HomeMy WebLinkAboutFinal Draft: University Hill Business PlanFinal Draft
University Hill Business Plan
Ross Consulting Group
September 13, 2004
Tabie of Contents
FOREWARD ......... ... ..... ......1
..... . . . ............. .
EXECUTIVE SUMMARY . .......... . . ... . ....... . . .. ... . .. . 2
RCG PROCESS....... ............ ........ .. . ....... . ...... 5
Stakeholder Findings ......... .. ..... . . ... .. ... . .. . ......... .. .. ..... . .... 5
City Involvement Discussions . .... . ..... . ....... . . .... ... ...... .....6
Planning & Zoning Department Discussions . ........ . .. . ....... . .. .................. .. ...... ....6
Existing Conditions Rewew .... . ..... ....... . . . ......... . 6
Data Rewew .............. . . ......... . . ........ .. ......... .. . . . 6
REGIONAL & NATIONAL RETAIL TRENDS THAT RELATE TO UNIVERSITY HILL ........ ..... .......... ..8
EXISTING BUSINESS CONDITIONS ON UNIVERSITY HILL... .. . ............ 11
Retad Trends........ . . . ........ . . . ............. . ........... ... ....... ...... . .11
Consumer Goods.. . .. .. . ......... .. ........ . . ....... . 12
Food & Dnnk .. . . ........... .. . ....... . . .... ..... . .. . ... ... ..... .... .......13
Retailer Sizes 8~ Tumover . . ................. . ... ... .. . ......... .. ... 14
Summary Retail Sales Findings ......... ..... .... .. , . ... ... 16
Office Trends . .... ... .. . . . ......... ... .... ... . . .. ...... 17
Residential Trends . ............. . .... .. ....... . 17
. ........... .. .
ZONING ISSUES ON UNIVERSITY HILL . ..... . ... . ........ . .. . . . . .18
OPPORTUNITIES & CONSTRAINTS ON UNIVERSITY HILL . ........... ... . 20
Proximity to University of Colorado . .. ....... ... . ....... . . . ....... .. ............. ..... 20
Psoximity to Urnversity Hill Residen4a{ Area .... ............... . ..... ......................... 20
Parking Supply & Demand ............... . ........... . ............... . . 20
Residential Supply & Demand ......... .......... . . . . . .............. ... 21
Office Supply & Demand...... . ...... ....... . ... . ................ .......... .. ............. . 21
Retad Supply & Demand.. ............ . .............. . . .. .................... ...... ...........22
Histonc Building Stock ...................... ......................... ............... ................. . ... ..... ......................... 22
SIGNIFICANT ROADBLOCK TO CHANGING THE HILL STATUS QUO ........................................... 24
Absentee Ownership/ Fragmented Ownership .. .......... . . . ................................... ..... .......... 24
Management of Existmg BusinesseslExist~ng Leases ........... .. .... ................................................. 24
Boulder Political ClimatelApproval ProcesslZoning . ............ ..... ...... . . . . . 24
Property Owner Economic Disincentive to Reinvest .............. .. .. .. ... ......................................25
BUSINESS PLAN .. .. ............................ .. ...................... .. . ... ............................ . . . ........26
ECONOMICS OF BUSINESS PLAN IMPLEMENTATION .. ....................... .. .................30
Economics of Bwiding RenovaUon Today ........... ..... .. ... ....................................... 30
Economics of Building Reconstruction Today ....... ............. .. ....... ........................................... 34
Economics of Transferable Development Rights .............. .. ... ................................ 36
Economics of Assemblage . .. ............... .. . .. ........... . ... . . . ... 38
North Gateway Assemblage Economics. ... .. . . .... ...... ..... ............. . .. . . . ............ 39
South Gateway Assemblage Economics . . ............... . . . ..... 42
Broadway District Assemblage Economics . ................ .. . .. . . . . . ........45
IMPACT OF HISTORIC DESIGNATION ..................... . . ... .............. .. .. . .. . ...... . . 48
POTENTIAL CITY INVOLVEMENT.. .... .. . . . .. . ........... .. ... ........ ............. 50
Parking.......... . . ..... . .. . . ..... ........ . .. . . .. 50
Planrnng & Zornng .......... . ......... . . ....... .......... ... ....... 5o
Ross ConsulUng Group Final DraR UHGID Business Plan
Reinvestment Catalyst . .. .. . ......... .. .. .. ..... . 51
NEXT STEPS ... .. . . . ... . . .... . . . . . .. . . .... 52
GLOSSARY. . ..... . . .... .. . .... . ............. . . 53
APPENDIX .......... . ..................... ........ . ... 55
SIC Code Definitions ..... ..... . . . ... ............. .. . . . ...... ...... . . . ... 55
Ross Consulting Group Final Draft UHGID Business Plan
FOREWARD
Ross Consulting Group (RCG) was engaged by UHGID to investigate the Universiiy Hill Commercial
Distnct ("The Hdl") in order to gauge the area's development potential and to determine whether the
existing conditions are representaUve of those that could be achieved under different stewardship and
evolving community goals This initiarve comes on the heels of a community study performed by PUMA
that investigated the re~at~ve degree of community satisfacUon with current Hill conditions and also delved
into desires of commercial tenancy that might be accommodated in lieu of existing tenants While the
PUMA study helped document community dissabsfaction with existing condiUons, its purpose was not to
address viability of change from those existing conditions As UHGID and related stakeholders have not
found a"sdver bulleP' to effect change on The Hill, RCG was brought in to help establish realistic
expectations and goals, and to outline steps to achieve those goals outlined in The Hill Vision Plan
RCG's work-product is effectively a business plan for UHGID, property owners, and the City of Boulder to
consider in evaluating possibility for changes on The Hill This plan and its components attempt to present
both large-scale and small-scale opportunibes to improve the viability and wtality of commercial and
residenUal uses on The Hdl
RCG recommends that this business plan be utilized to foster discussion among business owners and
property owners, neighbonng residents, the University of Colorado, and the City of Boulder FuRher, RCG
recommends that a land planning/architecture firm be utilized to "vision" some of the concepts outlined
herein in order to illustrate possible beneflts and consequences as well as to gwde potential planrnng and
zoning modificahon negotiations.
Because this business plan is constructed in advance of the land planning and architecture components,
some of the massing and density issues as well as ciwc components on The Hill necessanly require further
study. Accordingly, the recommendations included herein are intended to be directional rather than literal,
outlining courses which should be followed in order to determine the appropnate architectural and pianning
solutions for The Hill and its environs
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EXECUTIVE SUMMARY
Through the process of evaluating the University Hill Commerciai Distnct, RCG wnfirmed that the area
holds far greater commerciai office, retaii, and residential potential than is currenUy being realized While
the 29"~ Street redevelopment may consume some of the untapped market potential, RCG is cronfident that
the market demand far outstrips supply for vanous uses on this Site. The factors impacting usage and
redevelopment include the foilowing:
Stronq underivinq retad market fundamentals Paradoxically, The Hill's success as a retail destination
has also created The Hill's current lack of tenant diversity Proximity to the University of Colorado
dnves the attraction to this area, creat~ng a continuous stream of interest from business owners and
entrepreneurs wantmg to open busmesses on The Hill This demand has conditioned propeRy owners
to avoid the brokerage community when needing to rent space and instead place their own signs in
storefront windows-thus saving on brokerage commissions, and demands for tenant improvement
allowances that exist with other retail altemaUves As a result, spaces are rarely vacant but few
nat~onal or regional retailers ever leam about space avadability on The Hill. Instead, many small
businesses get established on The Hdl trying to cater specifically to the current student market and
retaii has been trending shongly toward convenience retail and eatmg/drinkmg establishments.
HiQh tumover Due to relatively cheap rents, outdated bwldings, and the large percentage of start-up
businesses on The Hill trying to cater to the continuous stream of University-related traffic, The Hiil has
become known as an incubator While some of the businesses en~oy wdd success, many others close
within the first three years of operation. This also tends to translate into faidy inexperienced
management staff, unaware of retail trends and strategies for increasing sales, but eager to be on The
Hill.
• Absentee Landowners A significant number of property owners on The Hill have been owners for
many years, and have grown accustomed to steady rent checks without significant brokerage expense,
tenant improvement expense, or required rapital improvements
• Parkina Pubiic parkmg on The Hiil, while available, is generally considered to be either severely
lacking or poorly located. Poor proximiry of convenience parking tends to reinforce the CU-onentation
of retad, as most visitors and business owners consider it to be unrealistic that non-urnversity visitors
would patronize the area.
• Zoninq• Current zoning is restnctive on what can be constructed on The Hdl. Because of those
constramts, there is a shong financial disincentive for redevelopment to occur. While the area as a
whole is charactenzed by undeveioped densiiy, the cost and associated hmeline for developers to
redevelop and seize additional density is considered to be prohibitive.
. Retail trends. Over the course of the last ten years, retad trends have changed considerably.
Individualiy and collectively, these retail changes have all impacted retailing on The Hill.
o Lifestyle centers, or extenor-faang stores located in auto-onented locations, are charactenzed
by tenants formerly seen only in enclosed malls. These malls cater to busy people who do not
have time to wander through a regional mall and are unlikely to have time to search for
parking
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o Big box retail centers, or Power Centers, have established themselves as the pnmary shopping
destination for the busy family Shoppers have spoken, and they are strongly favonng one-
stop desUnations that allow them to make weekly purchases and then uhiize bme and money
saved to pursue other leisure act~v~ties.
o Regional malis are consolidating, with many secondary IocaUons suffenng declining sales and
weakening tenant base. Many of these older malls are in the process of being redeveloped
into Power Centers, or a mixed-use center incorporaGng aspects of big box retad, residential,
and office
o EntertainmenUShopputainment centers, or desUnahons that incorporate aspects of boutique
retail together with restaurants, theaVes, bars, and other entertainment venues are becoming
popular on the nationai stage These centers are the antithesis of the Power Center. Rather
than focusing on accommodabng a large number of convenience trips, instead they focus on
extending the duration of each trip into a more en~oyable experience It is this trend that most
closely descnbes the pnmary potential of The Hill The new 29"~ Street redevelopment hopes
to corral some of the same appeal in a larger format retailing concept, but lacks the small
scale, historic and main-street appeal that defines The Hill
Existina Hdl retail saace confiauration is limit~na Not oniy are the ma~ority of Hill retail floorplates very
small, but they are also charactenzed by relatively low ceihng heights. Retailers, therefore, need to be
able to work within the exisUng space envelope in order to operate on The Hdl. As retailers evaluate
vanous IocaUon decisions, however, funcbonal consideraUons such as floorplate sizes and ceding
heights weigh very strongly into site selection decisions. As the real estate cost is a relatively large
propomon of the overall business expenditure, business operators need to be sure that the real estate
effectroely supports their business goals For many retaders, these considerat~ons would likely cause
The Hill to fall lower on their list of preferred locations despite The Hdl's CU proximity
General consumer qoods retail beina reolaced bv restaurants. As Flat~ron Crossing has moved to fill
shoppers' needs for general retatl and Pead Street Mall has moved to fill needs for boutique
restaurants and shopping, the Hill has been transitioning from general consumer goods retail to
convernence restaurant use. W~th mcreasing neigfiborhood resistance to addttional Viquor licenses, the
new restaurants are being pushed in the direction of take-out and fast food to serve the IunchUme and
hamed student clientele. Convenience eating has therefore assumed a prominent posiHon in
numerous storefronts, and is consequently changing the nature and expectations of retail in the area.
If this trend continues, The Hill will be overcome with student-oriented establishments, and wdl
effecUvely cease to be considered a neighborhood commercial distnct.
Existinp Hdl tenant mix is limitina Retaders are reluctant to take risks When existing retailing is
trending toward convenience and fast-food uses, few retailers would consider locating unless their uses
are in some ways compiimentary to existing retaders In this way, retailing character seldom moves
qwckly outside of new constniction, and instead slowly evolves. Dramatic changes will be difficult,
therefore, uniess a significant presence of new retaders can emerge on the scene at the same time
This opportunity is discussed while evaluating potential for assemblages on The Hdl.
RCG sees a number of options for helping free the existing development gndlock and broadening the
tenant base to aliow The Hili to evolve into a broader community center, These goals, shared by all
stakeholders, were made abundantly clear through our study as well as through the findmgs of the PUMA
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study. Achieving the goals will be enabied through use of some combination of options indicated below
Importantly, these opUons are indeed options~ they are avenues that RCG has identified in the process of
analysis, which each require further vetting in order to determine appropriateness of incorporation by the
City of Bouider When conducbng further investigation of the following options, it wili be necessary to do so
with the help of a land planninglarchitecture firm to further "vision" and understand potential outcomes and
possible unintended consequences
Zonin . Evaluate opportunities for changing or broadening zoning to allow for larger bwidings,
increased density, larger floorplates, and perhaps microzones. These changes would allow for
economically viable redevelopment of underperforming buddings, and would provide property
owners a significant incentive toward sigrnficant capital investment in their properties Further,
these changes would allow the property owners to bwld retail spaces that cater for different retail
uses than exist on The Hill today
CreaUon of Histonc Distnct. The Hill has significant histonc value to the community and it is
charactenzed by numerous bwldmgs that help define and enrich the area's histonc nature. As land
values increase and building conditions deteriorate over time, wholesale redevelopment becomes
more economically viable in what could be considered Historic bwldings Therefore, the City should
senously consider purswng a historic distnct classification on the 13~ Street comdor and possibly
shift redevelopment and addiUonal density to other parts of The Hdl. Doing so would help preserve
the nature of the area, and help provide individual property owners with effective tools for
protecting their bwldings through histonc designabon-including possibie financial incentives in the
form of histonc tax credits, faqade easement credits, and possible grant monies. This decision is
not without risk, however, and needs to be carefully evaluated prior to commitment to pursue
designation of an histonc district. The pros and cons of histonc designation are discussed in detad
in the following report.
Transferable Develooment Riahts (TDRsI. As one of the primary goals for The Hdl is to retain its
histonc charm, density allocaUons can play a signficant role. There are some smailer buildings in
the district (particulady in the 13~ SVeet core) that have wonderful histonc facades, but economics
of redevelopment suggest they should be raised in favor of denser structures. This economic
reality should be addressed before sigrnficant buildings are lost. One proven way of protect~ng
those structures, in addition to histonc designation, is through establishment of transferable
development nghts, or TDRs. The TDRs allow building owners to sever additional density rights
from their building and to sell or transfer them to another property owner within the district who can
then utilize those nghts to build addironai densiiy than would otherwise be allowed under zoning.
RCG recommends establishmg sending and receiving TDR areas, so that the resulting actiwty from
transfers can be better incorporated into area plans
Cwic soaces. The Hill is a tremendous draw for current and former students and has been over
time for the surrounding community. Up to now, however, there is no avic space aside from city-
owned parking lots that encourages people to gather. Whether partial closure of 13"~ Street dunng
the evenings or introduction of a pocket park along 13~ Street, The Hill could benefit ftom
introduction of community elements that exist to help unify students, business owners, neighbonng
residents, and the greater commumty. When properly planned, these elements can evolve during
different times of day (a place to en~oy lunch outside, read a book in the afternoon, and en~oy the
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evernng without having to go inside) RCG caut~ons that any civic space needs to respect the
ovemding goals for business viability, however, and recommends against full-time street closure.
Central Parkma Convenient, accessibie parking would remove a significant barrier to the greater
community from patronizing The Hill. Further, when incorporated mto larger assembiage
opportunities as a subterranean component, city-0wned parking could provide the catalyst for
redevelopment and change to occur on The Hdl. This wdl also provide a consolidated opportunity
for prowding additional parking supply necessitated through better parking wsibdity and
redevelopment actiwties on The Hdl Importantly however, this component needs to be integrated
with larger redevelopment effort in order to achieve the goal of expanding retail mix and other uses
on the S~te
RCG PROCESS
Over the course of the last 11 months, RCG has spent considerable time and effort researching vanous
elements that influence or contnbute to busmess viability and real estate values on The Hill This process
inciuded a number of stakeholder mterviews to help ground our analysis Stakeholder interviews helped
provide us with vaiuable perceptions, observat~ons, and experience from UHGID board members, CU
students, admmistraUon, residents from the University Hdl neighborhood association, Hill business owners,
City Staff, City Planning & Zoning, and property owners within The Htll commeraal distnct
This process a~rmed the work of the previous PUMA study, informed RCG of the dynamics between
stakeholders, and most importantly involved stakeholder groups in the process of c~eating a viabie
business plan This process also irntiated the dialogue of what change and redevelopment might feel like
on The Hill - an area unaccustomed to much change. Of all of our findings, stakehotder reticence to
embrace change was the most stnking
Stakeholder Findings
Other (not so surpnsmg) findings included the following:
• The Hill's character is its main attraction
o Funky
o Historic charm & character
o Mom & pop retailers
o H~p
o Not "corporate"
o A place where students can simply hang out
• The Hill's location catalyzed the commercial success
o Proximity to Urnversity of Colorado students, faculty, admimstrators, and alumni
o Proximiry to University Hill residentiaf neighborhoods
• Everyone wants a more diverse retail community
• Everyone wanis a more central parking solution
• The public events on The Hill are a big hit
• Everyone seems to endorse the creation of public gathenng space
• Everyone wants a place that wdl draw a more diverse public to The Hill
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City Involvement Discussions
Through our discussions with the City of Boulder, it is clear that the City endorses the goals of the
stakeholders. Further, the City is wdling to consider helping catalyze events that wtll lead to change. Such
participation might include cooperation in allowmg a special distnct (or broadening the purpose of the
distnct already in piace), partnering on a publiGpnvate venture that has the City bwlding and operabng a
parking structure component of a larger development, helping finance and conshuct public spaces on The
Hdl; and selling existing parking assets to allow redevelopment, once parking has been replaced elsewhere
on The Hdl
Planning 8~ Development Services Discussions
Through discussions with the Boulder Planning and Development Services, it is clear that they have deep
regard for The Hill and the histonc character it bnngs to the City of Boulder With that in m~nd, they are
reluctant to consider any proposal that might endanger the histonc nature of exisUng buildings
They would be much more wiiling to consider proposals that enhance vibrancy and vitality of busmesses on
The Hill, so long as those proposals help assure continued preservation of histonc bwidings
As with any public process, the Planning and Development Services cannot commit to speafic changes
without significant study into specific proposals. Similarly, no changes should be requested of Plannmg
and Development Services without a better understanding of the ramifications of those potenUal changes
The nature of changes that could be considered inciude. designation of a histonc distnct; introduction of
microzones, Vansferable development rights, and modifications of what counts against Floor Area Ratio
(FAR) under existing zoning, FAR; and height limits by right. The likelihood of any or all of these issues
being changed on The Hill is yet to be determmed Boulder enjoys the "fnction" that their process
introduces into development, and a certain amount of that "ficUon" will help produce better developments
This fiction does not necessanly mean higher cost and longer time within the City process, but instead
helps craft a better integrated plan that involves City staff from the outset.
