February 21, 2012 Tallahassee Redevelopment: College Town project has great potential – and risks
Article by: Doug Blackburn, Florida Redevelopment Association
Amid the FSU sports memorabilia, plaques and photos in Andy Miller’s office at Seminole Boosters are the poster-sized layouts and renderings of what once was a glimmer of an idea.
Over about a four-year span, that idea evolved into a concept, then a plan and now a project. A short distance from Miller’s office, bulldozers and trucks are carrying out the site work for College Town. Now, finally, the idea is taking shape.
“The impetus for a lot of this is all the activities along Gaines Street and the effort to try to revitalize downtown, the urban core,” said Miller, the Boosters’ president.
Occupying 5.74 acres on West Madison Street at Woodward Avenue, College Town is a development mix of retail, restaurant and entertainment space, with 71 apartments located on the upper floors. It marks a new era in the Boosters’ real estate activities, as well as a step toward a southern gateway to the FSU campus and, hopefully, a drawing card for Seminole fans, students and the community, Miller says.
The money for the $27-million project depends on the area being declared blighted, thus making it eligible for tax credits that attracted investors. College Town’s location within the designated Community Redevelopment Area that spreads from downtown, along with a series of legal entities set up to take advantage of favorable financing, set the stage for the Boosters to pull off the deal. Among the financial pieces is a limited liability company that will loan $8 million to the College Town project. That group is made up of at least nine potential investors who are also members of the Boosters’ board.
That group of board members stands to earn interest on its loans, but also may be bought out by the Boosters in the future. Potential investors who are board members abstained from votes approving the project.
Without federal tax credits, loans that rely on appreciating property values to cover tax-increment financing, and a complex interdependent structure of players, none of the individual groups of investors could have pulled off College Town. With those elements, developers say the community and campus will benefit in an area transformed from run-down property to a dynamic district of shops, apartments and dining.
Across the country, the drive to redevelop urban properties is gaining momentum. Tom Murphy, former mayor of Pittsburgh and senior resident fellow at the Urban Land Institute, said the trend was evident before the Great Recession; and it will keep going, based on what people want.
In a project like College Town, with its public and private elements and investors, “It’s probably more common now than not.” Murphy noted that Research Triangle Park, N.C., was started by six individuals who formed a nonprofit and acquired the 4,600 acres that were used for private business development. Today, he added, RTC is looking to add residential and retail development as part of its mixed-use elements.
In his own community, city government bought old steel mill sites and encouraged private development to revitalize those Pittsburgh properties.
College Town, he added, has another dimension that will make it popular. Among the demographic of residents ages 18 to 32 and their empty-nester parents, a walkable community is preferred. “In any poll they overwhelmingly want walkable, pedestrian-friendly communities,” Murphy said. “That’s where the market is heading toward all across the country.”
Miller traces College Town’s origin as far back as the University Center’s development at Doak Campbell Stadium in the early 1990s. The boosters realized that FSU was going from a 40,000-seat stadium to 80,000 seats, “and you couldn’t do it on a postage stamp,” Miller said. “You had to have available infrastructure and amenities to go along with it. You had to have game-day parking, for example.”
When possible, the Boosters identified pieces of land in the vicinity that could work for the group’s operations and would buy them. Some tracts they sold to the university; others the Boosters kept for parking on game days.
“We bought properties for that purpose and then we looked for other opportunities that made sense,” Miller said.
It was April 2008 when discussions began to center on other potential uses for the land. Involved in those early talks was Will Butler, an FSU graduate and the real estate asset manager for the Boosters, and Patrick Hodges, principal of The Patrick Hodges Land Studio.
Butler contacted Hodges, whom he had worked with previously during Butler’s time as a St. Joe Company executive, and asked him to do a study of potential uses for the Boosters’ properties locally, including their suitability for development, environmental considerations and zoning. “Their core business was game day weekend parking, so it was only in use five to seven weekends a year,” Hodges said.
Hodges also solicited input from the Montreal consulting firm Live Work Learn Play, whose best-known project in northwestern Florida is the retail, dining and entertainment project Baytown Wharf in Sandestin.
