Come Home to Downtown

Transcription

1 2014 Final Report Meriden Come Home to Downtown How Connecticut can enliven its Downtowns by redeveloping under used buildings into a blend of housing and retail, entertainment or office space. Connecticut Main Street Center c/o CL&P PO Box 270 Hartford, CT

2 Come Home to Downtown 2014 Final Report Meriden Table of Contents Acknowledgements... 3 Introduction... 4 COME HOME TO DOWNTOWN... 7 Overview of Year Overview of Year Communities... 9 Property Owners & Model Buildings... 9 Findings & Recommendations For Property Owners MERIDEN MODEL BUILDING Opportunity Challenge MODEL BUILDING ANALYSIS Building Plans Design & Construction in the Redevelopment Process PROJECT FINANCING & ASSISTANCE TO PROPERTY OWNER Project Financing Explanation of Financial Summary Possible Funding Sources THE REAL ESTATE DEVELOPMENT PROCESS Overview Understanding the Architectural Process ONGOING PROPERTY MANAGEMENT For the City of Meriden DOWNTOWN DEVELOPMENT AUDIT Regulatory Environment & Land Use Controls BUILDING DOWNTOWN MANAGEMENT CAPACITY CREATING A MERIDEN DOWNTOWN PARTNERSHIP COMPONENTS OF A MERIDEN DOWNTOWN PARTNERSHIP Downtown Development Corporation The time is right for housing in downtown Meriden. Downtown Meriden has many attributes attractive to people interested in living, working and visiting downtown. Encouraging mixed use development, including housing above commercial space, will take full advantage of Meriden s significant investment in transit and public spaces, attracting residents and visitors while both saving and generating revenue. 1

3 Downtown Management Services Hub Park Management & Programming Conclusions References Appendix International Building Code Compliance Chart... Conditions Assessment... Current Pictures of Model Buildings... Development Tools and Incentives... List of Exhibits Figure 1: Downtown Meriden Map... 9 Figure 2: TOD Zoning Map, Meriden Figure 3: Existing Floor Plans, 1 3 Colony Street, Meriden Figure 4: Proposed Floor Plans, 1 3 Colony Street, Meriden Figure 5: Potential Sources of Funds & Projected Development Costs Figure 6: Real Estate Development Process Chart Figure 7: Meriden Downtown Partnership Chart

4 Acknowledgements The following people were instrumental in the successful completion of Meriden s Come Home to Downtown pilot program. We at Connecticut Main Street Center would like to thank them for their participation, dedication and hard work. PROJECT LIAISONS Juliet Burdelski, Director, Economic Development, Meriden Florence Villano, Community Development Administrator, Meriden LOCAL ADVISORY TEAM John Benigni, Director, Meriden YMCA Christine Bonito, Property Owner, 1 3 Colony St., Meriden Rob Cappelletti, Meriden Housing Authority Dominick Caruso, City Planner, Meriden Tami Christopher, Meriden Center Director, Middlesex Community College Ross Guilino, Downtown Neighborhood Association & Property Owner Larry Kendzior, City Manager, Meriden Sean Moore, President, Midstate Chamber of Commerce Ed Siebert, Meriden Property and Business Owner Chris Webster, Director, Gallery 53, Meriden CONSULTANT TEAM William W. Crosskey II, AIA, LEED AP, Principal, Crosskey Architects LLC Sean Ghio, Program Officer, Local Initiative Support Corp. Larry Kluetsch, Real Estate Consultant Andrea Pereira, Executive Director, Local Initiative Support Corp. Lou Trajcevski, Principal, Newcastle Housing Ventures, LLC CONNECTICUT HOUSING FINANCE AUTHORITY Dara Kovel, Vice President Multifamily Housing Diane Smith, Program Development Officer Jonathan Cabral, Program Development Analyst CONNECTICUT MAIN STREET CENTER John Simone, President & CEO Susan Westa, AICP, Community Engagement Director Christine Schilke, Communications & Office Manager This project was made possible through a contract with the Connecticut Housing Finance Authority with funds from the State of Connecticut Community Investment Act. 3