Existing Conditions Review
RCG reviewed exisUng conditions on The Hill in order to provide a baselme for our report. This process
involved observing bwiding conditions, tenancies within buildings, business health (as denved through Data
Review descnbed hereinafter), and the greater Boulder retad context These baseline data points help
illustrate existing conditions and determine whether perceived concems can be venfied.
Data Review '
RCG reviewed propnetary tax collection data from the City of Boulder in order to better assess both health
and trends of vanous businesses located on The Hill Additionally, to prowde context to RCG's analysis,
data from the Pearl Street Mall area was also reviewed. The combination of data from these two
commercial areas provided a comprehensive look into retail trends as well as impacts of local economic
conditions during the mid to late 1990's and into the 2000's.
The data collected and reviewed allowed RCG to parse the infortnation by SIC-defined industry rype, year,
location, and by use. As wdl be discussed iater in the report, the data reveaied some telling trends on The
Hill in terms of business health, turnover, uses over time, and impact of busmess size on longevity.
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Because of the confidential nature of informaUon reviewed for this process, RCG cannot provide reports on
specific busmesses.
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REGIONAL & NATIONAL RETAIL TRENDS THAT RELATE TO UNIVERSITY HILL
While retaii has always been a trendy asset class, sub~ect to whims of the consumer marketplace, the
trends experienced over the course of the last decade have been especialiy impactful to retail on The Hiil
Large format retailing blossomed during the 1990's, carrying forward a store format created by K•Mart, Wal-
Mart, Target, and others many years earlier The catalyst for the broad expansion of large format retad
seems to lie in the economic expansion begun around 1990 coupled tinth the continued growth of two-job
eamer households. As more people entered the workforce and work hours grew, households had less free
time available for shopping and recreating. As a consequence, the ability to make one stop for dry goods
and grocenes had great appeal-leaving more time for people to spend recreating with fiends or family
Additionally, radical improvements in supply chain management and technology created significant
consumer cost savmgs at these one-stop shops over more traditional less convenient retaders. These two
broad market movements strongly f8vored select~on and pnce over service, thus laying the groundwork for
success experienced by: Costco, Sam's Club, Wal-Mart, The Home Depot, Lowes, Target, and many
others.
These shopping trends tend to run compietely counter to the Mall development craze of the 1970's and
1980's, and are helpmg to cause a number of neigh6orhood malls to suffer considerable sales declmes
Some of the older malis are already in the process of being redeveloped to Power Centers (areas
characterized by multiple, large-format retailers) or LifeStyle Centers (outdoor, unanchored shopping areas
charactenzed by upscale tenants that were formerly found exclusively within malls). While Power Centers
thnve on aggregating shopping for convenience-the fast food of retail, if you will--Lifesryle Centers
recognize that specialty retailers have grown enough clout of their own to indrvidually draw customers
without a mall baclcdrop These Lifestyle Center tenants, recogrnzmg that sales had been declining as
shoppers began trending away from frequent mall visits, seized on the idea of locating in an outdoor mall
environment where patrons could park in front of their favorite specialty retail store. Carrying forward the
fast food analogy, LifeStyle Centers would be the Starbucks drive-through altemative to Fast Food Power
Center: higher price, higher image products available in non-traditional formats, which racogniie the desire
of shoppers to get in and out without undue distraction.
Compoundmg this trend toward convenience-oriented retaii is the impact of Intemet shopping Surfacing
dunng the last decade, intemet shopping reached a fever-pitch dunng the late 1990's dot-com explosion
with an endless array of shopping venues Amazon.com, ebay, Yahoo~, Pets.com, and many other lesser-
known sites provided people with an array of products avadable without the traditional "bncks and morta~'
overhead costs. Whde many of these businesses have since ceased operahons, usage of Intemet-based
shopping sites has continues to reach new heights in each year after the dot.com bust. The underlying
trend supporting this movement is simdar to the trend that catalyzed the expiosion of large format retailmg•
shopper convernence, pncing advantage, selection, and flexible retaiting hours. When coupled with reliable
and low-wst shippmg, Intemet shopptng has had an undeniably positive impact on shopper selection,
pnang, and value.
While the success of Power Centers, LifeStyle Centers, and Internet shopping all revolve around
commoditization of the shopping experienc~focusing on convenience by reducmg the durahon and
frequency of shopping wsits while produc~ng consumer pric~ng advantages over traditional retail methods-
the net result is more spare time for recrea4on. This focus on recreat~on is itself creating new retad
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opportunities, as developers scramble to capture the attention and imagination of the buying public Across
the country, the trend is being manifest in smaller and larger cities, in new urbanist communities as well as
redevelopments of older commurn6es, as developers work to re-create main street retail This main street
retail tends to be focused on a mynad of eating/dnnking choices, theaVe (live or movie), boubque shopping,
and civic or park spaces Examples include Prescott Anzona, Long Beach, Califomia; Lower powntown
Denver, Colorado, the outdoor mall area at Flatiron Crossing in Broomfieid, Colorado, and many others
Interestingiy, the Amencan public is demanding a destination where they can have choice from a panoply
of restaurants/bars, intereshng boutiques, entertainment venues, and small parks or plazas These main-
street retail establishments generally find success when proximity provides ample pedesfian Uaffic, and
when parkmg is generally convenient to the locabon Theatre and concert venues function as the traffic
generator while restaurants and bars help extend the wsits both before and after the entertainment function
and boutique retail help capitalize upon the social nature of the outing. These boutiques tend to be
successful when they sell art, jewelry, tounst items, and designer clothing that tends to be more unique
than one might find in a mall or Power Center retailer
The City of Boulder has expenenced considerabie change dunng this same penod of retail transformahon
on a nat~onal scale With strong growth curbs in place in the late 1990's, lack of large development parcels
with economic scale, and aggressive mcentives offered from neighbonng communities, much of the
regional growth around Boulder was effecUvely channeled to Longmont and the
LowsvillelLafayettelBroomfield/Superior corridor The growth not only resulted in tremendous residential
growth outside of the City of Boulder, it also spawned tremendous retad growth outside the City of Boulder.
With the Crossroads redevelopment effectively stalled, much of the retail momentum was allowed to shift to
Broomfield with the introduction of Flahron Crossing
Flatiron Crossing, and the considerable amount of large and small format retail developed nearby as well
as in Superior near the McCaslin exit off of US 36, took what had been a presumptive Boulder address for
regionai shopping and moved it out of the City. The economic impact of Flahron Crosstng wdl be lasting
and not one to fade as the "newness" of the development wears off. Instead, Flatiron Crossing wdl shape
retailing decisions within and ad~acent to Boulder for many years to come.
Retaiting within the City of Boulder, thus effectively squeezed out of the large format shopping as well as
super-regional mall, became relegated to main street retail, specialty and neighborhood convernence
(grocery, dry cleaners, liquor store, hardware store, restaurants, etc.) retail. Nonetheless, because regional
growth shifts considerable shopper traffic into neighbonng communities, future retailing withm the City of
Boulder needs to be focused and well-targeted in order to be successful Both Pearl Street Mall and The
Hill need to shift more toward main street retad entertammentleatingldnnkmglboutique shopping in order to
be successful. Favorably, main street retail are natural strengths of Boufder.
In short, the Amencan public is asking for a development that has all of the components of The Hdl, with a
moderately different tenant mix, parking avadabdity, and public gathenng spaces. While change creates
anxieiy, it is clear that many potential patrons of The Hill are not finding reasons to spend much time-or
money-on The Hill As a result, the majonty of recent wsitors to The Hill are from the CU community.
This change in shopping demographics has an obwous impact on retatlers and retading on The Hdl, as
shopkeepers and restaurant owners shtft their offerings to take advantage of the market avadable to them
This trend gets further solidified as new retaders are reluctant to locate on The Hdl unless their uses
compliment existing retail offerings In other words, few single retailers would make a commitment to
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diverge dramatically from existing retad The conditions that began alienating Hill residents thus get further
entrenched on The Hdl, and make further diversity difficult to achieve
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EXISTING BUSINESS CONDITIONS ON UNIVERSI7Y HILL
Business activity on The Hill, and as a result real estate activity, is pnmanly dnven by retail sales which
includes both general consumer goods sales and restaurant sales. This Hill Commeraal District (referred
herein as UHGID for purposes of sales analysis) is first a shoppmg destination as well as an entertainment
destination and lastiy an office and residential location Services comprise a small portion of the revenue
generated on the hill - an average of only 4% of total sales over the past 10 years As the ma~or dnver and
over the past 10 years, retad sales are generally trending upward, however, retail on The Hill as in alf of
Boulder, is not immune from nahonal consumer cyclical trends. Stdl recovenng from a 6% retatl sales
decline in 2001, The Hill has yet to reach its sales peak of 2000 By companson, the greater Pearl Street
mall area (referred herein as CAGID, central area general improvement district, for purposes of sales
analysis) sales remained strong through 2001 but fell thereafter and contmue to do so
What does this mean~ Any underiying fundamental problems in the UHGID retail makeup shook out with
2000's recession and 9/11 UlGmately, The Hill's dynamism allowed it to correct itself and move forward On
Pearl Street, fundamental problems are more entrenched and have been slow to shake out. Indeed, this is
endemic of larger nabonal retailers who characterize Pearl Street and who have suffered from finicky
consumer behavior that has seen more money spent at automob+les dealerships and discount retaders. In
general, however, the existing UHGID condition is one of healthy flux. It has strong segments and weak
segments which are supported or replaced by a constant source of demand for Hill space
Retad Sales, 19942003
$32
g1SS
N
° $31 _ N
$150 0
~ $30 - $145 g
$140
°-
~ $29 ~
~
$135 ~
$28
- $~ao
$27
$725
$26
$120
$25 1
$1
5
$24 110
T
u
1994 1995 1996 t997 1998 1999 2~~0 2001 2002 2~~3
Retail Trends
Retad Sales trends are broken down into several SIC-defined categones in order to comprehensively
present the different trends that are impacting The Hill's financ~al and aesthe~c performance. Retad sales
are initiatly broken mto two categories: Consumer Goods and Food & Dnnk. As the data demonstrates,
these two categones have functioned qwte differently over time suggesting a competitive rather than a
complimentary or synergistic relationship Understanding this dynamic is cntical to understandtng The Hill
character and its changing face, as well as its future. Following this inihal diwsion of retail sales into
consumer goods and food & dnnk, a further distinction is made between retailer sizes in each category. In
other words, the retail sales performance and business longewty is analyzed based on the b~g and small
Ross Consulting Group Fnal Draft UHGID Busmess Plan
Page 11
retail players on The Hdl This analysis allows us to delve deeper into retail trends to explam things such as
where the biggest sales hits came from in 2001, what kind of retaders are leading the resurgence in sales,
and what retailer charactensUcs are likely to shape The Hill's character in the future.
Consumer Goods
The Consumer Goods category compnses non-
food/beverage related sales and includes bus~nesses that UHGIO Consumer Goods Refail Salas
sell items such as apparel, hardware, books, and drugs "_, S1e
While this category has traditionally made up the bulk of ~ a~~
retail sales on The Hill, it has seen a precipitous deciine in
sales during the last 5 years Indeed, in 2003 Consumer s,s
Goods sales were down 12% from their peak in 1998.
Dunng this 5 year Gme penod, Boulder shoppers saw their s~e
shoppmg choices multiply with the development of the
Flatirons Crossmg Mall, a proliferation of discount super $14 , , , , , , ' , ' '
stores, and the advent of Intemet shopping. Additionally,
large naUonal reta~lers evoived their shop fortnats over this
penod to favor larger format retail centers with high ceilings, abundant window space, high traffic counts,
and abundant parking in front of each store for the SUVs they hope thev customers will use to haul off their
shopping bounty. The typical Hill bwiding from the 1920's has none of these characterist~cs except the high
foot traffic from CU students.
When taking even a closer
look into consumer goods
sales, it is possible to further
break the category down
into smaller SIC-defined
subcategories. These
subcategories define
busmesses based on the
types of goods sold. (See
Appendix for detaded SIC
category defirntions) The
largest sub-category is
"Miscellaneous Shopping
UHGID Consumer Goods SIC-Defined Retail Subcategories
-Apparel & Accessory Sbre;
~ Orug Stores and PmpneFary
srores
-Grocery Smres
-~ Miscellaneous Shopping
Goads Sbres
~~Rehail Sbres, NEC
a ss
0
~ $5
3a
$3
ss
$~ / ~ --'^- -snoesfores
Goods Stares" This ~- ~._ ` -`
confusingfy named
subcategory IS an @C~BCfIC i $~ ---~men's Clolhing Stores
group that mcludes sporting ~ ~ssa ~sss isss iss~ isse ~sss zooo zoo~ zooz zoo3 --- -- ---
goods, bicyde shops, and I
bookstores. Whde sales in
this subcategory sptked in 1998, it has been in decline since with the excephon of 2002 which saw a
moderate increase that failed to sustain itself in 2003. As one can see from the graph, Shoe Stores lost a
tremendous amount of market share between 1996 and 1999, and since then have not been able to gain
much traction. indeed the one category that has seen consistently increasmg sales has been "Retail
Stores, NEC" or Retail Stores Not Elsewhere Classified. Th~s subcategory includes the retail components of
Ross Consulting Group Final Draft UHGID Business Plan
Page 12
drug stores and is a ma~or component of convenience related retad sales on The Hill In all, the Consumer
Goods retails safes on The Hiil have been in decline for a prolonged hme penod This trend cannot be
attnbuted to a sluggish national economy as sales began to decline significantly pnor to the recession of
2000. Indeed, the trend is indicative of the change in shopping preferences of The Hill's patrons who
increasinqlv buv their consumer aoods outside of the Citv
Even Pearl Street, where the retail fortnats are less constrained by
histoncal building sizes, has suffered from this retading trend.
Interestingly however, Pearl Street consumer goods sales seem to
be more closely driven by macro economic malaise than The Hill
as Pearl StreeYs success and decline is more clearly correlated to
the late- nineUes technology era boom and bust Pearl Street
consumer goods sales' one year dip in 1998 is an anomaly in the
area's steady late 1990's climb, but can perhaps be explained by
City improvements and construction that impeded retailer access
$~~ CAGID Consumer Goods ReWll Sales
a
= $95 -
~
aso
$85
sao
S~s -
$70 m .~ m '_
^ ~ ^ ~ ^ ^ N ~ N N
that year Otherwise, Pearl StreeYs consumer goods sales mirror
U S economic expansion and recession dunng this 10-year time period.
Food 8 Drink
Food & Dnnk retaders have been the driving force behind The Hill's growth
in overall retad sales over the last 10 years The Food & Dnnk category is
essenbally restaurant sales that comprise both the food and beverage
(alcohol and non-aicohol) sales m both full service and counter service
restaurants on The Hiil. Indeed, where consumer goods sales are down
12% since 1998, restaurant sales are up 31%. Upon delving deeper into
the numbers, it is apparent that not only are exisbng restaurants seeing
increased sales, but that restaurants are taking the place of consumer
goods retailers as they leave the market in search of more advantageously
sized floor space and consumer vehicular traffic. Whde the number of
UHGID Retad Sales (19942003), SIC
Categories
„ s~a
~ Sn --
~ 3~s
s~s
S~a
$13
1994 7996 1998 2000 2002
-FOOd 8 Dnnk -Consumer Goods
restaurants per capita across the U.S. has grown dramaUcally over the last
20 years as more families eat more of their meals outside the home, this trend is particularly impactful in
Boulder as the major regional shopping venues have migrated outs~de the cfty to penpheral locations
As demonstrated by the foliowing chart, the average number of
restaurants on The Hdl in any given year has dramatically
increased 48% over the last 10 years to the pomt that the
ma~onty of businesses on The Hiil today are restaurants. On
the flip side, the average number of consumer goods retaders
on The Hill in any given year has decreased by 31 °/a since the
peak year of 1997 As turnover occurs on The Htli,
restaurants are taking the place of traditional goods retailers
giving nse to the complaint about the proliferaron of fast
food/subshop restaurants. In addttion to real estate market
share, it is cntical to underscore market share of consumer
dollars Not only are restaurants taking up more physical space
on The Hill, but they are also receiving an increasing share of
Nurt~er of Retad Establishments Present
on The Hill m My Grven Year
~ Food 8 Dnnk ~ Consumer Goods +1
ioo --- -
so
ao - - - ~-'~" =T
~o --- ---
so
50
ao
30
zo
10
Ross Consulting Group I " - '
I - ^p,~0. ~poi5 ~~oi~° ~p~1 ~~oi0 ^~0°' ~OpO ryo0~ ryOO~'ryO09
all consumer dollars spent on The Hill Groen the tra~ectory of Hdl restaurant sales, it is unlikely that this is
a trend that wdl reverse itself anyttme soon.
