Downtown's New Faces

A mix of local and not-so-local developers are leading the charge for the latest wave of residential and commercial revitalization projects.

A year ago Knoxville was abuzz over grandiose plans for downtown redevelopment. Under the aegis of the Public Building Authority, developers Earl Worsham and Ron Watkins unveiled a grand design for a $250 million private investment, contingent on a city commitment to provide $130 million in supporting infrastructure.

These plans for what became known as Renaissance Knoxville included a 200,000 square foot mall over Henley Street, a 10-screen cineplex, a 33-story office tower and a 415-room Marriott Hotel. In addition, the developers would take control of Market Square for conversion into a shopping/entertainment district.

Today, those plans all lie moribund, a victim of their own excesses and Mayor Victor Ashe's unwillingness to support them. Worsham Watkins have all but renounced any further involvement to concentrate instead on their separate plans for Universe Knoxville, a seemingly more promising virtual reality space attraction.

Without engaging in a Renaissance Knoxville postmortem, the question now becomes what, if anything, is being done to foster downtown redevelopment in its stead? To invoke the landmark 1998 Urban Land Institute report to the PBA, "The strategy is simple: more residents, office workers and visitors walking around downtown." But especially as the economy slides into a recession, is there anyone with the will and a way to make good on it?

From the commercial revitalization of Market Square to the restoration of Gay Street's historic vacant buildings, the answer is that newly-formed development teams are stepping forward, and this report is about their endeavors. Universe Knoxville also looms large in the equation as a potential visitor attraction that could help invigorate downtown as a whole.

MARKET SQUARE COORDINATES

Market Square is the only element of Renaissance Knoxville that's anywhere on the radar screen at present. But the approach to its redevelopment has mutated from the form proposed by Worsham Watkins. Against an outcry from the square's property owners, the notion of handing over control, if not ownership, to a single master developer has been dropped. In its stead, the city, working through Knoxville's Community Development Corp., is seeking to induce individual owners on the square to work in concert with what's now termed a coordinating developer. Under a redevelopment plan approved by City Council last month, the square's 17 owners will have 60 days to submit development plans for their parcels that include ground floor commercial use. Those who fail to do so will be subject to condemnation. Prospective coordinating developers will have an additional 60 days to respond to a request for proposals, including their plans and qualifications for overseeing the square's development as a whole.

Once a coordinating developer has been selected, KCDC will "use its best efforts to facilitate development agreements between those property owners who wish to retain ownership of their property and the coordinating developer." These agreements are expected to include "covenants and restrictions...that would govern the operation and maintenance of the Market Square area."

Such a construct leaves all kind of room for disputation over tenant selection, lease terms, building maintenance requirements and the like. The one developer who had previously shown an interest somewhat independently of Worsham Watkins, Memphis-based John Elkington, brands it, "a political rather than a development plan" that will take the "wisdom of Solomon" to work out. His firm, Performa, Inc., has dropped out of the picture.

So who, if anyone, is prepared to undertake the coordinating developer's role? While other firms may respond to the RFP before all is said and done, only one has shown an interest in doing so to date. It consists of a joint venture between Knoxville-based Cardinal Enterprises and Chattanooga-based Kinsey Probasco.

A meeting with the two principals involved, Brian Conley of Cardinal and Jon Kinsey of Kinsey Probasco, shed very little light on their plans at this stage. They won't be drawn into a discussion of the types, let alone the names, of tenants they envision for the square. Nor will they get into the types of agreements they contemplate working out with the square's property owners.

"You don't come into a development of this importance with 'here's our plan off the shelf and here's the kind of tenants that ought to go in here,'" says Kinsey, a long-time downtown developer in Chattanooga who recently completed a widely-acclaimed term as the city's mayor. "You can't look at a piece of property, even as significant as Market Square, in isolation. You have to look at how it relates to the rest of downtown, as well as how it relates to the balance of the region. I believe Market Square needs to be the heart of downtown, but how it all relates is the bigger issue that you've got to figure out."

And how does Kinsey propose to go about doing so? For one, he's retained urban design specialist Stroud Watson as a consultant. Watson has become almost an icon in Chattanooga for his role in shaping its downtown redevelopment since he moved there in 1987 while still retaining his status at a professor of architecture at UT-Knoxville. With his flowing white beard, the 63-year-old Watson looks the part of a guru, but he's also a great believer in participative processes.

One of the first steps Watson has in mind is to convene a charette (a public design session) involving city officials and stakeholders in an intensive visioning process. "The first thing that anybody looking at this would realize is that Market Square as it now exists is lost ," he says. It's kind of like a black hole and how do you connect it? How do you make that energy coming through the city move into that center, and how do you put something in there that pushes energy back out. I'm not about to try to even guess what that is right now."

Whether this highly conceptual, even visionary, approach will endear the development team to the square's property owners remains to be seen. But it may be purposeful if it simply serves to allay concerns that a coordinating developer is out to turn the screws on them.

Another member of the team, though he has no formal business relationship with its principals at this point, is David Dewhirst. As the largest property owner on the square by far, Dewhirst has a big stake in seeing its commercial development go forward, but he's also trying to act as a good officer on behalf of his fellow owners.

"Good faith is what it really boils down to," Dewhirst says. "I'm quite confident of everybody here at the table acting in good faith, and there's a lot of good, quality reasonable people that are the property owners on Market Square that all, I think, have the same vision in mind in terms of a great revitalized city. We start with that as the foundation. I think a compromise can easily be reached."

