san angelo councilworksessionfeb17_catalyst - copy

Redevelopment Strategies

DOWNTOWN SAN ANGELO

Downtown San Angelo Master Development Concepts

February 17, 2015


DOWNTOWN SAN ANGELO

• Context

• Downtown Strategy

• Redevelopment Prototypes

• Investment Scenarios

• Gap Financing

• Discussion

Agenda


DOWNTOWN SAN ANGELO

Why does Downtown Redevelopment Matter?


DOWNTOWN SAN ANGELO

Downtown development helps balance the identity created by suburban

growth (which generated tax base, but not lasting recognition).


DOWNTOWN SAN ANGELO

Downtown promotes San Angelo’s uniqueness and strengthens its brand

identity. This can be a critical issue to regional investment decisions.


DOWNTOWN SAN ANGELO

Investment in the core has real potential to expand its economic impact.


DOWNTOWN SAN ANGELO

It also expands Downtown’s civic/cultural/experiential relevance,

and adds critical mass of use and activity (in the day and at night).

Ultimately, this is good for every neighborhood in San Angelo.


DOWNTOWN SAN ANGELO

Old infrastructure Historic structures

Land assembly Complexity

Renovation Expectations

= Higher cost of renovation/development

= Higher perception of risk

This is a key reason why there has been a much higher

proportion of new investment along the Loop over the

last development cycle than in Downtown.

Solution – A coordinated economic development

program to lower real estate investors’ risk on catalytic

developments (whether large or small projects / new or

renovated construction).

Challenges to Downtown Investment


DOWNTOWN SAN ANGELO

Employment “Workplace” Infill

• Increase daytime population

Restaurant Infill

• Create “Eatertainment” destination

Loft/Residential Infill

• Increase nighttime population

Downtown Master Development Strategy


DOWNTOWN SAN ANGELO

Recap:

• 2,828 jobs forecasted between 2013-2023 (excludes ASU & Energy Sector)

• 4,159 ASU & Energy Sector jobs added

over the period for a total of 8,646 jobs

added through 2023

• 25% capture of jobs for Downtown

translates to 220,935 SF of potential

building space through 2023

• Traditional Office

(30% of Demand): 66,280 SF

• Light Industrial/Flex Office

(70% of Demand): 154,655 SF

I. Workplace Infill


DOWNTOWN SAN ANGELO

Workplace Infill


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New & Renovated Construction

• Largest positive impact to tax base

• Construction cost vs. lease rate comps

• Highest cost scenario generating greatest

need for economic gap financing

Incentive Program:

The City can tailor a program for investors that mitigates the (perceived) risk of urban

construction by incentivizing them to invest in downtown. This can be accomplished

through:

• Reduced operating expenses through tax abatement

• Reduced upfront costs through economic development and infrastructure grants

• Reduced financing costs through bond financing, TRZ, HUD Section 108, etc

Workplace Infill – Prototypical Approach


DOWNTOWN SAN ANGELO

Investment Scenario: Acquisition, Demolition, New Construction

Program: 10,000 SF

Acquisition Cost (assumption): $200,000

Shell Development Cost (New Construction $165/SF): $1,650,000

Tenant Improvement Allowance ($35/SF): $350,000

Current Lease Rates: $18/SF

Operating Costs: $8/SF

Return on Costs Threshold: 8.5%

Economic Gap Requiring Incentive: $1,050,000

Example 1: W. 4th Street Warehouse Site

Note: Gap may reduce if acquisition and development cost are less, or if lease rates are higher.


DOWNTOWN SAN ANGELO

Example 2: Continental Building

Investment Scenario: Renovation

Program: 33,000 SF

Renovation Development Cost ($50/SF): $1,650,000


Increase in Lease Rates: $6.00/SF

Reduced Operating Costs: $1.25/SF

Net Additional Income: $7.25/SF


Supportable Building Acquisition Price: $340,000

Note: Economic Gap would be difference between supportable acquisition price and market pricing, if any.