5 A mixed use real estate planning pilot program Introduction Connecticut s downtowns are at a critical turning point. For decades, communities around the state embraced single use zoning and sprawling development patterns as their default development option. Today, however, downtowns and town centers from Enfield to New Haven and New Britain to Hartford are reconsidering these strategies. The state s $1.5 billion investment in new public transportation, including new commuter rail service from Springfield, MA to New Haven, and the new CTfastrak busway from New Britain to Hartford and beyond, have played an important role in this change of priorities. There are other factors playing a role as well. Communities are increasingly concerned about their own fiscal and environmental sustainability. There is also a shift in demographic trends and the living preferences of certain groups. Millennials and Baby Boomers especially are interested in living in mixed use communities where they can walk to jobs and amenities. As evidence of this, three recent surveys have confirmed a renewed interest in walkable communities. A 2014 survey by the American Planning Association found that Millennials, Gen Xers and Active Boomers have more in common than in conflict. All three groups showed declining interest in traditional automobile oriented suburbs with fewer than 10% desiring this model for the future, even though 40% live there today (American Planning Association 2014). A 2014 Pew Research Study had similar findings, noting that While young adults are disproportionately in favor of walkable neighborhoods, the most favorable group is people 65 and older led by women in that age category. (Stueteville 2014). Additionally, the number of people wanting to live in walkable communities has grown significantly over the last years. Whereas a decade ago only 25 30% preferred this type of living, both the Pew Study and a 2013 survey by the National Association of Realtors found that roughly half the respondents would prefer to live in a walkable community over a conventional suburb, a dramatic increase of 15 20%: 50% of the National Association of Realtors respondents prefer to live in walkable communities, while 45% prefer conventional suburbs. 49% of the Pew Study respondents preferred low density development, while 48% preferred walkable neighborhoods. 4

6 Beyond the growing demand for walkability, municipalities today also understand the importance of growing sustainably. This means finding ways to both increase the tax base and reduce costs while ensuring a good quality of life and preserving the environment for generations to come. Fortunately, most of Connecticut has potential solutions readily available downtown. That s because focusing growth in downtowns and town centers where the infrastructure is already in place and where development can enhance a walkable, mixed use setting with housing choices for workers and families is generally more sustainable than low density development, generates revenue and saves money. In fact, according to a report by the U.S. Environmental Protection Agency (EPA), the infrastructure costs to service compact, dense development like the mixed use development found in most downtowns is 32% to 47% less than for lower density suburban development (Ford 2009). As we noted in our first report (CMSC 2013), the return on investment for a municipality that directs its growth in its downtown is impressive. The City of Raleigh, NC, commissioned a study to compare compact, mixed use development with big box development. The results demonstrated that on a per acre basis, mixed use development provided a significantly better return to the municipality (Smart Growth America 2013): Return on Investment Comparison Compact, Mixed-Use Development vs. Big Box Raleigh, North Carolina Big Box Compact, Mixed-Use Property taxes/acre $2,837 $110,461 A study commissioned by the downtown business improvement district in Asheville, NC (Minicozzi 2012) had similar results: Return on Investment Comparison Downtown Development vs. Big Box Asheville, North Carolina Big Box Downtown Property taxes/acre $6,500 $365,000 Retail sales tax/acre $47,500 $83,600 Jobs/acre Residents/acre

7 A more recent study conducted by the National Trust for Historic Preservation s Green Lab found that there are 36.8% more jobs per square foot in older, smaller, more diverse buildings in Seattle neighborhoods when compared to areas with newer and larger buildings (Preservation Green Lab 2014). Jobs Per 1,000 sq. ft. Comparison Oldest, Most Diverse Buildings vs. Newest, Largest & Least diverse Buildings Seattle, Washington Buildings Jobs Per 1000 sq. ft. Oldest & most diverse 4.39 Newest, largest & least age-diverse 3.21 Luckily, many of Connecticut s town centers still have good bones, providing us with exceptional foundations for mixed use development. While some may be struggling with high vacancies, most of Connecticut s downtowns are well designed compact, walkable, and often centered around town greens and/or waterfronts that provide development opportunity. A revitalization effort that takes advantage of these features is called placebased development and it creates authentic places of human scale in the historic hearts of our communities. It is typical to find three and four story buildings that are family owned downtown, where the family business may be thriving on the ground floor but the upper floors remain vacant. These underutilized spaces can be converted to apartment homes to satisfy the demand for downtown housing that s close to jobs, services and entertainment. Moreover, the redeveloped space can also provide the property owners with additional income while injecting increased spending into the local economy as residents take advantage of nearby shops and services. More Downtown Housing = Increased Spending Downtown A study recently completed for Main Street Iowa by economist Donovan Rypkema calculated that every new unit of downtown housing spent $20,000-$39,000 in the downtown annually. Vacant First Floor Space = Negative Downtown Revenue 6 Conversely, vacant first floor commercial space has a tremendous negative impact on the community. Mr. Rypkema calculated a vacant storefront with a modest $250,000 in lost annual sales costs the community over $222,000 annually in terms of lost rents, property and sales tax, and utilities, supplies, services and salaries not paid (Rypkema 2012).

