AGENDA #2.2(c)
MEMORANDUM
TO: Council Committee on Lots 2 and 5
FROM: W. Calvin Horton, Town Manager
SUBJECT: Consideration of Proceeding with Developer Solicitation Phase for Development of Parking Lots 2 and 5 and Related Sites
DATE: October 27, 2004
This memorandum reviews several key issues related to the Council’s consideration of whether to proceed with the developer solicitation phase – the next step in the contract with consultant John Stainback. We expect that other issues will be raised in this evening’s public forum.
The attached resolution would schedule Council consideration of whether to proceed to the developer solicitation phase for November 8, 2004.
BACKGROUND
The Downtown Small Area Plan adopted in 2000 identifies key “opportunity areas” for development downtown, including Town Parking Lot #2 at East Rosemary and South Columbia Streets, and Town Parking Lot #5, bound by West Franklin, Church and West Rosemary Streets.
Since November 2003, the Council and Council Committee on Lots 2 and 5 have been working on a process to potentially develop the two Town-owned sites, as well as, the Wallace Parking Deck and the adjacent property at Henderson and Rosemary Streets, and the RBC-Centura bank property at South Columbia and East Franklin Streets. The Council added the Wallace deck sites and the option of pursuing the RBC site to the project in the conceptual master plans and building program adopted in June 2004 (see Attachment 1).
The Town’s consultant, John Stainback of Stainback Public/Private Real Estate, has developed a financial feasibility analysis with input from the Council, Council Committee and public. The Council held public forums on the draft report on September 13, and 27, 2004.
The Town Manager sent the report to the Downtown Commission, the Chapel Hill Downtown Economic Development Corp., and the University of North Carolina for comment, as requested by the Council on September 27, 2004.
Please see Attachment 2 for background history of the project to date.
Financial Feasibility Analysis
The consultant’s revised financial feasibility report (please see Agenda Item #2.2a) is intended to help the Council determine whether to proceed with the developer solicitation and selection phase this fall. The Report includes the following:
· A building program for developing all four sites (Tab #1)
· Finance models for developing the four sites (Tab #2)
· Financial sensitivity analysis examining impacts of changes in assumptions such as interest rates and construction costs (Tab #3)
· A public-private finance plan identifying how the projects could be financed (Tab #4)
· A schedule showing how and when public and private funding sources could be used as the sites are developed (Tab #4)
· A summary of non-tax income and tax revenue derived from the project (Tab #5)
· A list of potential funding sources for the transit transfer center and housing (Tab #6)
· Potential developer solicitation methods (Tab #7)
· An implementation phasing schedule (Tab #8)
· Consultant’s recommendations (Tab #9)
KEY ISSUES
Below we highlight key issues related to the general project and to each site raised to date.
General Issues
1. Market Demand for Housing
The Council Committee on Lots 2 and 5 has indicated a preference for for-sale units over rental units as the housing component on the three sites. The Committee recommended that the Request for Proposals process allow developers flexibility to respond with a mix of owner-occupied and rental units but require that their rationale for the housing mix be explained. The market study by Economics Research Associates, which was based on an analysis of historical data related to past housing sales, found market demand for more than 300 rental units in Chapel Hill, but “negligible demand” for for-sale condominiums. Economics Research Associates, however, noted that the demand for downtown condos has been “very active” and their projected demand for condominiums could be understated. On October 11, 2004, the Council Committee on Lots 2 and 5 decided against doing a more detailed condo market study.
Comment: The Economics Research Associates market demand study findings are based on historical trends. Developers in the Request for Proposals phase would be able to propose a mix of housing types that they determine to be marketable while addressing the Council’s goals for the project.
2. Affordable Housing
The Council Committee has recommended that the developer Request for Proposals allow developers flexibility as to the percentage of affordable units (affordable to families earning up to 80 percent of the region’s median family income) provided above the 15 percent requirement. The finance model assumes 20% of the units would be affordable.
Comment: Allowing developers this flexibility could result in development proposals that exceed the 15 percent affordable housing requirement. A specific plan will be needed to achieve a financing plan that achieves affordability.
3. Market Demand for Office
The project does not include space for offices. The issue of whether offices should be included in the mix has been raised by the public at Council Committee meetings.
Comment: The market demand study by Economics Research Associates projects that demand for office space would not be a “major driver” in the development of the sites, concluding that the types of professional service establishments currently occupying downtown office space, other than the University, are unlikely to generate substantial office space demand in future. The study also concluded that providing parking required for a substantial amount of office space while also replacing the public parking on the sites would be difficult because of physical constraints.
