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?
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.
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.