Can Downtown Knoxville Sustain its Growth With New Construction?

For all the entrepreneurial economic development that's revitalized downtown Knoxville since the turn of the century, about the only new buildings to go up have emanated from the public sector.

The Knoxville Convention Center, the East Tennessee History Center, even the Regal Riviera Cinema were all built largely with governmental funds or auspices. The only exceptions that come to mind are the 24 condominiums on Union that adjoin the city's Market Square Garage, and the 80-room Hampton Inn at Main and Henley.

But with nearly all of downtown's historic building stock now spoken for by the developers who have fostered its residential boom and commercial revival, the structures to sustain it may have to largely come out of the ground or else through expansion of downtown's perimeter.

The first manifestation of that is the 238-unit apartment complex that developer Buzz Goss appears nearly set to build on State Street with a Murfreesboro-based partner, TDK. This $15 million to $20 million undertaking will represent by far the largest single residential development that downtown has yet seen and take up most of the two-acre site that Knox County assembled and razed in the 1990s for an abortive "justice center." Still, it's a far cry from the $100 million mixed-use corridor stretching all the way from Gay Street to the Old City that Goss envisioned when he acquired an option to buy the site from the county in 2009. But more of that original conception may be forthcoming in the future.

Another State Street site that's been vacant for nearly a decade is the block between Church and Cumberland that formerly headquartered the News Sentinel. Demolition followed the newspaper's relocation, and developer Bob Talbot acquired it with plans for a 21-story condominium complex to be called Sentinel Towers. However, the plans fell victim to the 2008 economic downturn. Last year, an Atlanta developer picked it up with plans to build a 120-room Residence Inn. But a long-stay hotel isn't nearly as appealing a use as the Sentinel Towers would have been.

The one other tract in downtown's core that's begging for adaptive reuse is the block between Henley and Locust where the former State Supreme Court building still stands unused. After the court relocated to the Old Post Office on Main, developer Nick Cazana stepped forward with grandiose plans for an $81 million Metropolitan Plaza containing residential, retail, and office components as well as a hotel. But these, too, were dropped as the downturn took its toll, and the state-owned site is now the subject of an RFP to which several would-be developers, including Cazana, are expected to respond. Whether the proposal that's selected will be for renovation of the existing 62,000-square-foot building or for new construction is still to be determined. But in either event, it's not likely to be anything like as grand as the abortive Metropolitan Plaza.

One reason is that the development community is uniformly clear that the market for downtown office space is too weak to support construction of any more. The Metropolitan Planning Commission's most recent survey shows a big increase in vacancies over the past two years in downtown's two preeminent properties, First Tennessee Plaza and Riverview Tower, and even lower occupancy in lesser buildings, as well as a decline in rental rates.

Conventional wisdom has it that rental rates in excess of $20 per square foot are needed to support construction of a new office building, but First Tennessee and Riverview are only fetching $16.50 according to the MPC study.

No one seems to know how many people work downtown, but it's safe to say the number isn't growing as a steady stream of accounting, investment, and law firms have migrated to the suburbs. This decline has been accelerated by the demise or downsizing of corporate headquarters such as Image Point and Brunswick Boat Group, and, more recently, by Kimberly-Clark's decision to vacate its 12-story building on Summit Hill, which has been sold and renamed the Langley Building as its new owner Fred Langley endeavors to land new tenants.

So, for the foreseeable future, downtown's further growth would appear dependent on perpetuation of its residential boom and accompanying growth of restaurant, retail, and entertainment venues. But space to accommodate them is growing scarce as Market Square has long since become saturated, Gay Street is virtually all spoken for, and even some side streets such as Union have become lined with trendy shops on the ground floor topped by residential lofts.

Aside from surface parking lots (which are another story), about the only other land left to build on is the largely barren stretch of Jackson between Broadway and Gay bordering the Norfolk Southern railroad tracks. There, the historic McClung Warehouses had long been the subject of redevelopment efforts until a 2007 fire destroyed three of them and left the other two in a shambles. Prior to the fire, their quixotic owner Mark Saroff had been the subject of condemnation proceedings brought by Knoxville's Community Development Corp for his asserted failure to remediate blight. But an appraised value of the property exceeding $4 million stopped KCDC in its tracks.

However, it didn't stop Saroff, who is now in bankruptcy from suing KCDC for allegedly preventing him from realizing that value for his property. That suit is still pending under the direction of Saroff's trustee in bankruptcy, John Newton, with no resolution in sight. Even though the city is now proceeding with a $500,000 streetscaping project to make that stretch of Jackson much more habitable, it's anything but clear when or at what price the McClung properties can be reclaimed.

That means further downtown development may well have to occur largely by expanding downtown's footprint. But as has become my habit too often of late, I've run out of space to talk about the directions this expansion may be taking. Please await another column.

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