8 COME HOME TO DOWNTOWN Overview of Year 1 It was out of this context that the (CHTD) pilot program was born in the spring of The culmination of a successful collaboration between Connecticut Main Street Center (CMSC) and the Connecticut Housing Finance Authority (CHFA), directly addresses a need found in many of Connecticut s underutilized downtowns: redeveloping vacant or under utilized small downtown properties into housing above commercial space. In order to achieve the successful completion of the program, CMSC set forth the following goals: Recommend specific solutions for accommodating mixed use development such as changes to zoning, streamlined permitting and other financial incentives. Grow the relationship between communities and property owners by educating them about the benefits of redeveloping vacant and underutilized space. Perform a Model Building Analysis and provide technical assistance to guide property owners (many of whom have little or no development experience) in the redevelopment of their properties. Provide the community with an increased understanding of the downtown s value and potential. Create or enhance the downtown management s function. Analyze lessons learned, and use them to inspire other property owners and municipalities. Have the respective pilot communities embrace downtown mixed use development and support property owners pursuing downtown redevelopment. In the first year of the program ( ), CMSC selected Middletown, Torrington and Waterbury as the pilot communities. Working with three property owners, municipal officials and key stakeholders, CMSC provided redevelopment options, performed an assessment of the downtown s walkability, and engaged the community on the demand for downtown living. At the conclusion of the process, CMSC provided a report on its activity, identifying seven key findings: 1. There is a substantial amount of potential for accommodating mixed use development which both saves and generates monies in Connecticut s downtowns. 2. Mixed use development is one of the most difficult types of development to accomplish. 3. This type of development is hindered by a lack of financing both private and public. 4. The vision and development skill of property owners are key ingredients of success. In many cases the property owners are business owners rather than developers and education and outreach are needed. Many owners are unprepared for the complex 7

9 process and cost of redevelopment, and may not see the potential benefit of redeveloping their asset/building. 5. Market rate rents for these buildings are often the same as HUD affordable rate rents. However, owners must agree to restrict rents to these levels for a period of time in order to access most state and federal programs. The additional time and cost of using these programs may make them infeasible for small projects. 6. Regulatory and zoning policies must allow flexibility for mixed use growth. Even when zoning regulations promote redevelopment, they are often not enough to enable mixeduse development, the hardest type to accomplish. 7. Downtown Management capacity is critical to the success of mixed use development. Overview of Year 2 In Year 2 of the program, CMSC continued to assist the first year property owners identify possible funding sources, in addition to selecting two new pilot communities: Meriden and New Britain. When choosing these communities, CMSC considered several factors, among them the willingness of the municipality to encourage mixed use development, an engaged property owner and a building style common to many Connecticut downtowns. The CMSC team, comprised of CMSC staff and consultants with expertise in historic architecture and community financing, provided an analysis of the following four individual components: Downtown Development Audit Addresses impediments and incentives to promoting redevelopment in a downtown. Model Building Analysis Focuses on redevelopment plans designed to bring housing back to the upper floors of the model building. Project Financing & Assistance to Property Owners Property owners received a financial pro forma identifying the shortfall between the rehabilitation costs and what traditional lenders will typically finance. This section includes potential funding sources to address those gaps. Recommendations are also provided to the property owners, as needed, to assist with the building redevelopment and management. Downtown Management Assistance Strengthens the organizational capacity of the downtown management function to address the area s constantly evolving housing and economic needs. 8 In addition to these components, community engagement is also a critical element of any planning process. CMSC took care to engage the community at various levels throughout this program. Local Project Liaisons and Advisory Teams were designated and offered guidance and local input. A Public Meeting was used to present preliminary project findings and get feedback from the larger community. In addition, traditional and social media were engaged to spread the word to an even larger audience.

10 Communities After an extensive selection process, Meriden and New Britain were chosen to participate in Year 2 of the Program. Both communities have positive aspects such as walkability and a range of services and amenities. While each faces individual challenges and successes, collectively they represent downtowns with the type of housing stock 1-3 Colony Street and infrastructure typically found throughout Connecticut. Both of these communities also offer significant Transit Oriented Development (TOD) opportunities. Figure 1: Downtown Meriden Map TOD is a mixed use development project, redevelopment or infill, designed to take advantage of nearby transit. TOD was made a priority in the second year of CHDT because of the state s significant investment in new transit and the opportunities presented to communities along the transit corridors. The timing is also critical, with both CTfastrak the new bus rapid transit system and the New Haven/Hartford/Springfield commuter rail opening in 2015 and 2016, respectively. Property Owners & Model Buildings Just as important as the downtowns themselves are the individual property owners and their buildings. CMSC selected owners who wanted to be engaged in Come Home to Downtown; who demonstrated a commitment to the neighborhoods where they were located; and who understood the value of TOD in downtown. With regard to the buildings, CMSC felt it was important to choose a variety of styles indicative of those commonly found throughout the State. CMSC views this program as a learning process, and one from which the lessons learned can be used by property owners to replicate and encourage mixed use development in other Connecticut downtowns. 9