4. Design
The Council Committee has stressed the importance of design in the project. The Committee has begun discussing potential design guidelines to be included in the developer solicitation materials; the Committee is scheduled to continue discussing design at its October 27, meeting.
Comment: Should the project proceed, the Town Council and the public will have opportunities to comment on design as developers respond to the developer solicitation and submit detailed development proposals. The Council’s design goals would be articulated in the developer solicitation materials. In addition, the project will be subject to a Special Use Permit review process, and the Town Council would have approval rights over the final project design in the contract between the Town and the developer.
5. Timing
The project faces the potential to encounter higher interest rates over time, as well as, rising construction costs. Another issue is the development of the sites will need to be completed within five years to capture the market demand identified in the Economics Research Associates market study issued in the spring of 2004.
Comment: The current project schedule would have Lot #5 and the Wallace deck sites be completed within five years, but not Lot #2. Separate studies likely will be required for Lot #2, as well as, a separate developer solicitation process.
6. Self Financing Bonds
The finance model does not include the potential for self-financing bonds as a funding source. Voters will decide on November 2, whether to give local governments the authority to issue self-financing bonds, where debt service payments on an improvement such as a parking garage are covered by the future increase in property taxes in a particular area resulting from a development project. Council Committee members suggested the Town explore the potential use of self-financing bonds should the issue pass.
Comment: Mr. Stainback and the Council will have the opportunity examine whether the financing mechanism is an option to consider using on the project.
7. Consultant Fees
The contract with Mr. Stainback includes a consultant fee to “review the design and construction drawings, and to assure the Town that the selected developer delivers what was promised in the Development Agreement.” The fee totals 1.25 percent of the total development budget.
Comment: Mr. Stainback will be asked to revise the financial analysis to include the development management fee that would be paid to Mr. Stainback during construction.
Parking Lot #5
8. Parking Supply Impacts
Development of Lot #5 would result in the loss of 170 surface parking spaces during the construction period, estimated to take 18 months. Of these spaces, approximately 130 are set aside for hourly parking and the remainder is leased.
Comment: A workable plan to provide alternative temporary parking will be needed before construction can proceed. This issue needs to be resolved prior to accepting a specific proposal.
Our report (see Agenda Item 2.2b) indicates that there are opportunities to add temporary on-street metered spaces to several streets. However, several of these locations are more than a quarter mile from Lot #5, where demand for parking is highest in the evening and, to a lesser extent, during lunch, according to the Parking Services Division.
The temporary parking plan for Lot #5 will require adding on-street metered spaces coupled with other strategies, such as locating alternative spaces in existing downtown parking lots if there is any excess of spaces, adding a temporary downtown shuttle, and encouraging the use of park and ride lots.
9. Cost of Underground Parking
The finance model assumes the construction cost of underground parking to be about $19,000 per space, based on cost estimates provided to Mr. Stainback by McDonald-York, a Raleigh contracting company.
Based on conversations with the University, the cost of building the parking could be substantially higher. According to Carolyn Elfland, Associate Vice Chancellor for Campus Services, the University’s planned 125-vehicle below-grade ventilated deck, with an educational facility on top, could cost approximately $49,000 a space. She also said the University recently built an above-grade garage that cost $20,000 per space.
Another example is in Raleigh. A recently proposed 980-space four-level underground parking deck downtown is estimated to cost $25 million, or $25,500 per space, according to an article in the News & Observer.
Comment: The finance model will have to be revised to evaluate the financial implications of a more expensive deck. We recommend having Mr. Stainback revise the finance model for the Council’s consideration on November 8, using costs of $25,000, $30,000, and $35,000 per underground space.
10. Results of Geotechnical Analysis
On October 16, 2004 Engineering Consultant Services conducted borings at Lots 2 and 5. The firm will be providing a geotechnical report to the Town providing information on any rock formations underneath both sites. The project could face higher site work costs should substantial amounts of rock be found under the parking lot. Mr. Stainback estimates construction of the deck would require excavating the site to about 30 feet in depth.
Comment: We will study the report when it is received. Based on a telephone call with Engineering Consultant Services, the firm encountered substantial amounts of rock under Lot #5 so that blasting would be required for excavation. (Engineering Consultant Services said the borings on Lot #2 did not encounter rock at the depths needed to be excavated for the development; however, the firm noted the presence of groundwater.)