To which Conley adds, "The ownership issues can be figured out in a matter of hours once you reach a certain point. That's just a question of people sitting down and looking at what the market is, and what reality is, and talking it out. But before you get to that point, the harder part and what takes a long time is getting the users, the tenants, interested in the area to begin with in order for there be to something to talk about."

Kinsey and Conley met recently with members of the Historic Market Square Association and got somewhat mixed reviews. "We're certainly looking forward to hearing more of their proposal," is all that the association's president, Bill Ambrose, will say for publication. Ambrose is all the more interested in what the association's retailing consultant, Robert Gibbs, has to say. Gibbs is conducting a study of Market Square's retail potential and how best to achieve it in terms of tenant mix, tenant needs and needs for improvements to the square's public space.

The city has committed to make public space improvements and to build an 800-space garage just west of the square. Its redevelopment plan looks to the coordinating developer to make recommendations as to what the improvements ought to be.

THE RESIDENCES ARE COMING

According to the 2000 census, 1,300 people lived in downtown Knoxville, down from 1,407 in 1990. But that downtrend is about to be reversed in an exclamatory way.

A single architect, Buzz Goss, has 175 residential units on his drawing boards, and several more are in the works. All involve the restoration of historic, vacant buildings in just a single block of Gay Street between Jackson Avenue and Summit Hill Drive.

Two developers are the prime movers in all of this—Atlanta-based Leigh Burch and a partnership between David Dewhirst and Birmingham-based Adam Cohen. While some i's still have to be dotted and t's crossed, both are pointing to start work within the next month and have their buildings ready for occupancy by next summer.

Burch's is the Sterchi Building where 96 apartment units are planned on its eight floors. Dewhirst and Cohen are concentrating on a 46-unit restoration of the Emporium but also have 12 additional loft dwellings underway in smaller buildings across the street. Most of the apartments will have two bedrooms with rentals in the $900 to $1,100 a month range. "Within the next two years the 100 block is going to be as thriving as any urban neighborhood in America," Goss exults.

It's no accident that Burch and Cohen both hail from larger cities where a national trend toward urban dwelling is already well established. Burch reckons that the number of residential units in central Atlanta has quadrupled over the past decade to around 20,000 today, mostly catering to young professionals seeking an urban lifestyle, and both are convinced that the projects now underway here are just a beginning. Indeed, Cohen is committed to building at least 500 units here over the next five years.

As trendy as they may be, neither the Sterchi nor the Emporium restorations would have been feasible without a recent commitment to support downtown residential development on the part of the city of Knoxville. Financial incentives, including property tax abatement, dedicated parking and adoption of an alternative building code for older buildings have all contributed (though the city has yet to define its assistance criteria). "The city of Knoxville has been light years more supportive and easier to work with than the city of Atlanta," says Burch.

A prime reason why almost all of the new dwellings are taking the form of rental units is that developers must retain ownership of their buildings for five years in order to qualify for federal income tax credits that cover 20 percent of the cost of restoring historic buildings. These credits are also crucial to the feasibility of restorations whose costs typically exceed those of new construction.

Five years out, many of the apartments will be converted into condos, which is also a key to realizing returns in the complex world of real estate finance. "You've got to have an exit strategy," says Cohen.

But is there really enough demand in the Knoxville market for hundreds of downtown condos in the future or, for that matter, hundreds of upscale apartments now?

In order to get financing for their projects, both Burch and Cohen had feasibility studies conducted that satisfied lenders. One done for Burch by the Danter Company, based in Columbus, Ohio, projects a demand for 755 additional upscale apartment units in what's termed the Knoxville Supportive Market Area in each of the next five years. But the study doesn't delineate the demand for downtown dwelling.

The demand for condos may tilt toward older, denested couples. When the Historic Market Square Association's planning consultant, Robert Gibbs, spoke here in August he brought a lot of encouragement that the baby boomers are coming. "Boomers are now retiring, selling their four-bedroom houses in the suburbs and moving into the downtowns or villages," Gibbs said. "You're fortunate in Knoxville to have a nice downtown and fortunate to have a historic square, historic buildings."

The only downtown condos known to be in the works right now are seven units in the Commerce Building, another 100 block landmark. "We believe we have them mostly sold and expect to be ready for construction by the first of the year," says Philip Welker of Corniche Development, a partnership that also includes Baker Bishop and Svend Brooks.

Cohen and Dewhirst are known to be talking with owner Mark Saroff about development of the old C.M. McClung Warehouse and other properties now owned by Saroff along Jackson Avenue between Gay and Broadway. Some 80 loft dwellings are envisioned for McClung's.

Cohen also has his eye cast on the largely vacant "big boxes" on the east side of Gay Street's 400 block that once housed Fowler's, Woodruff's, J.C. Penney and a White Store. But he may already be too late on them.

Developer Wayne Blasius, who owns the Fowler's building, says "We're getting very close to the threshold of lease commitments that will enable us to proceed with what will be the most modern office building in downtown Knoxville." A $4 million renovation yielding 32,000 square feet of office space is planned with a year-end target date for work to start. "We're offering the charm of a 19th century building with function of a 21st century building. Everything is brand new."

The law firm McCord and Troutman, which owns the Woodruff's building, recently moved its offices into the building, staking out the second floor. The firm has also renovated the third through fifth floors to the point where "they are ready for tenant buildout," reports Keith McCord. That's an additional 22,000 square feet of office space that may or may not get occupied in the current economic climate.

Rod Townsend, who owns the White Store building, reports that, "I'm getting a lot of exciting proposals from prospective buyers that are tied to Universe Knoxville. If it comes to fruition on the State Street site, the 400 block of Gay Street will be totally revitalized."

© 2001 MetroPulse. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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