An important disUnction in the Food 8 Dnnk category, or restaurant category, is the different perfortnance of
restaurants with liquor licenses as compared to those without. Restaurants that have liquor licenses have
total restaurant sales that are on average 53% greater per restaurant per year than their non-licensed
counterparts. Additionally, as a category their sales have increased 20% since 2002 whereas non-licensed
restaurants have seen flat overall sales and declining sales per restaurant What does all this mean~ Non-
liquor licensed restaurants face a challenging future on the hill. These are businesses prone to tumover
that more volatde than liquor licensed restaurants. For exampie, between 2002 and 2003 The Hill Iost 7
non-licensed restaurants and also gamed 9 No licensed restaurants left The Hill in this t~me penod while
one was gained In total, 2003 ended with 13 liquor licensed restaurants and 29 non-licensed restaurants
on The Hill.
Restaurant Sales, Liquor
License vs No Liquor License
$9,000
m
e
m
~ $8~000
O
L
f
87,oao
S6,o0o
$5,000
2002 2003
t Reslau2M (lM~h Uquor ~cense) Sales
~Restaurant (No ~quor) Sales
Retailer Slzes & Tumover
Averaga Annual Sales pei Restaurant
$400
a
'~O $3p0
a
~
L
f
~2~~
S1oo
~
2002 2003
^ Ras~u2n~ (lMlh Llquor License) Seles
^ Restauran6 (No ~quor) Sales
When analyzing retailer success and failure on The Hill in tertns of both financial performance and
contnbution to the overall Hdl character, it is important to understand which businesses compnse the
contnbutors. One sigmficant differenUatmg factor is retader size. Because infortnaUon is not available
regarding the exact square footage each retader that has existed on The Hill in the past 10 years occupied,
RCG has analyzed retatler size in terms of sales volume and building size. While bwldmg s~ze is not a
perfect pro~ry for retailer size because there can be any number of retaders in one buildmg, larger buddings
do generally allow for larger retailer spaces and more visible and spacious storefronts. Additionally, sales
volume does generatly correspond to floor area. When analyzing retailers in terms of size, it becomes
apparent that economics encourage convernence-onented retad in smaller spaces. The simpie fact is that
non-convenience oriented retail has suffered in these spaces whereas the convenience retail is both nimble
and non•capital intensive, allowing retaders to adapt to changing customer needs. This results in a robust
demand pool of would-be retailers eager to try their business hand on The Hili.
Ross Consulting Group Final Draft UHGID Business Plan
Page 14
In terms of bwlding size, tenants of larger buildings have on average performed much better than tenants of
smaller bwidings giving them much less reason to vacate space The median size of bwldings that have
had increasing retail sales over the past 10 years is 90% larger than the median size of bwldings that have
expenenced declining retad sales over the past 10 years
RCG has termed "Large Retailers" those that have on average individually compnsed more than 3% of
sales on The Hdl dunng the past 10 years A sampling of these large retailers in the Consumer Goods
category include names such as The Colorado Bookstore, Kinsley's, Jones Drug, and Art Hardware
whereas large Food & Dnnk retaders mcludes names such as The Smk, Tulagi, La Iguana, and Illegal
Pete's
In the Consumer Goods category, there is a strong
explanation for the overall category's sales
malaise Since 1999, the large consumer goods
retaders on The Hill have suffered dramatically
declining sales (11% over past 5 years) and as the
ma~or dnvers of this consumer goods category- the
impact is acute There are only 8 of these larger
consumer goods retailers and they have accounted
for roughly 60% of all consumer goods sales over
the past 10 years as well as 35% of all Hiil retail
sales Again, their declining sales trend is
indicaUve of larger retading trends around the
country. As large format national retaders have
moved dec~sively to locate themselves in the latest
retail format (suburban Power and LifeStyle
Centers), they have eschewed Hill-type space.
Shoppers have followed
UHGID Sales m"Consumer Goods" Refail Categodes ~
aoo
sis
ooo
,
,
si~,ooa,ooo - -.- --••--
~
sio,ooo,ooo ~
ss,aoo,ooa
sa,ooo,ooo
s~,ooa,ooo
$6,000,000
ooo
ooo
ss
,
,
,
1994 1995 1996 1997 1998 7999 2000 2001 2002 2003
I~Large Re~ders ~Small Retade~
On the other hand, the smaller consumer goods retaders have adapted themselves to some degree and
seen some meager sales improvements over the past 5 years (6%), although they have struggled to
materially improve sales beyond 1997 levels They have done so by cycling in and out of The Hill at a
staggering pace For example, there were roughly 140 small consumer goods retailers on The Hill during
the last 10 years and of those, 86 appear to have
left The Hili. This is a significant trend when
compared to the performance of smaller restaurants
who have seen much greater increases in overall
sales dunng the same penod This suggests that
small consumer goods retaders wdl be under
increasing pressure from small convenience-
oriented restaurants to take their space once
vacated
Indeed, small restaurants have seen a dramatic
99% increase in sales over the past 10 years. This
compares to 5% sales growth in large restaurants in
the same time period (inclusive of a 17% decline in
Ross Consulting Group
UHGID Sales in Food & Drink Retall Catego~
ss,oao,ooo
ooo
ooo
se
,
,
s~,oao,ooo
ss,ooo,ooo - - -
s~,aoo,aoo
sa
oao
ooo -
,
, - -- -
s~
oao
ooo
,
,
~
.P.~ •, 6 ~ a a o,c~ a o
.e,~ ~!~ j~• jL~ ~a• .A• y .4• .~
I ~large Restaurents ~Small Reshaurants i
Final D2fl UHGID Business Plan
Page 15
sales since 1999) What is happening here? Small restaurants are taking the place of existmg small
consumer goods retailers while large restaurants are struggling to break out and capture evening eating
and dnnking traffic that has migrated to other areas of town - notably Pearl SVeet which greatly expanded
its capaaty for eating Nnth renovat~ons to the mall in 1998
Indeed, sales from the Food & Drink category on the Pead
Street Mall has seen steady growth over the past 10 years
with the exception of just two years, 1998 and 2003. 1998
is like{y explained by interruptions from renovation on the
mall and 2003 can be explained by a struggling national
economy and tourism business as well as the introduction
of Flatirons.
Like small consumer goods retaders, small restaurants
aiso cycle rapidly though The Hill. Both have a 3-5 year
busmess cycle. Of the 86 small restaurants on The Hill m
the past 10 years, 48 have left. Of the 10 larger
restaurants on The Hill in the past 10 years, only 1 has left.
Summa~v Retai/ Sales Findinas
Overall, retad sales data on The Hill
paints a complex picture With sales in
the past 3 years underperforming their
peak levels in 2000, ~ncreases in City
taxes have offset decreased revenue
and to some degree masked the true
shifts underway on The Hiil. The major
shift in place is in the balance beiween
consumer good and restaurant sales.
As consumer goods sales are on the
CAGID Food & Drlnk Retail Salea
»
o $75
a
3~s
~
sas
$35
q
O~'l ^ RL ~ O~ O~^l O N O O
N N N
decline, food & dnnk sales are on the
march and close to becoming the ma~or source of sales revenue on The Hdl Today, food & dnnk sales
revenue is evenly split between large and small restaurants and in general weighted toward restaurants of
any size with liquor licenses. Because of these trends, retail revenues on The Hill are much less diversified
than they have been histoncaliy and increasmgly generated from a fewer number of businesses. Indeed,
70°/a of The Hiil sales revenue comes from 11% of the tenants. This leaves the Ciiy tax base at a higher
nsk and property owners on The Hdl with higher tenancy nsk. It also means that there are non-performing
retail categones on The Hill and therefore bwldings that could see higher more stabtlized rent. In other
words, there are more than glimmers of reasons for reinvestment on The Hill.
Ross Consulhng Group Final Draft UHGID Business Plan
Page 16
Office Trends
The Hill is not currently a ma~or office destination, and has relatively little office product for prospectroe
office tenants What little office space there is exists pnmanly in the North Gateway area There are little
upstairs offices in some bwlding in the 13~ Street core, but their impact on Hdl character is negligible
Indeed, businesses rategorized by Service SIC codes have made up only 4% of all Sales on The Hill in the
past 10 years Nonetheless, services compnsed 7% of sales on The Hill in 2003 as compared to 2% of
totai sales on The Hill m 1994 This shows a small but growing demand for office oriented space. The
ma~or impediment to office space is parking, which is a difficulty not ~ust for employees, but for customers
and wsitors as well.
The growth in services on The Hdl, however, is also somewhat significant given that the greater Boulder
office market has recenUy been expenencing its highest vacancy rates on record This is largely a shock to
the Boulder office market that has long considered itseif to be immune from regional office trends, thanks to
its 'speciai' Boulder locahon. Nonetheless, the Boulder office market, like the retail market, is heavily
influenced by greater regional supply trends. Newer, cheaper, more DIA and Denver accessible Broomfield
office space has taken its toll It is this wider regional context that suggests Hill growth in services over this
Ume penod belies a market opportunity to capture office users who simply want a Hill location no matter
what.
Residential Trends
The residential market on the Hdl as in Boulder - both at one time considered impervious to regional trends
- have shown themselves to be vulnerable Indeed, from staggeringly low vacancy rates between 1% and
3°/a throughout the 90's, the Boulder University area residential market is now at a 10% vacancy rate
Increased supply from CU's Williams Village and Bear Creek have proven that students wdl in fact
commute for lower prices and new bwldmg stock. Although a more proximate location than The Hiil is not
possible for CU students seeking off campus houstng, the condition of the University Htll Commercial
Distnct residences and rooming houses is largely one of functional obsolescence and noticeable levels of
deferred maintenance.
Ross Consulting Group Final Draft UHGID Business Plan
Page 17
ZONING ISSUES ON UNIVERSITY HILL
The current Hdl Business Distnct zoning is BMS-X While this zoning accurately reflects The Htll's nature, it
does lack some of the zoning advaniages estabiished in Pearl StreePs R81-X and fads to recognize
redevelopment potential on The Hill
The descriptive definit~on of BMS-X district is "Business areas generally anchored around a main sUeet that
are intended to serve the surrounding residenGal neighborhoods It is anticipated that development will
occur in a pedestrian-onented pattem, with buildings bwit up to the street; retail uses on the first floor,
residen4al and office use above the first floor, and where complementary uses may be allowed "
The descriptive defirntion of R61-X district is "The regional busmess redeveloping area within the downtown
core that is in the process of changing to a higher intensity use where a wide range of o~ce, retail and
public uses are permitted. This area has the greatest potential for new development and redevelopment
within the downtown core."
These diffenng descnptive definitions of the two distncts demonstrate the City's ongmal intent that
redevelopment of The Hiil be of a lesser intensity and purpose than that on PearV Street Where Pearf
StreeYs redevelopment distnct in intended to serve the larger City and regional community, The Hill's
redevelopment distnct is much smaller in scale The following discussion of the diffenng permitted uses
and schedule of bulk and density standards between the two districts highlights the redevelopment
advantages established in the RB1-X zone that do not exist in the BMS-X zone
In terms of permitted uses, the ma~or advantage of the R61-X zoning hinges upon retailing. In RB1-X,
"department, major comparison goods, fumiture store, or supermarket" as well as "dnve-in" uses are
exppctUy allowed while they are a use petmttted by review under BMS-X. Additionally, "vocational schools,
adult education facilities, pnvate schools and universities" are only permitted above the ground floor in
BMS-X while they are allowed on any floor in R61-X Also in terms of use, efficiency living urnts, when less
than 20% of the total number of dwelling units in a development, are only permitted above the ground floor
in BMS-X whde they are aUowed on any floor in R81-X.
The BMS-X zone distnct does have a use advantage over R61-X in that "boarding or rooming houses,
fratemities and soronties, and dormitones" are permitted uses above the ground floor in BMS-X and
prohibited uses in R81-X
When considenng the two zoning districYs schedules of bulk and density standards, RB1-X is also
considerably advantaged compared to BMS-X In terms of open space, BMS-X reqwres 15% minimum
usable open space per lot and a mirnmum of 60 sq.ft. of minimum pnvate open space per dwelling unit
whereas RB1-X requires neither
ImportanUy, within the BMS-X zornng there is a maximum building size of 15,000 sq.ft (which can be
exceeded through special review) while there are no maximum budding size restnctions within RB1•X.
And, R81-X has Review Cnteria that allows certain bwldings within its distnct to exceed the 35-foot height
limitation imposed on the R81-X district, whereas BMS-X will allow for bwldings to exceed the its 38 foot
height limitation under special review, but does not have published review critena. RB1-X also is allowed
Ross Consulting Group Final Draft UHGID Business Plan
Page 18
"Floor Area Transfers" where BMS-X is not, that floor area may be transferred from one lot or parcel to
another. Additionaily, the BMS-X has more restricUons on yard size and setbacks than RB1-X
It is RCG's conclusion that limiting retad uses, reqwnng parking rabos, and limiting bwiding sizes on The
Hill wiil hinder future Hill redevelopment and that fast service convenience retad will continue to be the retail
of choice
Ultimately, there is considerable density on The Hdl that is not being uUlized regardless of BMS-X zornng
The average FAR on The Hiil is 1.1 whereas the maximum allowed under BMS-X is 1 85 This means that
there could theoretically be another 470,000 square feet of bwldmg space housed on The Hill which would
almost double the amount of building space currently there-far higher density fhan would likely be optimal
Doubling the building square footage on The Hdl is not the outcome that any Hill stakeholders desire
However, there are ma~or advantages to some addiUonal space, reconfigured space and some generaliy
larger bwidings on The Hdl. Current building s¢e contnbutes to higher probability of continued consumer
goods sales decline as these retaders seek modem formats and convenience related retailers and
restaurants take their abandoned space. The height limitat~on without special review of 38 feet makes
redevelopment difficult because retad ceiling heights are higher than office or residential and to meet this
requirement would essentiaily take 3 story bwldings down to 2. The other choice is for 3 short stones,
which is undesirable. Moreover, current zoning does not recognize the different needs withm The Hdl and it
encourages the redevelopment of shorter buildings into denser bwldings.
Importantly, Boulder Planning and Development Sernces feels that the actual zone is not as important as
the character the District wants to achieve As such, they are wdling to consider changes to the appropriate
zone from their "menu" of zones once urban design analysis and planning evaluations have been
completed.
Ross Consulting Group Final Draft UHGID Business Plan
Page 19
OPPORTUNITIES & CONSTRAINTS ON UNIVERSITY HILL
Opportunities and constraints on The Hill are many Ultimately, the opportunity lies m leveraging The Hill's
unique Boulder IocaUon, market demographics, City initiaUve, and historic character to in~ect a new vitality
onto The Hill that will catalyze private re-investment in core properties Constramts on The Htll can be
characterized as both macroeconomic and political In other words, change on Hill wdl have to compete for
market demand and against the costs of the Boulder development process (as compared to development
processes outside Boulder) and the complicatlons of fragmented ownership The highly fragmented
ownership on The Hdl is particularly important because of the chailenge in assembling parcels with
adequate scale to justify redevelopment These constraints are not insurmountable, but are factors to be
understood and dealt with when planning for The Hill's future
Proximitv to Universitv of Colorado
The Hill's proximity to the University of Colorado is perhaps its greatest opportunity and certainly its most
defining charactensUc The daily infusion of 30,000 students on Hdl represents a retailing dream for most
merchants. The Hill's proximiiy to the school gives it a unique place of importance in the hearts and minds
of both curcent students and alumni. Because of this shared idenUty, over Ume The Hill's location will not
lose value even if its uses and structures deteriorate This limits the downside nsk to any would-be Hill
investor
Proximitv to Universitv Hill Residentlal Area
Because of the dynamic nature of the residential neighborhood that surrounds The Hdl Commercial District,
Hill retailers have some opportunity to serve vanous segments of the population beyond the CU student
populaUon. The residential neighborhood is comprised of both Boulder residents and a sizable yet
chuming CU student population that lives in the area immediately surrounding The Hill The Hill Boulder
residents are some of the wealthiest in Boulder with 2003 average household incomes of approximately
$77,500 compared to the 2003 average citywide household income of $67,000. The opportunity to serve
the non-student resident population is real. However, while these residents are eager to see more non-
student oriented retail in their backyard and have the disposable income to spend there, CU student traffic
through The Hill will always be dramatically larger than that of non-student residents. Hill non-student
residents number approximately 5,600 compared to 30,000 strong CU populat~on that considers the Hill the
center of off-campus soaai life This means that the CU student populations will continue to define the
typical Hill shopper profile.
