk, ussually demanding $20+ million in equity. Everything about them is hard and expensive and if the city wants them, and they do and should, they should do what they can to help, especially if it isn't really costing them anything. They are not out of pocket, they are getting more than if the project didn't happen. Win win for everyone.

[seicer]

^ I agree with the demographics. Unfortunately, for a developer to break-even and generate a profit on a project, they require higher rents or payments for their units. You aren't going to get this with $500/month apartments or $100,000 condos unfortunately -- at least, not without serious government intervention and subsidies. Any infill project, or urban project, almost always requires an infusion of government assistance -- in this case, tax breaks -- to be profitable. That's accounting for just a slim profit margin so that the developer can later construct another project.

The only way it can be profitable for the "middle class" and students is if you go the route of Park Plaza -- build vertical. Park Plaza makes a good profit margin by concentrating a lot of units in very little land. It has a mix of efficiencies, one- and two-bedroom apartment homes that is suitable for students, empty-nesters and the elderly. The One-Eleven project over the Transit Center once had two apartment towers planned at one point, and later, one condo and one apartment tower. IMO, that would be ideal, given that the apartments would be in the $700-$1000 range (affordable to students and professionals) and cheap condos in the +$100k range.

[gt7834a]

^ I agree with the demographics. Unfortunately, for a developer to break-even and generate a profit on a project, they require higher rents or payments for their units. You aren't going to get this with $500/month apartments or $100,000 condos unfortunately -- at least, not without serious government intervention and subsidies. Any infill project, or urban project, almost always requires an infusion of government assistance -- in this case, tax breaks -- to be profitable. That's accounting for just a slim profit margin so that the developer can later construct another project.

The only way it can be profitable for the "middle class" and students is if you go the route of Park Plaza -- build vertical. Park Plaza makes a good profit margin by concentrating a lot of units in very little land. It has a mix of efficiencies, one- and two-bedroom apartment homes that is suitable for students, empty-nesters and the elderly. The One-Eleven project over the Transit Center once had two apartment towers planned at one point, and later, one condo and one apartment tower. IMO, that would be ideal, given that the apartments would be in the $700-$1000 range (affordable to students and professionals) and cheap condos in the +$100k range.

[seicer]

I don't recall Park Plaza going into bankrupcy (I did some research on the building itself), but one of the project's investors, former Governor Wilkinson, did go into bankrupcy. See more of what I found here, but I've probably only skimmed the top

Living downtown is only as expensive as you will make it. Granted, if you buy a new condo at CenterCourt, it is going to be much more expensive than living in a house in the suburbs, or a house in say... South Hill or along Maxwell, where the prices are still reasonable. When I moved from suburbia (Tates Creek @ Malibu) to Park Plaza, I shelled out $380 more in rent, but saved over $60 in utilities and $120 in gasoline costs. I also consider intangable benefits as well: I can bike to school, work, or to the store; I can walk to destinations, restaurants, and events; I have a free workout area (although I don't use it, so I can't compare cost savings of Gold's Gym versus Park Plaza).

I love your analogy too It works just as well here. I do like what the city is doing here with this project -- and the mayor's push for an infill property bank that it would later sell off to developers, is just another great step this administration is taking to further its stance that we can't keep srawling out.

[gt7834a]

I don't recall Park Plaza going into bankrupcy (I did some research on the building itself), but one of the project's investors, former Governor Wilkinson, did go into bankrupcy. See more of what I found here, but I've probably only skimmed the top