Mr. Stainback is researching the cost of blasting associated with excavating Lot #5 should that be required. This cost could require a higher per-space cost estimate for the underground garage above $25,000. The financial analysis will need to be revised for November 8, to take into account any additional costs related to underground rock.
11. Environmental Issues
Environmental Consulting Services conducted a Phase I Environmental Assessment of Lots 2 and 5. The firm’s report identified one potential on-site (potential presence of heating oil underground storage tanks from residential structures previously located on the property) and two potential off-site sources of pollution that may require cleanup at Lot #5. The report did not cite McFarling’s Exxon, which had an underground storage tank leak in the 1990s, as an issue at Lot #5.
Comment: Environmental Consulting Services concluded that McFarling’s Exxon should not be considered an off-site environmental condition due to its regulatory status; a search of Standard Environmental Records stated that the McFarling’s file was closed out on August 31, 2001. The Environmental Consulting Services report stated that further investigation is needed to determine whether Lot #5 has contamination present from the potential sources that were identified. Cleanup of pollution resulting from an off-site source typically is the responsibility of the owner of the off-site facility, the report states.
12. RBC-Centura
The project schedule anticipates securing in January 2005, a letter of intent from RBC-Centura to participate in the project. Participation of RBC in the project would affect the building program on Lot #5.
The bank wants a building on Lot #5 fronting Franklin Street and other concessions from the Town in exchange for the bank’s property at Rosemary and Columbia Streets. The Town would build a parking deck at the RBC site as part of the development of Parking Lot #2, anticipated to begin in 2007.
On October 11, 2004, the Council Committee on Lots 2 and 5 recommended the Town pay an architect up to $1,500 to sketch potential locations of a building for the bank on Lot #5, the location of drive-through lanes and other design issues.
The Council’s June 14, 2004, resolution approving a conceptual master plan for the sites included two additional options in the event the RBC-Centura site is not included in the project (see Options “B” and “C” Attachment 1).
Comment: The issue of RBC’s participation in the project will need to be resolved before the issuance of a developer Request for Proposals because of the question of whether space would be needed at Lot #5 for the bank. If the Council authorizes proceeding to the developer solicitation phase, we recommend that Mr. Stainback be authorized to hire an architecture firm, at a cost not to exceed $1,500, to develop ideas for locating RBC on Lot #5.
Code Requirements
The conceptual master plan for Lot #5 shows buildings located along the eastern property line. Building code requirements may require a change in the design of the buildings located on the common interior property line. A local architect has informed the Town that the design would not meet the code without moving the buildings, buying additional property from the neighbor, or buying an easement; another issue is residential units are required to have operable windows in all bedrooms.
Comment: Private developers responding to the Request for Proposals will need to consider code requirements.
Wallace Parking Deck Sites (East Rosemary Street)
13. Deck’s Capacity to Support Development, Utility Relocation
The conceptual master plans contemplate adding four stories on top of the deck, and extending the deck to Henderson Street, over which a six-story building would be built. According to Michael Hining, the architect who designed the deck, the structure can handle at least one additional level and possibly two, depending on the results of a structural analysis. Additional levels may require adding additional support, a cost not reflected in the financial analysis. Mr. Hining also said extending the deck through the alley would require the relocation of major utility lines.
Comment: A structural analysis and a determination on the cost of relocating the utilities are required prior to issuing the Request for Proposals to assess costs associated with developing the sites which would need to be added to the finance model. One way to proceed is to hire an engineer to examine the as-built plans of the deck to determine the design issues related to supporting the additional development on top of the deck; the engineer could also address utility relocation. A third-party cost estimate of the needed improvements also would be needed.
Another way to proceed would keep the Wallace deck in the developer solicitation phase, and allow developers to respond with proposals that include any necessary structural improvements to the deck and relocation of utilities.
14. Financial questions
The Wallace Deck was refinanced for a twenty-year period in July of 2003. Because the deck is being used to leverage the debt it is likely that the Town would not be permitted to make changes to the parking structure without the permission of the Town’s creditors.
Comment: We are in the process of contacting the bank to clarify the steps that could be taken, if any, to allow private development atop the deck. The public-private finance plan proposes to use interest from land lease payments and proceeds from Town’s 20 percent share in the sale of condominiums to cover debt service payments on the Wallace deck.
15. Parking Supply
Structural improvements to the deck would affect parking due to the construction and placement of construction equipment.
Comment: Adding supports to the Wallace deck to allow four stories to be built on top of the deck would disrupt the parking supply in the parking deck. A plan would be needed to minimize disrupting access to the deck parking prior to construction.
