Feb 16

[ARCHIVED] Cornerstone Development

The original item was published from February 16, 2017 1:10 PM to February 23, 2017 8:35 AM

The City of DeKalb City Council recently discussed the proposed construction of a roughly $7,500,000 development located at the southeastern corner of Lincoln Highway and First Street, at the site of the former Otto’s.  The proposed development would consist of the demolition of four buildings at that location, and the construction of a new four-story mixed-used facility with extensive first floor commercial (inclusive of a proposed upscale bar/grill and the relocation of the existing Barb City Bagels to a new facility), with 51 one-bedroom, premium apartments located on the upper three floors.  Since the public discussion of the project, there have been some misconceptions regarding the nature of the project, which are outlined below.

Cornerstone Development

Fact One:  The City worked extensively to save Otto’s, but the Owner declined to fix the property, and it is presently beyond repair.

The Otto’s building suffered broken pipes in January of 2014 when the Owner failed to properly heat the building.  Those pipes caused flooding and damage inside the building.  Following that event, the Owner never undertook repairs to the building, and never even applied for a building permit.  Several months after the flooding, the Owner surrendered the liquor license for the premises and chose to not reopen.  The building presently has significant damage that jeopardizes its safety and structural integrity, and requires hundreds of thousands of dollars of environmental remediation.  The pictures below show some of the condition of the building:

Building Condition

Building Condition

The City worked with the Owner extensively to avoid having to pursue demolition of the building.  Finally, 990 days after the initial flooding, the City was forced to file a legal action seeking remediation or demolition of the structure, based upon the public safety threat that the building poses.  Because of the Owner’s failure to maintain the building, it is believed that interior water damage has caused weakening of the common brick wall shared between the Otto’s building and the adjacent building in which the Mediterraneo’s restaurant is located.

Fact Two:  The City has a need for premium, one-bedroom rental units in the downtown.

Some have raised concerns that the construction of new residential rental units will generate further vacancy in other residential rentals.  Recent market experience has shown that there is market demand for units of this nature.  For example, a recent premium apartment development completed in Sycamore by the developer proposing the Cornerstone project has a wait list for apartments that exceeds supply several times over.  The City does not presently have a housing product that serves the market that Cornerstone will serve.

Fact Three:  The City needs greater population density in the central business district.

The City has commissioned several studies and plans for the downtown area that identify the best opportunities to restore a vibrant downtown.  Those plans all indicate that the City needs a greater density of daytime and nighttime population to support local business, create traffic, and generate commercial opportunities.  Other communities that have a vibrant downtown area also feature significant, high-quality residential opportunities.  The availability of premium rental units in the downtown will bring new population to the downtown and spur other commercial opportunities.

Fact Four:  In a healthy community, restaurants benefit from adjacent and nearby restaurant developments.

The suggestion has been made that if a new restaurant opens, it will hurt the business of existing restaurants.  That suggestion is based upon the premise that the City has a fixed market of consumers and cannot draw new interest.  A quality, attractive development that adds to the core of existing dining opportunities in the downtown can draw new interest in the downtown, and bring more consumers into the City to dine and generate revenue.  Again, looking at areas that have successful, busy downtown core commercial areas, they typically feature a wide array of dining options, so that consumers have multiple choices and can select an alternate venue if the wait at one restaurant is too significant.

Fact Five:  Without a City incentive, redevelopment of the site will not occur.

The City has been working for a period of years to attract any commercial interest in the property at issue, to no avail.  Constructing a development on this site requires costly environmental remediation, demolition, site restoration and utility improvements that put the downtown at a competitive disadvantage in comparison to building a new structure in vacant areas or other communities.  The practical experience of those seeking to undertake significant developments in the downtown is that it is difficult if not impossible to obtain commercial lending to support the redevelopment.  Because of the significant cost penalty associated with redevelopment in the downtown, if the City wishes to see redevelopment occur in that area, an incentive is necessary.

Separate from the costs of remediating and demolishing the safety concerns at the Otto’s and Mediterraneo’s buildings, the tenants in the existing building at 122 S. First Street have reported issues with the building roof, envelope and mechanical systems.  The age of the buildings and the failure to maintain the buildings over long periods of time has generated deterioration that makes the properties unviable for development without public support.

Fact Six:  The project will generate a significant return on investment for the City and for other taxing districts.

This project is being evaluated on the basis of a thirty-year repayment, based on the nature of commercial lending and the common approach of utilizing a 30 mortgage.  This project contemplates a $3,000,000 public incentive, repayable over those thirty years.  Within that period, the City will receive between $3,200,000 and $4,000,000 of new tax revenue (excluding amounts paid to other taxing districts under existing intergovernmental agreements).  Community wide, the City and other taxing districts stand to gain between $8,000,000 and $12,000,000 over that same period.  By way of contrast, the properties are presently valued at a lower valuation than they were 30 years ago, and only generate $33,000 of property tax per year.

Fact Seven:  The project will be adequately served by parking.

Numerous reviews of the available parking in the central business district have shown that the City has adequate parking available.  Even during peak events, the City has available parking within a short walking radius of the downtown.  Further, while current zoning codes do not require the developer to provide parking, the developer would both be adding 40-45 new parking spaces, and agreeing to permit the parking area to be used as a part of a future parking deck if the City later had a need for structured parking.

Fact Eight:  The parties will work to minimize impact on existing businesses.

With the deterioration of several of the structures, the unfortunate fact is that some demolition will have to occur, regardless of this project.  With this project, the demolition will lead to new construction and benefit to the community.  Without this project, the demolition will simply generate more vacant lots in the downtown.  The demolition and construction will undoubtedly have an impact on downtown traffic patterns and access to the sidewalks immediately adjacent to the property.  However, the City and developer will work to mitigate that impact, and the project will generate benefit to surrounding properties and businesses.

Fact Nine:  The project has been exhaustively reviewed and makes financial sense.

Some have suggested that this project requires due diligence, and the City agrees—a project with an incentive request of this nature requires careful review.  To that end, the City has completed the most detailed staff review of an incentive request that has ever been completed in the history of the City.  Moreover, the City has shared the results of that analysis publicly, including the detailed calculations underlying each assertion.  Further, the City has retained an independent, third party consultant to review the developer’s pro forma and financial assumptions and to make a recommendation on the viability of the project and legitimacy of the incentive request. That analysis supports the City’s conclusion that the project will generate an incredibly positive return on investment, community wide.  More specifically, the analysis shows that the project requires the public incentive in order to be possible, given the challenges that the site poses.  As proposed, even if the City Council gives preliminary approval, the project will still undergo further review once final plans are prepared.

Fact Ten:  The City is working on an expedited timeline and to allow the potential of this development to be realized.

The City is cognizant of criticism that is sometimes leveled at all units of government, that government bureaucracy moves too slowly and can hinder private development.  In this case, the project involves interlocking timelines on the contracts to purchase five separate parcels of property.  The developer was fortunate enough to be able to get all of the properties under contract with simultaneous review periods, and if this project is to occur, the timeline for initial consideration and conceptual approval has to be expedited.  Notwithstanding that expedited timeline, the project will be reviewed at three separate public meetings before even conceptual approval is granted.