HomeMy WebLinkAbout10 - Final Draft Business Plan University Hill Business Plan: September 13, 2004~~ ~~L~'tix~!
Final Draft Business Plan
University Hill Business Plan
Ross Consulting Group
September 13, 2004
Table of Contents
FOREWARD ............................................................................................................................. .....................1
EXECUTIVE SUMMARY .......................................................................................................... .....................2
RCG PROCESS ....................................................................................................................... .....................5
Stakeholder Findings ............................................................................................................ .....................5
City Involvement Discussians ............................................................................................... .....................6
Planning ~ Zoning Department Discussions ........................................................................ .....................6
Existing Conditions Review .................................................................................................. .....................6
Data Review ......................................................................................................................... .....................6
REGIONAL & NATIONAL RETAIL TRENDS THAT RELATE TO UNIVERSITY HILL .............. .....................8
EXISTING BUSINESS CONDITIONS ON UNIVERSITY HILL .................................................. ..................11
Retail Trends ......................................................................................................................... ..................11
Consumer Goads .............................................................................................................. ..................12
Food & Drink ..................................................................................................................... ..................13
Retailer Sizes & Turnover ................................................................................................. ..................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
Proximity to University Hill Residential Area ..................................................................... ..................20
Parking Suppiy & Demand ................................................................................................ ..................20
Residential Supply & Demand .......................................................................................... ..................21
Office Supply & Demand ................................................................................................... ..................21
Retaii Supply & Demand ................................................................................................... ..................22
Historic Building Stock ..................................................................................................... ...................22
SIGNIFICANT ROADBLOCK TO CHANGING THE HILL STATUS QUO ................................ ...................24
Absentee Ownershipl Fragmented Ownership ................................................................ ...................24
Management of Existing Businesses/Existing 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 Building Renovation Today ............................................................................ ...................30
Economics of Building Reconstruction Today ...................................................................... ...................34
Economics of Transferable Development Rights .................................................................. ...................36
Economics of Assemhlage ................................................................................................... ...................38
North Gateway Assembtage Economics .......................................................................... ...................39
South Gateway Assemblage Economics ......................................................................... ...................42
Broadway DistrictAssemblage Economics ...................................................................... ...................45
IMPACT OF HISTORIC DESIGNATION .................................................................................. ...................48
POTENTIAL CITY INVOLVEMENT .......................................................................................... ...................50
Parking ............................................................................................................................. ................... 50
Pianning & Zoning ........................................................................................................... ....................50
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Reinvestment Catalyst ........................................................................................................................51
NEXT STEPS .............................................................................................................................................. 52
GLOSSARY ................................................................................................................................................. 53
APPENDIX .................................................................................................................................................. 55
SIC Code Definitions ...............................................................................................................................55
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
~n o~~,n~,o~n~~pREWORD
Ross Consulting Group (RCG) was engaged by UHGID to investigate the University Hill Commercial
District ("The Hill") in order to gauge the area's development potential and to determine whether the
existing conditions are representative of those that could be achieved under different stewardship and
evolving community goals. This initiative comes on the heefs of a communiiy study performed by PUMA
that investigated the relative degree of community satisfaction 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 dissatisfaction with existing conditions, its purpose was not to
address viability of change from those existing conditions. As UHGID and related stakeholders have not
found a"silver bullet" to effect change on The Hill, RCG was brought in to help establish realistic
expectations and goals, and to outline steps to achieve those goais 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 opportunities to improve the viability and vitality of commercial and
residential uses on The Hill.
RCG recommends that this business plan be utilized to foster discussion among business owners and
property owners, neighboring residents, the University of Colorado, and the Ciiy of Boulder. Further, RCG
recommends that a land planning/architecture firtn be utilized to °vision" some of the concepts ouUined
herein in order to iilustrate possible benefits and cronsequences as well as to guide potential planning and
zoning modification negotiations.
Because this business pian 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 Hill necessarily require further
study. Accordingly, the recommendations included herein are intended to be directional rather than literal,
outlining courses which should be foflowed in order to determine the appropriate architectural and planning
sofutions for The Hill and its environs.
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EXECUTIVE SUMMARY
Through the process of evaluating the University Hill Commercial District, RCG confirmed that the area
holds far greater commercial office, retail, and residential potential than is currently being realized. While
the 29"~ Street redevelopment may consume some of the untapped market poten6al, RCG is confident that
the market demand far outstrips supply for various uses on this Site. The factors impacting usage and
redevelopment include the following:
Stronq underlvina retaii market fundamentais. Paradoxically, The Hill's success as a retail destination
has also created The Hill's current lack of tenant diversity. Proximity to the Universiiy of Colorado
drives the attraction to this area, creating a continuous sheam of interest from business owners and
entrepreneurs wanting to open businesses on The Hill. This demand has conditioned property 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 altematives. As a result, spaces are rarely vacant but few
national or regional retailers ever learn about space availability on The Hill. Instead, many smatl
businesses get established on The Hill trying to cater specifically to the current student market and
retail has been trending strongly toward convenience retail and eating/drinking establishments.
Hiqh tumover. Due to relatively cheap rents, outdated buildings, and the large percentage of start-up
businesses on The Hill trying to cater to the continuous stream of University-related traffic, The Hill has
become known as an incubator. While some of the businesses enjoy wild success, many others close
within the first three years of operation. This also tends to translate into fairly 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 capital improvements.
. Parkina• Public parking on The Hill, while available, is generally considered to be either severely
lacking or poody located. Poor proximity of convenience parking tends to reinforce the CU-orientation
of retail, as most visitors and business owners consider it to be unrealistic that non•university visitors
would patronize the area.
• Zoninq• Current zoning is restrictive on what can be constructed on The Hill. Because of those
constraints, there is a strong financial disincentive for redevelopment to occur. While the area as a
whole is characterized by undeveloped density, the cost and associated timeline for developers to
redevelop and seize additional density is considered to be prohibitive.
• Retail trends. Over the course of the last ten years, retail trends have changed considerably.
Individually and collectively, these retail changes have all impacted retailing on The Hill.
o Lifestyle centers, or exterior-facing stores located in auto-oriented locations, are characterized
by tenants formerly seen only in enclosed malls. These malis 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 primary shopping
destination for the busy family. Shoppers have spoken, and they are strongly favoring one-
stop destinations that allow them to make weekly purchases and then utilize time and money
saved to pursue other leisure activities.
o Regional mails are consolidating, with many secondary locations suffering declining sales and
weakening tenant base. Many of these older malis are in the process of being redeveloped
into Power Centers, or a mixed-use center incorporatlng aspects of big box retaii, residential,
and office.
o EntertainmenUShopputainment centers, or destinations that incorporate aspects of boutique
retail together with restaurants, theatres, bars, and other entertainment venues are becoming
popular on the national stage. These centers are the antithesis of the Power Center. Rather
than focusing on accommoda6ng a large number of convenience trips, instead they focus on
extending the duration of each trip into a more enjoyable experience. It is this trend that most
closely describes the primary potential of The Hiil. The new 29"~ Street redevelopment hopes
to corral some of the same appeai in a larger format retailing concept, but ladcs the small a ~
scale, historic and main-street appeal that defines The Hill. ~+
Existin4 Hill retaii saace confiquration is iimitinq. Not only are the majority of Hili retail floorplates very
small, but they are also characterized by relatively low ceiling heights. Retailers, therefore, need to be
able to work within the existing space envelope in order to operate on The Hill. As retailers evaluate
various location decisions, however, functional considerations such as floorplate sizes and ceiling
heights weigh very strongly into site selection decisions. As the real estate cost is a relatively large
proportion of the overall business expenditure, business operators need to be sure that the reai estate
effectively supports their business goals. For many retailers, these considerations would likely cause
The Hili to fall lower on their list of preferred locations despite The Hill's CU proximity.
General consumer Qoods retail beina realaced bv restaurants. As Flatiron Crossing has moved to fill
shoppers' needs for general retail and Pearl Street Mall has moved to fill needs for boutique
restaurants and shopping, the Hill has been transitioning from general consumer goods retail to
convenience restaurant use. With increasing neighborhood resistance to additional liquor licenses, the
new restaurants are being pushed in the direction of take-out and fast food to serve the lunchtime and
harried student clientele. Convenience eating has therefore assumed a prominent position in
numerous storefronts, and is consequently changing the nature and expectations of retail in the area.
