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Redevelopment Strategies
DOWNTOWN SAN ANGELO
Downtown San Angelo Master Development Concepts
February 17, 2015
Redevelopment Strategies
DOWNTOWN SAN ANGELO
• Context
• Downtown Strategy
• Redevelopment Prototypes
• Investment Scenarios
• Gap Financing
• Discussion
Agenda
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Downtown development helps balance the identity created by suburban
growth (which generated tax base, but not lasting recognition).
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Downtown promotes San Angelo’s uniqueness and strengthens its brand
identity. This can be a critical issue to regional investment decisions.
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Investment in the core has real potential to expand its economic impact.
Redevelopment Strategies
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.
Redevelopment Strategies
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
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Employment “Workplace” Infill
• Increase daytime population
Restaurant Infill
• Create “Eatertainment” destination
Loft/Residential Infill
• Increase nighttime population
Downtown Master Development Strategy
Redevelopment Strategies
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
Redevelopment Strategies
DOWNTOWN SAN ANGELO
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
Redevelopment Strategies
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.
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Example 2: Continental Building
Investment Scenario: Renovation
Program: 33,000 SF
Renovation Development Cost ($50/SF): $1,650,000
Tenant Improvement Allowance ($25/SF): $825,000
Increase in Lease Rates: $6.00/SF
Reduced Operating Costs: $1.25/SF
Net Additional Income: $7.25/SF
Return on Costs Threshold: 8.5%
Supportable Building Acquisition Price: $340,000
Note: Economic Gap would be difference between supportable acquisition price and market pricing, if any.
Redevelopment Strategies
DOWNTOWN SAN ANGELO
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
Redevelopment Strategies
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
Redevelopment Strategies
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
Redevelopment Strategies
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
Tenant Improvement Allowance ($125/SF): $625,000
Current Lease Rates: $15.00/SF
Operating Costs (Non-reimbursable CAM): $1.25/SF
Return on Costs Threshold: 8.5%
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.
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Investment Scenario: Acquisition/Renovation
Program: 5,000 SF
Shell Development Cost (Renovation $30/SF): $150,000
Tenant Improvement Allowance ($90/SF): $450,000
Current Lease Rates: $15/SF
Operating Costs (Non-reimbursable CAM): $1.25/SF
Return on Costs Threshold: 9.0%
Supportable Building Acquisition Price: $165,000
Note: Economic Gap would be difference between supportable acquisition price and market pricing, if any.
Example 2: S. Chadbourne Street Building (Twisted Root)
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Investment Scenario: Acquisition/Renovation
Program: 12,000 SF
Shell Development Cost (Renovation $45/SF): $540,000
Tenant Improvement Allowance ($75/SF): $900,000
Current Blended Lease Rates: $16.50/SF
Blended Operating Costs (Non-reimbursable CAM): $4.65/SF
Return on Costs Threshold: 9.0%
Supportable Building Acquisition Price: $140,000
Note: Economic Gap would be difference between supportable acquisition price and market pricing, if any.
Example 3: S. Chadbourne Street Building (core area)
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Gap Financing
• Tax abatement
• Local programs
• Tax credits
• Federal programs
• Economic development grant
• TRZ
• SADC
• 380 Agreement
• Economic development loan
• Public and private programs
• Parking District (larger program)
Restaurant Infill
Redevelopment Strategies
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
Redevelopment Strategies
DOWNTOWN SAN ANGELO
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
Redevelopment Strategies
DOWNTOWN SAN ANGELO
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
Return on Costs Threshold: 7.50%
Economic Gap Requiring Incentive: $4,100,000
Redevelopment Strategies
DOWNTOWN SAN ANGELO
Residential Infill -- Gap Financing
Programs from Previous Letter of Intent
• Tax abatement
• Economic development grant
• TRZ
• SADC
• Federal mortgage insurance
• Fee abatement
• City Ground Lease
Other programs:
• Federal Tax credits
• HUD Section 108 (if non-profit)
• Economic development loan
• Public and private programs
Residential Infill