Parkina Supalv & Demand
Hdl parking supply and demand present both opportunities and constramts to The Hill's future commercial
success and distnct character Currently, parking along the 13~^ Street corndor is tight and well used,
making it difficult for shoppers to simply °drop in" on their favorite Hill stores. It ts almost universally agreed
upon by both retailers and customers that more abundant parking on The Hill would bring more people to
The Hill than are otherwise there today. However, UHGIDICITY OF BOULDER parking does exist at both
ends of The Hill and these parking Iots are decisively underutilized. The great problem with the UHGIDICiry
of Boulder parking today is not that it does not exist, but that is that it is either not known by potential
customers or that it is wewed as being too penpheral to The Hill to prowde easy and convenient access to
Ross Consulting Group Fnal Draft UHGID Business Plan
Page 20
the shops As such, parkmg perception is currently a liability on The Hill and it unequivocally constrains
6udding and 6usiness investment. With that said, the a6dity to cure parking problems on The Hdl (whether
they be real or perceptual) also presents a tremendous opportunity Effective parking will open The Hill up
to new uses and new customers As the parking provider on The Hdl with control of 2 lots and operational
control of a third, UHGID/City of Boulder has the opportunity to create and commit to forvvard think~ng
parking solutions UHGID/City of Boulder has declared a wiilingness to use these lots as a tool to
encourage and shape future development that upholds the community vision and fulfills the Hill's potenbal
It is also important to note that successful new development on the Hdl will, in and of ~tself, create parwng
demand on the Hill beyond that of today's demand level further necessitatlng mnovative parking solutions.
In considering parking consolidation and expans~on, it is quite feasible that a we{I-4ocated parkmg structure
would provide additional parkmg options for Universiiy-related activities. Because this traffic heips
generate parking revenue to cover construction and financing of the garage, and because the traffic
(appropnately channeled) wdl help susta~n new and exisUng retad stores, RCG is not wncemed about
potential overlap
Residential Supalv & Demand
Proximity to the university and aty center as well as retad appeal will always attract a certain younger
demographic to a resideniial use on The Hdl. Indeed, this demographic wdf be more wdfrng than others to
overlook a lack of parking, detenorating bwlding conditions, and nightlife noise However, the Hill is not
impervious to the market forces and is constrained by the regional residenUal supply Again, supply of
student housing has been dramaticaffy inaeased in receM years and studenis are showmg a greater
willingness to live outside the aty's boundanes for cheaper larger living spaces. Therefore residential
space on The Hill will have to upgrade to compete
Yet, a significant residential oppoRunity exists to leverage The Hill's unique proximity to CU and the
surrounding residential neighborhood community. First, because the Hill is closer to CU than aimost every
other location in the City, student residential use on The Hill will always bring higher rents and` higher
occupancy than comparable product m the City or region. Any future Hill redeveloper can successfully
build product for this student market. However, there are other markets - notably facultylstaff and sernor
alumni housmg. Both markets are underserved and essentially untapped These markels would flourish
on The Hill as well as bnng an incremental dose of matunty and spendmg power to The Htll While neither
market could be served today in the current stock of Hdl bwlding, they would play a profitable and primary
rofe in any larger scale assemblage redevelopment scenano.
O~ce Supalv 8 Demand
While the constraints faced by would-be office occupiers on The Hill are numerous today, the appeal of The
Hili as an eventual office location is strong The constraints today are simpiy limited, poorly configured and
technologically inadequate un-parked space. The strong office location appeal, however, is created from
complimentary entertainment uses on The Hill and the draw of being next door to a university source of
energy, knowledge, emptoyees, and potential customers
Nonetheless, o~ce use on The Hill wdl not be immune from larger regional office ma~ket forces. Recently,
the Boulder office market has seen a significant increase in office competition (or supply) from surroundmg
aties Interlocken alone in Broomfield has added more than 1,000,000 square feet of multi-tenant office
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space to the region since 1998, with considerably more single-tenant space that has begun to influence the
mult~-tenant market as those corporate occupiers (Sun, Level 3, and others) have downsized. When
factonng in other growing cities such as Supenor, Westmtnster and Longmont, it is fair to say that the
Boulder office market, which has little land left on which to grow, is faang serious competition Boulder
office vacancy rates are currently at their highest histonc levels hovenng around 20%. Moreover, as new
growth is more effectively located an the 36 Comdor ta serve both the Denver and Boulder markets, those
new bwldings will possess a much larger office occupier and labor market to pull from.
This all points to a Boulder office market that is going to have to increasingly draw from an office user niche
that specifically wants to live and work in Boulder. Office users that are cost sensitive, desire access to
both Boulder and Denver, and have numerous employees that live in less expensive markets than Boulder
will continue to have more affordable office choices along the Highway 36 comdor Office users that can
uniquely access and benefit from Boulder attnbutes will continue to thnve and do business in the City of
Boulder.
Retail Sunnlv 8 Demand
As has already been discussed, retad on The Htll is severely constrained by the current sizes and
configuraUons of existing buddings on The Hdf New retad formats have taller cedmg hetghts, larger floor
areas and greater storefront visibility. Moreover, peripheral parking keeps would-be shoppers from
explonng The Hill. These constraints added to the larger national trends toward discount big box one-stop
shoppmg combine to make it difficult for Hdl retailers to compete with large national retailers Nonetheless,
certain consumer goods, designer goods sold in a boutique, or convenience goods have a potentlaily
strong future on The Hill thanks largely to the 30,000 CU students who move through The Hill on a weekly,
even daily basis The opportunity to serve this population as well as the surrounding resident population
with higher-end designer retaii is strong but necessitates change. It is a matter of reconfiguring space to
meet retailer objechves. In other words, build it and they will come In the case of The Hill, however, "iY
needs to be more than one stand-alone retail ouUet: The Hill needs to create a cluster of shops that will
begin to shift shopping expectations and surrounding retail characteristics.
Without change, The Hill will continue to house many small convenience and student oriented uses with a
limited number of larger restaurants - but no more larger restaurants wili appear without larger retail
spaces and liquor licenses Today, The Hill serves as a retail business incubator to the smaller shops due
to its relahvely inexpensroe rents and access to the CU student population. It should be noted that the
political forces that would limit the number of liquor licenses on The Hill conspire to shape the character of
restaurants on The Hill toward convenience onented student restaurants - or the proverbial "sub shops"
Indeed, the polit~cal forces that blame bar actiwty for what is pnmaniy underage house party activiiy in the
neighhoring residential areas, pose a s~gnificant constraint to entrepreneunal restaurateurs eager to try
their hand at a Hili venture and bring a sit-down restaurant that can appeal to a larger population than ~ust
students.
Historic Bulldina Stock
A histonc building stock does many things it enhances the aesthetic character of an area tying its patrons
to traditions of the past, it can make properties eligible for govemment dollars and credits spent on the
preservation of that space, and it can constrain bwlding owners from renovating their functionally obsolete
building to a higher use In most cases on The Hill, the most architecturally significant and potentially
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histonc buddings exist along the 13~^ Street comdor Preservatron af The Hdl's core could be economical{y
benefiaal to budding owners if they have the opportunity to sell their untapped development nghts-which,
if used, would effectively destroy the histonc character of their buddings. Histonc tax credits and grants
could also provide some incentive to renovate rather than replace detenorating buildings. This is a sUong
opportunity to use City tools to preserve the distnct core and allow core owners to transfer existing
development nghts to non-core owners. Doing so couid provide significant impetus to non-core peripheral
butlding owners to reinvest in their proper~es
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SIGNIFICANT ROADBLOCK TO CHANGING THE HILL STATUS QUO
Despite considerable opportuniGes on The Hill, there are some major roadblocks that lie in front of
sigrnficant mvestment be~ng made on The Hdl These roadblocks must be understood ~n order to Eoster
change
Absentee Ownershin/ Fras~mented Ownershia
Importantly, large blocks of The Hill are characterized by absentee or fragmented ownership Many of
these owners have held The Hill land and buildings in their famdy for years and are not currently burdened
with debt. In other words, many of the buildings are mvestment cash cows that produce increasing cash
flows which do not require much in the way of reinvestment by their owners, in fact, many tenants, rather
than owners, make the necessary bwlding improvements rather than the owners because the location is so
desirable and rents are not prohibi6ve The ftagmented nature of the ownership also makes assemblage
on The Hi{{ part~cularly drfficult for a developer who would have to either persuade multiple owners to
participate in redevelopment or persuade these owners to sell their profitable bwldings.
Manaaement of Existina Businesses/Existinp Leases
Another roadblock to the success of redevelopment on The Hill is the management currentiy in place at
existing businesses These are, for the most paR, successful businesses and managers who wiil applaud a
change on The Hill, but wiil also have serious qualms about redevelopment and disrupUon of "business as
usuai" at the bwldings in which their businesses are housed indeed, abandonment of an operaUng
business for up to a year of construction wdl spell certain death for most Hill retailers Additionally, a
landlord without the consent of their tenant cannot legally terminate existing tenant leases in place on The
Hdl. This means that buifding owners looking to redevelop their properUes will have to wait for expiration of
lease terms currently in place before they can reinvest in their proper4es. Moreover, it is unlikely that multi-
tenant buildings have leases that will ali expire at the same time. This increases developer costs as space
must sit idle waiting for other space to free up
Boulder Polltfcal Climate/Approval Process2onino
The Boulder approval process for development pro~ects is perceived to be one that has considerable
fiction and holds considerable risk for any wouid-be developer Whde this process has changed
wnsiderably of late, perceptions wdl lag the current reality. While this important system ensures that the
City's vision of appropriate development occurs and results in the safeguarding of the City's unique
character and cfiarm (as welV as properly values), developers looking to enter ihe process face uncertainty
that keeps them from pro~ects that they might otherwise be engaged. In other words, the perception of time
and dollars reqwred to nawgate the city approval process and design gwdelmes as well as the risk of
re~ection make the anticipated cost of development in Boulder greater than the cost of simply the
developmenYs bricks and mortar This means that it is not simply any developer who can participate in The
Hill redevelopment. Likely developers wtll either need to be current owners who have a low basis and
stable income in the property currently, large scale national developers with the resources needed to
compiete purchases and weather the approval process, developers who have a better sense of current
challenges and processes of actually developing within the City of Boulder; or a combination of the above.
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Proaertv Owner Economic Disincentive to Reinvest
Perhaps the greatest roadblock to redeveiopment and likely the reason that more buildings have not been
renovated already is the fact that for most property owners, it is not economically prudent or profitable to
reinvest or redevelop their buildings today (An in-depth financial analysis of budding
renovat~on/redevelopment options follows in the section `Economics of Business Plan Implementation' )
Essentially, the current income produced by the buildings is greater over time than that which couid be
produced over the same time penod by renovating the buddings, disrupting cash flow, expending cash for
construction and then raising rents Once the risks involved with renovation/redevelopment is factored into
cash flow, the economics of redevelopment are even less favorable
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BUSINESS PLAN
To be sure, the goai of a broader, more droerse retader and consumer community wili not be achieved
without changes to existing conditions on The Hill. These changes include a combination of large and
small steps that unll help remove roadblocks to area revitalizaUon. RCG proposes a comprehensive toolkit
be assembled in order to help implement positive change.
Again, because this business plan is constructed in advance of the land planning and architecture
components, some of the massing and density issues as well as civic components on The Hiil necessanly
require further study Accordingly, the recommendations included herein are intended to be directional
rather than literal, and wtll require further consideration and public discourse pnor to implementation in
order to determine the appropnate architectural and planning solutions for The Hill and its enwrons
Lastly, the areas of considerabon in this business plan are each parts of a toolkifi not all of these "tools"
need to be implemented in order to achieve The Hill Vision Plan. Yet, some components of these tools will
be necessary in order to make significant strides toward the Vision Plan These are the individual items
that have the abdity to influence successful change on The Hill, and should therefore be further vetted in
order to detertrnne appropnateness in land planning, architecture, and assemblage discussions going
forward. By embracing some combination of the following "tools", RCG pro~ects that The Hill wdl see
considerable evolution toward The Hill's goal The veloaty of change within that evoluUon will vary
considerably according to the tools implemented.
A. Embrace mulbole uses on The Hill throuah redeveloament
a The Htll exists as a retail, residenbal, and business center Whde residenUal and bus~ness
uses are more peripheral to The Hill Commercial Distnct, their potential is undeniably attractive
and should be embraced more centrally and in a mixed-use manner.
b. Residential uses need to be broadened beyond student rooming houses, to inciude faculty,
admimstration, alumni, and the general population. The area holds tremendous appeal on a
24-houd7~iay-per-week basis. Because of proximity to CU, this area has distinct possibdities
to incorporate high-density residential use
c. Office uses, while not often generating the pedestnan traffic associated with retail stores,
provide sustamability and consistency in neighborhood planning. Where absentee property
owners may grow complacent with their investment and try to avoid re-investment, office users
wdl help force broader upgrade of properties This will be encouraged through higher rents
andlor office condominwm sales that prowde property owners ~nth higher return profiles than
boarding rooms
B Introduction of oublic saace
a. Public space is desired in order to provide a ciwc focal point on The Hili. When properly
executed, this will provide a multipie space purpose that changes dunng from day to evening,
and from winter to summer. It will leverage off of existing convernence eating establishments
for lunches and snacks-providing seating and community gathenng. RCG recommends
engaging the services of a land planner to begin visualizing the nature of the public space,
whether it is charactenzed by landscaping or hardscap~ng ("green" or "hard"), and which
attnbutes should be incorporated into the final plan.
i. Studentslfacultyladministrators for lunch
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ii. Hill neighborhood residents during aftemoonslevenings
m Special events on evernngs or weekends
iv. Small playground for attracting more diverse population to The Hdl-peopie that are
disinclined to frequent The Hill now-both the elderly and those with small children
v Meeting place after work/after theatre, so exisUng or potential retail patrons can gather
without loitenng inside/outside specific businesses.
Public space can help organize overall distnct layout, where today it is more charactenzed by
haphazard planning that evolved over decades
Funding for public space will need to be researched Possibilities for funding mclude a UHGID
special assessment; Boulder Open Space; pnvate donation, and other publiclpnvate sources.
C Implement part-time closure of 13th Street
a. RCG recommends against permanent closure of 13~ Street While permanent closure could
provide the civic or public space prewously mentioned, but it is not without risk. across the
country, main street retail has been proven to function considerably better with restncted
automobile traffic flow rather than no auto traffic flow Whde on-street parking need not be
significant, providing potenGal patrons the opportunity to drive through the distnct pnor to
making the investment (both hme and money) to park can be crucial to the area's success
Because patronage is skewed toward the CU commurnty today, RCG fears that total closure of
13"~ Street would seal the area's fate as a CU annex While this may allow for moderate
business successes among student patrons, RCG is confident that the area can support a
much broader appeal-thus making it less desirable to make any decision that could result in
narrowing rather than broadernng the area's appeal
b. RCG recommends consideration of partial closure of 13~ Street. Whde this altemative would
not allow for permanent public spaces to be erected m the roadway, it allows the area to
transform at various times during the day or week This method has been used successfully in
California, Washington D C. and even in Denver (Larimer Square, Old South Gaylord) The
street could be closed after 6pm or on weekends to enwurage more pedestrian acpvities
without sacrificing retail viability during the week. Whde routine street closure wouid
dramahcaily complicate on-street parking logistics and enforcement, the result could appease
both advocates and critics of street closure. Without a cenhalized parking solution, however,
RCG is concerned that pardal closure of 13~ street would force prime parking mto the
neighborhood during the dinner and entertainment hours-thus increasing tension with the
neighborhood as eating and drinking establishments close in the eariy moming Plans for
partial street closure needs to be particularly sensiGve to consequences of shifting parkmg
aliocation in order to divert early moming pedestrian and vehicular traffic away from
surrounding neighborhoods.
D. Provide centralized qarkma solut~on. The parking altematives in place, two City-owned metered lots
and one CU-owned metered lot (operated by the City), do not provide convenient parking to The
Hili Further, patrons utilizing those metered lots seldom carry sufficient change in order to stay
parked for more than a short wsit to a store or restaurant. Proper parking tariffs wdi need to be well
conceptualized in order to encourage parking availabdity for retad paVons throughout the day
Centralization of area parking to one wsible and accessible parkmg structure would prowde
numerous advantages;
a Remove reliance upon change or parking key in order to visit The Hill.
b Remove burden from shopkeepers for hawng to make change for meters.
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c Impose ability to direct traffic to certain IocaUons-both vehicular traffic to and from the garage
as well as pedestrian traffic as it enters/leaves the garage area This helps keep order, keep
traffic flowing, and create new retaii and business opportunities proximate to the traffic
corridors
d. Allow parking garage to be used for multiple events, at various times dunng the day The area
could function as overflow or convenience parking for CU students and admirnstration dunng
semester classes, as special-event parking dunng football games, and as overflow alumni
parking for the Alumni center.
e Allows for redevelopment of some other parking lots to other uses, for further revitalization of
the district.
f Partnenng within context of larger development could enable pro~ect to be constructed, where
it may otherwise fad under crost burden of structured parking
E. Explore DesianaUon of 13~ Street Core Area as Histonc Distnct
a Provide recognition for distnct that everyone already values for its histonc confibuhon to the
City of Boulder
b. Provide better access to rehabditation funding for owners of contnbuUng histonc buildings
through National Trust for Histonc Preservation, State of Colorado, and Ciiy of Boulder
c Provide access to rehabilitaUon fundmg for owners of non-contnbut~ng bwldings within htstonc
district, which would otherwise not have access to rehabditation funding
F. Institute Microzones on The Hill to recoanize and encouraae different area characters. Higher density
areas shouid be studied by architectural firm in order to determine appropnate limits.
a 13~ Street remains largely as historic district, with stnct govemance on what can be bwlt in the
~ area.
b. Broadway Distnct, from College to Pennsylvania becomes zoned for higher density uses, with
higher height limits. This area becomes residential or office on upper floors, with retail on
ground floor.
c. North Gateway, from University Avenue south to Pleasant Street, becomes zoned for
moderately higher uses, possibly with higher heights or stepped height limits. Area becomes
residentialloffice on upper floors, with retail on ground floor. Residential could include some
mix of the following uses or any of the following uses exclusively. market housing,
studenUfaculty housing, affordable housing, seniorlalumni housing, and even fratemitylsorority
housing Whde this parcel has tremendous residential potential, it has some of the best office
potent~ai in the Hill District. Uses would want to be sufficiently fungible to accommodate needs
of market between residential and office. This parcel could be come the iconographic gateway
to The Hill on the north entrance.
d. South Gateway, 1350-1370 Coliege and including the UHGIDICity of Boulder-owned parking
lot immediately south, becomes zoned for moderately higher uses, possibly with higher heights
or stepped height limits. Residentiat on upper floors, with retail on College frontage. This
parcel should become the iconographic gateway to The Hdl on the SouthlEast entrance.
