A Big Step Forward for Downtown in Urban Outfitters

The economic downturn had pretty well dashed my hopes of downtown’s gaining more of what it’s been lacking—at least until recovery is well underway.

What’s been most lacking is a revival of retailing on anything like the scale of downtown’s remarkable residential resurgence and the proliferation of restaurants and entertainment venues that has accompanied it of late. Mast General Store was envisioned as a catalyst for big things to follow when it opened on Gay Street in 2006, but aside from a few small specialty shops on Market Square not much else materialized—and then the recession hit.

Thus, I was pleasantly surprised by the announcement that a trendy national clothing chain, Urban Outfitters, wants to locate a store in the historic, but now vacant, Arnstein Building adjacent to Market Square. While landing Urban Outfitters is by no means a done deal, the prospect of doing so is testament to a number of attributes now working in the city’s favor. And I’m now emboldened to believe that one success can very well lead to others.

The impetus for this quest is the resourcefulness and venturesome spirit of individuals and organizations committed to making downtown flourish.

In this instance, the list starts with Tim Hill of Hatcher-Hill Properties, who took the initiative in soliciting a nationwide list of carefully selected prospects to fill what he terms a “huge void for retail downtown.” Hill did so without seeking any compensation for his efforts. The sole reward he has in mind is the enhancement of downtown real estate values; his firm owns several properties.

Of six prospects that have shown some interest, Philadelphia-based Urban Outfitters is the only one that’s so far come to Knoxville to evaluate prospective store locations. Of several that Hill showed them, the one that caught their fancy was the Arnstein Building.

Built in 1908 to house one of Knoxville’s leading department stores of that era, the handsome seven-story structure was long overdue for a new roof and total infrastructure renovation when David Dewhirst bought it in 2006 for $1.8 million. As Knoxville’s preeminent restorer of historic buildings, Dewhirst—it might be assumed—had clear plans for its redevelopment. But he’s frank to say, “I didn’t know quite what to do with it,” let alone have any of the prospective tenants or condo dwellers needed in order to get financing for the $3 million cost of renovation of just the vacant building’s shell.

Even with the terms of a 10-year lease of the 11,500 square feet on the building’s lower two floors by Urban Outfitters now mostly agreed upon, Dewhirst still faces a daunting challenge to lease or refurbish the upper five floors as condo/office space and to get financing at a time when commercial real estate lenders have mostly pulled in their horns. And he doesn’t have much time to do it because Urban Outfitters wants possession of its space by October to meet a March 2011 store opening target date. Yet even though the market for downtown office space is anything but robust, here’s betting that Dewhirst will succeed in carrying it off, as he has with so many other projects that have gone before.

Critical help is due to come from the Central Business Improvement District, which has committed $500,000, payable over two years, to cover much of the cost of tenant improvements to Urban Outfitters’ space. A grant of this size bespeaks the CBID’s growing capacity to incentivize downtown development with funds derived from assessments on property within the district that were established in the 1990s. Reflecting downtown’s resurgence over the past decade, the CBID’s revenues have more than doubled to nearly $500,000 this year. And its board of directors has wisely chosen to concentrate them on the projects that will serve as a catalyst for yet more growth.

The City of Knoxville is also assisting in several ways. Mayor Bill Haslam has recommended a $200,000 grant toward Urban Outfitters’ tenant improvements, and City Council has already approved tax increment financing for the Arnstein Building—a TIF that’s tantamount to a $1 million loan. Sidewalk and other streetscape improvements are also in the works for the block of Union Avenue between Gay Street and Market Square.

The corner of Gay and Union that bounds the Miller’s Building still represents downtown’s prime retail location, as it did in Miller’s heyday. But when KUB took ownership of the building for its headquarters, it chose to make office use of all five floors, including more than two floors leased to Image Point, whose subsequent demise left nearly half the building vacant. While KUB has been focused on finding other office tenants, Senior Vice President for Corporate Services Eddie Black says it would be receptive to letting much of the 20,000 sq. ft. ground floor go for retail use. “If we are approached by someone, we’d love to talk to them,” he says. But a more proactive approach would certainly be welcome.

A 2007 analysis conducted for the CBID by Norfolk-based retail consultant Blount Hunter concluded that, “The condition for success exists today in Downtown Knoxville; spending capacity by existing patrons will support up to 50,000 square feet of ‘shopper’s goods retailing.’”

Attracting an Urban Outfitters store as an anchor will represent a big step in that direction. And Tim Hill reckons that, “If we can get one, I think others would more easily commit.”

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