10 YEARS

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No Slow Down Downtown

28 May 2016 by BizDESIGN in FEATURES, SUMMER 2016

By David Pittman –

Streetcar Continues To Draw Investors, Development

 

Downtown Tucson continues to be a hub of activity and redevelopment as 22 new residential projects, which could bring more than 1,500 multi-family and single-family housing units, are being built or planned.

The mood among local developers, city officials, realtors and downtown boosters is absolutely buoyant – as the first new downtown hotel in 50 years is under construction, as Caterpillar promises to bring 600 jobs over the next five years to its new downtown offices, as the Tucson Convention Center Arena gets a makeover as a future entertainment and professional hockey site, and as new restaurant concepts continue to flock to Tucson’s urban core.

Not only are these eyewitnesses to dramatic, positive change downtown, they believe the transformation still is in its infancy and will continue for many years.

There remains a shortage of housing downtown, which has a residential occupancy rate of 97 percent. Investment dollars are flowing into downtown as developers and investors are convinced there is an unsatisfied longing among diverse groups of residents to live in and enjoy the new and exciting urban lifestyle in an area that was widely considered dormant at the beginning of this decade.

“We never thought we would see this aggregation of different types of housing all coming in a fairly concentrated period,” said Michael Keith, CEO of Downtown Tucson Partnership. “It tells us there is pent-up demand for housing in the city and it is a demand for all types of housing – affordable housing, workforce housing, luxury rentals, condos, townhouses – everything.

“There are 22 projects right now that are under construction, under design or being considered for downtown,” he said. “If half of the projects now in the planning stages are built, it would significantly transform the landscape of downtown.”

‘Enormous impact’ of streetcar

All of the new residential projects being constructed or planned downtown are next to or within easy walking distance of the Sun Link Streetcar, a $197 million system that runs on a 4-mile route and connects downtown to the University of Arizona, Main Gate Square, Fourth Avenue and the Mercado District west of Interstate 10.

“The primary factor in this economic renaissance we are witnessing is the construction and opening of the modern streetcar,” Keith said. “It has had an enormous impact on people who were considering downtown development. It gave them the impetus to pull the trigger. It also made a big difference with underwriters and bankers.

“The streetcar is a fixed transportation system, which is very different than a bus system. Developers and financial institutions are willing to invest along something that they know is going to be there for the length of the mortgage.”

The development team of Rob Caylor and Art Wadlund were pioneers in the residential wave that struck downtown Tucson, completing construction in late 2013 on One East Broadway, which was the first mixed-use development in the history of downtown to include parking, retail, office and residential components. The pair is now building a second project across the street at One West Broadway, which will feature 40 apartments, ground-floor retail and enclosed parking.

Wadlund said One East Broadway is completely filled and has never had a vacancy. He expects the same at One West Broadway.

Diverse tenant mix represents all ages

Although Wadlund and Caylor expected there would be strong consumer demand for apartment units at One East Broadway, they missed the mark when it came to the make-up of the residential tenants attracted to the project.

“We thought it would appeal to younger people in their 20s and professionals 30 to 35 years old. We thought we’d have young associate professors, attorneys, doctors, and financial and government professionals,” Wadlund said. “As it turned out, about 30 percent are 65 and older.

“We have a couple that moved from the Catalina Foothills, a couple from Green Valley, and a couple from the East Coast. We’ve also got an Air Force pilot, an FBI agent and a golf pro. Yes, we have young people, too, but we thought it would be all people in their 20s and 30s, which has never been the case. It’s actually a very diverse tenant mix that represents all ages.”

Wadlund said the common denominator among tenants flocking to new downtown market housing is they want to have fun. “People like the vibe downtown. There is a lot going on here and people like to take it in and be a part of it,” he said. “They like to park their cars and walk to nearby restaurants or hop on the streetcar and visit Fourth Avenue, Main Gate Square or the Mercado. Downtown has arts and cultural opportunities and entertainment venues and events, such as the Fox, the Rialto, Second Saturdays, and all the other fun stuff that goes on.”

Another thing downtown residents want, Wadlund said, is security, which One East Broadway has and One West Broadway will offer.

Firsthand view of economic development success

Metropolitan Pima Alliance hosts an annual event called Wild Ride designed to educate people about outstanding economic development activities. The 2016 event, called the “Wild Streetcar Ride,” was held April 20. It featured a six-hour tour in which about 275 participants loaded up on the streetcar to view firsthand a multitude of economic development success stories happening on the streetcar line and to hear from many of the development, business and political leaders that were influential in making that success happen.

Those at the event toured luxurious homes and open-air courtyards lined with shops, restaurants and services within the Mercado District. Next it was off to downtown, where the tour brought people through indoor, patio and rooftop restaurant locations. They heard presentations about Johnny Gibson’s Downtown Market, the AC Tucson Marriott Hotel that’s under construction, and learned of the future for the Ronstadt Transit Center.

Before again jumping aboard the streetcar for a ride down Fourth Avenue and a tour of Main Gate Square, came the Wild Streetcar Ride’s most interesting presentation. It was a visit to Tucson Electric Power’s downtown headquarters where Tucson Mayor Jonathan Rothschild, Rio Nuevo Board Chairman Fletcher McCusker, and leading downtown developer Scott Stiteler each provided their insights on the successful economic turnabout downtown.

Though Stiteler’s business is in Tucson, he lives in the San Francisco area. He said he regularly flies to Tucson to take care of business matters. “I’ve been coming to Tucson 20 years, a week every month,” he said.