If this trend continues, The Hili will be overcome with student-oriented establishments, and will
effectively cease to be considered a neighborhood commercial district
Existinq Hill tenant mix is limitinq. Retailers are reluctant to take risks. When existing retailing is
trending toward convenience and fast-food uses, few retailers would consider locating uniess their uses
are in some ways complimentary to existing retailers. In this way, retailing character seidom moves
quickly outside of new construction, and instead slowly evolves. Dramatic changes wili be difficult,
therefore, unless a significant presence of new retailers can emerge on the scene at the same time.
This opportunity is discussed while evaluating potential for assemblages on The Hill.
RCG sees a number of options for helping free the existing development gridfock and broadening ihe
tenant base to allow The Hill to evolve into a broader community center. These goals, shared by all
stakeholders, were made abundantly c{ear thro~gh our study as well as through the findings of the PUMA
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study. Achieving the goals will be enabled through use of some combination of options indicated below.
Importantly, these options 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 Boulder. When conducting further investigation of the following options, it will be necessary to do so
with the hefp of a land planningiarchitecture firm to further "vision" and understand potentiai outcomes and
possible unintended consequences.
Zonin . Evaluate opportunities for changing or broadening zoning to allow for larger buildings,
increased density, larger floorplates, and perhaps microzones. These changes would allow for
economirally viable redevelopment of underperfortning buildings, and would provide property
owners a significant incentive toward significant capitai investment in their properties. Further,
these changes would allow the property owners to build retail spaces that cater for different retail
uses than exist on The Hiil today.
2. Creation of Historic District. The Hitl has significant historic value to the community and it is
characterized by numerous buildings that help define and enrich the area's historic nature. As land
values increase and building conditions deteriorate over time, wholesale redevelopment becomes
more economically viable in what couid be considered Historic buiidings. Theretore, the City shouid
seriously consider pursuing a historic district classification on the 13"~ Street corridor and possibly
shift redevelopment and additional density to other parts of The Hill. Doing so would help preserve
the nature of the area, and help provide individual property owners with effective tools for
protecting their buildings through historic designation-including possible financial incentives in the
form of historic tax credits, fagade 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 historic district. The pros and cons of historic designation are discussed in detaii
in the following report.
3. Transferable Develo~ment Riqhts (TDRs). As one of the primary goals for The Hill is to retain its
historic charm, density allocations can play a significant role. There are some smaller buildings in
the district (particulariy in the 13"~ Street core) that have wonderfui historic facades, but economics
of redevelopment suggest they should be raise~razed in favor of denser shuctures. This
economic realiiy should be addressed before significant buildings are lost. One proven way of
protecting those structures, in addition to histodc designation, is through establishment of
transferable development rights, 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 rights to build additional density than would otherwise be allowed
under zoning. RCG recommends establishing sending and receiving TDR areas, so that the
resulting activity from transfers can be better incorporated into area plans.
4. Civic saaces. 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 civic space aside from city-
owned parking lots that encourages people to gather. Whether partial closure of 13~ Street during
the evenings or introduction of a pocket park along 13~ Street, The Hill could benefit from
introtluction of community elements that exist to help unify students, business owners, neighboring
residents, and the greater community, When properly planned, these elements can evolve during
different times of day (a place to enjoy lunch outside, read a book in the aftemoon, and enjoy the
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evening without having to go inside). RCG cautions that any civic space needs to respect the
overriding goals for business viability, however, and recommends against full-time street closure.
5. Central Parkinq. Convenient, accessible parking would remove a significant barrier to the greater
community from patronizing The Hili. Further, when incorporated into larger assemblage
opportunities as a subterranean component, city-owned parking could provide the catalyst for
redevelopment and change to occur on The Hill. This will also provide a consolidated opportunity
for providing additional parking supply necessitated through better parking visibility and
redevelopment activities on The Hil1. Importanriy 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 Site.
RCG PROCESS
Over the course of the last 11 months, RCG has spent considerable time and effort researching various
elements that influence or contribute to business viability and real estate values on The Hill. This process
included a number of stakeholder interviews to help ground our analysis. Stakeholder interviews helped
provide us with valuable perceptions, observations, and experience from UHGID board members, CU
students, administration, residents from the University Hill neighborhood association, Hill business owners,
City Staff, City Planning & Zoning, and property owners within The Hill commercial district.
This process affirmed the work of the previous PUMA study, informed RCG of the dynamics beriveen
stakeholders, and most importantly involved stakeholder groups in the process of creating a viable
business plan. This process also initiated the dialogue of what change and redeve{opment might feel like
on The Hili - an area unaccustomed to much change. Of all of our findings, stakeholder reticence to
embrace change was the most striking.
Stakeholder Findings
Other (not so surprising) findings included the following:
• The Hill's character is its main attraction
o Funky
o Historic charm & character
o Mom & pop retailers
o Hip
o Not "corporate"
o A place where students can simply hang out
• The Hill's location catalyzed the commercial success
o Proximity to University of Colorado students, faculty, administrators, and alumni
o Proximity to University Hil! residential neighbarhoods
• Everyone wants a more diverse retail community
• Everyone wants a more central parking solution
. The public events on The Hiil are a big hit
• Everyone seems to endorse the creation of public gathering space
• Everyone wants a place that will draw a more diverse public to The Hill
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City Involvement Discussions
7hrough our discussions with the City of Boulder, it is clear that the City endorses the goals of the
stakeholders. Further, the City is wiiling to consider helping catalyze events that will lead to change. Such
participation might inciude: cooperation in allowing a special district (or broadening the purpose of the
district already in place); partriering on a pubiiGprivate venture that has the City buiiding and operating a
parking structure component of a larger development; helping finance and construct public spaces on The
Hill; and seliing existing parking assets to allow redevelopment, once parking has been replaced elsewhere
on The Hill.
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 historic character it brings to the City of Boulder. With that in mind, they are
reluctant to consider any proposal that might endanger the historic nature of existing buildings.
They would be much more willing to consider proposals that enhance vibrancy and vitality of businesses on
The Hill, so long as those proposals help assure continued preservation of historic buildings.
As with any public process, the Planning and Development Services cannot commit to specific changes
without significant study into specific proposais. Similarly, no changes should be requested of Pianning
and Development Services without a better understanding of the ramifications of those potential changes.
The nature of changes that could be considered include: designation of a historic district; introduction of
microzones; transferable development rights; and modifications of what counts against Fioor Area Ra6o
(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 determined. Boulder enjoys the "friction" that their process
introduces into development, and a certain amount of that "friction" will help produce better developments.
This fiction does not necessarily mean higher cost and longer time within the Ciry process, but instead
helps craft a better integrated plan that involves City staff from the outset.
Existing Conditions Review
RCG reviewed existing conditions on The Hill in order to provide a baseline for our report. This process
involved observing building conditions, tenancies within buildings, business health (as derived through Data
Review described hereinafter), and the greater Boulder retaif context. These baseline data points help
illustrate existing conditions and determine whether perceived concerns can be verified.
Data Review
RCG reviewed proprietary tax collection data from the City of Boulder in order to better assess both health
and trends of various businesses located on The Hill. Additionally, to provide context to RCG's analysis,
data from the Pearl Street Mall area was also reviewed. The combination of data ftom 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 information by SIC-defined industry type, year,
location, and by use. As will be discussed later in the report, the data revealed some telling trends on The
Hill in terms of business health, tumover, uses over time, and impact of business size on longevity.
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Because of the confidential nature of information reviewed for this process, RCG cannot provide reports on
specific businesses.
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REGIONAL & NATIONAL RETAIL TRENDS THAT RELATE TO UNIVERSITY HILL
While retaii has always been a trendy asset class, subject to whims of the consumer marketplace, the
trends experienced over the course of the last decade have been especially impactful to retail on The Hill.
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 retail
seems to lie in the economic expansion begun around 1990 coupled with the continued growth of lwo-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 groceries had great appeal-leaving more time for people to spend recreating with friends or family.
Additionally, radical improvements in supply chain management and technology created significant
consumer cost savings at these one-stop shops over more traditional less convenient retailers. These two
broad market movements strongly favored selection and price 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 wmpletely counter to the Mall development craze of the 1970's and
1980's, and are helping to cause a number of neighborhood malls to suffer considerable sales declines.
