The Old Police HQ Redevelopment

Happy New Year!

I will start with an apology. This post is late. It's been a while since City Council decided to move forward with a development team led by The Fallon Company to redevelop the old police HQ site at 505 W Chapel Hill St. This project is exciting for the simple reason that the city had site control, so they were able to control the process and lay out priorities for redevelopment of the site.

Fallon's plan preserves the old police HQ and activates it with retail and open space.

Their process generating some really good proposals for the site and ultimately, they chose the Fallon Company's vision over the runner-up proposal from the developer, Akridge. First, let's look at some of the features/promises of Fallon's proposal for redevelopment of the site:

Financial Offer

$9.25 million, with $8.75 million paid upfront. This upfront payment was a crucial differentiator between Fallon's offer and Akridge's offer, which was higher, but payment was delayed. I won't get into the rationale behind "Net Present Value", but suffice it to say that the city getting money sooner is more valuable than getting the money later due to the fact that they can put that money to work quicker.

Looking at the present value of that payment PLUS the taxes that the project will pay the city, Fallon's offer is valued at $11.9 million, while Akridge's was valued at $11.1 million.

Affordable Housing

One of the partners in the Fallon development team is WinnCompanies, one of the most experienced low-income housing developers in the country. As a result, they came up with a creative way to apply tax credits to the project. Low-income Housing Tax Credit (LIHTC) comes in two forms, 9% and 4%. The 9% LIHTC is EXTREMELY competitive and Durham wants the Durham Housing Authority to win those tax credit awards.

However, the 4% credit is less competitive, mainly because it is difficult to make the numbers work for affordable housing with this lower credit. WinnCompanies, planned 80 units of affordable housing and because it is within this larger project, they were able to make the 4% tax credit work. Additionally, with tax credits, often companies have to SELL the tax credits to large companies that can actually use them. It appears that WinnCompanies is large enough to use the credits themselves, reducing risk and transaction costs.

Finally, City Council liked that all 80 affordable units in Fallon's plan were in the same building as the market rate housing. So, even though Akridge proposed 90 units, the city thought that the increased revenue that could be used to build affordable units elsewhere, plus the execution made the development plan more stable and preferable.

Preserving the Old Building

On a personal note, I am starting to come around on the preservation of this building. I understand its historical context, but at first glance, I didn't love the style. That said, my personal preference for architecture shouldn't dictate what happens to the building and preserving this style and surrounding it with complimentary, but more modern styles could end up being really compelling.

Akridge's original plan did not save the old police HQ building, but they revised their proposal when it became clear that it was important to the council. I honestly thought that Akridge's revised rendering was pretty cool looking:


It creates a really unique visual for the site. However, city council seemed to prefer Fallon's design:


It's important to note that these are not the final approved designs and the architecture could change quite a bit, so perhaps these renderings were not a big factor in the council's decision. The scaled-down version does respect other buildings in the neighborhood such as the methodist church across the street.

Open Space and Parking

Fallon's plan creates over 52k square feet of open space (green space, plazas, etc) compared to Akridge's plan of 30k square feet. Creating great open and public spaces is about a lot more than square footage, but there is definitely more room in Fallon's plan and the city council really liked how they planned to activate the space, especially the pedestrian area in front of the old police HQ building.

As for parking, all of the parking in Fallon's plan is podium parking, meaning that there will be no large structures only dedicated to parking. Of course, parking on the ground floor sometimes leads to poor activation of the street, but with retail planned for the ground floor of the original building, plus the generous outdoor space, perhaps this risk is mitigated. Conversely, Akridge's plan had a large parking structure.

Lots of plaza/open space. Hopefully there are some great cafes/restaurants so that it draws in people who don't live on the site as well. Maybe it can have some programming like concerts or events as well?

Office Space/Retail

Fallon's proposal would deliver 339,500 square feet of office space including 276,500 of class A space in a new building, plus 63k square feet redeveloped in the original building (there will also be about 10,500 square feet of retail). Akridge only proposed 185,000 square feet of office space. Akridge's proposal was more conservative as demand for housing is extremely strong in Durham. Meanwhile, office space is also strong, with low vacancy rates, so it should be achievable, but it requires the right companies to be looking for space at the right time. Durham is hoping that a signature company locates its headquarters in this space.

One of the council's priorities is spurring office use downtown, so my guess is that this was a big factor in their decision. On a personal note, the office space difference is the component that has won me over to Fallon's proposal. I really hope they can fill that space quickly and with a signature HQ office.

Office tower at the back of the site is impressive, while being far enough from the methodist church that it won't overshadow it along Chapel Hill St.

Residential

Fallon's proposal has far fewer residential units (300) compared to Akridge's proposal (420). While I think we need to be adding more units in Durham at every level, I am ok with the tradeoff in this instance as residential is achievable for far more developers on other sites. I imagine the council also saw this as an opportunity to add the trickier office space and focus on more residential elsewhere (plus 300 units is still quite a bit!)

Next Steps

Now that the city has chosen Fallon, all parties are negotiating the final development agreement. They are hoping to have the final agreement in Spring of 2020, at which time, we will know more!

Thoughts or opinions on Fallon's proposal or Akridge's proposal? Come to the forums and discuss!

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