G. Institute Transferabte Development Riqhts (TDRsI within The Hill District.
a Establish sending and receiving zones, thus encouraging which areas of the district should be
more dense (see Microzones above)
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Provides economic encouragement for property owners of historicaliy significant proper~es to
retain rather than redevelop those properties, by ailowmg those owners to sell development
rights over and above existing density of their site
Allows developers to achieve better economics of redevelopment (or more appropnately,
allows redevelopment where othervvise redevelopment would not occur because of insuffiaent
economic retums) through increasing densiiy over that otherwise allowed under zoning. City
could encourage increased zoning to areas where it might be more welcome (Broadway, North
or South Gateways) and away from 13~ Street
Use of TDR's bears more discussion to further understand potenbal consequences regarding
land values and properry owner expectations
H Encourage Iarqer land assembiaqes to mwqorate development and act as a siqnificant aqent of chanqe
in the area.
a. By their very nature, larger land assemblages offer ability to more broadly introduce new or
different development concepts to The Hill. When appiied to penpheral/gateway locahons like
those previously identified, these assemblages have the opportuniiy to introduce a significant
amount of new uses to the area, create extemal exatement about change occumng on The
Hill, and fundamentally alter the retad, office, and residenbal dynamics that have been spiraling
over the last decade. New retailers, new office tenants, and new residents will not only heip
bnng people to wsit the new developments, but they wdl generate traffic and demand that wdi
help exisUng retaders (and retail locahons) draw consumers that have fallen out of the habit of
visiUng The Htll
b. As UHGID has already leamed, one new tenant on The Hill is unlikely to generate much buu
or excitement A single tenant may also encounter difficulty introduang concepts that appeal to
different or broader markets than may already be served. The assembiage opportunihes,
again by their size, provide a proven method of broadening market demand by creaUng new
sub-markets within an existlng retail area.
c. The City can consider working in a joint-venture capacity with an assemblage developer to
utdize land area beneath new development as a centralized and expanded parking solution
Through leveraging even one central assemblage, UHGIDICity of Boulder could centralize and
expand its three lots into a location that better serves The Hili, is more wsible to vehicles
dnving by The Hdl, lessens impacts to surrounding neighborhoods, and helps channel parkers
by new and existing retaii spaces-thus stimulating demand for retad sales.
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ECONOMICS OF BUSINESS PLAN IMPLEMENTATION
When some or all of the changes listed above in the business plan are implemented, economically viable
redevelopment is possible on The Hdl where it is not currently wable today Today, the financial impact of
reinvestment into performing bwldings is negative for most Hill buildmg owners because of the strength of
their current cash flow and the restnctions that would keep them from makmg sigrnficant size renovaUons to
the exisUng bwldings and thereby constraints incremental rent growth However, when transferabie
development nghts are ailowed and larger parcels are assembled, redevelopment on The Hill becomes
economically feasible To demonstrate these Hill economics, RCG has bwlt financial pro fortna models that
analyze multiple redevelopment scenarios and then compare the outcomes to those of status quo
scenarios. These models illustrate the financial incenUves and disincenUves facing Hill developers This is
done in order to paint a picture of likely and unlikely Hill redevelopment.
Economics of Building Renovation Today
Current budding owners have two primary options for reinvestment into their properties today These
options are building renovation or budding reconstruction Under a renovahon scenano, the building owner
would simply upgrade the buildings intemal configuration and finishes A reconstrucUon scenario would
see a bwlding demolished and rebudt to a maximum size allowed under current zoning. Compared to a
status quo scenano where no reinvestment is made, neither reinvestment scenario is financially rewarding
to the building owner today. The following financial pro fortnas illustrate the economics for the average Hill
building owner of a renovation scenario compared to a status quo scenano in which the building remains
unchanged
This status quo scenario uses various assumptions that are conservative in nature and attempt ta present a
proxy for the general conditions on The Hill. Necessarily, these assumptions will not hold hue for each
individuai building on The Hdl, however, they will represent the average buiiding The average building size
on The Hill is 8,437 square feet. RCG's model examines the status quo scenario using an 8,500 squars
foot building that is 95% rentable. For purposes of analysis, this building owner collects $35 in rent per
rentable square foot annually. The important disNnction of rent is not the status quo rent, which may be
higher or lower than this $35 per s.f. figure, but the difference between the status quo rent and the
redeveloped rent. The status quo rent will escalate 1% each year with inflation This rent is a'Tnple Net
Lease' rent (or 'NNN') which means that a tenant wdl pay budding expenses such as utdities and trash
expenses in addition to this NNN rent. In other words, the NNN rent is the net rent received by the bwlding
owner that they would then use to pay debt service, make capital improvements, pay taxes or otherwise put
into their pockets. Because the majority of bwlding owners on The Hdl have owned their buiidings for many
years, it is assumed for the purposes of this analysis that the status quo budding does not bear a debt
burden The 10% Discount Rate and Residual Value Cap Rate reflect both the yield expectatlons and risk
levels for this type of investment and its age. (Please see Glossary for Definitions of financial and real
estate terms)
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The resultmg status quo cash flow over a 10-year penod assuming a bwiding sale in year 10 follows
STATUS QUO SCENARIO Averaae Hill
10% Residual Value Cap Rate
35 00 Rent NNN EsUmate
1 % Annual Rent InflaGon
8,500 95% 8,075
The cumulaUve total cash value of the status quo scenano over a 10-year penod is $6.0 million The Net
Present Value of this cash flow over the same penod is $3 2 mtllion and the cash flow is positive from day
one These are the benchmarks by which the average Hill budding owner must compare the projected
cash flow from any reinvestment scenano to determine if change is worth pursuing.
The following financial assumptions were made about a renovation reinvestment scenano in order to create
its pro~ected cash flow
3wldmg Owner Remvestment Scenario - RENOVATION of Average Hili Bwldmg
.. ~ . ~
Existlng Size New Uses
ExisUna New Bld Bldq Uses RBA
Bida SF SF °/, RBA RBA Retaii 100°/a 8,075
8.500 8.500 95% 8.075 Total 100% 8.075
~ .
Prorect Tlmalina BuNdina Constuclion Costs Rewnue Finanoina
1 Jan-OS Start ~ate $0 00 Demolrt~on per bldg sf $40 00 Retail Rent psf (NNN) 7 00% Construchon Loan Interest Only Rate
1 Demolition (months) $80 00 Bwlding Hard Cost psf 9 00% Residual Value Cap Rate 80 0°/, Loan-to-Cosl Raho
6 ConsVUChon (moMhs 20% Soft Cost 60 00°~ % Pre-Leased 7 00% Permanent Loan Interest Rate
5 Absoryhon (months) $96 00 Total Cost psf 5 00°k Stabd¢ed Vapncy 25 Perm Loan Amor~zahon Term (years)
$816,000 Total Cost (wlo infla~on) 2 00% Annual Income Inflahon
$10 00 Operahng Exp psf (on vacant s~ 15% Discount Rate tlll 1 Year Stabdization
2 00°~ Annual Expense InAahon 10~o Discount Rale Q 1 Year Stabihzahon
The most important assumptions are that renovat~on begins in January 2005, the total rentable area in the
bwlding remains the same after renovatlon, rent after renovahon increase to $40 NNN and grows annually
at 2%, and that renovation takes 7 months to complete Dunng the 7 months of construction, there is no
income produced from the building. Additionally, the cost to renovate the bwlding is $SO per square foot
This cost estimate would allow for an entire gutting of interior space and some restoration to the fa~ade.
After construct~on, the building is immediately 60% leased and then takes another 5 months for the
remaining space to absorb and be fully rented It is also assumed that the building owner will use debt ta
finance this reinvestment
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Like the status quo scenario, the bwlding is sold in year 10 The Residual Cap Rate, which detertnines
sale pnce, is lower in the renovation scenano than in the status quo scenano to reflect the improved
bmlding condition and lower deferred maintenance nsk for any future buyer The renovahon scenano also
has a higher discount rate for the years pnor to the renovated buiidmg's stabdization. This higher rate
reflects the higher nsk of both an increased equity position in the bwlding and general uncertainty in
construcGon cost and resulhng income The resulting renovation scenario cash flow follows:
. . .
Pre-Renovahon Revenue $282,625 EO $0 $0 $0 $0 $0 $0 $0 50 $282,625
ConsWctwn Cosf - EquAy Reqwred $0 ($166,464) SO $0 $0 EO $0 $0 $0 $0 ($166,464)
Retail ReM $0 $104,329 $336,049 $342,770 $349,62fi $356,618 $363,750 $371,025 $378,446 $386,015 $2,988,629
ResidenhaFAptRent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Ofice Rent $0 SO $0 $0 $o $0 $o $o SO $0 $0
StabdizedVacancyExpense $~ $0 j$16,802) t$17,139) ~517,ABt) ~$17,831) i$18,188) ~$18,551) ($18.922) (519,301) ($144,215)
OperetingExpense $0 ($8,075) ($4,201) ($4,285) ($4,370) ($4,458) (54,547) ($4,638) (34,731) ($4,825) ($44,129)
Operahng Netincome $282,625 ($70,210) $315,046 $321,347 $327,774 $334.329 $341,016 $347,836 $354,793 $361,889 $2,916,446
Residenhal-Condo Sales $0 $0 $0 $0 $0 SO $0 $0 $0 $0 SO
Office-Condo Sales $0 SO $0 $0 $0 $0 $0 $0 $0 $0 $0
Pnnciple Paydown $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Residual Value $0 SO $0 $0 $0 $0 $0 $0 $0 $4,020,989 $4,020,989
Pnnapal0ulsfaMing $0 $0 $0 $0 $0 $0 $0 $0 $0 ($552,415) ($552,415)
Sale Netlncome $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,468,573 $3,468,573
ConsWCtlon Loan Interest $0 ($N,329) $0 $0 $0 $0 $0 $0 $0 $0 ($11,329)
PermanentLoanlnterest $0 ($19,372) (§45,982) ($45,219) (544,400) (543,522) ($42,581) (§41,5721 (540,489) ($39,329) ($362,466)
PertnanentLoan PnnGplePmt SO ($4,188) ($10,561) ($11,325) (E12,143) ($13,021) (y13,962) (a14,972) (816,054) (517,215) ($113,441)
ohal 6t ernce (
ash owA erDe t emce ( 105,099 1,231 91,293 ,91 ,8
Renovatwn Cumulatlve Cash Value $5,897,784 •2% 56,047,911 Status Quo CumuWirve Cash
Renwavon Net PreseM Value $2,904,058 •12% $3,294,085 Status Quo NPV
Vanance btt SfaNa Quo & Renavauon
The renovation scenario cumulative cash value is $5.8 million and the net present value is $2.9. There is
also a negative cash flow in year 2 which is recouped in year 3. As illustrated, the status quo scenano
generates more cash over this 10-year period both on a cumulative cash basis and a net present value
basis. Indeed, this is primarily explained by the year of lost income (2005) and the fact that the increased
rental income is largely lost to debt service The building owner who considers renovation of their budding
has to plan to make a significant ($250k+) cash investment into the building.
Rent After Renovat
This financtal analysis forecast is based on assumptions
that will likely change. Therefore, it is important to consider
variaUons of these assumpt~ons. For exampie, a bwlding
owner considering reinvestment might wonder what the
cash flow vanance behveen scenanos would be rf a
dtfferent rent is achieved after renovation than the one used
by RCG. Additionally, the status quo rent for a particular
hudding owner may be lower than the $35 per s.f. that was
used in the analysis The attached sensttivity table
demonstrates such an assumption variation. The table
demonstrates the effect on the Cumulative Cash Variance
beriveen the scenarios Importantly, it is not the status quo
Ross Consulting Group
$27 ~ -31°/0 -12% -3°/0 6°!a 16°l0 25°!0
$28 -33% -15% -6% 3% 12% 21%
$29 -35% -18% -9% -1% 8% 17%
$30 •37% -20% •12% ~% 5% 13%
$31 -39% -23% -15% -7% 1% 9%
$32 -41°!0 -25°/a -17°fo -9°!a -2°l0 6°(0
$~a aa% -29% -zz% -ia% a% o%
$35 -45% -31% -24°/a -17% -10% •2%
Status Cumulatwe Cash Variana
Quo Rent
Final Draft UHGID Business Plan
Page 32
rent that is the determining factor in the analysis, but instead the increment between the status quo rent
and the renovation rent. As can be seen, a$5 increment or less beriveen the status quo rent and the rent
after renovat~on wtll result in less cumulabve cash in the renovation scenano than in the status quo
Further, because renovations are likely to last longer than the 7 months indicated (either through phased
lease expiraUons, unexpected conditions encountered on renovating old bwldings, or delays due to pertnits
or bwlding department inspecUons), actual economic performance is likely to be worse than pro~ected
The potential benefit of utilizing histonc renovation tax credits was not taken mto account for the followmg
reasons: histonc renovation will reqwre the properry owner to expend monies for preservation that would
otherwise not be spent While the histonc tax credits wdl help the property owner recapture some of those
monies (approximately 20% of every dollar spent on the renovat~on), the additionai expenditure and
addit~onal Ume spent in pursing a histoncally accurate restoration, will effectively offset sawngs achieved
through the tax credit.
Ross Consulhng Group Final Draft UHGID Business Plan
Page 33
Economics of Building Reconstruction Today
Th~s average Hill bwlding owner might be inclined to consider more than ~ust renovabon of their bwlding
Under current zoning, a Hill property owner could tear down and reconstruct their bwlding in order to
maximize density allowed under current zoning to achieve a greater size, add addibonal uses, and
modemize the retail space. As with the renovation scenano, the owner wiil have to judge the financial
outcome of reconstruction against the status quo scenano under which no changes are made to the
budding The owners status quo scenano remains the same as with the renovation companson with a$6.0
mdlion cash value and a$3.2 million net present value The following financial assumptions are made
about the reconstruction scenario.
Owner Remvestrnent Scenano - RECONSTRUCTION of Averoge Hill
Exishna Blda Mau Bldq
Size LandSF S¢e %RBA
8,500 7,727 14,295 95%
New Bld~c
RBA Uses RBA
13~581 Retail 50% 6,790
RCS~d-COndo 50% 6,790
Proieet Timelme Bulldina Constuetlon Coab Rsvanw Finanom9
1-Jan-0S StaA Date S10 00 ~emalitbn per bldg sf E40 00 Retail Rent psf (NNN) 100% Construc6on Loan Inte2st Only Rale
1 Demolihon (months) $110 00 Building Hard Cwt psf 5300 00 Resden4al-Condo Price psf 80 0% Loan-to-Cost Ratlo
12 Constructlon (monihs) 20% Soft Cost 9 00% Residual Value Cap Rate 7 00% Pertnanent Loan IMerest Rate
5 Absorphon (months) $132 00 Total Cast psf 60 00% % Pre•Leased 25 Permanent Loan Amor4zatron Term (years)
$1,972,000 Total Cost (w/o mflaBon) 5 00% Steb~lhed Vacancy 125 0% % Loan psf Paydown (a~ Condo Sales
$10 00 Operatng Exp psf (on vacaM st~ 2 00% Mnual Inmme I~afion
2 00% Mnual Expense InBatlon 15% Disaunt Rete bll 1 Year Stabilizstbn
10% Discount Rate ~ t Year Stebll¢atlon
One of the more important assumptions to call out is the new building size. Under current zoning, buildings
are allowed have up to a 1.85 Floor to Area ratio (FAR). By assuming that the average Hill's buddings land
area is 7,727 square feet using the average FAR of 1.1 on The Hill today, RCG then calculates the size of
the new building using the entire 1 85 FAR on this average land area The resulting building is 14,295
square feet or roughly 68% larger than the onginal 8,500 square foot building This additional space allows
for a residential condominium use on the upper floors to be added to the bwldmg By adding this use, the
bwlding owner wiil be able to sell the units to finance construction Like the renovation scenario, the retail
rents wdl increase by $5 NNN per square foot annually The residential condos will sell for $300 per square
foot. The time reqwred for both demolition and construction will also increase to 13 months
The resultmg reconstruction scenano cash flow fotlows
Ross Consulhng Group Final Draft UHGID Business Plan
Page 34
ConsWctionCost-EqmtyReqwred~ SO l$402,930) $0 50 $0 $0 $0 SO $0 $0 ~($402.930)
RetailRent $0 $0 §230,779 $288239 E294,003 E299,883 $305,881 y311,999 E318,239 E324,603 $2,373,626
Residen4al-Apt Rent $0 $0 EO SO SO SO 50 EO $0 $0 SO
orcce Re~t 5o Sa bo Sa go Eo So So So go Eo
Sfabil¢edVawncyEupense $0 $0 (57,065) ($14,412) (§14,700) (E14,994) (y15294) (E15,600) ($15,912) ($16,230) (E174,201)
Opera4np EuOense $0 SO (E17.1131 (E72061 (E7.3501 fS7.4971 fE7.6471 IS7.800) IE7.9561 IE8.N51 (570.684)
Residenhal-CondoSales a0 $0 52,119,4U1 EO SO y0 $0 SO $0 SO $2.119,401
Olfice-Condo Sales EO $0 SO $o bo $0 SO $0 EO 50 $0
Pnnaple Paydam EO EO (b805,859) $0 EO y0 $0 EO $0 $0 (5805,859)
Residual Value $0 $0 $0 50 $0 SO $0 SO $0 $3,338,202 53,338,202
PnnapalOuLStanding $0 $0 SO $0 y0 EO $0 SO SO (S6P,935) (E677,935)
Sale Net Income 50 EO Si,313,542 $0 $0 $0 $0 $0 $0 S2,fi58,267 $3,911,809
Conshucnon Loan Interest $0 (542,370) (y9,402) EO 50 SO SO $0 50 $0 ($51,171)
PermanentLoan Interest $0 SO (§58,118) (E55,097) (E54,141) (553,11n (552,019) (550,842) (E49,579) (348,225) (5421,138)
PermanentLoanPnncwlePmt $0 SO (5127871 (E132121 f574.1671 IE15.1911 IS162891 IS77.d6T IEt8729) (E20.0831 lE7279251
The reconstruction scenano cumulahve cash value is $5 4 million and the net present value is $2 9 million.
