Retailer Urban Outfitters is Coming Downtown With City Funds. Why Did They Need The Money?

A week ago Tuesday night, during the Knoxville City Council meeting, a tweet from Mayor Madeline Rogero's account made it official: "Major retailer Urban Outfitters looking to open store in Knoxville in 2013 in former Arnstein Building."

To people around downtown, this wasn't exactly news—an architect working on behalf of the retail chain submitted an application seeking approval of signage and other design aspects to the Downtown Design Review board back in March, and rumors had been flying fast and furious since the sidewalks around the Arnstein were blocked off last month due to work on the building.

What was news, however, is the $250,000 forgivable loan the city is awarding to the developers in charge of the Arnstein in order to lure Urban Outfitters downtown. Technically, the funds were just approved on first reading, but given that it was a unanimous vote in favor, Council seems highly likely to make the gift official next Tuesday.

"I think Council understands for downtown's success to continue, it needs more retail, and a great way to do that is to bring in a major tenant like Urban Outfitters," says Councilmember Marshall Stair.

When the story was posted on the Metro Pulse Facebook page, the critics came out in droves. "Could have given that into local stores opening," one person wrote. "I wonder if any of the small businesses that built downtown Knoxville over the past years received any grants?" another asked. "What a let down. Support local businesses, not ridiculously overpriced, unimaginative chain stores. I'm very disappointed," posted a third.

Urban Outfitters, in case you've been living under a rock the past umpteen years, is a Philadelphia-based chain store that markets to would-be hipsters, or, as their corporate website puts it, "we offer a lifestyle-specific shopping experience for the educated, urban-minded individual in the 18 to 30 year-old range." (Full disclosure: This reporter once worked at an Atlanta branch of the store.) The chain has more than 130 stores in the United States, Canada, and Europe, including one in downtown Asheville, and its corporate parent also owns Anthropologie stores, the Free People label, the boutique bridal line BHLDN, and the upscale garden center Terrain. The company posted second-quarter profits totaling $63.1 million last week.

So why, one might ask, did the city need to offer money to land the retailer, especially after the Arnstein project has already received a $300,000 grant for facade work from the CBID and a TIF incentive? Eddie Mannis, the city's chief operating officer, says the city couldn't let the opportunity pass by.

"To be honest, it's not like there's a long list of national retailers knocking on our door," Mannis says. "We wanted to do everything to accommodate them."

Mannis says the city began working with developers David Dewhirst and Mark Heinz in February. The funding the city finally came up with is not actually taxpayer dollars—it's interest on loans issued from a federal Urban Development Action Grant that the city received in the late 1970s. Mannis says the last time the fund was accessed was in 1986. Restrictions on the money provide that it can only be used on "blighted urban development," according to Mannis.

It's debatable how "blighted" the Arnstein is, given its prime downtown location catty-corner from Market Square, but Mannis says after many meetings with the developers, "We were convinced enough to obligate the $250,000 to them." The funds are a loan to the group behind the Arnstein redevelopment, not to Urban Outfitters itself, and the money is contingent on the retailer opening a store and staying in it for five years. If the doors are shuttered prior to that time period, a percentage of the loan must be repaid to the city.

Dewhirst says the scale of the Arnstein project meant that a major tenant was the only option for the ground floor. "When you go to borrow $7 or 8 million for a project, the bank wants to know the tenant is capable of paying its rent," Dewhirst says.

Urban Outfitters was originally interested in the Arnstein in 2010, and the project was given a $500,000 CBID grant at that time, although that money was revoked when the store backed out. There were then tentative plans for a beauty school in the building, then a Mexican concept restaurant, but those also fell through, until, last fall, Urban Outfitters once again contacted Dewhirst.

The developer says in the short-term it would have been more profitable to open a restaurant in the space, especially given the historic restrictions of the building. "Urban Outfitters requires an expensive build-out, and a lot of that is on the landlord's end," Dewhirst says. "Most building owners don't want to do retail. It's too expensive."

But, Dewhirst adds, "If you're really going to have a successful, sustainable downtown ... it can't just be bars and restaurants."

Mannis says the loan will be well worth it if future development follows.

"I think if you look at the demographics of Knoxville, [Urban Outfitters] is a good fit," Mannis says. "We hope it will be a springboard for other major retailers."

The store is expected to open sometime next spring and employ over 50 people, both full- and part-time. The top floors of the Arnstein will be home to an architecture firm and loft apartments.