11 Findings & Recommendations FOR PROPERTY OWNERS Meriden is uniquely situated midway between Hartford and New Haven along the new New Haven/Hartford/Springfield commuter rail corridor. This will create significant opportunities for existing and new residents of Meriden, including easy commuter access to Hartford, New Haven and beyond. If Meriden is going to take full advantage of this opportunity, everything must be lined up to promote redevelopment and infill development within walking distance of the new train station. The City is already working on a number of downtown improvements including development of Hub Park and related train station upgrades with improvements to pedestrian connections and circulation, and other residential development projects, all designed to ready the community for this important opportunity. Come Home to Downtown adds another piece to the puzzle, providing a model for property owners interested in redeveloping their buildings, and presenting new residential opportunities in support of this significant state investment. Downtown Meriden has many attributes attractive to people interested in living, working and visiting downtown. This walkable downtown has most, if not all, of the building infrastructure already in place to increase its availability of housing for anticipated new TOD opportunities. Implementing the recommendations highlighted in this report will help the City, the Chamber of Commerce, the Downtown Neighborhood Association and other stakeholders more fully integrate and utilize their many assets. Figure 2: TOD Zoning, Meriden 10

12 MERIDEN MODEL BUILDING Owner: The 1 3 M Colony Co LLC Location: 1 3 Colony Street This building is owned by Christine Bonito who has redevelopment experience working in other communities. Ms. Bonito was looking for assistance identifying new funding sources and furthering her understanding of the upper story redevelopment process for residential uses. At the outset of the program, the building was about 30% occupied with commercial and office tenants including the Chamber of Commerce, a small grocery store and a florist. It is 19,000 square feet and five stories high with an additional floor on the back side of the building due to a change in elevation. Opportunity 1-3 Colony Street, Meriden The 1 3 Colony Street building, also known as the Hall and Lewis Building, has the potential to be an important signature project and a positive catalyst for the revitalization of downtown Meriden. It is at a prime location on the corner of Colony, Main and State Streets. It has historic character which can set the tone for the image of the entire block and beyond. The building s location, next to the commuter rail stop, can capitalize on the current interest in TOD and can offer easy access to and from the train. By creating residential space at this prime location, the project will increase the number of customers and commuters to support the growth of downtown businesses and the new rail service. The building is also located within walking distance of the new HUB Park, currently under development across the street. Challenge The 1 3 Colony Street project is a pioneering early step in strengthening the residential and retail market of downtown Meriden. By rehabilitating the building with high quality standards, the project can build value in the downtown market. The project can be positioned to attract the first and most enthusiastic residents to a newly renovated building with attractive amenities and a convenient location. The challenge comes from being the pioneer. While many projects are in the pipeline in Meriden, most have not yet been completed. As such, the projected values and rents (in this report) reflect the market prior to the rehabilitation. In similar locations, major 11

13 signature projects like this one have had a positive impact on the market, causing values to rise. However, at this stage, the project will need the support of the local municipality, business community and other partners in order to build confidence in completing the project. Another challenge is helping the building owner evaluate the feasibility of redeveloping and investing in their property. The return on the redevelopment investment may be seen over a longer term as the market improves. Most owners would be inclined to focus on the near term cash flow rather than the long term appreciation of their asset. This can be addressed through technical assistance and by review of similar projects in other communities. MODEL BUILDING ANALYSIS The model building at 1 3 Colony Street has redevelopment potential, a key TOD location and represents a good example of a building commonly found in Connecticut s downtowns. The Model Building Analysis conceptually demonstrates how the building can be redeveloped to accommodate housing on the upper floors. Our approach identifies the most practical and least expensive options to meet all code requirements and is intended to be useful to property owners in any town with a similar building type. Every effort has been made to keep the costs of renovation down. The building at 1 3 Colony Street was selected based on the following criteria: Mixed use with ground floor commercial uses and underutilized upper floors. Location on Main Street/pedestrian oriented area. Strong likelihood of being redeveloped. Motivated and committed building owner. Obstacles/challenges that make it difficult for current owner(s) to develop the upper floors. Represents a good example of a typical building found in Connecticut s downtowns. The model building is located on the east side of Colony Street, at its intersection with East/West Main Street (the street name changes at this intersection). Built in 1910, it is listed on the National Register of Historic Places as part of the Colony Street West Main Historic District. 12 The main entrance lobby is at the level of Colony Street. Inside, the building currently has commercial tenant spaces on all floors with largely open floor plans, an elevator and two enclosed central stairs that access every floor. One of these stairs is open to the lobby, open between floors, and has a large skylight at roof level. There are four commercial tenant spaces with street frontage at the basement level. One of the basement spaces is occupied

14 with a small grocery store and another with a florist. These spaces are accessed by two entrances; one via a shared ramp and one via several steps. The main commercial tenant space on the first floor is occupied by the office of Connecticut Junior Republic, a private non profit organization. The second and third floor spaces are partially vacant. The fourth floor is mostly vacant, except for storage for the fifth floor tenant, which is the office of an engineering firm. The building is an excellent candidate for redevelopment as a mixed use property. It is centrally located downtown, which is good for pedestrians. It is structurally sound and in overall good condition. Given the economic climate and current market conditions, residential use is recommended for the upper floors, which have high ceilings and many windows, desirable for residential use. For a detailed Model Building Conditions Assessment see the Appendix. Building Plans Existing Building Schematic The following plans show the existing footprints of the buildings. Approximately half of the basement level and all of the first through fifth floors are fit out for professional office tenants. 13