Some of the oider malls are already in the process of being redeveloped to Power Centers (areas
characterized by muitipie, large-format retailers) or LifeStyle Centers (outdoor, unanchored shopping areas
characterized by upscale tenants that were formerly found exclusively within malls). While Power Centers
thrive on aggregating shopping for convenience-the fast food of retail, if you wiil-Lifestyle Centers
recognize that specialiy retailers have grown enough clout of their own to individually draw customers
without a mall backdrop. These Lifestyle Center tenants, recognizing 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 recognize the desire
of shoppers to get in and out without undue distraction.
Compounding this trend toward convenience-oriented retail is the impact of Intemet shopping. Surfacing
during the last decade, Internet shopping reached a fever-pitch during the Iate 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 available without the traditional "bricks and mortar"
overhead costs. While many of these businesses have since ceased operations, 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 similar to the trend that catalyzed the explosion of large format retailing:
shopper convenience, pricing advantage, selection, and flexible retailing hours. When coupled with reliable
and low-cost shipping, Intemet shopping has had an undeniabty positive impact on shopper selection,
pricing, and value.
While the success of Power Centers, LifeSryle Centers, and Intemet shopping all revolve around
commoditization of the shopping experience-focusing on convenience by reducing the duration and
frequency of shopping visits while producing consumer pricing advantages over traditional retail methods-
the net result is more spare time for recreation. This focus on recreation is itself creating new retail
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opportunities, as developers scramble to capture the attention and imaginaBon 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 communities, as developers work to re-create main street retail. This main street
retail tends to be focused on a myriad of eating/drinking choices, theatre (live or movie), boutique shopping,
and civic or park spaces. Examples include Prescott Arizona; Long Beach, California; Lower powntown
Denver, Colorado; the outdoor mall area at Flatiron Crossing in Broomfield, Colorado, and many others.
Interestingly, the American public is demanding a destina6on where they can have choice from a panoply
of restaurants/bars, interesting boutiques, entertainment venues, and small parks or plazas. These main-
street retail establishments generally find success when proximity provides ampie pedestrian traffic, and
when parking is generally convenient to the location. Theatre and concert venues function as the traffic
generator while restaurants and bars help extend the visits 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, tourist 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 experienced considerable change during this same period of retail transformation
on a national scale. With strong growth curbs in place in the late 1990's, lack of large development parceis
with economic scale, and aggressive incentives offered from neighboring communities, much of the
regional growth around Boulder was effectively channeled to Longmont and the
LouisvillelLafayettelBroomfield/Superior corridor. The growth not only resulted in tremendous residential
growth outside of the City of Boulder, it also spawned tremendous retail growth outside the City of Bouider.
With the Crossroads redevelopment effectively stalled, much of the retail momentum was allowed to shift to
Broomfield with the introduction of Flatiron 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
regional shopping and moved it out of the City. The economic impact of Flatiron Crossing will be lasting
and not one to fade as the "newness" of the development wears off. Instead, Flatiron Crossing will shape
retailing decisions within and adjacent to Boulder for many years to come.
Retailing 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 retaii, specialty and neighborhood convenience
(grocery, dry cleaners, liquor store, hardware store, restaurants, etc.) retaii. Nonetheless, because regional
growth shifts considerable shopper traffic into neighboring communities, future retailing within the City of
Boulder needs to be focused and weli-targeted in order to be successful. Both Pe8r1 Street Mall and The =.
Hill need to shift more toward main street retail entertainmenUeating/drinkinglboutique shopping in order ta
be successful. Favorably, main street retail are natural strengths of Boulder.
in short, the American public is asking for a development that has all of the components of The Hill, with a
moderately different tenant mix, parking availability, and public gathering spaces. While change creates
anxiety, it is clear that many potential patrons of The Hill are not finding reasons to spend much time--or
money~n The Hill. As a result, the majority of recent visitors to The Hil~ are from the CU community.
This change in shopping demographics has an obvious impact on retailers and retai~ing on The Hill, as
shopkeepers and restaurant owners shift their offerings to take advantage of the market available to them.
This trend gets further solidified as new retailers are reluctant to locate on The Hill 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 retail. The conditions that began alienating Hill residents thus get further
entrenched on The Hill, and make further diversity difficult to achieve.
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EXISTING BUSINESS CONDITIONS ON UNIVERSITY HILL
Business activity on The Hill, and as a result real estate ac6vity, is primarily driven by retail sales which
includes both general consumer goods sales and restaurant sales. This Hill Commercial District (referred
herein as UHGID for purposes of sales analysis) is first a shopping destination as well as an enteRainment
destination and lastly 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 major driver and
over the past 10 years, retail sales are generally trending upward, however, retail on The Hill as in all of
Boulder, is not immune from national consumer cyclical trends. SBiI recovering from a 6% retail sales
decline in 2001, The Hili has yet to reach its sales peak of 2000. By comparison, 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 con6nue to do so.
What does this mean? Any underlying fundamental problems in the UHGID retail makeup shook out with
2000's recession and 9111. Ultimately, The Hill's dynamism allowed it to corzect 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 national retailers who characterize Peari Street and who have suffered from finicky
consumer behavior that has seen more money spent at automobiles dealerships and discount retailers. 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.
Retaii Sales, 19942003
$32
$155
a
° $31 ----.. ., N
$150 0
~ $30 $145 ~
°- ~140
°-
~ $29
~ c
~
~ $135 ~
$28
- $130
$27
$125
$26 $120
$25
- $115
$24 $710
, , , ,
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Retail Trends
Retail Sales trends are broken down into several SIC-defined categories in order to comprehensively
present the different trends that are impacting The Hill's financial and aesthetic performance. Retail sales
are initially broken into two categories: Consumer Goods and Food & Drink. As the data demonstrates,
these two categories have functioned quite differently over time suggesting a competitive rather than a
comptimentary or synergistic relationship. Understanding this dynamic is critical to understanding 7he Hill
character and its changing face, as well as its future. Following this initial division of retail sales intc
consumer goods and food & drink, a further distinction is made between retailer sizes in each category. Ir
other words, the retail sales performance and business longevity is analyzed based on the big and smal
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retail players on The Hiil. This analysis allows us to delve deeper into retaii trends to explain things such as
where the biggest sales hits came from in 2001, what kind of retailers are leading the resurgence in sales,
and what retailer characteristics are likely to shape The Hill's character in the future.
Consumer Goods
The Consumer Goods category comprises non-
food/beverage related sales and includes businesses that UHGID Consumer Goods Retail Sales
„ sia -
sell items such as apparel, hardware, books, and drugs. ;
While this category has traditionally made up the bulk of ~$~~
retail sales on The Hill, it has seen a precipitous decline in
sales during the last 5 years. Indeed, in 2003 Consumer sis
Goods sales were down 12% from their peak in 1998.
During this 5 year time period, Boulder shoppers saw their sis -
shopping choices multiply with the development of the
Flatirons Crossing Mall, a proliferation of discount super $14
stores, and the advent of Internet shopping. Additionally, 1 1~~ 1 1 1 1 1 1
large national retailers evolved their shop formats over this
period 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 their customers will use to haul off their
shopping bounty. The typical Hill building from the 1920's has none of these characteristics except the high
foot tra~c 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
subrategones. These
subcategories define
businesses based on the
types of goods sold. (See
Appendix for detailed SIC
category definitions) The
largest sub-category is
"Miscellaneous Shopping
Goods Stores" This
confusingly named
subcategory is an eclectic
group that includes sporting
goods, bicycle shops, and
bookstores. While sales in
UHGID ConsumerGoods SIC•Defined Retail Subcategories
„ ss
o -Appa21 & Accessory Smres
~ $5
-Orug Stores and Propriefary
sroBS
~~ ~ -Grocery Stores
83 - -Miscallaneous Shopping
Goods Sbres
$2 -Refail Stores, NEC
~
~
~ ~
I $~ ~ - - -- _ - I -Shoe Sm2s
..J
i $Q ~Women's Clalhing Sbres ~
i 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 ~-- --~---- ---- I
this subcategory spiked in 1998, it has been in dectine since with the exception 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 increasing sales has been "Retail
Stores, NEC" or Retail Stores Not Elsewhere Classified. This subcategory includes the retail components of
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 12
drug stores and is a major component of convenience related retail sales on The Hill. In all, the Consumer
Goods retaiis sales on The Hill have been in decline for a prolonged time period. This trend cannot be
attributed to a sluggish national economy as sales began to decline significantly prior to the recession of
2000. Indeed, the trend is indicative of the change in shopping preferences of The Hill's patrons who
increasingly buy their consumer goods outside of the Ciiy.