The consultants looked at Madison Street and came to the same conclusion that Butler and Hodges had — the land there would be a good choice for multi-use development.
“It was clear to everybody that Madison Street had the greatest potential to provide that sense of place that, that college-town environment,” Hodges said, citing as examples the similar developments in college communities Ann Arbor, Mich., and Athens, Ga.
He, local architect Craig Huffman and Max Reim, principal and partner of Live Work Learn Play, came up with an initial master plan and presented it to the Boosters’ leadership in May 2009. “It was very well received and based on that, we got the approval to move forward. What we did is identify Madison Street as ripe for opportunity,” Hodges added.
“This project truly is catalytic for not only FSU and the Boosters, but for the city and the development of this district,” Butler said during College Town’s groundbreaking last month.
The project site is entirely within the city’s downtown Community Redevelopment Area, a segment of the city that has rundown areas which could be improved. The Community Redevelopment Area, governed by a board consisting of both city and county commissioners, has the ability to provide grant dollars for developments that enhance properties in the district.
“The CRA was created because we found conditions of blight throughout the redevelopment area,” said Rick McCraw, the city’s Community Redevelopment Agency manager.
“Complicated” only begins to describe the structure of the College Town deal, says Ed Gray, executive director of the Capital Trust Agency in Pensacola, one of two “community development entities” that are the sources of the direct financing for College Town LLC, the business entity that is building and will operate the development.
Gray, who is an FSU alumnus, said the College Town project had enough public interest and impact that it achieved what many developers and communities hope for — investment from outside the local market.
“This project did that, and I think that’s a testimony to all those involved,” Gray said, adding the credit goes to many individuals who pitched in at the front end to help the College Town concept along. “To me, that is a really positive part of the story.”
The complexity comes in part from the New Market Tax Credits and the aspects that are dictated by Treasury Department rules. College Town qualifies for the credits because it’s located in an area that meets the criteria for being disadvantaged. Gray said the factors include the percentage of persons below the poverty level, the area’s median income, the presence of a Community Redevelopment Area and potential brownfield properties. Brownfields are parcels of land whose development prospects may be hindered by suspected onsite environmental contamination.
“Without a doubt, this area meets what is called ‘highly stressed,’” Gray said.
The project’s qualified equity investments are made through the two CDEs result in a pair of loans: $17 million from CDF Development Subsidiary VIII LLC and $9.69 million from Capital Trust Agency CDE Sub 5 LLC.
Once leasing and other revenues begin flowing from College Town, the first obligation on the cash generated, after operating expenses and maintaining a reserve, will be repayment of the CDE loans, followed by loan payments to Ten G & G LLC. The balance of net cash flow would go to the Boosters.
Miller said the project structure will remain as is for seven years, which is the term during which US Bancorp CDC will recover its tax credits. After that time, US Bancorp exits the deal.
Interest rates on the CDE loans are below market rates, Gray said. Once the loan payments are made, cash from College Town operations will accrue to the Boosters through their T’Alley subsidiary.
After seven years, the Boosters have the option of buying out Ten G & G Inc. and step into the investment fund’s position on the priority list for distribution of cash from operations.
College Town LLC was established to qualify as a community business entity under federal rules for New Market Tax Credits. The credits are designed to encourage revitalization efforts in low-income areas.
Seminole Boosters Inc. has leased its land to College Town LLC, whose controlling member is Hooper Construction Inc. The balance of the ownership interest is held by a wholly owned subsidiary of Seminole Boosters Inc. Hooper will manage the business.
US Bancorp Community Development Corp. is participating in the College Town project strictly to benefit from the New Market Tax Credits with a $7.6-million equity investment in exchange for the tax credits, said Morris Miller, an attorney at law firm Holland & Knight and the Boosters’ general counsel.
Seminole Boosters’ contribution is a $14.5-million loan consisting of the CRA credits, the Boosters’ land, and about $5 million being provided from the Boosters’ Endowment Fund. The Boosters also is covering $800,000 in project costs, money that will be reimbursed by College Town LLC.