As with the renovation scenano, there is a negative cash flow in year 2(2005) that is recouped in 2006
where a large portion of bwiding value is monetized through sale of the new condo use Yet, this significant
increase in density does not benefit the landowner The pro fortna demonstrates that the increased rental
rates, added uses, and additional size do not make a large enough financial impact to overcome the cost of
construction and downtime incurred by such a construction pro~ect.
While the reconstruction scenano has the benefit of a large cash payout in year 2006 from the sale of the
residenhal condo portion of the bwlding, the eqwty investment required by the landowner to rebwld the
building is significant (+$400k) Additionally, the ongoing retail rent is diminished by debt service. In all, the
renovation scenario results in 10% less cumulative cash over a 10-year period than the status quo
scenano The reconstruction net present value is also 12% less than that of the status quo demonstrating
the additional nsk involved
The fotiowmg sensitivity table demonstrates that when the
rent assumptions in the scenano are vaned, the
reconstrucfion scenano's financial performance sUll fails to
better that of the status quo scenario
Today, the average Hili building owner has financial
incentives to NOT reinvest in their property.
Ross Consulting Group
RentARaz New Cor
$25 530 $32 5 535 337 5
a26 -28% -13% -5% 3% 11Yo 19%
E27 -31% -16°h -8% -7Yo 7Yo 15%
828 33% •19~0 -11Y< d% 3% it%
$29 -35% -21% -14% -7% 0% 7%
$30 -37Wo •24Yo -17% -lOYo -3% 4%
S31 39°/0 -26% -19°k -13% $% 0°k
$32 -41% -28% -22Yo -75% -9% -3%
$33 -03% •30% •24% -18Yo •12% -5°/a
$34 A4% 32°/a -26% -20°h -14% ~8%
$35 ~6% 34% -28% -22°/a -i6% •l0Y
Status Cumulatlve Cash Vanance
Final Draft UHG{D Busmess Plan
Page 35
Economics of Transferable Development Rights
Financially feasible redevelopment on The Hill becomes possible for the average Hill bwlding owner when
there are changes made to the ailowable density on The Hiil for indroidual owners. These density
variances could be allowed under the system of transferable development rights (TDRs), although this
process would require more pubiic review in order to achieve a height variance When this occurs, it is
possible for individual budding owners to reinvest in their buddings and reap a greater profit than if they
were to remain in the status quo scenano and do nothing to improve the buildings. The following financiai
model demonsVates the economics of transferable development nghts whereby the density not used on
one parcel is transferred to another As with the prior lwo reinvestment scenarios, the status quo cash flow
remains the same and use of transferable development rights is analyzed in comparison to this status quo
Again, the cumulative cash value of the status quo scenano is $6 0 mdlion and the NPV is $3.2 mdlion.
The following size and use assumptions are made in the TDR model•
TRANSFERABLE DEVELOPMENT RIGHTS • Parcel X transfer development rights to Parcel Y
Exisbna Max Blda Size
Bmldm Land Bld~c After
Size SF S¢e Transfer %RBA NewRBi
arcel X 8,500 7,727 14,295 8,500 95% 8,075
arcel Y 8j500 7i 14 295 2~091 95% 7~086
17,000 15,f455 28,59t 28,591 27,161
i
Avg Distnct FAR t
1 1 85 2 6 New Parcel Y FAF
Bldq Uses RBA
Retatl 40% 7,635
Resid-Condo 30% 5,726
OifiCe-COndO 30% 5.726
In the TDR scenario, Parcel X and Parcel Y are average Hill Parcels They hold buildings of 8,500 square
feet and have an FAR of 1 1 Exercising transferable development rights allows Parcel X to sell to Parcei Y
the density it has not used under current zoning. Parcei Y then takes this density and adds it to its
allowable densiiy under zoning. Therefore, Parcel X retains its 8,500 square foot budding while Parcel Y
density grows to allow a 20,091 square foot building. The resulhng Parcel Y FAR is 2.6. With the
additional size, Parcel Y can add multiple uses to its existing retail use. In this example, residential and
office uses are added to the site.
The remaining assumptions are simdar to those in the reconstrucUon scenano Retail rent is increased by
.
Pro~act Ttmahne Bwldina ConeWCtlon Costs Ravenua Flnanemc
t-Jan-05 StaA Date $10 00 DemWi6on per bldg sf $4000 Retad Rent psf (NNN) 7 00% ConsWCGOn Loan Interesl Only Rate
1 Demdihon (monNS) $110 00 Budding HaM Cost psf $300 00 Residen6al-0ondo Pnce psf 80 OYa Loan-to-Cast Rano
12 Consiruchon (monlhs 20% Soft Cost $250 00 Otfice-COndo Pnce psf 7 00% Permanent Loan Interest Rate
5 Absorpllon (months) $132 00 Total Cost psf 9 00% Residual Value Cap Rate 25 Permanent Loan Amortza6on Penod
$2,737,000 Tolal Cost (w/a inflaGOn) 60 00% °/> Pre-Leased 125 0°/, % Loan psf Paydown (a~ Condo Sales
$5 00 Ope2hng Exp psf (on vacant s~ 5 OOYo Stabilized Vacancy
200No Annual Ezpense Inflahon 2 00% Mnual lncome Inflallon
15% Oiscount Rate LII 1 Year Stabiliza0on
10% Discount Rate @ 1 Year Slabil¢a6on
Ross Consulting Group Fnal Draft UHGID Business Plan
Page 36
$5 per square foot to $40 NNN per square foot, residenUal condo pnces are $300 per square foot and
construction takes 13 months to complete. Additionally, the office condo pnce is $250 per square foot
The resulting cash flow that follows demonstrates why the use of transferable development nghts makes
property reinvestment feasible for property owners
~ . .
Pre-ConsWCGOn Cash Flow $282,625 $0 $0 EO $0 $0 $0 $0 $0 SO $282,625
Construc6on Cost- Equity Required $0 ($559,250) $0 $0 $0 $0 $0 $0 $0 $0 ($559,250)
Retatl Rent $0 $0 $259,477 $324,074 $330,555 $337,166 $343,910 $350,788 E357,803 3364,960 $2,668,126
Residenhal-Apt Rent $0 $0 $0 SO $0 SO $0 $0 $0 $0 $0
Olfice Rent $0 $0 SO 50 $0 $0 SO $0 SO $0 $0
StabdizedVacancyExpense $0 $0 ($7.943) ($16,204) ($16.528) ($i6,&58) ($17,195) ($17,539) (517,890) ($18,248) ($128.406)
Opera4ngExpense $0 $0 (34,8101 ($2,025) ($2.066) ($2,107) (y2,149) ($2,792) (52,236) ($2,281) ($19.868)
OperaGngNetlncome $282,625 ($559,250) $246,718 $305,844 $3i1,961 $318,201 $324,565 $331,056 $337,617 $344,431 $2,243,827
Residen6al-CondoSales $0 $0 $1,787,171 $0 $0 $0 $0 $0 $0 $0 $7,787,111
Olfice-CondoSales $0 $0 $1,489,309 $0 $0 $0 $0 $0 SO $0 $7,489,309
PnnGple Paydaxn $0 $0 ($7.342,199) $0 $0 $0 $0 $0 $0 $0 ($1,342,199)
Residual Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,821,006 $3,ffi7,006
Pnnapal0utstanding $0 $0 $0 $0 30 $0 $0 $0 $0 ($752,073) ($752,073)
Sale Net Iname $0 $0 $1,934,280 $0 $0 $0 $0 $0 $0 $3,074,933 $5,009,214
Construc6on Loan Interest $0 ($58,033) ($13,049) $0 $0 $0 $0 $0 $0 $0 ($71,082)
PertnaneMLoanlnterest $0 $0 ($68,212) (561,122) (560,062) ($58,926) ($57,708) ($56,402) ($55,001) ($53,499) ($470,991)
PertnanentLOanPnnciplePmt $0 $0 ($74,998) (§14,657) (515,716) (E78,&52) ($18,W0) (519,377) ($20,7T~ ($22,279) ($142,726)
TotaIDeMSemce $0 (558,033) ($96,379) (575,778) ~575,778) (575,P8) (515,778) ($75,778) (575,778) ($15,778) ($684,800)
CashFlowAfterDeMSemce $282,625 ($617,283) S2,OB4,679 5230,066 $236,183 5242,422 $248,78fi 5255.278 5281,899 $3,343,586 $6,568,241
Transfer Cumula6ve Cash Value S6,Sfi8,241 9% 56,047,911 StaNS ~uo Cumulatne Cash
TransferScenanoNetPresenlValue$3,559,237 8% 53,294,OBSStatusQuoNPV
Vanance Nt StaWS ~uo 8 Trensfer Scenarro
$265J52 Value of Transfer Rights (TDR NPV - SIaWS Quo)
By transferring development nghts, the bwiding owner is able to increase their cumulative cash value over
the status quo by 9% from $6 0 million up to $6 5 mdlion. The NPV of this TDR scenario ($3 5 million) is
also greater than that of the status quo ($3 2 mdlion) Whde this scenano requires a significant cash
investment by the property owner ($600k) in year 2005, the gains from saleable and rentabie square
footage outweigh the downtime and buben of debt. For The Hill building owner that has some appetite for
nsk, funds avadable for reinvestment, and the opportuniry to increase density through TDRs, significant
financial potential exists for redevelopment.
There is also finanaal reason for an average Hdl buddmg owner to transfer their development nghts. The
value of these nghts to the owner who buys them is equal to the difference between the NPV of the status
quo scenano and that of the TDR scenano, or $265,152 as in the case of this pro forma. This means the
owner of Parcel X could receive this amount in cash from the owner of Parcel Y in payment of their
devefopment nghts
Ross Consulting Group Final Draft UHGID Business Plan
Page 37
Economics of Assemblage
Another scenario in which it is possible for a property owner to make economic gains by remves~ng in their
property over those that would naturally accrue from the status quo is by participating in an assemblage
development. Domg so allows for maximized density, additional complimentary uses, and the urnque
oppor~unity to partner with the UHGID/City of Boulder on parking needs
In analyzing the economics of an assemblage scenano, RCG has looked to three of the four microzones.
These are the Broadway Distnct and the North and South Gateways A status quo scenano was developed
for each microzone using rent estimates and actual budding sizes Then, a financial assemblage model
was bwlt for each microzone Each microzone includes a UHGID/City of Boulder operated parking lot. It
has been assumed that the UHGID/City of Bouider lots will be included in the assemblages and that the
assemblages Nnll then be budt to include an expanded number of city parking spaces These spaces would
be financed exclusively from property tax and revenue bonds UHGID/City of Boulder partiapation in these
assemblaaes is auaal to their success
Ross Consulhng Group Final Draft UHGID Business Plan
Page 38
North Gatewav Assemblape
ECOlIOrt71CS North Gateway STATUS QUO
~ • Bldq SF °/a RBA RBA
The North Gateway encompasses roughly 10% DiscOUnt Rete 1301-1311 Broadway 10,222 95% 9,711
~0% Residual Value Cap Rate 1313-1335 Broadway 17,769 95% 16,881
1 5 acres of land and today holds 33,566 $z5 00 Rent NNN EsUmate 1339 Broadway 5,575 95% 5,296
square feet of buildings In RCG status
quo assumptions of future budding 3% Mnual Rent Inflation 0 Pieasant St 0 95% 0
revenue
we have used a$25 NNN rent Total33,566 3~,888
,
est~mate to reflect the off 13"~ Street location and generally run down condit~on and configuration of the
buildings but assumed a 3% inflaUon to account for the strong retad sales demonstrated in recent years by
North Gateway businesses. Actual retad sales dollars are not shown to protect the pnvacy of individual
businesses housed within the buiidings.
The cumulative cash value of the status quo scenano for private budding owners in the North Gateway
assemblage area is $161 million over a ten year period and it is assumed the bwldings are sold in year 10
The net present value of the cash flow is $8.6 mdlion
The assemblage scenano agamst which this status quo scenario Hnll be compared, allows for a large scale
redevelopment. The new uses that are enabled by assemblage indude Office condominwms and
Residential condominiums in addihon to replacement of the exist~ng retail and parking with updated
versions. The assemblage assumes that the City donates their Pleasant Street lot into the mix and then
bwlds the parking underground parking component of the assemblage. In doing so, this allows the City to
expand thev parking capacity and collect parking fees from the associated deveiopment Therefore, under
an assemblage scenario, budding square feet goes from 33,566 square feet at 76 FAR excluding the
Pleasant St Lot to 118,010 budding square feet at a 1.85 FAR including the Pleasant St Lot Totai rentable
retail space also increased from 31,888 square feet up to 44,844 square feet in addition to adding
approximately 67,000 square feet of office and residential space
. . .- . . .
Pre~Assemblape • Ex~stina SUuctures Assemblaae - Deasrtv and Bldo Size Ocen
Parcel Land SF Bidq SF Land SF FAR Bida SF % RBA RBA # Fioors Soace
1301-1311 Broadway 13,564 10,22 63,789 1.85 118,010 95~0 112,109 2 5 26%
1313-1335 Broadway 22,883 17 69
1339 Broadway 7,684 ,575 Assemblaae • New Uses Pkq per
0 Pleasant St 19,658 0 10001aer Reauved Retail
Total 63,789 33,566 Bldo Use; RBA un~t Parkina Sales °sf
Retad 40% 44,844 0 0 $400
Resid-Condo 30% 33,633 1 34
Office-Condo 30% 33,633 3 101
Total 100% 112,109 135
Ross Consulhng Group Final Draft UHGID Business Plan
Page 39
The status quo total cash flows for all private building owners in the North Gateway follows~
The financiai assumptions are simtlar to those in the previous redevelopment models Construction is
scheduled to last 13 months with total costs of $132 per square foot financed with an 80% loan to cost
Retail rent is pro~ected at $40 NNN psf with Resident~al condo sales at $300 psf and Office condos at $250
psf. Whtle the $40 NNN psf rent is considerably higher than the pre-assemblage rate, it recognizes the
ability of this parcel to attract retaders on a broader basis to The Hill Rents charged wdl be higher than
existing rates on 13~ Street because of the new construction, higher ceiling heights, access to parking, and
ability to create an address because of the development's scale It is also assumed that upon completion
of construction, it takes 5 months to absorb the uses on the site All finanaal assumptions follow•
,
Pro~ed 7TmNina Buildina Constuction Coate Revanue Plnancin
1Jan-05 Start Date S10 00 Demalihon per bldg sf $40 00 Refad Rent psf (NNN) 7 00% Conswctlon Loan Interest Only Rate
1 Demoli4on (months) $110 00 Building Hard Cost psf $300 00 Residen6al-Condo Pnce psf 80 0% Loan•to-Cost Ra6o
12 ConsW ctlon (moMhs) 20% Soft Cast $250 00 Office~Condo Pdce ps~ 7 00% PertnaneM Loan Interest Rate
5 Absorption (months) $132 00 Total Cost psf 9 00% Residual Value Cap Rate 25 Permarrent Loan Amortuatlon Term
$15,912,934 Total Cast (wlo inflaUOn) 60 00% % Pre~Leased 125 0% °h Loan psf Paydown Q Sale
SS 00 Opera6ng Exp psf (on vapnt s~ 5 00% SWbd¢ed Vaancy
2 OO~o Annual Expense InAaBon 2 00% Annual Income InAa4on
15% ~~scount Rate tll 1 Year Sta6tliza4on
10% D~scount Rate ~ 1 Year Stabil¢ation
The foilowing pnvate bwidmg owners' cash flows result from the above menUoned assumptions
,. .•
~re Constuchon Bwldi~ Cash Flow $856.BB7 $0 b0 $0 SO 50 $0 $0 $0 $0 $656,887
ConsWC6onCost-EqudyRequired $0 ($3,251,535) $0 $0 $0 $0 $0 $0 $0 $0 ($3,251,535)
ReqilRant $0 SO $2,661,131 $3,331,192 $3,397,816 $3,465,772 $3,535,088 S3,fi05,789 53,677,905 $3,751,483 527,432.157
ResWentlal-AptRent SO $0 50 $0 $0 SO $0 $0 50 $0 50
OflMa Rent SO $0 30 $0 $0 $0 $0 $0 SO $U $0
StabdvedVacancyExpense $0 $0 ($81,fi4~ (5166,560) ($169,891) ($173,289) ($176,754) ($180,289) (5183,895) ($187,573) ($1,319,898)
Ooaretlna Ezoense $0 SO $104.708 5747.344 E748.927 5148.503 5748.089 5145.628 5145,177 5144,717 $7,127,071
al-0oMoSales SO $0 $10,497,454 $0 $0 $0 50 SO $0 SO $10,497,454
~-Condo Salea $0 $0 $8,747,878 $0 $0 $0 $0 50 50 SO $8,747,878
naple Paydovm $0 $0 ($7,803,fi83) $0 $0 $0 $0 50 $0 $0 ($7,803,683)
Residual Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $41,206,747 $41,206,747
oal0utstendinp $U $0 $0 $0 $0 $0 $0 SO SO ($4.372,629) (54,372,629)
ConsWc6on Loan Interest $0 ($333,8&4) ($75,889) 50 30 $0 $0 $0 $0 $0 ($409,733)
Pertnanent Loan interest $0 $0 ($396,940) ($355,368) (5349,208) ($342,603) ($335,520) ($327,925) ($379,781) ($317,048) ($2,738,393)
PertnanentLoan PnnpplePmt $0 $0 ($87J99) ($85.274) ($91,3751 ($97.980) ($105,0631 ($172,6581 ($120,802) (5129,535) ($829,826)
As can be seen, the cumulatroe cash value of assemblage ($68 9m) is dramatically more than that of the
status quo ($16m). This is primanly due to the sign~cant value unleashed through greater densdy,
additional land and uses. Whde a significant investment ($3.2 million) is reqwred, the payout over that
which is possible in a status quo scenario is tremendous
Ross Consul6ng Group Final Draft UHGID Busmess Plan
Page 40
While the financial pro forma detads of the City portion of the assemblage are not presented in this report in
order to protect the Ciry's pnvacy, these pro formas do demonstrate adequate finanaai incentive to the City
to warrant par4cipate Assuming 3 levels of subterranean parking, the City will be able provide up to 407
parking spaces in the North Gateway that will serve the need of both The Hill distnct and the new
development in the assemblage. The underground structure will be built by the City and could be
financed from the parking revenue generated on site, through general obligabon bonds, or other forms of
public financing not from any saies tax increment generated through development However, the City will
see dramaUcally mcreased sales tax revenue from such a redevelopment.