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Gap Financing

• Tax abatement

• Tax credits

• NMTC

• Historic

• Economic development grant

• TRZ

• SADC

• Economic development loan

• Public and private programs

• Parking district (bond financing)

• Operating cost incentives

• Group insurance

• Executive office services

• Meeting facilities

Workplace Infill


DOWNTOWN SAN ANGELO

II. Restaurant Infill

Recap:

• Concentration of new establishments near

and along Chadbourne Street will support

critical mass required to establish a true

“Restaurant District”

• Strategize programming, coordinate

marketing effort to establish “Restaurant

District” as a distinct destination for the

greater San Angelo region

• Six new restaurants may be absorbed

over the 10-year period


DOWNTOWN SAN ANGELO

Restaurant Infill


DOWNTOWN SAN ANGELO

New and Renovated Construction

• Largest positive impact to tax base

• Construction Cost vs. Lease Rate Comps

• High upfront cost

• Challenges achieving synergistic critical mass

Investment Program

The City may tailor a program for new investors that mitigates risk of new construction

to incentive them to invest in downtown. This can be accomplished through:

• Reduced operating expenses through tax abatement

• Reduced upfront costs through economic development and infrastructure grants

• Reduced financing costs through bond financing, TRZ, HUD Section 108, etc.

Restaurant Infill – Prototypical Approach


DOWNTOWN SAN ANGELO

Investment Scenario: Acquisition, Demolition, New Construction

Program: 5,000 SF

Acquisition Cost (assumption): $200,000

Shell Development Cost (New Construction $145/SF): $725,000


Current Lease Rates: $15.00/SF

Operating Costs (Non-reimbursable CAM): $1.25/SF


Economic Gap Requiring Incentive: $740,000

Example 1: W. Concho Avenue Site

Note: Gap may reduce if acquisition and development cost are less, or if lease rates are higher.


DOWNTOWN SAN ANGELO

Investment Scenario: Acquisition/Renovation

Program: 5,000 SF

Shell Development Cost (Renovation $30/SF): $150,000


Current Lease Rates: $15/SF

Operating Costs (Non-reimbursable CAM): $1.25/SF




Example 2: S. Chadbourne Street Building (Twisted Root)


DOWNTOWN SAN ANGELO

Investment Scenario: Acquisition/Renovation

Program: 12,000 SF

Shell Development Cost (Renovation $45/SF): $540,000


Current Blended Lease Rates: $16.50/SF

Blended Operating Costs (Non-reimbursable CAM): $4.65/SF




Example 3: S. Chadbourne Street Building (core area)


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Gap Financing

• Tax abatement

• Local programs

• Tax credits

• Federal programs


• TRZ

• SADC

• 380 Agreement



• Parking District (larger program)

Restaurant Infill


DOWNTOWN SAN ANGELO

Recap:

• 2013 Report identified added multifamily

housing demand associated projected

growth over the 2013-2023 period

• 2,452 new units can be absorbed over the

10-year period

• Enter into binding Letter of Intent with

qualified, interested developer to

construct new multifamily housing

through a Public-Private-Partnership

• 25% capture and income

segmentation to justify new market

construction translates to 613

Downtown units through 2023

III. Housing Infill


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Housing Infill


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Development Type – New Development

• Achieves critical mass

• Larger land assembly

• Higher infrastructure cost

• Cost of urban development

• Cost of urban streetscape

• Create initial comp

Development Type – Renovation

• Requires multiple sites for critical mass

• Risk associated with unknowns

• Historic designations

• High rehab costs

• Higher operating expense

Housing Infill


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Housing Infill -- Example

Investment Scenario:

Program: 180 Apartment Units

Development Cost (New Construction $145/SF): $21,900,000

Current Lease Rates: $1.35/SF per month

Vacancy: 7%

Operating Costs: $.52/SF per month


Economic Gap Requiring Incentive: $4,100,000


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Residential Infill -- Gap Financing

Programs from Previous Letter of Intent

• Tax abatement


• TRZ

• SADC

• Federal mortgage insurance

• Fee abatement

• City Ground Lease

Other programs:

• Federal Tax credits

• HUD Section 108 (if non-profit)



Residential Infill


DOWNTOWN SAN ANGELO

• Concepts Discussed

• Role of City and EDC

• Status of Market

• Related Policy Changes

• Other

Discussion Points

san angelo councilworksessionfeb17_catalyst - copy

Government & Nonprofit

downtown redevelopment

san angelos uniqueness

new construction program

shell development

development cycle

tax base construction

reduced financing costs

economic impact