Lot #2 / RBC-Centura Site
The project schedule proposes construction at Lot #2 to start around 2009. The developer solicitation process would begin in 2007. Following are key issues that will need to be addressed.
· Parking Supply Impacts
As with Lot #5, the development of Parking Lot #2 would impact an existing parking supply. Lot #2, the Town’s most heavily used downtown parking lot, contains approximately 104 spaces. A plan for providing temporary parking would be required prior to construction proceeding. (See Agenda Item 2.2b)
· Timing
The development schedule would allow time to plan for the impacts related to the development of Lot #2 and the RBC property. However, with construction projected to begin in about five years, the market demand study would need to be updated to reflect the market conditions at that time.
· Funding for Transit Transfer Center
See Agenda Item 2.2b. The project schedule allows time for the Town to pursue several potential funding sources. Alternatively, under-grade parking could be built in place of a transit transfer center.
· Results of Geotechnical Analysis
The geotechnical report by Engineering Consulting Services will include an assessment of Lot #2.
COUNCIL COMMITTEE RECOMMENDATIONS
The Council Committee on Lots 2 and 5 met today, October 27, to discuss the project and may forward recommendations for the Council’s consideration tonight.
On October 11, 2004, the Council Committee reached consensus on a preferred developer solicitation and selection method – a two-step process that includes issuing a Request for Qualifications followed by a Request for Proposals from developers if the Council chooses to proceed. The process involves issuing a Request for Qualifications, then evaluating responses to determine a short-list of 3 to 5 developers. The short-listed developer teams would be asked to respond with detailed technical proposals.
According to Mr. Stainback, most public entities use this method which opens the competition to any interested developer. The process requires substantial time to complete, providing significant opportunities for public input. Mr. Stainback said developers prefer this approach because they do not have to cover the cost of preparing a detailed proposal unless they make the short-list and have greater odds of being selected.
NEXT STEPS
The consultant will be asked to make changes to the financial analysis as described above for the Council’s consideration on November 8.
The Council Committee on Lots 2 and 5 has scheduled outreach meetings with downtown neighborhoods, business interests and the University of North Carolina from 6:30 to 8:30 p.m. on Thursday, November 4, and from noon to 2 p.m. on Friday, November 5, tentatively scheduled at the Chapel Hill Public Library.
The present project schedule anticipates Council consideration of the consultant’s draft Request for Qualifications on November 22. It is likely that additional time would be needed to complete a final draft for the Council’s review. The Council’s last meeting in 2004 is December 6.
RECOMMENDATION
We recommend the Council review and refer all comments from the forum to the Town Manager and Town Attorney for a follow-up report with recommendations on November 8.
The Council could decide on November 8, to continue consideration of issues raised, or could decide to proceed with the developer solicitation process.
ATTACHMENTS
1. June 14, 2004 Resolution Approving Conceptual Master Plans (p. 11).
2. Project Background (p. 13).
A RESOLUTION SCHEDULING CONSIDERATION OF WHETHER TO PROCEED TO THE DEVELOPER SOLICITATION PHASE FOR THE LOTS 2 AND 5 DEVELOPMENT PROJECT (2004-10-27/R-1)
WHEREAS, on June 14, 2004, the Council adopted a resolution outlining recommended development options to use as a conceptual guide by consultant John Stainback and the Council in determining the financial feasibility of the building program for Town Parking Lots 2 and 5 and the Wallace Parking Deck; and
WHEREAS, on June 14, 2004, the Council authorized proceeding with the financial feasibility analysis phase; and
WHEREAS, on August 25, 2004, the Council Committee on Lots 2 and 5 received the consultant’s initial report on financial feasibility and discussed potential scenarios for developing the sites; and
WHEREAS, on September 13, 2004, the Council Committee and Council reviewed Mr. Stainback’s revised draft financial feasibility report; and
WHEREAS, on September 13, September 27, and October 27, 2004, the Council held public forums on the Financial Feasibility Report and other project-related information; and
WHEREAS, the Council has forwarded the Financial Feasibility Report to the Chapel Hill Downtown Economic Development Corporation, the Downtown Commission and the University for comment and is soliciting additional public comment and review;
NOW, THEREFORE, BE IT RESOLVED by the Council of the Town of Chapel Hill that the Council refers comments received to the Town Manager and Town Attorney and schedules consideration of whether to proceed to the developer solicitation phase for November 8, 2004.
This the 27th day of October, 2004.