TO: Roger L. Stancil, Town Manager
FROM: J.B. Culpepper, Planning Director
Gene Poveromo, Development Manager
SUBJECT: UNC Innovation Center Special Use Permit Application, 110 Municipal Drive
DATE: January 26, 2009
INTRODUCTION
Tonight the Town Council continues the public hearing from September 17, 2008. Adoption of the attached revised resolution would approve a Special Use Permit to allow a three story 80,745 square foot building and 214 parking spaces on an 8-acre portion of University of North Carolina at Chapel Hill Carolina North campus, north of Estes Drive and west of Martin Luther King Jr. Boulevard. The site is identified as Orange County Parcel Identifier Number 9779-88-6375.
Adoption of Revised Resolution A would approve the application with conditions.
BACKGROUND
The public hearing continuation was originally scheduled for November 24, 2008. At the applicant’s request, the public hearing continuation was rescheduled to January 26, 2009.
DISCUSSION
We have identified several key issues related to this development. Each is discussed below.
In addition, the Greenways Commission met on September 24, 2008 and asked that comments regarding greenway plans for the future Carolina North proposal be forwarded to the Town Council during consideration of the Innovation Center application. We have attached the Commission’s comments and discuss them in Item #15 below.
1. Long Range Transit Master Plan Relative to the Innovation Center and Future Development on Surrounding Property: Council members asked for an update on the Town’s Long Range Transit Master Plan as it relates to the Innovation Center.
Comment: We are completing the final phases of the Long Range Transit Plan and anticipate a final report in early 2009. The final report will include an implementation plan and a financial plan. With its submission in early 2009, Chapel Hill, Carrboro and the University will have an opportunity to review and adopt the final Plan. We have reviewed the Innovation Center with regard to consistency with both the Carolina North Master Plan and the preliminary recommendations of the Transit Study. Based on the information provided by the applicant to date, the Innovation Center proposal is consistent with the preliminary recommendations and the anticipated implementation of the Plan.
2. Pedestrian Refuge Island Cost: A Council member requested confirmation that the proposed payment amount of $50,000 for the construction cost associated with a proposed refuge island in Martin Luther King Jr. Boulevard between Estes Drive and Piney Mountain Road was sufficient.
Comment: We have reviewed the estimates for construction costs and believe the $50,000 payment amount is sufficient.
3. Provision of Bike Lanes or Right-of-Way on the East Side of Martin Luther King Jr. Boulevard: A Council member asked about the Bicycle and Pedestrian Advisory Board’s recommendation that bike lanes or right-of-way for bike lanes be provided on the east side of Martin Luther King Jr. Boulevard. There was some discussion of rational nexus for off-site improvements. The staff agreed to meet with the applicant to determine whether the University would voluntarily provide these improvements.
Comment: Typically we recommend improvements on-site and immediately adjacent, such as along a road frontage contiguous with the proposed development, and with the value of improvements roughly proportional to the traffic mitigation deemed necessary to offset projected traffic increases attributable to the proposed development. The rational nexus test involves the factors of need, attribution, and rough proportionality. (For a statement on this standard, please see the attached excerpt from Land Use Law in North Carolina, 2006, UNC School of Government, David P. Owens, pp. 40-41.)
Sometimes, off-site improvements are also recommended. If the applicant agrees to such off-site improvements, it is not necessary for there to be an evaluation as to whether the improvements are warranted based on the standards of rational nexus and rough proportionality. In the case of the Innovation Center application, the applicant agreed to make a payment to the Town for improvements to nearby bus stop(s) which already exist in specific locations near the proposed development site.
Regarding the Bicycle and Pedestrian Advisory Board’s recommendation for bike lanes or right-of-way on the east side of Martin Luther King Jr. Boulevard, the applicant has not agreed to provide bike lanes or right-of-way on the east side of the boulevard. Thus, the rational nexus test is applicable. We do not believe the tests for need, attribution, and rough proportionality could be met. Regarding proportionality and attribution, we note that the current road cross-section is not wide enough to accommodate restriping to include a bike lane, and so right-of-way would need to be acquired and the cross-section of the boulevard would need to be widened. UNC does not own the land on the east side of the boulevard. Staff believes that the cost of right-of-way acquisition and bike lane construction is not proportionate to the increase of bicycle traffic attributable to the operation of this new office building and that the current bicycle traffic in this corridor, and any increase generated by this project, has a sufficient off-road bicycle facility in place, as noted above.
