Update on Regal Headquarters/Baptist Hospital Site (Riverwalk at the Bridges)

Planned Home for Regal Entertainment Corporate Headquarters, Knoxville, October 2015

Planned Home for Regal Entertainment Corporate Headquarters, Knoxville, October 2015

After I reported the announcement that Regal Headquarters would move to the waterfront, a number of questions presented themselves. Many of you responded with some healthy skepticism and questions both about the Regal deal and about the larger picture for the site. It seemed like a very sweet deal for Regal and questions were raised as to the slowness (or recent lack) of progress on the planned 300 unit apartment complex.

I spoke to two people with extensive knowledge of each situation and asked the questions you posed. First, I spoke to Christi Branscom, Chief Operating Officer for the City of Knoxville and Deputy to the Mayor. She’s worked extensively on the Regal move and so knows many of those details. I also spoke to Mr. Vic Mills, founder and CEO of the Southeastern Development Associates (SEDA), which is the new name for Blanchard-Calhoun, the company which will re-develop the Baptist Hospital site as well as adjacent sites just across Blount Avenue and the Henley Bridge.

I asked Ms. Branscom why TVA would invest in this project, to which she replied, “TVA is trying to play more of a role in development,” and pointed out that their contribution would be in the form of “utility assets,” such as insulation and a more efficient HVAC sytem for the building – contributions in line with its mission.

There were also portions of SEDA’s involvement in the Regal deal which made little sense to me, such as why they would get $6,000,000 dollars for the single building when they didn’t pay much more than that for the entire property, why they didn’t handle the building as they’d intended in the first place and why they would turn around a put a half-million dollars back into a building they would no longer own?

Planned Home for Regal Entertainment Corporate Headquarters, Knoxville, October 2015

Planned Home for Regal Entertainment Corporate Headquarters, Knoxville, October 2015 (see rubble pile to the right – to be used as “fill”)

Ms. Branscom pointed out that the company has already put millions into the demolition hazardous material remediation on the other portion of the property, the implication being that the hospital portion of the property was more a liability than a value. As to the structure of the deal, she said it was like a puzzle and the pieces had to fit. At the last they were a half-million apart from what Regal said they needed to make the deal work and the city asked SEDA to put a half million into the building project – which will house their neighbor – so that they had some “skin in the game.” SEDA’s portion actually involved repairing and warranting the roof. Everybody is invested in making it all work and everyone gets something from the deal.

She pointed out that the significance of the deal to the city is large, pointing to AMC Theaters who had long resided in Kansas City, Missouri and were stolen across the river by Kansas City, Kansas. The corporate headquarters pays an average annual salary of $115,000, which means jobs far above the east Tennessee average.

The low rent for as much as thirty years also raised questions for some of us. According to Joe Petre of Conversion Properties, Class A office space downtown goes for a range of $14.50 to $17.50 per square foot, with a recent trend toward the upper number due to increased occupancy. This in contrast to $1 per square foot for the first ten years and only $1 increases each of the next decades.

Ms. Branscom said the incentives are in place to do two things: encourage Regal to purchase the property and to keep them for decades to come. Should they purchase the property, the lease rate would be moot. Also critical to understand is that however the deal plays out, either through lease or purchase, the city recoups all their money and Regal has no tax abatement at all: They pay complete taxes from the beginning. And this is at the corporate rate of 40% on the appraised value of the building after the renovations are complete.

That left other questions regarding the remainder of the site. Why is it just sitting without visible progress? Some who commented wondered if the company is in trouble or had abandoned the project. Ms. Branscom pointed out that the Regal negotiations took a lot of work on everyone’s part, including SEDA and that SEDA is not holding a loan, so they have not been paying interest for the last year, meaning they may feel less pressure than a company with debt tied up in a project.

Mr. Mills, who grew up in Knoxville and attended UT assured me he is very excited about the project and is ready to go. He pointed out that the pile of rubble still on the site will not be removed. It has been pulverized by a large machine used for the purpose of preparing previously used material for re-use as fill.

The company has pulled the permits on the first phase of development – the roughly 300 apartments planned for the primary site – and will begin construction on the parking deck within the next sixty days. The parking deck will be at the core of the complex and hidden from view by the apartments. Work will also begin on the riverwalk, which will actually be elevated from the river due to the difficulty of the slope along that section of river. It will be connected, however, to the the current riverwalk on the other side of the Henley Bridge.