15 14 Figure 3

16 Proposed Schematic Design Plans Based on the existing building configuration and the owner s desire to have 16 apartments, the CMSC team redesigned the upper four floors of the building into four apartments per floor. There are three 1 bedroom units and one 2 bedroom apartment on each floor ranging in size from 630 sq. ft. to 802 sq. ft. Access to the second, third, fourth and fifth floors remains through the existing lobby, entered from street level on Colony Street. The lobby contains the main front staircase and a working elevator. New common hallways on the upper floors have been created to link the two existing stairs and provide a common laundry room and janitor closet on each floor. The existing rear stair is to remain as a second means of egress. Its exit to the rear of the building is proposed to remain. 15

17 16 Figure 4

18 Design & Construction in the Redevelopment Process Every effort has been made to keep the development cost estimate down while providing the most practical alternative with a level of quality that will be long lasting and attractive to renters. The development team (suggested below) should be fully involved in this process, including the five steps of the Architectural Process (outlined below). Detailed construction costs were provided to the owners and every attempt was made to provide realistic estimates including contingencies and set asides for replacement reserves. The cost estimate includes the following typical interior finishes: Walls: Patch existing plaster where applicable Sheetrock at new construction Ceilings: Patch existing plaster where applicable New sheetrock at new construction Replacement of existing suspended acoustic panels & grids Floors: Refurbish existing historic finishes where applicable Ceramic tile in kitchens & baths Wood flooring in living, dining and bed rooms Interior trim: Paint grade wood Kitchen cabinets: Wood Counters: Plastic laminate Doors: 6 panel embossed solid core hardboard Below are photos of finished apartments with similar finishes. 17

19 Ludlow Place, Stamford CT We recommend that the owners utilize the detailed designs and financial pro formas provided to ask two general contractors to provide their own detailed cost estimates to further confirm these numbers. Contractors, especially local ones, will often provide these estimates free of charge. 18

20 PROJECT FINANCING & ASSISTANCE TO PROPERTY OWNER Redeveloping older mixed use buildings in a downtown is one of the most challenging real estate deals to finance and accomplish. This is even truer for the building in this report which represents a pioneering effort for both the property owner and Meriden if successfully redeveloped. This kind of redevelopment suggested in the Model Building Analysis requires three distinct sets of expertise: 1) project financing, 2) design and construction, and 3) ongoing property management. If the property owner decides to move forward with residential units on the upper floors she should begin developing a team that includes: A real estate development consultant experienced with mixed use development and financing, including historic tax credits and other financing available from state agencies. A preservation architect experienced with historic buildings and historic tax credits, who may also be able to assemble other professionals including structural and mechanical engineers. A general contractor, if the owner does not feel capable of overseeing the ongoing construction herself. A property management professional to help determine how to best manage the property once it is complete, if the owner feels she cannot or does not want to do it herself. A real estate professional to help market the apartments. CMSC can provide information on where to find the type of team members listed above. Additionally, the Connecticut State Historic Preservation Office (SHPO) maintains a list of qualified preservation architects and consultants. Project Financing In many of Connecticut s historic downtown markets, the cost of rehabilitating this type of building can exceed the income it can generate. Further, the full project may exceed what a traditional lender will finance. The excess amount of cost over income is typically referred to as the gap. The gap can be addressed by: 1) bringing in additional financing sources such as additional equity or debt, and/or 2) identifying potential reductions in construction or operating costs that can be made without compromising quality or marketability. Since it all starts with putting the financing in place, it is important to invest the time on the front end to develop a realistic budget. 19

21 In this case, the property owner is provided with a detailed analysis of where the sources of funds could come from to finance the total project costs, along with a detailed analysis of the total development costs. The summary of Potential Sources of Funds & Projected Development Costs (Figure 5 below) indicates that the property is eligible for the State Historic Tax Credits which means that 25% of eligible rehabilitation costs can be taken as a tax credit. This could provide $350,500 of equity for this project. Connecticut Light & Power (CL&P) has indicated that when the credits are issued, they will buy them at 100 cents on the dollar from the owners. CL&P is also willing to meet with the owner to see if she can take advantage of any of the company s energy efficiency programs. Potential Sources of Funds & Projected Development Costs Sources of Funds Equity State Historic Tax Credits $350,500 Financing (Debt) First Mortgage Loan $1,350,000 Additional Funds Needed $227,700 Total Sources $1,928,200 Development Costs* Construction Hard Costs $1,401,800 Architectural/Engineering $85,500 Finance & Interim Costs $73,700 Fees & Expenses $367, Total Costs $1,928,200 Figure 5

