Big tax incentives approved for Union Row, Pinch District
TOM BAILEY | THE DAILY MEMPHIAN
A Downtown board primed a big pump Monday, Dec. 2, approving a combined $306 million in tax incentives -- with another $143 million anticipated -- to let flow $1.4 billion in development on the east and north edges of Downtown’s core.
And that’s just for Phase One for both projects: Union Row and the Pinch District.
The two developments – potentially a simultaneous combustion for Downtown Memphis -- tout a combined $2.4 billion worth of apartments, hotels, offices, retail, parking garages and green space when they are fully built out.
“We’re so excited on how this whole thing is going,” Union Row lead developer Kevin Adams told the Center City Redevelopment Finance Corporation before it voted unanimously to approve incentives for both developments.
“I’ve never been a part of a project that has so much positive momentum from the public and private sectors," Adams said.
Demolition crews started erecting fencing around the Union Row site over the Thanksgiving holiday, and the razing of buildings will start this week, Adams said. Vertical construction should start by June or July, he said.
"You need more bodies Downtown," Pinch District developer Tom Intrator said of creating population density in a Pinch neighborhood that is marred by surface parking lots and underused buildings.
He anticipates Pinch District vertical construction to start in about 18 months.
The incentives still must receive approvals from the City Council, County Commission and, in some cases, the state.
Union Row
The CCRFC approved the addition of $35 million in tax incentives for the Union Row project with a Phase I plan that has grown to $751 million worth of apartments, offices, retail, green spaces and parking.
Union Row developers last winter received approval for $150 million in public support for Phase I, which was generally bounded by Union, Fourth, Gayoso and Danny Thomas.
That rectangle promised a grander, eastern entrance to Downtown than the vacant land and largely empty buildings that now dominate the city’s former Automobile Row of dealerships and repair shops.
But Big River Partners, led by Adams, returned Monday to the CCRFC with an expanded Phase I and a request to increase public assistance by 23%, to $185 million.
The new plan enlarges the Phase 1 from 11 to 21.5 acres. The expansion includes plans to build: Apartments at the northeast corner of Danny Thomas and Beale, where the Workforce Investment Network recently operated; and apartments and a hotel on the grounds of the historic Hunt-Phelan property at 533 Beale.
That 189-year-old mansion once served as a Civil War headquarters for Gen. Ulysses S. Grant. Asked about how Union Row would incorporate the historic property, Adams responded that his team is still working on the plans.
But the general site plan that is part of the incentive application show a hotel and residential units being erected near the mansion on the Hunt-Phelan grounds.
The board also agreed to Adams’ request to restructure the incentives.
The original plan was to give Union Row $100 million during the 30-year life of a tax-increment financing (TIF) district plus $50 million for building parking garages, for a total of $150 million. The new plan eliminates the parking-garage money, but increases the TIF incentive to $185 million. The developers will use the increased TIF money to build parking facilities.
In return for the bigger incentives, the value of Union Row’s Phase I development will grow from the original $511 million to $751 million.
Because of the “high” property-acquisition costs, site work and construction costs and property taxes, the Union Row development would not be economically feasible without the TIF financing, the Union Row application for incentives states.
The new plan calls for 1,105 residential units, 550 hotel rooms, 68,105 square feet of retail including a coveted Downtown grocery, and 364,500 square feet of office space. The newest plan may also include a senior-living community.
That new activity should increase property taxes collected from the 21.5 acres from the current $323,680 annually to $3.1 million a year, the Downtown Memphis Commission staff calculates. The developers will get to use 75% of that increase during the 30-year life of the tax-increment financing district to pay for everything from new roads to the architecture bills.
After the TIF’s 30 years are up, Memphis and Shelby County governments can keep all of the estimated $16.5 million that Union Row’s first phase will generate in property taxes yearly, staff estimates show.
The Downtown Memphis Commission staff reported that it is “highly supportive” of the incentive for a project that will be “transformative and catalytic.”
"We're delighted to see the development of this hole in the middle of the core of Downtown," Downtown Memphis Commission president Jennifer Oswalt told the board.
Pinch District
The board also unanimously approved a 30-year tax abatement as a portion of public incentives for 18 Main LLC's proposed $1.1 billion Pinch District redevelopment project.
The CCRFC approved $121.5 million in property tax savings over 30 years for the $605 million, Phase I redevelopment in the Pinch District. The abated taxes will be placed in an account to be used by developers to repay project bonds.