Before Stiteler became involved in downtown Tucson, he developed hundreds of lots and homes in the Tucson area. Then Stiteler diversified his development focus to include income-producing properties and redevelopment of vintage properties. From 1999 to 2007, he purchased four city blocks downtown that once appeared old, tired and dilapidated, but now appear historic, exciting and profitable. Notable downtown projects Stiteler has been involved include One North Fifth Apartments, the Hub Restaurant, Connect Co-working, Hub Ice Cream Factory and Proper Restaurant.

New European-inspired boutique hotel 

The biggest and most important Stiteler project to date does not involve historic renovation, but the development of a high-quality, European-inspired boutique hotel. The AC Tucson Marriott Hotel, which is being constructed by Lloyd Construction, is scheduled to open in the summer of 2017, the first new downtown hotel in 50 years.

Stiteler said his new hotel would not have become a reality without the Tucson City Council and city staff, which showed a willingness to “figure out solutions” that worked. He also praised the efforts of a new, reformed and transparent Rio Nuevo District Board, which partnered with Stiteler by providing a $4 million investment establishing Rio Nuevo as owner of the AC Marriott parking garage, a move which helped launch the $34 million project.

But Stiteler’s most emotional and moving comments were reserved for Bank of Tucson, which provided financing for the hotel.

“I can’t forget the Bank of Tucson,” he said. “To finance this hotel, we probably knocked on the doors of 15 banks. We were turned downed by 14 of them. Then the 15th bank said, ‘Let’s talk.’ We talked for about nine months and eventually they said, ‘We believe in the process and you and your team. Let’s make this happen.’ That was Bank of Tucson (and) it’s the biggest loan in that company’s history, I’m guessing by a factor of two or possibly three.”

Economic impact of close to $1 billion dollars

While MPA called its event the “Wild Streetcar Ride,” Mayor Rothschild told those in attendance that the streetcar was actually “a mild ride” that runs at speeds that blend with traffic.

“The streetcar has far exceeded all expectations,” Rothschild said. “We put our 1 millionth rider on at 11 months, which was way ahead of schedule. The cars have run without any operational problems. What has been wild is not the streetcar itself, but the development that has gone around it. That, too, has exceeded expectations.”

Rothschild said total public and private investment along the streetcar line has had an economic impact of close to $1 billion dollars, and there is a lot more to come.

Rothschild said there are three reasons for the downtown renaissance, which continues to show no signs of slowing down: the streetcar, government economic incentives needed to make downtown investment pencil out, and new leadership that can be counted on from the Rio Nuevo District Board, led by McCusker.

Economic incentives and tools helping make downtown investments flourish include:

• Government Property Lease Excise Tax breaks, which provide up to eight years of property-tax abatement for qualifying projects in Tucson’s Central Business District.

• A Primary Jobs Incentive, which allows up to a 100 percent credit of city construction sales taxes for qualifying expenses and a waiver of building permit fees.

• Site-Specific Sales Tax Incentives, which allow the application of retail-project-generated tax revenues to qualifying project expenses.

• A Downtown Financial Incentive District, which permits a $10,000 building permit fee waiver and a construction sales tax credit for public right-of-way improvements.

• An Infill Incentive District, which provides relief from certain parking, loading, landscaping and dimensional development requirements and a streamlined zoning process.

Improved Rio Nuevo District

McCusker said the Rio Nuevo District Board is now “the model of transparency” for government in Arizona.

“If you want to know anything about Rio Nuevo today, punch rionuevo.org into your computer,” he said. “Every check we write is posted in real time to the web. Every contract we sign is posted to the web. Every project we track is posted to the web. There is no secret about anything we are doing anymore. And we’ve become (economic development) partners, not government sugar daddies.”

McCusker said the new, improved version of Rio Nuevo District has about $40 million, “a far cry from the $300 million Rio Nuevo had in its first tenure.” He said the new Rio Nuevo Board “has invested $17 million in downtown projects which has helped create $175 million of downtown economic activity, a 10-1 positive ratio.

“What are we doing with your money now? If you haven’t been to the arena, I would encourage you to go down there. It has gone from an obsolete basket case to a world-class arena,” McCusker said. “James Taylor is on his way here and we are negotiating with the Phoenix Coyotes of the National Hockey League to play pro hockey in this arena. None of that would have happened without this renovation.”

A few days after McCusker made those comments, the Rio Nuevo District Board unanimously approved a $3.2 million “back-of-the-house” investment at the TCC Arena to build out new locker rooms, weight rooms and other components required to bring professional American Hockey League games to Tucson. The board’s decision came following a presentation by Anthony LeBlanc, CEO and owner of the Arizona Coyotes, a National Hockey League franchise formerly known as the Phoenix Coyotes.

The American Hockey League is a 30-team professional ice hockey league based in the United States and Canada that serves as the primary development league for the NHL.

The Rio Nuevo Board’s action is subject to the approval of the AHL and finalization of an acceptable lease between the City of Tucson and the Coyotes. To assure that Rio Nuevo recoups its expenditures, the board will likely require a $2 surcharge on all hockey tickets sold, and require that the team reimburse Rio Nuevo if it chooses to leave before the lease terminates.

The Rio Nuevo Board also expressed an interest in investing in an offsite rink where the team could practice, along with the Arizona Wildcat hockey team, which would double as a public skating rink when the teams were not practicing. Le Blanc indicated the team would be interested in such a public/private partnership conversation.

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