The press release at the time of the Regal deal mentioned retail and a hotel. The mention of a hotel appears to be an error, though one was mentioned when Blanchard and Calhoun purchased the property, none is planned at this time. The company does own a former hotel and bank building across Blount Avenue and plans to develop that into a retail and/or restaurant space, but that is not slated for the near future.

Blanchard Calhoun Plans for the Baptist Hosptial Site, Knoxville, November 2014

Blanchard Calhoun Plans for the Baptist Hosptial Site, Knoxville, November 2014

There appears to be a change along Blount Avenue as Mr. Mills said there will be no direct entrances into apartments from the street. I checked my article from last November’s public meeting and found this relevant excerpt: “The idea here is that they don’t want a straight wall to run that far along the street, wanting instead to vary the face of the building which, as proposed will have small porches, similar to brownstones with room for planters.” With no entrances, it’s hard to avoid a sheer wall.

Additionally, “They have also made a number of the units taller on the ground floor to allow for a possibility of a shift to retail should the market dictate that change at a later time.” These concessions were considered key at the time, so I’ve followed up with Mr. Mills to check my understanding of what he said today and I’ve requested an updated rendering. Above you can see the slide used that night to indicate what the building would look like along Blount Avenue.

Mr. Mills said we should expect “vertical construction” to start in the spring with a twelve-month completion target.

Comments

  1. Teagan Justice says:

    Wow and regal uses office space in Haslam’s brand new boys and girls club extensions (Caswell) that the tax payers paid for, too.

  2. wade myers says:

    Govt shouldn’t be in the commercial real estate business. They definitely shouldn’t be buying property without an assessment/appraisal. This whole thing stinks and everyone involved should be criminally investigated.

  3. Thanks KnoxvilleUrbanGuy for the excellent info gathering (Better than major media)! Nearly sixty days have passed and no Parking Deck or Riverwalk construction has been started as you noted. To be honest, I’m not surprised. Years have passed by, with only the demolishing of buildings and a mountain of gravel to show for it. Do you think anything is going to be started, much less completed in 2016? I’m excited for all of the plans to start taking shape!

    • KnoxvilleUrbanGuy says:

      Thank you, J.J. I’ve not heard anything that would indicate the project will not proceed – on the other hand, like you and all of downtown Knoxville, I’m watching that large pile of rubble that doesn’t seem to change.

      • I see activity this week! Several vehicles and apparent marking of the foundation! It looks like it’s finally happening. I’m most excited about the Riverwalk, but am thinking they would do that after the building construction. We’ll see!

  4. You people give me a headache.

  5. I won’t argue the merits of keeping Regal here but this deal is off the charts insane ! How will I, the taxpayer, recoup all of my investment if the City owns the building. There are NO TAXES being paid at any rate and there is no guarantee that Regal will buy the building. Why in the world would I invest my money buying a building I can lease for a $1 a sq ft with o obligations or taxes ? A friend of mine on the inside told me Regal had no intention of leaving because their execs are long time residents and do not want to relocate. The city officials kind of conceded this point but said they were looking down the road when these current folks might retire and new folks might not want to live here…how does a 10 year lease tie them in ? I have spent 32 years negotiating real estate deals and this was NO negotiation, it was simply a few back-room folks giving away a farm they didn’t own. I will hope against hope that City Council injects some sanity back into this deal and renegotiates where there is some semblance of sanity,

    • KnoxvilleUrbanGuy says:

      Cindy, You are clearly far more knowledgeable than me about real estate deals, but there are taxes being paid from the beginning based on the renovated value of the building. There is no tax deferment. If they continue leasing the building, the city will recoup the money in taxes. If they purchase it, the city will get the money back in the purchase and continue collecting taxes. How do you read “no obligations and taxes?”

      • I do not believe that local governments pay taxes on buildings that they own ? I could be incorrect about that and would be curious to know if I am. Commercial leases are usually triple net. If there are hopeful that Regal will buy the building as soon as it’s complete why would Regal not have agreed to that in the negotiations ? As a tenant Regal will only pay Personal Property taxes on the furnishings in the building.

        • KnoxvilleUrbanGuy says:

          You are correct, of course about the government not paying taxes on the buildings they own. In this case, however, if they do not buy the building, the taxes will be calculated at the commercial rate and that amount will be paid by Regal to the Industrial Design Review Board until the city’s investment is recouped. At that point they will pay taxes directly to the city at the normal rate. If they purchase the building, they will pay the taxes from the very beginning. So, either way, the city or its entity gets the same amount.