For these reasons, in Revised Resolution A for the Innovation Center, we have not included a provision for bike lanes, or right-of-way for same, on the east side of the boulevard. We note that the Town recently provided a “sharrow” (share-arrow) in the street right-of-way on the east side of the boulevard.
We believe that future development of university-owned lands surrounding the Innovation Center site may increase bicycle traffic to such an extent that the advisory board’s recommendation could be revisited at a later date.
4. Context of Staff Recommendation on Bike Lanes/Right-of-Way on East Side of Martin Luther King Jr. Boulevard: A Council member asked if the staff recommendation was in part dependent on whether the application was for a stand-alone Special Use Permit versus within a larger context such as a Master Land Use Plan or a Special Use Permit application subsequent to a Master Land Use Plan approval.
Comment: The staff recommendation is based on the application as a stand-alone Special Use Permit. (Please see the answer to Key Issue #3 above.)
5. North-South Corridor on Surrounding Property: A Council member inquired as to the proposed use of a north-south corridor shown on Carolina North plans, extending from a location west of the Innovation Center site northward to Homestead Road.
Comment: In an email response the applicant stated the following:
“The north-south road is not included in the Innovation Center application.”
We note that the north-south road is part of the discussion regarding future development of the surrounding properties.
6. Proposed Transit Station: A Council member inquired about plans for locating a future transit station and whether it would be near the Innovation Center.
Comment: In an email response, the applicant stated the following:
“No mass transit station is proposed with the Innovation Center, nor is there a transit station proposed at this location in the 50-year Carolina North Plan. The context plan for Carolina North includes multiple opportunities for a transit station on the campus.”
We note that through the ongoing development of the Chapel Hill Long Range Transit Plan, the Town and the University continue to discuss the appropriate locations for transit centers that will serve the Carolina North project. We anticipate these future transit centers could include locations internal to the Carolina North development and along Martin Luther King Jr. Boulevard.
7. Porous Pavement: A Council member asked about the use of porous pavement as part of an overall stormwater management strategy.
Comment: In an email response the applicant stated the following:
“Porous paving is included in the Special Use Permit application on Sheet SUP-4.”
Revised Resolution A includes a stipulation requiring the applicant to include porous pavement as part of this proposed development.
8. Stormwater Utility Fees: A Council member asked for staff analysis of the possible benefits of the University paying into the Town’s stormwater utility program. He also asked the University to consider voluntarily participating.
Comment: This is a question which has been raised in previous discussions regarding development of the properties surrounding this site. Some of the points that Town staff has raised about this issue are listed below and on the attached document from the Town’s Stormwater Division (Attachment #2).
Regarding the University volunteering to pay into the stormwater utility, in an email response, the applicant stated the following:
“The applicant states that the project has been designed to handle stormwater as required by town regulations. The University will maintain the stormwater management facilities consistent with its permit for University property. It is the University’s position that any discussion whether or not the university should participate in the town’s stormwater utility should occur in the context of the whole system - not in connection with just one project.”
We believe that discussions on the University’s participation in the Town’s Stormwater Management program should be held in the context of the anticipated Development Agreement between the Town and UNC regarding development of the properties surrounding this site.
In Resolution A, we have included a clause addressing the future status of the Innovation Center Special Use Permit, should a Development Agreement and/or Master Land Use Plan for this and surrounding properties be approved by the Town Council in the future. This proviso clarifies that conditions of approval for the Innovation Center, whether relating to stormwater or other matters, could be adjusted in the future approval of broader agreements and plans encumbering this and adjacent property:
“If the property encumbered by this Special Use Permit subsequently becomes the subject of a Development Agreement and/or Master Land Use Plan, then the terms of this Special Use Permit may be modified or superseded by the terms of the Development Agreement and/or Master Land Use Plan, if agreed upon by both parties.”
9. Stipulations Regarding Property Taxation: A Council member requested a stipulation be added to Resolution A calling for the future building owner to pay property tax. Another Council member asked whether the taxation details would be included in the Special Use Permit such that taxes could continue to be assessed even when building use changes in the future.