Even Pearl Street, where the retail formats are less constrained by
historical building sizes, has suffered from this retailing trend.
Interestingly however, Peari 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 corzelated to
the late- nineties technology era boom and bust. Peari 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
Ciiy improvements and construction that impeded retailer access
that year. Otherwise, Pearl StreeYs consumer goods sales mirror
U.S. economic expansion and recession during this 10-year time period.
Food & Drink
Food 8 Drink retailers have been the driving force behind The Hill's growth
in overall retaii sales over the last 10 years. The Food & Drink category is
essentially restaurant sales that comprise both the food and beverage
(alcohoi and non-alcohol) sales in both fuli service and counter service
restaurants on The Hill. 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 existing 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. While the number of
UHGID ReWil Sales (1994-2003), SIC 1
Categories I
a $18
`o $17
s $16
$15
Sta -
$73
S~2 -
$i ~
a~o -
1994 1996 1998 2000 2002
-FOOd & ~rink -Consumer Goods
restaurants per capita across the U.S. has grown dramatically over the last
20 years as more families eat more of their meals outside the home, this trend is particutarly impactful in
Boulder as the major regional shopping venues have migrated outside the cily to peripheral locations.
As demonstrated by the fotlowing chart, the auer•age-number of
restaurants on The Hill in any given year has dramatically
increased 4~76% over the last 10 years to the point that the
majority of businesses on The Hill today are restaurants. On
the flip side, the aver-a~~number of consumer goods retailers
on The Hili in any given year has increased 19% over the last
10 vears in totat, but decreased by ~23% since the peak year
of ~1996. As tumover occurs on The Hili, restaurants are
taking the place of traditional goods retailers giving rise to the
complaint about the proliferation of fast foodisubshop
restaurants. In addition to real estate market share, it is critical
to underscore market share of consumer dollars. Not only are
restaurants taking up more physical space on The Hill, but they
Number of Retail Establishments Present
on The Hill in My Given Year
~ Food & Drink ~ Consumer Goods ~To~
------- - --- - - ----
~ o0
a
9~
I 80
~ ~o
60
'i 50
~ 40
30
' 20
~ ~o
Ross Consulting Group UHGID Business Plan
^~~d ^~~5 ^~~~o ~~~1 ^~~w ~~~~ ~000 ~oo~. ~oo`L ~Op~
$100
sss
ssa
$85
$ao
$75
$~o
CAGID Consumer Goods Retail Sales
~ ;~ ~ ~ ~ ~ s ~
~ W ~ 'l ~ ~ N N
are also receiving an increasing share of all consumer doilars spent on The Hill. Given the trajectory of Hill
restaurant sales, it is unlikely that this is a trend that will reverse itself anytime soon.
An important distinctio~ in the Food & Drink category, or restaurant category, is the different performance of
restaurants with liquor licenses as compared to those without. Restaurants that have liquor licenses have
total restaurant sales that are on average ~170% greater per restaurant per year than their non-licensed
counterparts. Additionaliy, as a category their sales have increased 20% since 2002 (the ~rst vear where
liquor licenses were verifiable) 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 turnover that are more volatile than liquor licensed restaurants.
For example, between 2002 and 2003 The Hill lost 7 non-licensed restaurants and also gained 9. No
licensed restaurants left The Hill in this time period while one was gained. In total, 2003 ended with 13
liquor licensed restaurants and ~9-32 non-licensed restaurants on The Hill.
Restaurant Sales, Liquor
License vs No Liquor License
S9,ooo
a
~
a
o $8~000
~
$7,000
$6,000
$5,000
2002 2003
t Reshurent (1Mtl~ Liquor Licanse) Sales
~•Res~urant (No Liquor) Sales
Retailer Sizes & Turnover
saoo g~oo
9 9 $~~
a $300
e
0 ~ $500
L
~ 0
L
~
p~/~
W"rvV
VZOO
$300
$100 $200
$700
~ ~
^
^
Average Annual Sales per
^ Reshau2nb (Wth Liquw License) Sales
~ ^ ReshaurenLa (NO Liquar) Sales I I
When analyzing retailer success and failure on The Hill in terms of both financial performance and
contribution to the overali Hill character, it is important to understand which businesses comprise the
contributors. One significant differentiating factor is retailer size. Because information is not available
regarding the exact square footage each retailer that has existed on The Hill in the past 10 years occupied,
RCG has analyzed retailer size in terms of sales volume and buiiding size. While building size is not a
perfect proxy for retailer size because there can be any number of retailers in one building, larger buildings
do generally allow for larger retailer spaces and more visible and spacious storefronts. Additionally, sales
volume does generaliy correspond to floor area. When analyzing retailers in terms of size, it becomes
apparent that economics encourage convenience-oriented retail in smaller spaces. The simple fact is that
non-convenience oriented retail has suffered in these spaces whereas the convenience retail is both nimble
and non-capital intensive, allowing retailers 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 Hill.
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 14
2002 2003
In terms of building size, tenants of larger buildings have on av a performed much better than tenants of
smaller buiidings giving them much less reason to vacate sp~ The median size of buildirgs that have
had increasing retail sales over the past 10 years is 90% large~ :n the median size of buildugs that have
experienced declining retail sales over the past 10 years.
RCG has termed "Large Retailers" those that have on avera ndividually comprised more than 3% of
sales on The Hill during the past 10 years. A sampling of tt large retailers in the Co~umer Goods
category include names such as The Colorado Bookstore, sley's, Jones Drug, and Art Hardware
whereas large Food & Drink retailers includes names such -he Sink, Tulagi, La Iguarra, 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
retailers on The Hill have suffered dramatically
declining sales (11 % over past 5 years) and as the
major drivers 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 Hill retail
sales. Again, their declining sales trend is
indicative of larger retailing trends around the
country. As large format national retailers have
moved decisively to locate themselves in the latest
retail format (suburban Power and LifeStyle
Centers), they have eschewed Hill-type space.
Shoppers have followed.
ss,ooo,oc
sa,oaa,ac
$~,aoo,oc
ss,ooo,a
Ss,ooo,a
On the other hand, the smaller consumer goods retailers ha
seen some meager sales improvements over the past 5 y
materially improve sales beyond 1997 levels. They have dc
staggering pace. For example, there were roughly 140 smai
the last 10 years and of those, 86 appear to have left
The Hill. This is a significant trend when compared
to the performance of smaller restaurants who have ss,ooo
seen much greater increases in overall sales during
the same period. This suggests that small consumer $e~0°°
goods retailers will be under increasing pressure $~ o~
from smatl convenience-oriented restaurants to take
their space once vacated. Iss,ooo
Indeed, smatl restaurants have seen a dramatic 99°/a I$s,ooc
increase in sales over the past 10 years. This Isa,ooo
compares to 5% sales growth in large restaurants in
the same time period (inclusive of a 17% dectine in $3,ooc
sales since 1999). What is happening here? Small
Ross Consulting Group UHGID Business Plan ~
GI6 Sales in "Consumer Goods" Refail Categorfes
~Large Rehailers ~SmaX Relailers
:apted themselves to some degree and
B%), although they have struggled to
; by cycling in and out of The Hill at a
s~mer goods retailers on The Hill during
UHGI~ Sales in Food 8 DriM Retail Category
'~ 1995 199fi 1997 1998 1999 2q00 2001 2002 2003
. <~ ~ ~ o a o a` a. o
.~• ,~;~ ~a• .~;~ .ti• .+a~ ~. .u• .y's.
=~targe Restaurants ~~Small Restaurents ~ '~
Page 15
restaurants are taking the place of existing small consumer goods retailers while large restaurants are
struggling to break out and capture evening eating and drinking traffic that has migrated to other areas of
town - notably Pearl Street which greatly expanded its capaciiy for eating with renovations to the mall in
1998.
Indeed, sales from the Food & Drink category on the Pearl
Street Mall has seen steady growth over the past 10 years
with the exception of just two years, 1998 and 2003. 1998
is likely 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 retailers, small restaurants
also cycle rapidly though The Hill. Both have a 3-5 year
business cycle. Of the 86 smail restaurants on The Hill in
the past 10 years, 48 have left. Of the 10 larger
restaurants on The Hill in the past 10 years, only 1 has left.
Summarv Retail Sales Findinqs
Overall, retail sales data on The Hill
paints a complex picture. With sales in
the past 3 years underperforming their
peak levels in 2000, increases in City
taxes have offset decreased revenue
and to some degree masked the true
shifts underway on The Hill. The major
shift in place is in the balance between
consumer good and restaurant sales.