The third major source of funds is the private investment group Ten G & G LLC, consisting of individuals and investment trusts. Most of the individual participants are members of the Boosters, notably DeVoe Moore, who with his wife, Shirley, earlier donated some of the Madison Street land that today is part of the project.
Ten G & G LLC is making a “leverage” loan of $5.9 million to the project, as well as a second $2.1-million loan directly to College Town LLC and a $10,000 capital contribution. Miller said the loans have an interest rate of 6 percent.
The Boosters also formed the entity T’Alley Properties LLC, which was deeded the Boosters’ land and subleased it to College Town LLC for use in the development. Besides that ground lease, T’Alley Properties also put up a $24,483 capital contribution. T’Alley Properties is the entity that allows the Boosters to exercise control over the project, Miller noted.
Builder Alan Hooper, whose team will manage College Town, is under contract to provide services only and receive fees for them.
Miller said the Boosters’ risk is limited largely to the loan the nonprofit provided, and would get its land back if the $27.2-million project fails. Another effort to minimize the risk is the amount of preleasing being done on the restaurant and retail space.
The legal team also addressed the question of conflict where members of Seminole Boosters made direct investments in the project through Ten G & G LLC. “We did look at that and analyze it from that point of law,” Miller said.
“The Florida statutes are very clear on when a not-for-profit can enter into a transaction where its officers or directors may have a personal interest, and we were very careful to look at that.”
Some Boosters board members, their family members or investment trusts or businesses they are affiliated with were considering an investment in Ten G & G LLC when the board voted Oct. 21 on College Town’s final approval. Those directors — Brian Swain, Gary Thurston, Doug Mannheimer, Christian Scherf, Nylah Thompson, Bob Smith, DeVoe Moore, David Rancourt and Dave Cowns — abstained when the College Town vote was taken in favor of the project, according to meeting minutes.
Miller said Ten G & G LLC will function essentially as a silent partner, meaning it is not involved in the day-to-day operations or management of College Town.
While the Boosters’ plans were taking shape, real estate throughout Florida and the nation was reeling from a market collapse that had virtually stopped new home construction, pushed real estate values down and brought about a record number of foreclosures. The foreclosure rate in Tallahassee, likewise, was climbing as well and is still rising. Unemployment rates, a factor in real estate’s slow recovery, are only now starting to drop from their highs during the Great Recession.
The timing of the College Town project was a concern raised by analysts at realty firm Jones Lang LaSalle, which was commissioned by the university in 2010 to prepare a feasibility review the project. They listed the difficult financial market conditions as a weakness, along with the speculative nature of the demand for retail and entertainment space. At the time, the only firm commitment was from entertainment company America’s Backyard, which had indicated it would lease the old post office building at the corner of Madison and Woodward as its concert venue, bar and restaurant.
A consultant’s 2010 review
College Town has the potential to boost leasing in the so-called Southgate District simply because of its presence, said brokerRobert Leparulo of Leparulo Properties & Investments, which leases a portfolio of apartments in the neighborhood.
“All the students we lease to will be the ones who will go to it,” Leparulo said of College Town. “I’m excited. It will be great not only on game day but year round.”
The area can be pricey. Leparulo noted that students who can afford it want to live in the area on the south side of campus, and the few apartment vacancies that seem to be available along St. Augustine and Madison streets would tend to support that. College Town provides something for dining, entertainment and retail that will be within walking distance of these residences.
“I think it’s going to work because of where it is. There are a lot of places where you can be close to campus, but this is the sweet spot,” Leparulo added.
Next door to Leparulo’s office, Chance Partners has three- and four-bedroom apartments that the developer just completed in preparation for leasing this fall.
At the 3-acre site of the former Romac hardware and building products business farther east on Madison, more apartments are planned.
While residential real estate awaits a comeback in single-family housing, multi-family development is a bright spot overall, said Carlton Dean of commercial firm Sperry Van Ness.
As for retail leasing, Dean said that aspect of the College Town project will depend on access, visibility and the demographics of the area. “That is what every retailer is going to be looking for,” Dean said.
Miller says he thinks it’s actually a good time to be building College Town. Money is cheap, as is evident in low interest rates. There are a lot of apartments in Tallahassee, but the market for those close to campus where students can walk to class “is really white hot,” Miller said. Rental rates are good and vacancies are low.