Comment: The following was excerpted from the applicant’s Statement of Justification:
“The Innovation Center building will be owned by Alexandria Real Estate Equities Inc. and will be a taxable property contributing directly to the local economy. In addition, the goal of the Innovation Center will be to streamline the development and to accelerate the commercialization of novel technologies by companies that can then become independent entities. The Center will have a management team, along with facilities, amenities, and technical and business development resources needed. The Center will be a place to successfully identify, evaluate, launch, capitalize and manage emerging companies across many different areas of technology represented within the University’s research programs. In addition to research and office space for emerging companies, it is anticipated that the Innovation Center will also provide office space for the University.” [Applicant’s Statement]
We understand from the applicant that the State of North Carolina will ground lease the 8-acre Innovation Center property to The University of North Carolina at Chapel Hill Foundation, Inc., a 501(c)(3) NC non-profit corporation, for 40 years with a 10 year renewal option. The Foundation would then sublease the land to a for-profit entity (in this case, Alexandria Real Estate Equities, Inc.) for the 40-50 year period. This entity would own and operate the building for 40-50 years, and would lease space within the building to a variety of tenants, both for-profit and University offices. At the end of 40-50 years, the ground lease and subleases would terminate and the building could once again become the property of the State/University.
During the 40-50 year period of private ownership, improvements to the property improvements (i.e., building, parking, landscaping) would be subject to ad valorem taxes, and the Town would receive revenues related to its tax rate.
We recommend the following stipulation, which has been included in Revised Resolution A, to address this issue:
Stipulation #3: That so long as the Innovation Center building is privately owned, the building shall be subject to ad valorem taxation per North Carolina General Statutes. In addition, in the event the building reverts to public ownership and subsequently is transferred back to private ownership, it shall again be subject to ad valorem taxation for any periods in which it is held in private ownership.
10. Property Tax Evaluation and Assessment: A Council member asked the following taxation questions relating to the Innovation Center, and that clarification on the answers be added to Resolution A.
Comment: The land associated with the proposed Innovation Center is not taxable, but the building would likely be taxable.
The land is owned by the University of North Carolina, a unit of government. According to the Orange County Tax Assessor’s Office, the land is therefore eligible for an automatic exemption for the land per North Carolina General Statute 105-278.1(c)(2)(b). There is no application required and there is no "use" test for the exemption.
Under the University’s above described ownership structure, the building is intended to be owned by the sub-lessee of the land, which would be a for-profit entity. While under private ownership by a for-profit entity, the building would be taxable to that entity. If the Foundation were to become the owner and continued to use the building as a business incubator, the building would be taxable under current tax law. If and when the ownership transfers to back to the University (not the Foundation), the building will be tax-exempt. The Assessor further notes that though personal property owned by the taxable building owner would be taxable, inventory would not be taxable.
The Tax Assessor also states it would be possible that the building could be exempt if owned by the Foundation and used for an exempt purpose. However, this is not the ownership structure scenario described by the applicant.
We believe taxation issues can be part of the Development Agreement discussions, as the University and the Town contemplate development of surrounding properties.
We note that current taxation law may change in the future to allow business incubators to apply for tax exemptions. We have included a stipulation in Revised Resolution A to clarify the proposed ownership structure for the Innovation Center, with a clause stating that business incubators would not apply for tax exemption if in the future this becomes an option:
Stipulation #4: That so long as the building is privately owned by a for-profit entity, and that entity is, under future taxation law, considered to be eligible to apply for tax-exempt status, the entity shall not apply for tax-exempt status during this 40-50 year period. The University shall inform the Town Manager and Orange County Tax Assessor annually as to who owns the building and whether the owner is tax-exempt.
11. Taxation Under Three Scenarios: Another Council member asked under what circumstances UNC-related businesses could be taxed. He posed an example under which a research entity was located on UNC’s main campus, then moved to the Innovation Center, then moved out of county.
Comment: Please see the answer to Key Issues #9 and #10 for background on tax evaluation and assessment. According to the Orange County Tax Assessor’s explanation of taxation scenarios, we believe that the research entity, if non-profit and operating on UNC-owned land, would be tax exempt. If the research entity then grew into a for-profit company operating in the Innovation Center as a tenant, under the University-described ownership structure for that building, the owner of the building (sublessee of the land) would continue to be taxed, with revenues accruing to Orange County and Chapel Hill. When the company moved out of the county, another tenant could move into the Innovation Center. Since the taxation is based on the building ownership, not the tenants, there would be no change in taxation between two tenants.