      • Perhaps I missed something here. I understand that the value of the building will increase after renovation, but won’t it still be owned by the city? Do lessees pay the taxes on the properties that they lease?

        • I do not believe the City pays taxes on property they own…?

          • Right, so if there are no property taxes because it’s a city owned property, then exactly what taxes is Regal going to pay? They would have franchise taxes to pay on the personal property of the corporation, but those go to the state, not the city (unless I am mistaken).

        • KnoxvilleUrbanGuy says:

          See my reply to Cindy. This deal is different in that the company will pay an amount equivalent to the taxes back to the city. Here’s the quote from the original press release, “Regal will pay no rent for the first 10 years, but it will make payments in lieu of taxes to the IDB in an amount equivalent to the combined assessed City and County taxes on the building.” I was told this will be at the commercial rate and will be based on the increased value of the building.

          • OK, so then they are inventing a new category of taxes because (again I may be mistaken) I don’t think that government owned buildings are even assessed for tax purposes. Unless they carve an exception out for this property, an amount equivalent to the taxes on the assessed amount of the building would be zero.
            I’m probably making this too difficult.

          • so they are paying ZERO except for some TBD in-lieu-of taxes and that does not go into the City Tax Pot ? oh my goodness…I certainly would be interested in hiring the person that negotiated Regal’s side of this to represent me in every deal I ever do…name please ?

          • KnoxvilleUrbanGuy says:

            No. They will be paying the corporate rate (40% of value) based on the increased value of the building which is projected to be between 15 and 20 million dollars. The IDB *is* an arm of the city and that’s the channel through which the city’s investment is coming in the first place. After the original investment is paid back, the payment would be termed “taxes” and go directly into city coffers and not through IDB. I’m not sure where you keep getting “ZERO.”

          • I was asking if they are paying zero rent for the 1st 10 years because you said they were only paying the tax assessment

          • KnoxvilleUrbanGuy says:

            They are paying no rent – which is pretty inconsequential even in subsequent years – but will pay a much higher tax equivalent.

          • I found my answer. Tenn. Code Ann. 67-5-203(c)(1) – If real property owned by the state or any political subdivision of the state is leased to a person, corporation, or other business entity for the purpose of operating a golf course or for the purpose of developing and operating a golf course, then the person, corporation, or business entity shall make payments in lieu of ad valorem taxes. Such payments shall be in an amount equal to the ad valorem taxes otherwise due and payable by a taxpaying entity upon the current fair market value of the leased real property.

          • KnoxvilleUrbanGuy says:

            Thank you.

          • Except this isn’t for the purpose of a golf course, but I see the precedent.

      • “They pay complete taxes from the beginning. And this is at the corporate rate of 40% on the appraised value of the building after the renovations are complete.”

        Did you miss that part?

  6. Chris Eaker says:

    I wonder why it seems like private companies can not find a way to make a move downtown or a redevelopment downtown work for them without any concessions from the city. What does that say about our downtown when the City must make huge tax concessions to get private companies to invest? I know that seems to be the trend these days — public/private partnerships — but that hasn’t always been the case.

    • KnoxvilleUrbanGuy says:

      If I had to guess an answer to your first question, I would say they *could* make it work, but they don’t want to spend the money if they don’t have to and cities fight for them, so they don’t have to. You might imagine a corporation with a large enough civic view that they said, “No thanks to all those millions, we can afford this on our own,” but that doesn’t really exist. As far as your second question, however: First, the city didn’t make tax concessions, they did other things. Taxes are due immediately. Second, it doesn’t say anything about our downtown that you couldn’t say say about any other city – they all do it.

      • Art Wagner says:

        I agree. There is a threshold point that exists in city density and size, above which selling and leasing prices make development extremely attractive and lucrative. The examples are the largest cities, obviously New York and Chicago among others. Below that threshold (medium size cities like Knoxville), the cities desire private development, but the stakes are often too high for reasonable risk from private firms. That’s why governmental entities have to step in and sweeten the deals to make them happen. This is merely straight business–it has everything to do with population, density, and the size of the mix of commercial/business/residential–and little to do with local desire. What this says about Knoxville is that we are trying very hard and succeeding in the revitalization of the downtown core.

  7. Jay Nations says:

    How will the river walk connect on both sides of river? Will it go under the Henley bridge?

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