22 Explanation of Financial Summary This financial summary indicates that an additional $227,700 of debt, equity and/or reduced expenses is needed to have a financially viable project. The size of the first mortgage loan ($1,350,000) was estimated based on the projected net operating income that this building will produce once occupied for a stabilized full year less assumptions for vacancies. The detailed analysis includes rent structure assumptions, operating costs and long term cash flow projections. The goal within the long term cash flow projections is to produce longterm positive cash flow and sufficient debt service coverage (the ratio of net operating income over annual mortgage payment) to satisfy potential lender requirements and increase equity. The financing for a project like this needs to be planned for the construction period and for the long term, starting when construction is complete and the units are fully rented. The cash flow projections and financing requirements for the construction period will need to take into account any funding sources that are not paid up front. This is the case with both federal and state historic tax credits: while the credit is confirmed prior to the start of construction, the actual vouchers and resulting cash are not provided until the construction is complete, deemed in compliance with the Secretary of the Interior s Standards for Rehabilitation and a certificate of occupancy has been issued for the properties. The construction costs are based on input from the property owner, architect and financial consultant. As noted throughout this report, mixed use development is among the hardest to do, because of the financing gap demonstrated in the above chart and the current lack of readily available financing options. It must be said that this is true in this case as well the owner of 1 3 Colony Street recently decided to put the concept of redeveloping the upper floors into residential units on hold. More specifically, the reasons for this are twofold: First, the current commercial tenants requested more space in the building. On the plus side, the property owner believes her tenants were encouraged to expand because of the attention and spotlight being focused on the building through the initiative, as well as the resources that have been focused by numerous state agencies on helping downtown Meriden prepare for TOD. This provided the property owner with increased cash flow with virtually no increased expense or any risk. Second, and perhaps more importantly, the initial drafts of the model building analysis do not yet show a viable plan for the conversion to residential without finding additional resources. The pro forma indicates that with a $1.9 million total project budget, there is still a $227,700 funding gap. This would require the owner to increase the debt on the property from $280,000 to $1.35 million with little change in net positive cash flow. While it might be possible to address this gap in several ways, it was enough to dissuade the owner given the increased demand of the commercial tenants. 21

23 Promisingly, the owner is still interested in converting to residential at some time in the future if the project can be made more financially feasible than her current rentals. Increasing demand for office space is also a positive sign, as the kind of density that will be necessary to support the coming commuter rail line will require more jobs around the station area, in addition to residents. The owner s decision to refrain from converting the upper floors to residential space at this time also provides a valuable learning experience regarding the realities of creating this type of development. Because others may still wish to pursue housing above commercial space, and because the property owner may still choose to redevelop her building in the future, we have identified possible funding sources and outlined the design process needed to continue. Possible Funding Sources CMSC can help the property owner prepare to meet with lenders to discuss the terms for potential mortgages. CMSC can also work with the property owner and the town to assess all potential resources to make this project viable. The property owner and the City of Meriden should work collectively to implement these kinds of projects. Potential resources listed below include a variety of incentives, subsidy programs and specialized financing programs. It is important to note that most state and federal development financing programs, whether it is for historic tax credits or for projects that include affordable housing, come with specific requirements related to the public purpose of the funding. They often can increase the cost and complexity of the project, but they provide grant, equity or other subsidy that is not available elsewhere. When using these programs, owners/developers must be prepared for the added expertise, cost and time that may be needed. Federal Historic Tax Credits Typically a project that is less than $2 million in costs (such as this one) is too small scale to utilize the federal historic tax credits. However, there are examples of local investors throughout the country who have benefited from these tax credits because they have a sufficient amount of taxable passive income, and who may be willing to consider a smaller project because of the benefits provided to downtown. CMSC can introduce property owners and interested community leaders to people who can provide more information on how this might work. Federal historic tax credits could be worth as much as $315,000 toward closing the project gap for this project. 22

24 Tax Increment Financing (TIF) is a potential resource that deserves exploration. TIF is not currently utilized for these kinds of projects in Connecticut. The city can work with CMSC and others in the Main Street network to determine how this may become a useful tool for mixed use development projects. TIF would allow the municipality to provide a loan or grant for the project to be paid by the incremental amount of taxes collected as the property is redeveloped. A project cannot use both TIF and tax abatements (discussed below) because if a tax abatement is given, the incremental taxes would not be paid to pay back the TIF. Most developers would prefer the TIF as the money would be upfront in a lump sum. Meriden Enterprise Zone 1 3 Colony Street is located within the city s Enterprise Zone. The property may be eligible for a seven year real property tax break on any increase in real property taxes that comes as a result of a building rehabilitation (CT DECD 2014). The standard abatement schedule is: Year Increase in Assessment That Is Deferred Year 1 100% Year 2 100% Year 3 50% Year 4 40% Year 5 30% Year 6 20% Year 7 10% Abatement requests require Meriden City Council s approval. HUD Section 108 Program The Section 108 Program is a loan guarantee program which could enable the City of Meriden to apply for a loan equal to an amount up to five times their annual CDBG grant for certain types of economic development activities. Developing a Section 108 loan guarantee program requires a good deal of advance work. The City would have to apply to Connecticut s Department of Housing, then HUD, and a specific program would need to be structured for the property. Meriden has used the program previously for the demolition and environmental remediation of Factory H. Some cities have used Section 108 loan guarantees to create a community development loan pool. Worcester, Massachusetts has a $29 million loan guarantee program in place to assist projects that conventional lenders may consider as too high a risk to move forward. Detailed Department of Housing Section 108 program guidance can be found online at the Department of Housing s website (US HUD 2014). 23