12. Process for Future Modification of the Innovation Center: A Council member asked if the Special Use Permit for the Innovation Center could be written in such a way that future changes associated with the proposed Carolina North development did not require approval of a Special Use Permit Modification.
Comment: The Land Use Management Ordinance allows for minor changes to a Special Use Permit with Town Manager approval. Significant changes would require Town Council approval of a Special Use Permit Modification.
We believe that a Master Land Use Plan and/or Development Agreement between the Town and the University, either of which could include the Innovation Center site, could be written such that specific stipulations could be applied to the Innovation Center, and the Special Use Permit for the Innovation Center could be abandoned. (Please also the previous discussion under item #8.)
13. Energy Efficiency: A Council member suggested requiring the American Institute of Architects (AIA) 2030 Challenge as a standard to reduce energy consumption by 50% or to require 20% below American Society of Heating, Refrigeration, and Air Conditioning Engineers (ASHRAE) 90.1 2004, whichever is more stringent.
Comment: In an email response, the applicant states:
“The building is being designed to LEED Silver standards for Core and Shell.”
We note that on April 23, 2007, the Town Council passed a resolution requiring the review and approval of Energy Management Plans with rezoning applications. Though the Innovation Center does not involve a rezoning, the applicant has agreed to provide an Energy Management Plan and to incorporate a 20% more energy efficient feature into the Plan relative to ASHRAE 90.1 2004 as amended or in affect at the time of building permit issuance. The applicant’s Statement of Justification includes a statement of intent to apply for Leadership in Energy and Environmental Design (LEED) Silver Core and Shell Certification to reduce energy use. We will not know the extent of energy reductions relative to code until the applicant provides more building design detail, which we anticipate at the Final Plans stage.
We have included stipulations in Revised Resolution A which provide for ways the applicant could reduce energy consumption. Please see Stipulation # 33 which clarifies the University’s intent to apply for LEED Silver standards, and Stipulation #34 which spells out some of the tools (e.g., 20% below ASHRAE 90.1 2004 as explained through an Energy Management Plan) by which the University might achieve the energy-related credits necessary to qualify for LEED Silver certification for Core and Shell.
Regarding the comparison between ASHRAE standards and the standards for the AIA 2030 Challenge, the AIA has determined that the ASHRAE code equivalent to achieve the AIA 2030 Challenge for commercial buildings demands a performance of 30% below ASHRAE 90.1 2004, or 25% below ASHRAE 90.1 2007.
14. Building Elevation: A Council member asked for a graphic representation of the building elevation as viewed from the south, looking northward along Martin Luther King Jr. Boulevard.
Comment: The requested image is attached.
15. Greenway Commission Recommendation: On September 24, 2008 the Greenway Commission stated its desire to continue working on a Greenways Master Plan for the future Carolina North project on the university-owned land surrounding the Innovation Center. Absent completion of such plan, the Commission felt that making a greenway-related recommendation for the Innovation Center site would be premature. The Commission further requested that a Greenways Master Plan be included as part of the overall plan for the future Carolina North.
Comment: The Greenways Commission did not request the addition of a stipulation for approval for this project. We believe the Commission’s comment is applicable to future development on lands surrounding the Innovation Center.
PROPOSED MODIFICATION OF REGULATIONS
Landscape Buffer: Table 5.6.6.-1 of the Land Use Management Ordinance (LUMO) specifies that a 30-foot Type D landscape bufferyard is required along the Martin Luther King Jr. Boulevard frontage, the eastern boundary of this site.
As part of the Martin Luther King Jr. Boulevard streetscape, the applicant proposes landscaping between the road and the building which may not meet the opacity standard for a Type “D” 30-foot Landscape Buffer, whether standard or alternative. Therefore the applicant is requesting a modification to the regulations, LUMO subsections 5.6.2 and 5.6.6., to allow for a different landscaping scheme.
A preliminary streetscape concept under consideration by the applicant includes bike lane and curb and gutter along the western side of Martin Luther King Jr. Boulevard, a landscaped strip (lawn and ornamental trees), a sidewalk, a low Chatham stone wall reminiscent of the stone walls on the perimeter of the older parts of the main UNC campus, and additional lawn and shade trees between the sidewalk/stone wall and the building. The applicant has stated the streetscape design is in the conceptual stage, and the design has not been finalized. The applicant’s justification for such a modification is that the opacity standard required for a Type “D” buffer would be at odds with the applicant’s intent to provide a transit-friendly streetscape.
