What, me worry?

I’m at that age where I repeat myself. For more than a year and a half, I’ve been Nancy Oatesnagging Town Council members to fix the Ephesus-Fordham form-based code so that we can repay the $10 million loan we took out for improvements to the area. Bear in mind, we put up Town Hall as collateral.

Now I’m on Town Council, and I’m still yipping at my colleagues to plug the loopholes so the end result will match our vision of a walkable, revenue-generating area. With Ram Realty Services, a national developer of apartment complexes, buying a large chunk of Village Plaza earlier this month, 68,000 square feet of buildings housing independent businesses abutting Alexan luxury apartments, my anxiety has risen. Last year, Ram Realty bought Pavilion East, a mixed-use complex in Durham, and now is replacing it with 263 apartments.

Because Town Council in May 2014 approved a form-based code for development in Ephesus-Fordham that did not specify building use, Ram can build whatever it wants, so long as it does not exceed the building envelope limits. And because there is so much profit in high-end apartments, real estate investors flock to that choice.

But the town’s business management director, Ken Pennoyer, says not to worry. In his response to my email, he pointed out that he based his revenue projections in years 0-4 (we are now in year 3) on 82% of the new development being residential. Right now it is at 89%, not enough of an increase for him to worry. In his presentation to council on March 24, 2014, he anticipated 23,000 square feet of retail during that Phase 1. So far the only retail has been single-story businesses that have replaced existing single-story businesses, so that’s a wash. But we still have another year.

In his March 2014 presentation, Pennoyer laid out three revenue scenarios: low, medium and high. Given that as soon as the Alexan apartment building was approved in December 2014 its property value projections plummeted 20% below the estimates presented before it was approved (see Jan. 12, 2015, Chapel Hill Watch post “Roj Mahal”), I’d go with the low projections at this point. The low-revenue scenario would cost taxpayers money from this point until fiscal year 2034, at which point it would break even.

Even so, Pennoyer doesn’t believe that portends a tax increase for town residents. In his email last week, Pennoyer said, “In the unlikely event that the property tax increment is not enough to pay the loan, the Debt Fund has sufficient fund balance to cover any short-fall.”

The original assumption was that the expected 2.2 million square feet of redevelopment on the 190 acres of Ephesus-Fordham would yield more than 900,000 square feet of retail, office and hotel space.

Let’s hope by year 5 I won’t still be repeating myself.
— Nancy Oates

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5 Comments

  1. George C

     /  August 15, 2016

    Hi Nancy,
    While it is certainly accurate to say that we are in year 3 of the E-F Zoning District, perhaps it is more informative for readers to mention that we are actually in month 26 of the E-F District. Year 3 can range from 25 to 36 months. We don’t know what might happen in the remaining 10 months of year 3 that might change some of the projections.

  2. Geoff Green

     /  August 15, 2016

    “Last year, Ram Realty bought Pavilion East, a mixed-use complex in Durham, and now is replacing it with 263 apartments.”

    The original owners of Pavilion East had planned a 14-story apartment building in addition to the existing mixed-use complex. They could’t get financing and decided to sell to Ram Realty, which is building 263 apartments IN ADDITION TO the existing mixed-use development. Nothing is being replaced. Details in this story: http://www.bizjournals.com/triangle/blog/real-estate/2015/12/luxury-apartment-project-in-durham-planned-with-41.html

  3. For those readers who may have missed it the first time around, back in January 2015 Orange County planning staff conducted a fiscal impact analysis of the entire 20-year Ephesus-Fordham projected redevelopment and found it to be net revenue negative.

    The staff memo containing the analysis can be downloaded here: http://www.orangecountync.gov/January_27__2015.pdf

    Here’s the key passage:

    “Based on information provided, the County would potentially receive incremental property tax revenues over three phases of the Project of approximately $14 million. County expenditures, based on current County financial policies and guidelines, would total $23 million prior to the requested debt contribution. After paying the requested debt contribution of $400,840 over 20 years, Attachment B-1 reflects Scenario 1 where the County would net a deficit of incremental tax revenues of $10.4 million. This scenario includes the cost impact of providing County services affected by the project, as well as the 48.1% target impact of General Fund revenues provided to Education, and the costs to fund the additional students in each phase of the project at the current per pupil amount of $3,571 per pupil.

    “After paying the requested debt contribution of $400,840 over 20 years, Attachment B-2 reflects Scenario 2 where the County would net a deficit of incremental tax revenues of $6.9 million.This scenario only includes the 48.1% target to Education and the costs of the additional students in each phase of the project.”

    The County analysis assumes that residential property will compose only ~60% of the total redevelopment. If the new construction in the EF district ends up being more than 60% residential—a likely outcome if current trends continue*—then the net fiscal impact of EF will be even more negative.

    If this is not the outcome Council members want, if they want the EF redevelopment to achieve its stated goal of reducing the residential property tax burden by expanding the commercial tax base, it may be necessary to modify the form-based code to place a ceiling on the amount of new residential construction in the district and to ensure that a certain minimum percentage of new construction is commercial.

  4. Plurimus

     /  August 16, 2016

    “You can be on the right track and still get hit by a train!” – A. E. Newman

  5. Del Snow

     /  August 22, 2016

    An additional factor is the reality that no costs for additional transit were included in the financial model presented to Council. Is that realistic? An influx of residents without expanded transit service will lead to serious traffic congestion and smog. And, if the transit service is increased, what will this do to the bottom line numbers? http://chapelhill.granicus.com/MetaViewer.php?view_id=7&clip_id=2056&meta_id=86447

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