25 C PACE Financing The Connecticut Property Assessed Clean Energy (C PACE) Program allows building owners to finance qualifying energy efficiency and clean energy improvements through placing a voluntary assessment on their property tax bill. Property owners pay for the improvements over time through this additional charge on their property tax bill and the repayment obligation transfers automatically to the next owner if the property is sold. Similar to a sewer tax assessment, capital provided under the C PACE program is secured by a lien on the property (C PACE 2014). Typical eligible measures include: High efficiency lighting Heating ventilation air conditioning (HVAC) upgrades and controls High efficiency chillers, boilers, furnaces and water heating systems Building enclosure/envelope improvements Building automation (energy management) systems Renewable energy systems C PACE program guidelines specify that this lien shall take precedence over all other liens except a lien for taxes of the municipality on real property. Therefore participation requires the consent of mortgage lenders. Over 25 banks in Connecticut have consented to C PACE liens priming their mortgages (Sherman, Genevieve 10/2013). In addition to these incentives, there are two financing sources that can provide flexible financing for the redevelopment for 1 3 Colony Street. (CHDT) Investment Fund CMSC has secured $1 million from the Connecticut Housing Finance Authority (CHFA) through the Community Investment Account to provide specialized financing for projects in the CHDT program. This fund can provide predevelopment, bridge, construction and mini perm financing (mini perm loans are typically for 5 7 years beginning with construction and underwritten based on the operating pro forma) for projects. The purpose of this financing is to assure project completion and to leverage other financing to support the project. With support of the CHFA funding, loans will have favorable terms and can be customized to attract bank financing. CMSC will contract with Local Initiatives Support Corp. (LISC) to underwrite, close and service these loans. The details of this fund are being finalized now and loans should be available later this fall. 24 Connecticut Transit Oriented Development (TOD) Fund The location of the 1 3 Colony Street building makes it eligible for predevelopment and acquisition loans from the Connecticut TOD Fund. This $15 million fund is dedicated to TOD that includes residential development and is located within a one half mile radius of a transit stop along the

26 CTfastrak and Springfield Hartford New Haven commuter rail corridor. The fund includes $1 million each from CHFA and the State of Connecticut and $13 million of capital from LISC. LISC is the fund manager and can provide more information as needed. Other ideas to consider in Meriden that can help this project become more viable by helping to reduce costs and/or market the project include: Rental rebates for downtown employees. Major employers in downtown Detroit have done this and have reversed the downtown s dramatic population loss leading to a 96% occupancy rate. In Waterbury, Webster Bank offers a similar program to its employees. This same concept can be instituted in Meriden. Municipalities in many states including Maryland, Massachusetts and New Jersey are providing incentives to city workers to live in the downtowns of the towns where they are employed. These incentives for living downtown can be one time help with down payments to purchase a home or annual incentives to reduce rental costs. In a number of states, this program is called Live Where You Work. See also Development Tools and Incentives in the Appendix. THE REAL ESTATE DEVELOPMENT PROCESS Overview The real estate development process varies slightly depending on the types of project, but as the property owner moves forward with redevelopment s/he can expect the following several basic steps to occur in most projects. These are: project concept, feasibility assessment, predevelopment, construction and occupancy/operation. Through the Come Home to Downtown program, the CMSC consultant team worked with the property owner to complete the first two phases. The chart on pg. 27 describes typical phases of development relevant to CHDT properties. 25

27 1. Development Concept CMSC began by assisting the owner to develop the project concept. With expertise from the team architect and financing consultant, the owner now has an idea of their target market, preliminary design, rough cost estimates and potential sources of financing. 2. Project Feasibility Assessment For the next step of determining if the project is physically and financially feasible, the CHDT team can help the owner to look at physical conditions (including environmental conditions), assess the potential market for the completed property, and examine the availability and likelihood of project financing. It should be noted that it is during this phase that the owner should identify the project development team and define any regulatory actions that will be required to proceed (variances, special permits, etc.). By the end of this phase the owner should have refined the design and costs to the point where a preliminary development and operating budget can be created showing specific financing and funding sources. With this information, the owner should have enough information to make the decision to proceed with the project or to take another path. 3. Predevelopment As the project moves into the predevelopment portion of the process more of the project is defined and applications for financing are finalized. By the end of the predevelopment phase, the design drawings and specifications and the financing commitments have to be in place in order for construction to proceed. 4. Construction By the end of construction the owner must be able to demonstrate to investors and regulators that the project has been completed according to construction and financing plans. If the project has used subsidy sources (tax credits or grants) the owner/developer must show that the completed project fulfills all of the requirements of those subsidy sources. 5. Occupancy/Operation The official threshold for occupancy is the certificate of occupancy provided by the municipality. Once this has been given, tenants can move in and the property moves to operation. 26