An entity called 18 Main LLC, led by New York-based developers Intrator and Shay Yadin, has spent the last year spending $14 million to acquire 13 parcels between Bass Pro Shops and St. Jude Children’s Research Hospital at the north edge of Downtown.
Plans for Phase I alone include 942 apartments, two boutique hotels totaling 406 rooms, 169,000 square feet of retail, 222,000 square feet of office space, and 3,372 parking spaces.
Conceptual drawings show a cluster of glassy towers, some over 20-stories tall, rising just east of the Pyramid at Bass Pro Shops.
The buildings of the Pinch redevelopment must be taller because 18 Main LLC owns much less property than Union Row developers, Oswalt said.
A Phase II would total $486 million for the development of another 586 apartments, 45,000 square feet of retail, and 479,000 square feet of office space.
Together, the two Pinch District phases total $1.1 billion.
Construction for the first phase would start in March 2021 and be completed by March 2024, the application for the tax incentives states.
The 30-year payment in lieu of taxes (PILOT) would enable 118 Main LLC to divert 75% of the property taxes it would be paying into an account to pay its debt on the project. The incentive is estimated to total $121.5 million over the 30 years.
The Pinch District developer will seek two additional sources of public help to build the project.
Intrator proposes a 5% sales tax surcharge to be imposed within his parcels to help pay off the project debt service. The developer says the surcharge is not really an incentive but “a self-imposed additional cost of sales.”
And his 18 Main LLC proposes that the existing Downtown Tourism Development Zone (TDZ) be expanded to include all of the development’s parcels, and to dedicate the TDZ sales tax collections within its parcels to help pay the development’s debt service.
A TDZ allows developers to use the sales tax increases attributable to their new projects to help pay for qualified, public-use facilities within the zone.
The two proposals, to impose the sales tax surcharge and separate the Pinch development TDZ funds from the larger Downtown TDZ, would need to be approved by the City Council and state.
Without the incentives, commercial real estate lenders would be unlikely to approve the Pinch District for financing, the application for the PILOT states.
"Without incentives it simply is not feasible unfortunately," Intrator told the board.
Factors justifying the public incentives include the existing “deteriorated” building stock in the district, the high cost of acquiring the property from speculative landowners, high construction costs due to a limited labor supply, high cost of construction materials, and high property taxes “relative to potential income,” the application states.
Union Row may get 2nd, larger grocery
Board member Jeri Moskovitz noted that the planned grocery for Union Row is relatively small at 30,000 square feet. She asked Adams about the chances for a larger, nationally branded store that would offer lower prices.
The overall Union Row plan now will include a second, larger grocery store that should especially be convenient to the adjacent South City, Adams responded and Oswalt responded.
"We're working on two grocery stores," Adams said. Phase I's is a smaller store "and we're working on a larger one as well in another location." He is still working to assemble the property.
The property acquisitions "will allow for an affordable grocery linked to South City in this development," Oswalt said. "... It will be in the same (Union Row) master plan site."
A large grocer that typically wants to build a 125,000 to 150,000-square-foot, one-story store would need about four acres, Adams said after the meeting.
"But you just can't do that in an urban environment," he said. "It's going to have to be a smaller floor plate and probably two stories."
Can old Pinch be preserved?
Many of the Pinch District's historic buildings have been leveled over the decades, but a number still remain. Question is: How much can be preserved in the redevelopment?
"It's an excellent question and there will be a lot of design work to do and to go into it to make it happen," LRK principal Tony Pellicciotti said following the meeting. Intrator is working with Memphis architecture firms LRK and DesignShop on its plans for the Pinch.
"What we've consistently done is tailor our projects to the environment and the context that we are in," Pellicciotti said of LRK projects.
"There's some real jewels there," he said of the remaining Pinch buildings. "Leveraging that creates a unique place."
Preservationist, Intrator meet for breakfast
Before Monday's meeting, June West met Intrator for breakfast at Cafe Keough in Downtown.
West is executive director of the preservation advocacy organization Memphis Heritage. Last week she expressed concern for what the Pinch redevelopment might do to the neighborhood's remaining historic buildings.
"I feel much better," West said after her hour-long breakfast conversation with Intrator.
"He totally respects our architecture. He really, really does. All his projects he's been doing on South Main have that feel to it," she of adaptive re-use development.
"We're just going to be in talks about the buildings'' that stand where Intrator needs the space, she said.