Downtown Cinema Stretchout
Last January, when Mayor Bill Haslam announced an agreement with Regal Entertainment for a movie theater on the 500 block of Gay Street, he foresaw construction starting in the spring to be completed within a year. An ensuing quest to preserve the former S & W Cafeteria and other historic buildings on the block stretched the timetable out a bit. But when Haslam heralded a “win-win” cinema/preservation plan in April, the announcement said “Construction will begin this fall and will take a year.”
Now, fall is fast approaching, and plans for the cinema and for redevelopment of the historic buildings are both still works in progress. So what gives?
Haslam explains that cinema redesign to accommodate the preservation pushed its cost up more than was anticipated to $11.5 million from an original $9 million estimate. So the city is now searching for a source of funding to cover this cost gap. Federal tax credits represent the prime option, and the city is seeking an allocation of what are known as New Market tax credits from institutions that have them to parcel out. “We have two or three sources, but we don’t know yet how much they’ll allocate for this market, and the timing may be slower than we’d like,” Haslam reports.
The mayor is determined to hold the city’s investment in the eight-screen theater to the $3 million originally budgeted. Regal has committed to cover the $2.5 million cost of its furniture and fixtures. And Haslam still intends to personally spearhead an effort to sell upwards of $3 million in bonds backed solely by Regal’s lease payments on the city-owned facility. But this effort has also been held in abeyance until the rest of the financing package gets worked out.
Plans for redevelopment and commercial use of the long-vacant buildings on the block are also going slower than anticipated. When the preservationist “win-win” was proclaimed in April, officials foresaw issuing an RFP within a month or so for sale and private development of the property, which the city is acquiring in a land swap with Knox County. But on further inspection, the buildings turned out to be in worse condition than previously presumed, and an estimated $500,000 is needed to shore them up.
Haslam is still wrestling with the question of whether the city should incur this cost before soliciting proposals from developers or should offer the buildings as is. “We’re in the middle of trying to decide which is the best deal for the city,” Haslam says. (Proceeds from the sale of the property could also go toward covering cinema construction cost.)
Several factors weigh in favor of the city’s front-ending the building stabilization cost. For one, the work could be done in conjunction with theater construction by the city’s cinema contractor, Blaine Construction, rather than having two separate construction crews potentially interfering with each other’s work on the tightly fit site. Moreover, the city wants to assure that renovation of the building is completed and contemplated restaurant and retail tenants are in place by the time the theater opens.
“Regal doesn’t want to have a bunch of boarded-over buildings adjoining its Gay Street entrance,” Haslam explains. While an as-is RFP for their redevelopment could stipulate a completion date and performance bonding, Haslam fears such stipulations could drive down the offering price for the property by more than the city’s cost of structural work on the buildings. Also, interest in the project on the part of developers could be heightened if all that’s required of them is interior work and garnering tenants.
On the other hand, there’s no provision in the city’s tight budget for the $500,000 to stabilize the buildings, though that is money that the city could recover—and perhaps then some—from their sale. Moreover, an earlier start on the RFP process would allow the developer who is selected to build out the space to meet prospective tenant needs.
Haslam won’t be drawn out as to which way he’s leaning. One possibility is to issue an RFP on an as-is basis and, if none of the responses are deemed acceptable, to do the work and then issue another one.
All of these complications would seem to jeopardize chances for a fall 2006 cinema opening, but Haslam insists that’s still the goal. In any event, “None of them are insurmountable,” he assures. And he’s steadfast in his belief that “we did the right thing even though it’s not without cost both in money and time.”
All of that’s contingent on developers stepping forward with proposals for the 500 block space, but there’s every indication that several are poised to do so. “That’s going to be one of the best restaurant sites in the city of Knoxville,” Haslam says.
And, hopefully, one of the best cinema sites as well.