Ross Consulting Group Final Draft UHGID Business Plan
Page 41
South GatewavAssemblaae
Economics
South Gateway SWtus Qua
U t4tlt St 0 ~°(o
The South Gateway encompasses I~0% Res~dual Value Cap Rate 1352-1370 College Ave 17,557 95% 16,679
less than one acre of land and today $2 500 Rent NNN Eshmate 1350 College Ave 1~302 95% 1y237
holds 18,859 square feet of ~~° ~+^nual Rent Inflatan 18,859 17,91s
bwldings In RCG assumpGons of status quo future bwlding revenue, we have used a$25 NNN rent
estimate to reflect the off 13"~ Street location, age and configurabon of the bwldings. Rents are assumed to
increase at 1% to reflect historic retaii sales growth in the South Gateway's current buildmg stock. Again,
actual retad sales dollars are not shown to protect the privacy of indroidual businesses housed Nnthin the
buddings
The cumulative cash value of the status quo scenano for private bwlding owners in the South Gateway
assemblage area is $4.7 miliion over a ten year period also assuming building sale in year 10. The net
present value is $3.1 million
Like the North Gateway, assemblage on the South Gateway allows for large scale development to take on
the site. The new uses that are enabled by assemblage include Office condominiums and ResidenUal
condommiums in addition to repiacement the existing retail and parking with modem floor spaces The
assemblage assumes that the City donates their 14~ Street lot into the mix and then budds the parking
underground parking component of the assemblage. In domg so, this allows the Ciiy to expand their
parkmg capacity and coliect parking fees from the associated development. Therefore, under an
assemblage scenano, bwiding square feet goes from 18,859 square feet at 1.5 FAR excluding the 14th
Street Lot to 55,261 building square feet at a 1 85 FAR including the 14th Street Lot Total rentable retail
space also increased from 17,916 square feet up to 20,999 square feet in addition to addmg approximateiy
31,000 square feet of o~ce and residentlai space
. ~ ...• . ~ .
Assemblaae • DensiN and Blda Size Ooen
Pre-Assemblaae - Existmq Structures Land SF FAR Blda SF % RBA RBA # Floors Soace
Land SF Blda SF (29,871 1 SS 55,261 95% 52,498 2 5 26%
014th St 16,888 0
1352-1370 College Ave 11,390 ,557 Assemblaae - New Uses Pkq per
1350 College Ave 1,593 1,302 10001 Re uired
Total 29,871 18,859 Bldq Uses RBA ep r unit Parkina Sales s
Ret2d 40% 20,999 U ~ $420 ~0
Resid-Condo 30% 15,749 1 16
Office-Condo 30% 15,749 3 47
Total 100% 52,498 63
Ross Consulting Group Final Draft UHGID Business Plan
Page 42
The status quo total casfi flows for ali pnvate buifdmg owners m the South Gateway foilows•
The financial assumptions are similar to those on in the prewous redevelopment models Construction is
scheduled to last 13 months with total costs of $132 per square foot financed with an 80°/a loan to cost
Retail rent is pro~ected at $40 NNN psf with Resident~al condo sales at $300 psf and Office condos at $250
psf. While the $40 NNN psf rent is considerably higher than the pre-assemblage rete, it recognizes the
ability of this parcel to attract retaders on a broader basis to The Hdl. Rents charged will be higher than
exist~ng rates on 13"~ SVeet because of the new construction, higher ceding heights, access to parking, and
abiliry to create an address because of the developmenYs scale It is also assumed that upon completion
of construction, it takes 5 months to absorb the uses on the site All financial assumphons follow
•
Proleet Tlmeline Bwidina ConaNetlon Costa Ravanue Finaneina
1Jan-05 Start Oa[e $10 00 Oemolihon per 6~dg sf S40 00 Retail Rent psF (NNN) 7 00% Corewctlon Loan IMerest Only Rate
t Demoli6on (monfhs) $110 00 Buildmg Hard Cost psf $300 00 Residentlal-Corido Pnce psf 80 0% Loao-to-Cost Ratio
12 Conshuc6on (manihs) 20% Soft Cost 5250 00 Ofice-Condo Pnce psf 7 00% Permanent Loan Inferest Rate
5 Absorphon (months) 5132 00 Tohal Cost psf 9 00% Res~dual Value Cap Rate 25 PeimaneM Loan Artrorhrahan Tertn
$7,483,088 Total Cost (w/o inAahon) 60 00% % Pre-Leased 125 0% % Laan psF Paydown (aj Sale
ES 00 Operahng Exp psf (on vacant sQ 5 00% Shadhzed Vacancy
2 00% Mnual Expense I~fiatlan 2 00% Mnual Inmme Inflatlon
15% Discwrrt Rate hl 1 Year Stadiva6on
10% ~iswunt Rate ~ 1 Year Slabil¢a6on
The foilowing cash flows result from the above men~oned assumptions.
. .
6ustlng Budding Revenue $452,380 $0 $0 $0 $0 $0 $0 $0 $0 $0 $452,380
ConsWc~nonCost-EqudyReqwred $0 ($1,529,030) $0 $0 $0 $0 SO $0 $0 30 ($1,529,030)
Refad Rent $0 $0 E713,691 $897,386 $909,213 $927.398 $945,945 59fi4,864 $984,162 $1,003,845 $7,340,504
Residenhal•Apt Rent $0 $0 50 SO 50 SU $0 $0 S~ SO $0
Olfice Rent SO $0 50 30 $0 $0 $0 $0 $0 $0 80
SfabdizedVacancyExpense $0 $0 (527,848) ($44,569) ($45,461) ($46,370) (547,297) ($48243) ($49,208) ($50,192) (3353,188)
Operating Ezpense $0 SO ($t3231) (55,577) (55,683) (55,796) (55,972) ($6,030) (36,1511 ($6.274) (554,648)
Opera4ng Netlncome $0 $0 5678,673 $841,245 $858,070 $875,231 $892,136 $910,591 $928,803 5947,379 $6,932,667
Residenllal-CoMo Sales $0 SO E4,915,729 SO SO SO SO $0 $0 SO 54.915,729
' Ofice~Condo Sales $0 $0 $4,096,441 SO $0 $0 $0 $0 $0 $0 34,096.441
Pnnciple Paydovm $0 $0 ($3,689,672) 50 $0 $0 $0 $0 SO $0 ($3,669,672)
Residual Velue $0 $0 $0 SO $0 30 $0 $0 $0 $10,526,429 $10,526,429
Pnnapal0utstanding $0 $0 SO $0 $0 SO $0 $0 $0 (52,056223) ($2.056,223)
Sale Net Income $0 SO 35,342,498 $0 $0 $0 30 $0 $0 $8,470,206 $73,812,704
ConsWCtionLoaninterest $0 ($157,687) (535,677) SO $0 $0 $0 $0 SO 30 ($193,364)
PermanentLoanlMerest $0 $0 ($786,660) ($167,112) ($164,215) ($761,109) ($157,778) (8154.208) ($150,376) ($146,270) ($1,287,72fi)
PermanentLoanPrlnaplePmt $0 $0 (341,005) (540,072) ($42,969) ($46,075) (349,408) ($52,977) (556,80n (360,914) ($390,225)
TotalDebtService $0 ($157.687) ($263,343) (S2W,184) ($207,184) (S207JB4) ($207,784) ($207,184) ($2W,184) ($207J84) ($1,871,315)
Net Income $452.380 ($1,686,717) $5,757,768 $634,062 $650,886 $668,048 $685,552 $703,407 $727,679 $9,270,401 $17,197,407
SouN Gateway Cumulahve Cash Value $17797,407 276qo 54,732,898 Status Quo Cumula6ve Cash
South Gateway Net PreseM Value $9,506,603 199°h $3,114,364 StaWS ~uo NPV
Vanance blt Status Quo & Assemdage
Ross Consulting Group Final Draft UHGID Business Plan
Page 43
The cumu~atroe cash value of the South Gateway assemblage is $17 7 milhon and dramatically more than
that of the status quo at $4 7 million. This is due to the significant value unleashed through greater density,
addit~onal land and uses As in the North Gateway assemblage, a significant cash investment of $1 6
mdlion is reqwred m the South Gateway to obtain this dramatic cash improvement over the status quo
Again, pro fortna details of the Ciry portion of the assemblage are not disclosed, but do demonstrate
significant financial motivation for City involvement in the South Assemblage Assuming 3 levels of
subterranean parking, the Ciiy can provide up to 190 parking spaces that wiil serve the need of both The
Hill disfict and the new development in the assemblage. The underground structure will be built by the City
and could be financed from the parkmg revenue generated on site, through general obligation bonds, or
other forms of public finanang• not from any sales tax increment generated through development
However, the City ~nll see dramatically increased sales tax revenue from such a redevelopment
Ross Consulting Group Final Draft UHGID Business Plan
Page 44
Broadwav District Assemblaae sroadway o~stnct status quo
ECOl10lI11CS '' Bldq SF % RBA RBA
10% Discount Rate 0 Broadway Lot 0 0°/a 0
The Bfoadway DlstrlCt enCOmpasses roughly ~0% Residual Vafue Cap Rate 1111 Broadway 9,541 95°/0 9,064
1 1 acres of land and today holds 50,403 $25 00 Rent NNN Estimate 1121 Broadway 6,900 95% 6,555
square feet of buildings which equates to an ~% Mnual Rent Inflahon 1127 Broadway 2,735 95% 2,598
FAR of .98. RCG uses a$25 NNN status quo 1135 Broadway 3J227 s5% zs sss
rent estimate to reflect the off 13~^ Street 5o,ao3 a~,sa3
lacation and the generally obsolete condition
and configuration of the bwldings Rents inflate at 1% a year in line with histoncal sales growth in the
Broadway Distnct. Sales dollars are not shown to protect the pnvacy of indiwdual businesses housed
within the buildings
The status quo scenano Broadway Disfict cash flows for both the pnvately owned bwldings follows
ResidualValue $13,223,714~$13,223,714
~Status puo Net Present Value $14,09t,771 ~
The cumulative cash value of the status quo scenano for private bwlding owners in the Broadway Distnct
assemblage area is $25 8 mdlion over a ten year penod The net present value of the cash flow is $14 0
miihon
The new uses that are enabled by assemblage include Office condominiums and ResidenUal
condominiums in addition to repiacmg the exisbng retail and parking with updated versions. The
assemblage assumes that equity in another City-owned lot on The Hill covers any equity requirement for
the City in this development, and that the City bwids the parking underground parking component of the
assemblage. The development rights on top of the former CU-owned lot wdl be of significant value, thus
creatmg the possibility of surplus cash for the City after selling one of their other Hill parking IocaUons In
partiapating in this assembiage, the Ciry can expand its parking capaciry and collect parking fees from the
associated development. Therefore, under an assemblage scenano, budding square feet goes from 50,403
square feet at 1 3 FAR excluding the Broadway Lot to 94,204 bwlding square feet at a 1 85 FAR including
the Broadwa Lot.
: ... . . . . . .
Pre-Assemblaae - Existm a Struetures Assembla~e - Densdv and Bida Size oen
Parcel Land SF Bida SF Land SF FAR Blda SF % RBA RBA # Floors Saace
0 Broadway Lot 11,055 0 0,921 7.85 94,204 95% 89,494 2 5 26%
1111 Broadway 13,230 9,541
tt21 Broadway 6,849 6,900 ssem aae• ew ses
112i Broadway 6,813 2,73 ~~~~ Reauired Sales
11356roadway 12,874 31, BldaUses RBA ~~~ Parkinu ~sf
Total 50,921 ,403 Retail 40% 35,797 0 0 $400 00
Resid-Condo 30% 26,848 1 27
Office-Condo 30% 26,848 3 81
Tot21 100°/a 89,494 107
Ross ConsulUng Group Final Draft UHGID Business Plan
Page 45
The finanaal assumpt~ons are similar to those previous models. Construction is scheduled to last 13
months with totai costs of $132 per square foot financed with an 80% loan to cost. Retad rent is pro~ected
at $40 NNN psf with Residential condo safes at $300 psf and Office condos at $250 psf, It is also assumed
that upon compleron of construchon, it takes 5 months to absorb the uses on the site Alf finanaal
assumptions follow.
~
,
,'
•
JeetTimeline Idm ConatuetlonCosts
B evenua Flnan in
1Jan-OS Start Daie $10 00 Demolihon pe~ bldg sf $40 00 Retail Rent psf (NNN) 100% ConsWchon Loen Interest Only Rate
1 ~emdihon (manths) $110 00 Building Hard Cast psf $300 00 Res~den6al-Condo Pnce psf 80 0% Loan-W-Cosl Ra6o
12 Conshuchon (months) 20% SoR Cost $250 00 Office-Condo Pnce psf 7 00% Pertnanent Loan Interest Rate
5 Absory6on (months) $132 00 Total Cast psf 9 00% Residual Value Cap Rate 25 Pertnanent Loan Amort¢ahon Penod
$72,938,938 Total Cost (w/o inflahon) 60 00% Yo Pre-Leased 125 0% % Loan psf Paydown (d Sale
85 00 Operahng Exp psf (on vaant s~ 5 00% Sfabilized Vacancy
2 00% Annual Espense InAa4on 2 00°/a Mnual Income Infiahon
15% Discount Rate hll 1 Year Stabduatlon
10% Discount Rate ~ i Year Stabdiza4on
The following cash flows result from the above mentioned assumpUons.
.. •... .
Pre-ConsWC6on Buddmg Cash Flow 1,209,042 $0 $0 $1,209,042
Construc4on CosF Equity Required $0 ($2.643,771) $0 $0 $0 $0 $0 $0 $0 SO ($2,643,T71)
ReqdRent SO SO $1,216,627 $1,519,542 $7,549,933 $1,SB0,932 $1,812,550 $1,644.8t71 $1,677.697 $1.711.251 312,513,334
Residen6al-Apt Rent $0 §0 $0 SO §4 a0 $0 $0 SO $0 SO
Olfice Rant 50 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
StabtlvedVacancyFaperee 80 $0 ($37,244) ($75,977I (877,49~ ($~,~47) ($80.628) (~~2~) (583,885) ($&5,563) ($602,079)
OperetlngExpense $0 $0 (822,554) ($9,49~ ($9,687) ($9,881) (510,078) ($10,2801 ($10,486) (510,695) (593,159)
ara rg e nwme ~ ~ ~ ~ , . , ~ ~ , , ~ ~ ~ ~ ~ .