28 Come Home to Downtown 27 Figure 6

29 Understanding the Architectural Process The Architectural Process is part of the Real Estate Development Process and there is overlap between the two. The project architect is a key member of the development team. For instance, during the CHDT process the architect has taken the lead in assessing the design environment and in developing preliminary design and cost estimates. There are five steps involved in the building rehabilitation process, as outlined below. The information provided in this report completes the first phase, Schematic Design, for 1 3 Colony Street. The next step for these buildings is to assemble the project consultant team and continue with phases two through five. 1. Schematic Design During this phase, the architect evaluates the owner's program, schedule, and budget. The building s existing conditions will be documented with floor plans and exterior elevations. These drawings will form the basis for the new schematic site plans, building plans, and elevations. The architect will develop a preliminary code analysis of the building and a statement of probable construction cost. 2. Design Development The next design phase, Design Development, is a more in depth study of the schematic design with respect to materials, construction, and detailing. The schematic design is refined and brought into focus in preparation for the Contract Document phase. During Design Development, the site plan, building plans, apartment unit plans, and exterior elevations are finalized, along with structural, mechanical & electrical concepts. The code evaluation and statement of probable cost are updated. We recommend contacting two contractors to verify the costs at the conclusion of Design Development. Local builders may be willing to provide this service pro bono. 3. Contract Documents Once Design Development is complete, documentation of the project s design will be completed in the form of drawings and specifications: the Contract Documents. These documents, produced by the architect and engineers, are used to obtain competitive bids from contractors and necessary permits. The architect will assist the owner and contractor with submission of documents for approval to the Building Department, Fire Marshal, and Utility Companies Bidding During the bidding phase, general contractors are invited to submit pricing for the project. The architect will prepare the invitation to bid, issue addenda and clarifications as required, and review bids with the owner. If necessary, the architect will meet with the bidder to discuss value engineering items and prepare addenda modifying the scope of the contract documents. The architect will assist the owner with awarding of contract and will also assist the owner and the contractor with submission of documents for approval.

30 5. Construction During construction, the architect will make visits to the site and meet with the contractor to review progress of the work on the owner s behalf. The architect s construction services generally include periodic site visits and job meetings, job meetings minutes, processing of shop drawings, submittals, change orders, application for payment, and preparation of the final punch list (list of tasks/items necessary for the completion of the project). ONGOING PROPERTY MANAGEMENT Typically, property owners can benefit from assistance with marketing and managing the property. It is very important that the property owner consider the plans for property management early on in the development process. The property might be self managed or can be contracted out to a third party management entity. The property manager assists with identifying tenants, securing leases, collecting rents, providing reports to the owner and overseeing and managing property maintenance. The CHDT technical assistance team can provide model scopes of work for property managers and guidelines in choosing a property manager. There are also property management firms and networks of property owners in Connecticut that can be of help. Some networks offer workshops on how to be a good landlord, screen tenants and manage property. 29

31 Findings & Recommendations FOR THE CITY OF MERIDEN The City of Meriden is moving in the right direction, taking steps to support and encourage downtown revitalization and transit oriented development. Come Home to Downtown has identified the following additional steps that Meriden should implement in order for Meriden to take full advantage of the upcoming opportunities related to the opening of the new train station and Hub Park. DOWNTOWN DEVELOPMENT AUDIT The purpose of the Downtown Development Audit is to identify the assets, challenges, and opportunities for redevelopment in Meriden. Our findings can help develop strategies to attract development that adds economic value consistent with the community s values. The audit is intended to provide guidance to enhance the municipality s ability to organize and seek out growth potential, especially regarding mixed use development. During the audit process, we examined the City of Meriden s regulations for land use, development and buildings. The following is a discussion of our findings. Regulatory Environment & Land Use Controls To promote transit oriented development the City of Meriden in 2013 rezoned the downtown area into five TOD Districts. The regulations are clear, comprehensive and generally amenable to sustainable development, redevelopment and adaptive reuse of the existing building stock. They account for the existing historic fabric and conditions found downtown, including building setbacks, building coverage/lot occupancy, and residential density, among other factors. The Adaptive Reuse section of the regulations shows the City s intent to foster the redevelopment of existing buildings of significant historic and architectural character. Zoning 30 From a developer s point of view, zoning regulations need to be clear, well defined, and practical. The zoning review process needs to be predictable so that developers can calculate their risk. Zoning regulations should make allowances for pre existing conditions such as the higher density and pedestrian environment of the Downtown District. Meriden s Zoning Regulations address these concerns very well with the exception of the density requirement (see below).