Comment: The Council has the ability to modify the regulations, according to Section 4.5.6 of the Land Use Management Ordinance. The Council could modify the regulations if it makes a finding in this particular case that public purposes are satisfied to an equivalent or greater degree. We believe that with respect to the applicant’s request to modify the landscape buffer regulations, the Council could make a finding that public purposes are satisfied to an equivalent or greater degree because the applicant is proposing a landscape theme that is pedestrian, bicycle, and transit-friendly, attempting to connect the building to proposed sidewalks, bikeways, and transit stops. Revised Resolution A includes the requested modifications to the regulations.
PROCESS
We anticipate that further evidence may be presented for the Council’s consideration as part of the continued public hearing process.
The Land Use Management Ordinance requires the Town Manager to conduct an evaluation of this Special Use Permit application, to present a report to the Planning Board, and to present a report and recommendation to the Town Council. We have reviewed the application and evaluated it against Town standards; we have presented a report to the Planning Board; and tonight we submit our report and recommendation to the Council.
The standard for review and approval of a Special Use Permit application involves consideration of four findings (description of the findings follows below). Additional evidence will be presented tonight. If, after consideration of the evidence, the Council decides that it can make each of the four findings, the Land Use Management Ordinance directs that the Special Use Permit shall then be approved. If the Council decides that the evidence does not support making one or more of the findings, then the application cannot be approved and, accordingly, should be denied by the Council.
EVALUATION OF THE APPLICATION
Tonight, based on the evidence in the record thus far, we provide the following evaluation of this application based on the four findings of fact that the Council must consider for granting a Special Use Permit. We believe the evidence in the record to date can be summarized as follows:
Finding #1: That the use or development is located, designed, and proposed to be operated so as to maintain or promote the public health, safety, and general welfare;
Evidence in support: Evidence in support of this finding includes the following points from the applicant’s Statement of Justification:
Evidence in opposition: We have not identified any evidence offered in opposition to Finding #1.
Finding #2: That the use or development would comply with all required regulations and standards of the Land Use Management Ordinance;
Evidence in support: Evidence in support of this finding includes the following points from the applicant’s Statement of Justification:
Evidence in opposition: We have not identified any evidence offered in opposition to Finding #2.
Finding #3: That the use or development is located, designed, and proposed to be operated so as to maintain or enhance the value of contiguous property, or that the use or development is a public necessity;
Evidence in support: Evidence in support of this finding includes the following points from the applicant’s Statement of Justification:
Evidence in opposition: We have not identified any evidence offered in opposition to Finding #3.
Finding #4: That the use or development conforms to the general plans for the physical development of the Town as embodied in the Land Use Management Ordinance and in the Comprehensive Plan.
Evidence in support: Evidence in support of this finding includes the following points from the applicant’s Statement of Justification:
Evidence in opposition: We have not identified any evidence offered in opposition to Finding #4.
We anticipate that further evidence may be presented for the Council’s consideration as part of the continued public hearing process. Please see the applicant’s Statement of Justification for additional evidence in support of the four findings.
SUMMARY
We have attached a Revised Resolution that includes standard conditions of approval as well as special conditions that we recommend for this application. With these conditions, we believe that, with the requested modifications to the regulations, the Council could make the four required findings necessary to approve the application. Our recommendation, Revised Resolution A, incorporates input from all Town departments involved in review of the application.
RECOMMENDATIONS
Greenways Commission Recommendation: The Greenways Commission met on September 24, and voted 5-0 to recommend sending the following comments to the Town Council:
Please see the attached Summary of Greenways Commission Action.
Comment: Please refer to the Key Issues section for additional discussion.
Revised Staff Recommendation: We recommend that the Council approve the Special Use Permit application with the adoption of Revised Resolution A, which includes the following two tax-related stipulations and a stipulation regarding energy efficiency following the September 17, 2008 public hearing:
Resolution B would deny the application.
A matrix comparing the differences between staff and advisory board recommendations is included at the end of this memorandum.
ATTACHMENTS
[See also Town Manager’s Memorandum]
[See also October 27, 2008 Item #6]