As consumer goods sales are on the
CAGIO Food 8 Drink RMail Sales
a
S s~s
~
sss
$55 -
$45 - -
$35 -
~ ~ ~ ~ ~ ~ o ~ o 0
^ ~ ^ ~ ~ ^ N ~ N N
Total UHGID ReWil Sales
a $32
= $30
~
$28
szs
Sza
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
decline, food & drink sales are on the
march and close to becoming the major source of sales revenue on The Hill. Today, food & drink 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, retaii revenues on The Hill are much less diversified
than they have been historically and increasingly generated from a fewer number of businesses. Indeed,
70% of The Hiil sales revenue comes from 11 % of the tenants. This leaves the Ciry tax base at a higher
risk and property owners on The Hill with higher tenancy risk. It also means that there are non-perforrning
retail categories on The Hill and therefore buildings that could see higher more stabilized rent. In other
words, there are more than glimmers of reasons for reinvestment on The Hill.
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Page 16
O~ce Trends
The Hill is not currently a major office destination, and has relatively little office product for prospective
office tenants. What IitUe office space there is exists primarily in the North Gateway area. There are little
upstairs offices in some building in the 13~ Street core, but their impact on Hiil character is negligible.
indeed, businesses categorized by Service SIC codes have made up only 4% of all Sales on The Hill in the
past 10 years. Nonetheless, services comprised 7% of sales on The Hill in 2003 as compared to 2% of
total sales on The Hill in 1994. This shows a small but growing demand for office oriented space. The
major impediment to office space is parking, which is a difficulty not just for employees, but for customers
and visitors as well.
The growth in services on The Hill, however, is also somewhat significant given that the greater Boulder
office market has recently been experiencing its highest vacancy rates on record. This is largely a shock to
the Boulder office market that has long considered itself to be immune from regional office trends, thanks to
its 'special' Boulder location. 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
time period belies a market opportuniry to capture office users who simply want a Hili location no matter
what.
Residential Trends
The residentiai market on the Hill as in Boulder - both at one time considered impervious to regional trends
- have shown themselves to be vutnerable. Indeed, from staggeringly low vacancy rates between 1% and
3% throughout the 90's, the Boulder University area residential market is now at a 10% vacancy rate.
Increased supply from CU's Wiliiams Village and Bear Creek have proven that students wiil in fact
commute for lower prices and new building stock. Although a more proximate location than The Hiii is not
possible for CU students seeking off campus housing, the condition of the University Hill Commercial
District residences and rooming houses is largely one of functional obsolescence and noticeable leveis of
deferred maintenance.
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Page 17
ZONING ISSUES ON UNIVERSITY HILL
The current Hill Business District zoning is BMS-X. While this zoning accurately reflects The Hill's nature, it
does lack some of the zoning advantages established in Peari StreeYs RB1-X and fails to rewgnize
redevelopment potential on The Hill.
The descriptive definition of BMS-X district is "Business areas generally anchored around a main street that
are intended to serve the surrounding residential neighborhoods. It is anticipated that development will
occur in a pedestrian-oriented pattern, with buildings built up to the street; retaii uses on the first floor;
residential and office use above the first floor; and where complementary uses may be allowed."
The descriptive definition of R61-X district is "The regional business redeveloping area within the downtown
core that is in the process of changing to a higher intensity use where a wide range of office, retail and
public uses are permitted. This area has the greatest potential for new development and redevelopment
within the downtown core:'
These differing descriptive definitions of the iwo districts demonstrate the City's original intent that
redevelopment of The Hill be of a lesser intensiiy and purpose than that on Pearl Street. Where Pearl
StreeYs redevelopment district in intended to serve the larger City and regionai community, The Hill's
redevelopment district is much smaller in scale. The following discussion of the differing permitted uses
and schedule of bulk and density standards behveen the two districts highlights the redevelopment
advantages established in the R61-X zone that do not exist in the BMS-X zone.
In terms of permitted uses, the major advantage of the RB1-X zoning hinges upon retailing. In RB1-X,
"department, major comparison goods, fumiture store, or supermarket" as well as "drive-in" uses are
explicitly allowed while they are a use permitted by review under BMS-X. Additionally, "vocational schools,
adult education facilities, private schools and universities" are only permitted above the ground floor in
BMS-X while they are allowed on any floor in RB1-X Also in terms of use, efficiency living units, when less
than 20% of the total number of dwelling units in a development, are only permitted above the ground floor
in BMS-X while they are allowed on any floor in R81-X.
The BMS-X zone district does have a use advantage over R61-X in that "boarding or rooming houses,
fraternities and sororities, and dormitories" are permitted uses above the ground floor in BMS-X and
prohibited uses in R61-X.
When considering 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 requires 15% minimum
usable open space per lot and a minimum of 60 sq.ft. of minimum private open space per dwelling unit
whereas R61-X requires neither.
Importantly, within the BMS-X zoning there is a maximum building size of 15,000 sq.ft. (which can be
exceeded through special review) while there are no maximum building size restrictions within R81-X.
And, RB1-X has Review Criteria that allows certain buildings within its district to exceed the 35-foot height
limitation imposed on the R81-X district, whereas BMS-X will aflow for buildings to exceed the its 38 foot
height limitation under special review, but does not have published review criteria. RB1-X also is allowed
Ross Consulting Group UHGID Business Plan Final Draft 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. Additionally, the BMS-X has more restrictions on yard size and setbacks than R61-X.
It is RCG's conclusion that limiting retail uses, requiring parking ratios, and limiting building sizes on The
Hifl wifi hinder future Hill redevelopment and that fast service convenience retail will continue to be the retail
of choice.
Ultimately, there is considerable density on The Hill that is not being utilized regardless of BMS-X zoning.
The average FAR on The Hiil is 1.1 whereas the maximum allowed under BMS-X is 1.85. This means that
there could theoreticaily be another 470,000 square feet of 6uilding space housed on The Hil( which would
almost double the amount of building space currently there-far higher density than would likely be optimal.
UHGID 254,490 270,016 470,807 ~200,791 366,382 +96,366
FAR Today (exciades
UHGID pa~Ning Lot Land) 1.1 1_85 Max fAR 7.44 FAR
Doubling the building square footage on The Hill is not the outcome that any Hill stakeholders desire.
However, there are major advantages to some additional space, reconfigured space and some generally
larger buildings on The Hill. Current building size contributes to higher probabiliry of continued consumer
goods sales decline as these retailers seek modem formats and convenience related retailers and
restaurants take their abandoned space. The height limitation without special review of 38 feet makes
redevelopment difficult because retail ceiling heights are higher than office or residential and to meet this
requirement would essentially take 3 story buildings down to 2. The other choice is for 3 short stories,
which is undesirable. Moreover, current zoning does not recognize the different needs within The Hili and it
encourages the redevelopment of shorter buildings into denser buildings.
Importantly, Boulder Planning and Development Services feels that the actual zone is not as important as
the character the District wants to achieve. As such, they are willing to consider changes to the appropriate
zone from their "menu" of zones once urban design analysis and planning evaluations have been
completed.
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Page 19
OPPORTUNITIES & CONSTRAINTS ON UNIVERSITY HILL
Opportunities and constraints on The Hill are many. Uitimately, the opportunity lies in leveraging The Hill's
unique Boulder location, market demographics, City initiative, and historic character to inject a new vitality
onto The Hill that will catalyze private re-investment in core properties. Constraints on The Hill can be
characterized as both macroeconomic and political. in other words, change on Hill will 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 Hill is particularly important because of the challenge 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 Hili's future.
Proximitv to Unive~siri of Colorado
The Hill's proximity to the University of Colorado is perhaps its greatest opportunity and certainly its most
defining characteristic. The daily infusion of 30,0~0 students on Hill represents a retailing dream for most
merchants. The Hill's proximity to the school gives it a unique place of importance in the hearts and minds
of both curtent students and afumni. Because of this shared identity, over fime The Hill's location wiil not
lose value even if its uses and structures deteriorate. This limits the downside risk to any would-be Hill
investor.