ResldentlabCondoSelea 80 $0 $8,379,828 $0 $0 $0 $0 $0 50 50 $8,379,828
Olfice-CaMOSales $0 $0 $6,983,190 $0 $0 $0 $0 $0 $0 EO $6,983,190
PrlnaplaPeydown $0 $0 ($8,345,051) $0 $0 EO $0 $0 $0 80 (58,345,051)
ReaMual Velue $0 $0 SO SO $0 SO $0 $0 SO $17,944,377 y17,944,371
Principal0ufslandm SO $0 50 $0 $0 $0 $0 SO $0 ($3,555.31~ (53,555,315)
Sale Netlncome 0 0 9,077,967 0 14,389,058 2,407,023
ConslrucHon Loan IMerest $0 (5276,628) ($61,688) $0 56 $0 $0 $0 $9 $0 ($338,316)
PermanentLoan Interesl 50 $0 ($322,745) ($288,944) ($283,936) ($278,585) (5272,806) ($268,630) ($280,009) ($252,908) (52,226,544)
PermanentLaenPrlnaplePmt $0 $0 (E70,900) ($69,287) ($74295) (S79.fifi6) $85,425) ($91,801) ($98,222) (E105,323) ($874,719)
0 BNICB
as ow e ervice
Broadway Distnd CumuWhve Cash VaWe 30,550,811 18% 5,B 2,368 SIaWS uo Cumulatrve sh
Broadway DlsNCt Net Present VaWe 76,475,420 17% 14,091,771 SIaWS duo NPV
~ Vadanca 6!t SfaWS Quo 8 Aseemblage I
The cumulatroe cash value of the Broadway District assemblage to pnvate building owners is $30.5 million
This is substantiaily more than that of the status quo at $25.8 million This is due to the significant value
created by greater density, additional land and uses The cash investment required is high in the
Broadway Distnct at $2 9 mdlion.
City pro forma detatls are not disciosed but do demonstrate finanaal viabdity of City participation in the
patking pomon of the assemblage Assuming 3 levels of subterranean parking, the City can prowde up to
325 parking spaces that will serve the need of both The Hill distnct and the new development in the
assemblage. The underground stnicture wdl 6e built 6y the City and could be financed from the parking
Ross Consulhng Group final Draft UHGID Bus~ness Plan
Page 46
revenue generated on site, through general obligaUon bonds, or other forms of pubfic finanang• not from
any sales tax increment generated through development However, the City wdi see dramatically mcreased
sales tax revenue from such a redevelopment
Ross Consulhng Group Final Draft UHGID Business Plan
Page 47
IMPACT OF HISTORIC DESIGNATION
The City of Bouider, together with The Hill landowners, may also wish to pursue designation of a Histonc
Distnct on 13~ Street. Histonc Disficts are generally appropriate in areas characterized by significant
historic assets, and assets that have maintained their architectural integrity In order to be considered for
classification as a Historic Distnct, the area and a preponderance of buildings (50°/a or more) must possess
two of the following three cntena•
1) Significant and documented history m the bwldings, or a significant history of the overall place,
2) Significant historic architecture
3) Significant historic geography
Based upon our discussion with David Cohen, a Colorado advisor to fhe National Trust for Histonc
Preservation, member of the Landmark Commission, property owner in the Unroersity Hdl residential area
and noted developer of historic properties, The Hill should qualify in at least two of the aforement~oned
categones
Estabiishmg a Histonc Distnct has distinct positive and negative impacts, which should be carefully
understood and evaluated pnor to any decision to proceed. The posibve benefits include
Building Owner Economic Benefit (incentive to reinvest)
o Access to Federal and State tax credits in retum for money spent on rehabditation. These
tax credits generally comprise 20% of every dollar spent above the acquisition cost, but
total dollars spent must exceed the acqwsibon cost.
o Access to grant funds from the Colorado Histoncal Soaety
o Both contnbuting and non-conUibuting buddings have access to histonc tax credits in a
Historic District, whereas only contribufing buildings would othervvise be eligible for histonc
tax credits when pursuing an individual Landmark designation (see below) Non-
contnbut~ng buildings may have a more difficult time obtairnng grant funds for renovation,
preservation,restoraUon,orinvestigation.
• Collectfve Marketing Benefit
o Opportuniiy to rally merchants and neighborhood behind district awareness campaign
o Historical interpretation markers through out streetscape
Design Control
o Stnct review of bwlding renovahons, and evaluation of application for demolition of non-
contributing structures
o Stnct rewew process controls what is budt and how thmgs are renovated
o The Distnct has a very strong control over its own desUny, and what gets constructed
within the Disfict.
• Grant Benefit
o The Histonc Distnct may have the abdiry to apply for State of Colorado and federal grants,
which could be utdized as matching funds for streetscapes, sidewalks, lighting, and other
renovations to the Distnct. The avadabdity of these grent funds could effectively reduce
the distnct tax otherwise lewed to make those improvements
Ross ConsulUng Group Final Draft UHGID Business Plan
Page 48
The negatrve impacts of historic designation are.
• Review Process
0 3 layers (local, state, & nat~onal) of rewew required to obtain approvai for individual
bwiding rehab can add sigrnficant t~me to the developmentlredevelopment process This
could act as a disincenUve for renovaUon and redevelopment to occur in the area
o Interpretation of design guidelines in flux on a national level and sub~ect to change
Limitation on Redevelopment Potential
o ContnbuUng bu0dings need to be restored to very high standards, such that the onginal
building integnty is not compromised This standard of redevelopment will likely force
property owners to incur significant additional expense, which may offset any benefit from
histonc tax credits.
o The cost for individual property owners to seil the histonc tax credits to tax credit investors
is very high, often prov~ding a disincentive for property owners of smaller buildings to go
through the application process
o Non-contnbu4ng buddings with~n a histonc distnct may {oose development potent~a{
currently available to them under existing zoning absent the histonc district.
City Burden
o The cost of managing a histonc distnct would fall to the City of Boulder This cost,
covenng significant design rewew, site review, and monitonng would add significant labor
expense to the City's existing planning and zoning process The City would need to find
budget to allocate for this purpose, or secure an add~tional revenue snusce to offset the
additional expenses
Altematively to applicaUon for a Histonc District, individual property owners of histoncally sigrnficant
buildings may apply for Landmark status, which prowdes their individual bwiding access to economic
benefits available under a Histonc District. Under this sWcture, only the applicants for Landmark status
are burdened by the procedural cASts, preservaUon costs, and tlme required to go through the histonc
review process. Non-contnbuting buiiding owners would not have access to historic preservation dollars,
and would retain more IaUtude in redeveloping or renovating their properties.
Ross Consulhng Group Fnal Draft UHGID Busmess Plan
Page 49
POTENTIAL CITY INVOLVEMENT
The City of Boulder can certainly influence and stimulate redevelopment and re-investment on The Hill
7his can take the fiorm of financing cenValized parking structures, considering zoning modfications where
appropnate, considering histonc designaGon on the disUict, and helping to midwife discussions with
landowners and developers The City's role can be either proactive or passive, but wdlingness to engage in
meaningful discussions with property owners, developets, and other stakeholders will be critical in order for
any of these discussions to result in meaningful change.
Parkina
The City of Bouider does not own land that is large enough or in a loca~on that would benefit from
construct~on of a centralized parking facility on The Hill. ConsequenUy, any parkmg garage would
necessitate cooperation with other landowners on The Hdl If private landowners approach the City with a
credible plan that involves land in a IocaGon that couid support structured parking, the City should evaluate
that plan on its ments.
UHGIDICity of Boulder, under delegation from City Council, couid have access to pubfic revenue bonds or
general obligation bonds that would allow construction of parking shuctures on The Hill These parking
structures would likely need to be financially self-supporting m order for such considerabon to be taken
seriously, and will therefore warrant a more detailed parking study concurrent with a senous redevelopme~t
proposal and gwdance from a bond underwriter as to the pros and cons of public revenue bonds, general
obligation bonds, and other possi6le financing vehicles. The parking study should be engaged once an
appropriate site has been identified by a private-sector proposed assemblage, and should help UHGID and
the City determine whether such public partiapation is warranted
Once the parking study has been performed and once demand for new structured parking is evidenced
through that study, UHGID and the City of Boulder can determine the extent to which-if at all-they wouid
consider partnership with the pnvate developer. Any eventual joint venture will require approval of City
Councd, which would not be sought until after UHGID and City staff have made recommendations
regarding partiapation.
Plannlna & Zoninv
As previously discussed, one possible outcome involves potential zoning modifications to encourage and
channel reinvestment on The Hill. The administratroe review process falls under the ~urisdiction of City
Planning and Development Services, while approval is contingent upon ratificat~on by City Council. It is
possible that certain administrative changes couid be done without City Councd approval, although City
Planning and Development Services will help guide the process.
Prior to consideration of any zonmg change, however, detatled land planning and architectural studies
should he performed in order to help unde~stand the aestheUc ramificat~ons of concepts outlined in this
paper The architectural studies wtll help determine bwlding massing and potential ramifications of density
transfershncreases, and wdl also help provide design and construction altematrves to help achieve
increased densities. The land planning studies help understand avic spaces and interaction with
retaillentertainmentlofficelresidential uses on The Hdl Further, land planning will help guide placement of
Ross Consulhng Group Final Draft UHGID Business Plan
Page 50
potential civic spaces, placement of increased or decreased bwlding density areas, and help guide how Hill
visitors wdl access the various areas Lastly, land planning wiil help address how these potential changes
to The Hdl can be best mtegrated ~nto surrounding residential areas-most importanUy, the high density
residential area beiween The Hill and the neighbonng single family residential district.
Reinvestment Catalvst
By acUvely par4cipating in this analysis process over the last few years, UHGID and the City of Boulder
have illustrated that they share some of the same goals as pnvate property owners and developers
improving the success and draw of The Hill. To that end, the City can conbnue shaping reinvestment m
The Hill by working as a catalyst to draw property owners and developers into discussions specifically
around property reinvestment and redevelopment. The City may consider sponsoring a Community
Development Corporat~on (CDC) to assist in these discussions, and to provide a formai framework within
which the discussions may proceed
By both sponsoring and engaging in redevelopment discussions, the City of Boulder also retams a strong
ability to guide development dunng the conceptualization phase This participation helps inform the Ciiy as
to proposed pians and heips insure better design compatibiliiy within the neighborhood context. Further, it
assures the Ciiy's abdity to participate in the development of a parking strvcture within the context of a
larger, mixed-use plan, and to contnbute to that plan at an eariy phase which could result in better parking
functionality, lower costs, and better overall design.
Ross Consulhng Group Final Dreft UHGID Business Plan
Page 51
7 1
NEXT STEPS
RCG believes in the wability of The Hill CommerGal Distnct, and the ability for that distnct to broaden its
development achvittes to include broader retailer offenngs, office offenngs, entertainment uses and
residential uses To that end, RCG suggests the following plan:
Step Purpose
1. Review and Comment on RCG Business Plan by Bwid consensus on findings and next steps
UHGID, Alliance, City Council, and other
communiiy groups
2 Engage land planner to investigate options for Infortn land plan, pnontize areas for small
civic spaces parks/civic spaces
3 Engage land planner to analyze areas for higher Determine appropnateness of identified areas for
density and building heights higher densiiy and higher building heights
4 Engage architect to perform density and ~sualize impacts from higher density
massing study development within The Hill and the surrounding
area
5 Begin discussions with property owners and Shmulate interest in properly remvestment,
developers about re-development assemblage, and area upgrades
6 Engage histonc expert to advise City and Analyze best way to preserve historic value
property owners on benefits and nsks of a without forestalling future redevelopment efforts
Historic District.
7 Engage City Planning/Zornng in discussions Utilize information and interest generated from
regarding potential district modifiqNon steps 1 through 4 to inform discussions with City
on desired changes
9 Engage Universiiy of Colorado in parking
discussions
private sector, utilize study to prove-up demand
for shvctured parking in area
Determine whether CU parking needs should be
addressed as part of overall parking solution
10. Engage University of Colorado in sernor housing Determine whether CU would partiapate m plan
discussions to develop senior housing proximate to
11. Initiate marketing plan for The Hdl
Ross Consulhng Group
Broaden exposure and interest in Hdl merchants,
restaurants, and activities
F~nal Draft UHGID Business Plan
Page 52
GLOSSARY
Discount Rate - Conceptually, a discount rate should be thought of as the reqwred retum for a real estate
investment based on its nsk when compared to with retums eamed on competing investments and other
capital market benchmarks For example, ff the period of anaYysis is 10 years for our prospective real
estate investment, the discount rate selected should be greater than the mterest rate on a 10-year U S
Treasury Bond plus a nsk premium for real estate ownership and its attendant nsks related to operation
and disposition. The discount rate is used to calculate the Net Present Value of future cash flows
Net Present Value, NPV - the present value of an investmenYs future net cash flows mmus the mitial
investment The present value of a future cash flow is what that future rash flow is worth in today's dollars
In other words, the future cash flow is discounted using the "discount rate" to yield the present eqwvalent of
tomorrow's dollars
Cap Rate -(short for capitalization rate) The Cap Rate is a desired real estate investor rate of retum that
reflects the yie(d the investor desires from one yeat's net operaGng income from the current market value of
a particular property The cap rare is calculated by dividing the annual net operaUng income by the sales
pnce (or asking sales price).
Residual Value Cap Rate -(see Cap Rate above) The cap rate used to estimate the sale value of a
property at the end of the propeRy's holding period The residual cap rate is used to calculate the sale
value by d~viding the annua{ net operatir~g income from the end of the holding penod by this cap rate. Th~s
calcula4on est~mates the amount for which a future buyer would be wdling to buy the property based on its
cash flow.
Inflation - The annual rate at which a price measure increases
Rent NNN -(net net net lease or triple net rent) In a NNN lease, the tenant pays the landlord NNN rent
plus property taxes, insurance, and maintenance This is the NNN rent is the amount which goes direcUy to
the landlord net of these three expenses. The landlord then uses funds from NNN rent to pay for the debt
service and capital improvement thats building reqwres
R.BA. -(rentable area) Area on which a landlord can collect rent. Non-rentable areas includes the
thickness of exterior walls, any columns or proVusions through the floors such as elevator shafts or
structureal support or mechanical eqwpment closets.
Residual Value - the asset sale value or disposition value at the end of the asseYs holding penod
Cumu{ative Cash F1ow - the total aggregate amount of cash produced over the pro}ect t~me4~ne.
Absorption - The time penod in which the rentable area of a bwiding ts occupied.
Hard Cost - Costs of bwiding/property construction that include matenals and labor.
Soft Cost - Costs of building/property construction that include financing, architectural and contingency
fees
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Operating Eupense - Budding expenses that include things such as utilities, maintenance, management,
trash, water and sewer expenses.
% Pre-Leased - The percent of the bwlding that will be leased and occupied immediately following
construct~on to tenants who committed to this immediate occupancy pnor to the compleUon of construction.
Stabilized Vacancy - Bwlding vacancy is difficuit to estimate because of the differing timing needs of
muitiple tenants and the unpredictabdity of competitive bwlding offerings in the future. Stabilized vacancy is
an estimate of an average overall level of vacancy that a budding might sustain over the course of Ume. It
is reflected as an expense in a building cash flow to represent lost income
Construction Loan - A short-term loan financing improvements to real estate The lender advances funds
to the borrower as needed while construction progresses Upon completion of the construction, the
borrower must obtain permanent financmg or pay the construction loan in full. For RCG calculations, the
construction loans are considered to be non-amortizing interest only loans
Loan-taCost Ratio - The percent of construction cost that is financed The remainmg percent of the cost
of construction must be paid for by the bwiding with cash/eqwty.
Permanent Loan - A long term amortizing mortgage, usually ten years or more. For RCG calculations, the
permanent loan pnnciple amount is the full amount of the construction cost that was onginally financed
through the construction loan.
Amortization Term - the length of time reqwred to repay (amorGze) the loan amount.
Canstruction Cost - Equity Required - The amount of the total construction cost that is not financed, but
rather is reqwred as cash to fund construct~on costs
Principal Outstanding • The amount borrowed, or the part of the amount borrowed which remains unpaid
(excluding interest).
Construction Loan Interest - Because the Construction Loan used by RCG is defined as an interest -
only loan, the 'construction loan interesY in the cash flow is an expense line item that demonstrates the
amount of interest paid monthly dunng construction This interest is calculated based on construction loan
principai amount that grows over the construction time period as consVuction costs are incurced
Floor to Area Ratio (FAR) - gross square footage of a bwlding structure diwded by the land area square
footage. This ratio reflects an areas density and height.
Ross Consulting Group Fnal Draft UHGID Business Pian
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APPENDIX
SIC Code Definitions
5912 Drug Stores and Proprietary Stores~ Establishments engaged in the retaii sale of prescnpUon
drugs, propnetary d~ugs, and non-prescription medicines, and which may also carty a number of related
lines, such as cosmetics, toiletries, tobacco, and novelty merchandise These stores are included on the
basis of their usuai trade designation rather than on the stncter interpretation of commodities handled This
industry mcludes drug stores which also operate a soda fountain or lunch counter
. Apothecanes-retail
. Drug stores-retad
. Pharmacies-retail
• Propnetary (non-prescnption medicines) stores-retail
5999 Miscellaneous Retail Stores, Not Elsewhere Classified: Establishments pnmanly engaged in the
retail sale of specialized lines of inerchandise, not elsewhere classified, such as artists'supplies, orthopedic
and arUficial limbs; rubber stamps; pets, religious goods, and monuments and tombstones This industry
also includes esiablishments pnman{y engaged in selling a general line of the~r own or consigned
merchandise at retad on an auction basis. Establishments pnmarily engaged in aucUoning tangible personal
property of others on a contract or fee basis are classified in Services, Industry 7389
Industry Group 594: Miscellaneous Shopping Goods Stores
• 5941 Sporpng Goods Stores and Bicycle Shops
•~5942 Book Stores 5943 Stationery Stores
• 5944 Jewelry Stores ~5945 Hobby, Toy, and Game Shops
• 5946 Camera and Photographic Supply Stores
• 5947 Gift, Novelty, and Souvenir Shops
• 5948 Luggage and Leather Goods Stores
• 5949 Sewing, Needlework, and Piece Goods Stores
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