“On the retail side, we just think our location is unbelievable. There’s nothing like this in Tallahassee. We have got 70 percent of the space already preleased and we expect to have it all leased by opening, and so we feel very, very bullish about it.”
The firm’s report listed as concerns the challenge of raising of capital from a senior lender and the fact that experienced developers were not interested in the project. They graded the Boosters’ risk as “medium-high” to “high.”
FSU’s Board of Trustees has heard three in-depth presentations on College Town during the past two years, not to mention regular updates at their quarterly meetings. Some trustees were surprised to learn during the most recent discussion, last June at the university’s Panama City campus, that they do not have a vote on the Seminole Boosters’ project.
But that hasn’t prevented some trustees, particularly Peggy Rolando, from asking pointed questions.
Rolando, a partner in Miami-based Shutts & Bowen’s real estate department since 1984, voiced some of the same concerns that Jones Lang LaSalle noted as potential liabilities in their independent review of College Town.
“The nature of real estate development is it’s risky. This particular project, there are risks involved,” Rolando said. “I think we’ve vetted the risks at the board level.
“I feel comfortable that the questions I’ve raised have been explored. I do think the College Town folks have spent an enormous amount of time focusing on the feasibility and financing of the project,” she added.
Former FSU President T.K. Wetherell said he wasn’t involved with College Town, even though plans for the project were developing during his final year leading the university. He asked the Boosters to hold off, he said, until a new president was in place. Now on the faculty in FSU’s College of Education, Wetherell said he didn’t know enough about College Town to have an opinion about it. “I think the Boosters need to be in the business of fundraising more than in the development business, but that’s just a philosophical point of mine,” he said.
On the plus side, the analysts noted College Town had a great location and would benefit from healthy residential demand, an attractive design concept, and its financial structure, including the CRA grant and the prospects for New Market Tax Credits.
Opening in 2013
This week, construction crews are continuing the sitework and utilities construction. Work will start on the building foundations in the next 30 days. “Things are moving along nicely,” Hooper said.
Even at this early stage, College Town is attracting attention from leasing prospects as word spreads about the development. Hooper sees a lot of similarities between this project and those he and partner Tim Petrillo have done in Fort Lauderdale.
One of them was a sleepy neighborhood around Second Street that had little happening in terms of night life. “America’s Backyard came and all these other tenants showed up because it was such a hot little district,” Hooper said. The area quickly went from four to 14 venues for dining and entertainment.
“It’s almost like the setup that you’ve got in College Town,” he added of what is today called Himmarshee Village. There, Hooper and Petrillo’s Urban Street Development learned the basics of operating such developments and making them succeed.
“The Himmarshee district is where we cut our teeth, and since then we have done a lot of projects on Las Olas Boulevard,” said Hooper, who received the Fort Lauderdale Chamber of Commerce’s “Downtowner of the Year” award in 2008 and was named Citizen of the Year in 2006 by the City of Fort Lauderdale.
Besides College Town’s business and income potential, Andy Miller is hoping for a bigger impact.
“We saw it being an amenity that would really, really be something that students I think would enjoy, the faculty and staff,” he said. And, if it attracted 1,000 new season ticket holders and boosters that FSU would not have had otherwise, so much the better. “That’s our core business. That’s what we do,” he said. “The multiplier of a thousand new season ticket holders is significant.”
“I really do think that people, once they experience this, they will not be so driven by who we are going to play this weekend,” he said. Instead, Tallahassee will be regarded as an even more fun place to go.
“Football weekends will be that much better. As far as every day of the week, I can see students sitting in the alley with their professors having a cup of coffee talking about their class. I can see kids and social interaction,” he said.
“I just think it will be an environment that we don’t have any place in Tallahassee. There’s no place for kids like that. I just think it’s going to bring a little bit of the heart and soul that maybe we miss to our university. I think financially it will be a success. The Boosters will realize a decent cash return on their investment. Long term, I think the property will appreciate tremendously and we’ll be extraordinarily pleased with our asset.”