Proximitv to Universitv Hill Residenfial Area
Because of the dynamic nature of the residentiai neighborhood that surrounds The Hill Commercial District,
Hill retailers have some opportunity to serve various segments of the population beyond the CU student
population. The residential neighborhood is comprised of bokh Boulder residents and a sizable yet
churning CU student population that lives in the area immediately surrounding The Hili. The Hill Boulder
residents are some of the weaithiest 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 reai. 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 la~ger than that of non-student residents. Hill non-student
residents number approximately 5,600 compared to 30,000 strong CU population that considers the Hill the
center of off-campus social life. This means that the CU student populations will continue to define the
typical Hiil shopper profile.
Parkina Suuulv & Demand
Hill parking supply and demand present both opportunities and constraints to The Hill's future commercial
success and district character. Currently, parking along the 13~ Street corridor is tight and well used,
making it difficult for shoppers to simply "drop in" on their favorite Hill stores. It is 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 othenvise there today. However, UHGIDICITY OF BOULDER parking does exist at both
ends of The Hill and these parking lots are decisively underutilized. The great problem with the UHGID/City
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 viewed as being too peripheral to The Hill to provide easy and convenient access to
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 20
the shops. As such, parking perception is currently a liability on The Hilf and it unequivocally constrains
building and business investment. With that said, the ability to cure parking problems on The Hill (whether
they be real or perceptuai) also presents a tremendous opportunity. Effective parking will open The Hill up
to new uses and new customers. As the parking provider on The Hill with control of 2 lots and operational
control of a third, UHGID/City of Boulder has the opportunity to create and commit to fonvard thinking
parking solutions. UHGIDICity of Boulder has declared a willingness to use these lots as a tool to
encourage and shape future development that upholds the community vision and fulfills the Hill's potential.
It is also important to note that successful new development on the Hiil will, in and of itself, create parking
demand on the Hill beyond that of today's demand level further necessitating innovative parking solutions.
In considering parking consolidation and expansion, it is quite feasible that a well-located parking structure
would provide additional parking options for University-related activities. Because this traffic helps
generate parking revenue to cover construction and financing of the garage, and because the traffic
(appropriately channeled) will help sustain new and existing retail stores, RCG is not concemed about
potential overlap.
Residential Supplv & Demand
Proximity to the university and city center as weli as retail appeal will always attract a certain younger
demographic to a residential use on The Hili. Indeed, this demographic wili be more willing than others to
overlook a lack of parking, deteriorating building conditions, and nighUife noise. However, the Hill is not
impervious to the market forces and is constrained by the regional residential supply. Again, supply of
student housing has been dramatically increased in recent years and students are showing a greater
willingness to ~ive outside the city's boundaries for cheaper larger living spaces. Therefore residential
space on The Hill will have to upgrade to compete.
Yet, a significant residential opportunity 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 almost every
other location in the City, student residen6al use on The Hill will always bnng higher rents and higher
occupancy than comparable product in the City or region. Any future Hill redeveloper can successfuily
build product for this student market. However, there are other markets - notably facultylstaff and senior
alumni housing. Both markets are underserved and essentially untapped. These markets would flourish
on The Hill as well as bring an incremental dose of maturity and spending power to The Hill. While neither
market could be served today in the current stock of Hiil building, they would play a profitable and primary
role in any larger scale assemblage redevelopment scenario.
Office Supplv & Demand
While the constraints faced by would-be office occupiers on The Hill are numerous today, the appeal of The
Hill as an eventual office location is strong. The constraints today are simply 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 oi
energy, knowledge, employees, and potential customers.
Nonetheless, offce use on The Hill will not be immune from larger regional office market forces. Recently,
the Boulder office market has seen a significant increase in office competition (or supply) from surrounding
cities. Intertocken alone in Broomfield has added more than 1,000,000 square feet of multi-tenant o~ce
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Page 21
space to the regiorl since 1998, with considerably more single-tenant space that has begun to influence the
multi-tenant market as those corporate occupiers (Sun, Level 3, and others) have downsized. When
factoring in other growing cities such as Superior, Westminster and Longmont, it is fair to say that the
Boulder office market, which has little land left on which to grow, is facing serious competition. Boulder
office vacancy rates are currently at their highest historic levels hovering around 20%. Moreover, as new
growth is more effectively located on the 36 Corridor to serve both the Denver and Boulder markets, those
new buildings 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 specificaily 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 corridor. Office users that can
uniquely access and benefit from Boulder attributes wiil continue to thrive and do business in the City of
Boulder.
Retail Supplv 8 Demand
As has already been discussed, retail on The Hill is severely constrained by the current sizes and
configurations of existing buildings on The Hill. New retail formats have taller ceiling heights, larger floor
areas and greater storefront visibility. Moreover, peripheral parking keeps would-be shoppers from
exploring The Hill. These constraints added to the larger national trends toward discount big box one-stop
shopping combine to make it difficult for Hili retailers to compete with large national retailers. Nonetheless,
certain consumer goods, designer goods sold in a boutique, or convenience goods have a potentially
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 retail is strong but necessitates change. It is a matter of reconfiguring space to
meet retailer objectives. In other words, build it and they wiil come. in the case of The Hill, however, "iY'
needs to be more than one stand-alone retail outlet: The Hill needs to create a ctuster of shops that will
begin to shift shopping expectations and surrounding retail charecteristics.
Without change, The Hill will continue to house many smali convenience and student oriented uses with a
limited number of larger restaurants - but no more larger restaurants will appear without larger retail
spaces and liquor licenses. Today, The Hill serves as a retail business incubator to the smaller shops due
to its relatively inexpensive rents and access to the CU student population. It should be noted that the
political forces that wouid limit the number of liquor licenses on The Hill conspire to shape the character of
restaurants on The Hiii toward convenience oriented student restaurants - or the proverbial "sub shops".
Indeed, the political forces that blame bar activity for what is primarily underage house party activity in the
neighboring residential areas, pose a significant constraint to entrepreneurial restaurateurs eager to try
their hand at a Hill venture and bring a sit-down restaurant that can appeal to a larger population than just
students.
Historic Buildinq Stock
A historic 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 buitding owners from renovating their functionatly obsolete
building to a higher use. In most cases on The Hill, the most architecturally significant and potentially
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historic buildings exist along the 13~^ Street corridor. Preservation of The Hill's core could be economically
beneficial to building owners if they have the opportunity to sell their untapped development rights-which,
if used, would effectively destroy the historic character of their buildings. Historic tax credits and grants
could also provide some incentive to renovate rather than replace deteriora6ng buildings. This is a strong
opportunity to use Ciry tools to preserve the district core and allow core owners to transfer existing
development rights to non-core owners. Doing so could provide significant impetus to non-core peripheral
building owners to reinvest in their properties.
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SIGNIFICANT ROADBLOCKS TO CHANGING THE HILL STATUS QUO
Despite considerable opportunities on The Hi~l, there are some major roadblocks that lie in front of
significant investment being made on The Hill. These roadblocks must be understood in order to foster
change.
Absentee Ownershia/ Fraamented Ownershiu
Importantly, large blocks pf The Hill are characterized by absentee or fragmented ownership. Many of
these owners have held The Hill land and buildings in their family for years and are not currently burdened
with debt. in other words, many of the buildings are investment 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 building improvements rather ihan the owners because ihe location is so
desirable and rents are not prohibitive. The fragmented nature of the ownership also makes assemblage
on The Hill particulariy difficult for a developer who would have to either persuade multiple owners to
participate in redevelopment or persuade these owners to sell their profitabie buildings.
Manaqemenf of Exisfinq Businesses/Existinp Leases
Another roadblock to the success of redevelopment on The Hill is the management currently in place at
existing businesses. These are, for the most part, successful businesses and managers who will applaud a
change on The Hill, but will also have serious quaims about redevelopment and disruption of "business as
usual" at the buildings in which their businesses are housed. Indeed, abandonment of an operating
business for up to a year of construction wiil speil 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
Hill. This means that building owners looking to redevelop their properties will have to wait for expiration of
lease terms currenUy in place before they can reinvest in their properties. Moreover, it is unlikely that multi-
tenant buiidings 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 Political Climate/Aoproval Process/Zoning
The Boulder approval process for development projects is perceived to be one that has considerable
friction and holds considerable risk for any would-be developer. While this process has changed
considerably of late, perceptions will 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 charm (as well as property values), developers looking to enter the process face uncertainty
that keeps them from projects that they might otherwise be engaged. In other words, the perception of time
and dollars required to navigate the city approval process and design guidelines as well as the risk of
rejection make the anticipated cost of development in Boulder greater than the cost of simpty the
developmenYs bricks and mortar. This means that it is not simply any developer who can participate in The
Hill redevelopment. Likely developers will 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
complete purchases and weather the approval process; developers who have a better sense of current
challenges and processes of actually developing within the City of Bouider; or a combination of the above.
