When affordable housing developers mix a little retail into their projects, it’s usually not Wal-Mart, Target, or Whole Foods.
But a few huge developments are finding room on their sites for massive retail spaces. These stores need a tremendous amount of traffic just to survive. A 500,000-square-foot Target store, for example, needs to draw thousands of customers every day, traveling to the store from far outside the project’s neighborhood.
Wal-Mart comes to New Orleans
Neighborhood advocates were afraid that Wal-Mart would drive some local merchants out of business when it opened a 200,000-square-foot store on the banks of the Mississippi River in New Orleans’ Lower Garden District, just downriver from the Warehouse District.
Even the antique stores on nearby Magazine Street were worried that the giant discount chain store would take some of their business. But Pres Kabacoff says the store has done just the opposite, by drawing new people to the neighborhood who might buy on Magazine Street once they finish shopping at Wal-Mart. Kabacoff is CEO of New Orleans-based Historic Restoration, Inc. (HRI).
The Wal-Mart is just one part of HRI’s River Garden Apartments, a $225 million redevelopment of the old 50-acre St. Thomas public housing project, which has already opened its first phase of 300 mixed-income apartments, including 120 units of affordable housing. The Wal-Mart opened two years ago, about one year before Hurricane Katrina touched down. Looting closed the store for about six months after the storm, but the retailer is now open again and the parking lot is generally full, Kabacoff said.
HRI gambled a lot to bring large retail to the site. The developer bought $7 million in land for the store and held it for three and a half years before Wal-Mart committed to the site. After the deal closed, HRI received $11 million in tax increment financing to pay for the land, improvements to the land, and the cost of holding on to it so long.
“It was a tremendous risk,” Kabacoff said. If Wal-Mart hadn’t taken the site, HRI would have been forced to sell the land, probably at a loss, most likely to a metal commodities storage company that had expressed interest—hardly a service to the community.
The store has brought 500 jobs to the neighborhood, in addition to cheap housewares and much-needed tax income for the city. “People would normally leave to shop in the suburbs,” Kabacoff said.
Target in Columbia Heights
When the National Capital Revitalization Corp. (NCRC) planned the redevelopment of the vast stretch of vacant land at the corner of 14th Street and Irving Road, in the Columbia Heights section of Northwest Washington, D.C., they decided to try something really big.
“D.C. in general and this neighborhood in particular at the time was tremendously underserved for retail,” said Kevin Warner, vice president of investments for NCRC. So, as NCRC planned hundreds of mixed-income apartments and condominiums for their package of land ringing the corner, they decided to include a 500,000-square-foot Target store, in addition to the tens of thousands of square feet of space they already planned for neighborhood retail.
Because there is nothing else comparable to the Target store for miles, it was difficult to write a market study for the project. “It was kind of a leap of faith,” Warner said. It will cost $140 million to build the Target store, which will include 1,000 parking spaces set in an underground garage. Grid Properties and Gotham Construction will develop the property using land provided by NCRC. The developers will pay for the project with a $95 million conventional construction loan plus a $40 million tax-exempt mortgage, and NCRC will pay the last $5 million by contributing land and equity. The store should open in 2008.
NCRC, also known as the redevelopment arm of the District of Columbia, was founded to handle the city’s stockpile of abandoned, city-owned land. The agency takes this land and sells or donates the properties to private developers. The Columbia Heights site was a vast, gravel parking lot before NCRC began its work.
NCRC’s other new buildings around the Target store will typically reserve 20 percent of their units for less wealthy households, with incomes ranging from no more than 80 percent of the area median income (AMI), down to no more than 40 percent. This affordability is subsidized by units that sell for market rates.
In addition, 75 affordable rental apartments for seniors are set in Kenyon Square & Victory Heights, a recently completed project just across the street.
AvalonBay develops affordable housing, massive supermarket
AvalonBay Communities, Inc., is known for building luxury apartments. But to win the right to develop a prime patch of land on the border between SoHo and the East Village in Manhattan, the national real estate investment trust (REIT) agreed to make room on its site for social services at a 30,000-square-foot community center, more than 100 units of affordable housing for very low income people, and the largest Whole Foods grocery store on the East Coast.
Once all four buildings at AvalonBay’s Chrystie Place are finished, 178 of the project’s 712 apartments, or exactly 25 percent, will be reserved for low-income households.
Three of these buildings will hold back 20 percent of their apartments for families earning up to 50 percent of AMI.
Workers finished the fourth building, the Extra Place Apartments, in spring 2006. All of the 42 apartments there are reserved for low-income households. The $12 million building was financed with a tax-exempt mortgage and equity from the sale of 4 percent low-income housing tax credits. The seven-story building was developed by Extra Place Associates, a limited partnership controlled by the nonprofit Phipps Houses.
AvalonBay wanted to make sure it won the contest for the site. So the REIT planned a 42,000-square-foot community center including a 75-foot swimming pool, a gym and a basketball court, along with space for community groups to offer programs and services. That’s significantly more than the 30,000 square feet asked for by the Cooper Square Task Force, which had control of the site and ran the competition between developers for the land.
Chrystie Place will also include a 60,000-square-foot Whole Foods Market. Whole Foods is now building out the space, which is comparable to the company’s flagship store in Austin, Texas.
The base rent for the store is set at 5 percent of sales, with a 40-year lease. With this planned income, AvalonBay offered the city $40.5 million, or $90 per square feet to purchase three acres of land for all four phases of Chrystie Place, which was by far the winning bid.