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Proneriv Owner Economic Disincentive to Rei
Perhaps the greatest roadblock to redevelopment and I -eason that more buildings have not been
renovated already is the fact that for most property ow „: not economically prudent or profitable to
reinvest or redevelop their buildings today. jepth financial analysis of building
renovationlredevelopment options follows in the sectic _mics of Business Plan Implementation'.)
Essentially, the current income produced by the build~ sater over time than that which could be
produced over the same time period by renovating the ~, disrupting cash flow, expending cash for
construction and then raising rents. Once the risks invc • renovation/redevelopment is factored into
cash flow, the economics of redevelopment are even le~ ale.
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BUSINESS PLAN
To be sure, the goal of a broader, more diverse retailer and consumer community will not be achieved
without changes to existing conditions on The Hill. These changes include a combinaNon of large and
small steps that will help remove roadblocks to area revitalization, and help The Hiil to be a successful
mixed-use, main-street retail area. ~^~^'^~~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 pianning and architecture
components, some of the massing and density issues as we~l as civic components on The Hill necessarily
require further study. Accordingly, the recommendations inciuded herein are intended to be directional
rather than literal, and will require further consideration and public discourse prior to implementation in
order to determine the appropriate architectural and planning solutions for The Hill and its environs.
Lastly, the areas of consideration in this business plan are each parts of a toolkit: 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 ability to influence successful change on The Hill, and should therefore be further vetted in
order to determine appropriateness in land planning, architecture, and assemblage discussions going
forward. By embracing some combination of the following "tools", RCG projects that The Hiil will see
considerable evolution toward The Hill's goal. The velociiy of change within that evolution will vary
considerably according to the tools implemented.
A. Embrace multiple uses on The Hill throuqh redevelooment
a. The Hill exists as a retail, residential, and business center. While residential and business
uses are more peripheral to The Hill Commercial District, 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 include faculty,
administration, alumni, and the general population. The area holds tremendous appeal on a
24houd7-day-per-week basis. Because of proximity to CU, this area has distinct possibitities
to incorporate high-densiiy residential use.
c. Office uses, while not often generating the pedestrian traffic associated with retail stores,
provide sustainability and consistency in neighborhood planning. Where absentee property
owners may grow complacent with their investment and try to avoid re-investment, office users
will help force broader upgrade of properties. This will be encouraged through higher rents
and/or office condominium sales that provide property owners with higher retum profiles than
boarding rooms.
B. Introduction of public space
a. Public space is desired in order to provide a civic focat point on The Hill. When properly
executed, this will provide a multiple space purpose that changes during from day to evening,
and from winter to summer. It wili leverage off of existing convenience eating establishments
for lunches and snacks-providing seating and community gathering. RCG recommends
engaging the services of a land planner to begin visualizing the nature of the public space,
whether it is characterized by landscaping or hardscaping ("green" or "hard"), and which
attributes should be incorporated into the final plan:
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i. Students/facultyladministrators for lunch
ii. Hill neighborhood residents during aftemoons/evenings
iii. Special events on evenings or weekends
iv. Small playground for attracting more diverse population to The Hill-people that are
disinclined to ftequent The Hill now-both the elderly and those with small children.
v. Meeting place after worWafter theatre, so existing or potential retaii patrons can gather
without loitering insideloutside specific businesses.
b. Public space can help organize overall district layout, where today it is more characterized by
haphazard planning that evolved over decades.
c. Funding for p~blic space will need to be researched. Possibilities for funding include a UHGID
special assessment; Boulder Open Space; private donation; and other publidprivate sources.
C. Imolement oart-time ciosure of 13th Street
a. RCG recommends against permanent ciosure of 13~ Street. While permanent closure could
provide the civic or public space previously mentioned, but it is not without risk: across the
country, main street retail has been proven to function considerably better with restricted
automobile traffic flow rather than no auto traffic flow. While on-street parking need not be
significant, providing potential patrons the opportunity to drive through the district prior to
making the investment (both time and money) to park can be crucial to the area's success.
Because patronage is skewed toward the CU community 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 couid result in
narrowing rather than broadening the area's appeal.
b. RCG recommends consideration of partial closure of 13~ Street. While this altemative would
not allow for permanent public spaces to be erected in 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 encourage more pedestrian activities
without sacrificing retail viability during the week. While routine street closure would
dramatically complicate on-street parking logistics and enforcement, the result could appease
both advocates and critics of sheet closure. ~thout a centralized parking solution, however,
RCG is concerned that partial closure of 13~ street would force prime parking into the
neighborhood during the dinner and entertainment hours-thus increasing tension with the
neighborhood as eating and drinking establishments close in the early moming. Plans for
partial street closure needs to be particularly sensitive to consequences of shifting parking
allocation in order to divert early moming pedestrian and vehicular traffic away from
surrounding neighborhoods.
D. Provide centralized parkina solution. The parking alternatives in place, two City-owned metered lots
and one CU-owned metered lot (operated by the City), do not provide convenient parking to The
Hilt. Further, patrons utilizing those metered lots seldom carry sufficient change in order to stay
parked for more than a sho~t visit to a store or restaurant. Proper parking tariffs will need to be well
conceptualized in order to encourage parking availability for retail patrons throughout the day.
Centralization of area parking to one visible and accessible parking structure would provide
numerous advantages;
a. Remove reliance upon change or parking key in order to visit The Hill.
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b. Remove burden from shopkeepers for having to make change for meters.
c. Impose ability to direct traffic to certain locations-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 retail and business opportunities proximate to the traffic
corridors.
d. Aliow parking garage to be used for multiple events, at various times during the day. The area
could function as overflaw or convenience parking for CU students and administration during
semester classes, as special-event parking during 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. Parfiering within context of larger development could enable project to be constructed, where
it may otherwise fail under cost burden of structured parking.
E. Exolore Desianation of 13m Street Core Area as Historic District
a. Provide recognition for district that everyone already values for its historic conhibution to the
Ciry of Boulder
b. Provide better access to rehabilitation funding for owners of contributing historic buiidings
through National Trust for Historic Preservation, State of Colorado, and Ciiy of Boulder.
c. Provide access to rehabilitation funding for owners of non-contributing buildings within historic
district, which would otherwise not have access to rehabilitation funding
F. Institute Microzones on The Hill to recoanize and encouraae different area characters. Higher density
areas should be studied by architectural firtn in order to detertnine appropriate limits.
a. 13"~ Street remains largely as historic district, with strict governance on what can be built in the
area.
b. Broadway District, from Cotlege to Pennsylvania becomes zoned for higher density uses, with
higher height limits. This area becomes residential or office on upper floors, with retail on
grqund floor.
c. North Gateway, from Universiiy Avenue south to Pieasant Street, becomes zoned for
moderately higher uses, possibly with higher heights or stepped height limits. Area becomes
residential/office 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 fratemity/sorority
housing. While this parcel has tremendous residential potential, it has some of the best office
potential in the Hili District. Uses would want to be su~ciently fungible to accommodate needs
of market beiween residential and office. This parcel could be come the iconographic gateway
to The Hill on the north entrance.
d. South Gateway, 1350-1370 College and including the UHGID/City of Boulder-owned parking
lot immediately south, becomes zoned for moderately higher uses, possibly with higher heights
or stepped height limits. Residentiai on upper floors, with retail on College frontage. This
parcel should become the iconographic gateway to The Hill on the SouthlEast entrance.
G. Institute Transferable Development Riqhts (TDRs) 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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b. Provides economic encouragement for property
retain rather than redevelop those properties, b
rights over and above existing density of their site
c. Allows developers to achieve better economic
allows redevelopment where otherwise redevelo;
economic retums) through increasing density o~
could encourage increased zoning to areas wher
or South Gateways) and away from 13~ Street.
d. Use of TDR's bears more discussion to further ~
land values and properfy owner expectations.
Encouraqe laraer land assemblaqes to inviqorate develor
in the area.
a. By their very nature, larger land assemblages
different development concepts to The Hili. WhE
those previously identified, these assemblages
amount of new uses to the area, create extem~
b.
c.
Hill, and fundamentally alter the retail, office, anc
over the last decade. New retailers, new office
bring people to visit the new developments, but
help existing retailers (and retail locations) draw
visiting The Hill.
As UHGID has already leamed, one new tenant
or excitement. A single tenant may also encountE
different or broader markets than may already
again by their size, provide a proven method of
sub-markets within an existing retail area.
The City can consider working in a joint-ventur
utilize land area beneath new development as
Through leveraging even one central assemblag
expand its three lots into a location that bette~
driving by The Hill, lessens impacts to surroundi
by new and existing retail spaces-thus stimulati
ers of historically significant properties to
'owing those owners to sell development
- redevelopment (or more appropriately,
~t would not occur because of insufficient
~at otherwise allowed under zoning. City
night be more welcome (Broadway, North
~rstand potential consequences regarding
~t and act as a siqnificant apent of chanae
ability to more broadly introduce new or
olied to peripheral/gateway locations like
the opportunity to introduce a significant
:;tement about change occurring on The
~ential dynamics that have been spiraling
^ts, and new residents will not only help
vill generate haffic and demand that will
~mers that have fallen out of the habit of
`ie Hill is unlikely to generate much buzz
~~culty introducing concepts that appeal to
~eroed. The assemblage opportunities,
adening market demand by creating new
~acity with an assemblage developer to
tralized and expanded parking solution.
-GID/City of Boulder wuld centralize and
es The Hill, is more visibie to vehicles
:iyhborhoods, and helps channel parkers
~mand for retail 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 Hill where it is not currently viable today. Today, the financial impact of
reinvestment into performing buildings is negative for most Hill bui~ding owners because of the strength of
their current cash flow and the restrictions that would keep them from making significant size renovations to
the existing buildings and thereby constraints incremental rent growth. However, when transferabie
development rights are allowed and larger parcels are assembled, redevelopment on The Hill becomes
economically feasible. To demonstrate these Hill economics, RCG has built financial pro forma models that
analyze multiple redevelopment scenarios and then compare the outcomes to those of status quo
scenarios. These models illustrate the financial incentives and disincentives facing Hill developers. This is
done in order to paint a picture of likely and unlikely Hill redevelopment.
Economics of Building Renovation Today
Current building owners have two primary options for reinvestment into their properties today. These
options are buiiding renovation or building reconstruction. Under a renovation scenario, the buiiding owner
would simply upgrade the buildings intemal configuration and finishes. A reconstruction scenario would
see a building demolished and rebuilt to a maximum size allowed under current zoning. Compared to a
status quo scenario where no reinvestment is made, neither reinvestment scenario is financially rewarding
to the building owner today. The following financial pro formas iilustrate the economics for the average Hill
building owner of a renovation scenario compared to a status quo scenario in which the building remains
unchanged.
This status quo scenario uses various assumptions that are conservative in nature and attempt to present a
proxy for the general conditions on The Hill. Necessarily, these assumptions will not hold tNe for each
individual building on The Hill, however, they will represent the average building. The average building size
on The Hill is 8,437 square feet. RCG's model examines the status quo scenano using an 8,500 square
foot building that is 95% rentable. For purposes of analysis, this building owner collects $35 in rent per
rentable square foot annually. The important distinction 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'Tripie Net
Lease' rent (or 'NNN') which means that a tenant wiil pay building expenses such as utilities and trash
expenses in addition to this NNN rent. In other words, the NNN rent is the net rent received by the building
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 building owners on The Hill have owned their buildings for many
years, it is assumed for the purposes of this analysis that the status quo building does not bear a debt
burden. The 10% Discount Rate and Residual Value Cap Rate reflect both the yieid expectaGons 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 resulting status quo cash flow over a 10-year period assuming a building sale in year 10 follows:
STATUS QUO SCENARIO Average Hill
10% Residual Value Cap Rate
$35.00 Rent NNN Estimate
1°/, Annual Rent Inflation
8,500 95% 8,075
The cumulative total cash value of the status quo scenario over a 10-year period is $6.0 million. The Net
Present Value of this cash flow over the same period is $3.2 million and the cash flow is positive ftom day
one. These are the benchmarks by which the average Hill building owner must compare the projected
cash flow from any reinvestment scenario to determine if change is worth pursuing.
The foliowing financial assumptions were made about a renovation reinvestment scenario in order to create
its projected cash flow:
3uilding Owner Reinvestment Scenario- RENOVATION ofAverage Hill Building
~ . . . .
3cisting Size . New Uses
Existina New Bldq Bldq Uses RBA
81da SF SF °/a RBA RBA Retail 100% 8,075
8,500 8,500 95% 8,075 Total 100% 8.075
Proiect Tlmeline Buildinn Constuctlon Costs Revenua Flnancinn
1-Jan-05 Slart Date $0.00 Demolition per bldg sf $40.00 Retail Rent psf (NNN) 7.00% ConsWCtion Loan Interest Only Rate
1 Demolition (months) $80.00 Building Hard Cost psf 9.00% Residual Value Cap Rate 80.O~o Loan-to-Cost Ratio
6 Construction (months) 20~o Soft Cost 60.00% % Pre•Leased 7.00% Permanent Loan Interest Rate
5 A6sorption (months) $96.00 Total Cost psf 5.00% Stahilaed Vacancy 25 Perm Loan AmoRizadon Term (years)
$B16,000 Total Cost (w/o inAation) 2.OO~o Mnual Income Infladon
$10.00 Operatlng Exp. psf (on vapnt s~ 15% Discount Rate tlll 1 Year Stabiliution
2.OOqo Annual Eupense Infla6on 10% Discount Rate @ t Year Stabilization
The most important assumptions are that renovation begins in January 2005, the total rentable area in the
building remains the same after renovation, rent after renovation increase to $40 NNN and grows annually
at 2%, and that renovation takes 7 months to complete. During the 7 months of construction, there is no
income produced from the building. Additionally, the cost to renovate the building is $80 per square foot.
This cost estimate would allow for an entire gutting of interior space and some restoration to the fa~ade.
After construction, 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 to
finance this reinvestment.
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Like the status quo scenario, the building is sold in year 10. The Residual Cap Rate, which determines
sale price, is lower in the renovation scenario than in the status quo scenario to reflect the improved
building condition and lower deferred maintenance risk for any future buyer. The renovation scenario also
has a higher discount rate for the years prior to the renovated building's stabilization. This higher rate
reflects the higher risk of both an increased equity position in the building and general uncertainty in
construction cost and resulting income. The resulting renova6on scenario cash flow follows:
. . ,.
Pre-Renovatlon Revenue
$282,825
$0
$0
S~ ~ , ~~ ,
$0 ~ $0 $0
$0
$0 ~
$0 ~~~.
$282,625
Constuction Cost - Equity Required $0 ($166,464) $0 $0 $0 $0 $0 $0 $0 $0 ($166,464)
Retail Rent $0 $104,329 $336,049 $342,770 $349,626 $356,618 $363,750 $371,025 $378,446 $386,015 $2,988,629
Residential-Apt Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Ofice Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
StabilizedVacancyExpense $0 $0 ($16,802) ($17,139) ($17,481) ($17,831) ($18,188) ($18,551) ($18,922) ($19,301) ($144,215)
Opera6ngExpense $0 ($8,075) ($4,201) ($4,2&5) (34,370) ($4,458) ($4,547) ($4,638) ($4,731) ($4,825) ($44,129)
Operating Net Income $282,625 ($70270) $315,046 $321,347 $327,774 $334,329 $341,016 $347,836 $354,793 $361,889 $2,916,446
Residendal~Condo Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Office-Condo Sales $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Principle Paydown $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Residual Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $4,020,9&9 $4,020,989
PrincipalOuGStanding $0 $0 $0 $0 $0 $0 $0 $0 $0 ($552,415) ($552,415)
Sale Net Income $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,468,573 $3,468,573
ConsWCtion Loan Interesf $0 ($11,329) $0 $0 $0 $0 $0 $0 $0 $0 ($11,329)
PermanentLoanlnterest $0 ($19,372) ($45,982) ($45,219) ($44,400) ($43,522) ($42,581) ($41,572) ($40,489) ($39,329) ($362,466)
PermanentLoan PrinciplePmt $0 ($4,188) ($10,561j ($11,325) ($12,143) ($13,021) ($13,962) ($14,972) ($16,054) ($17,215) ($113,441)
ota e t ervice 4, 3 6
Cash ow r ebl ervice ,6 ( 1 8, ,8 1,231 2,786 4,4 3 91,2 3 298,250 ,919 5,897,
Renovation Cumulffiiva Cash Value $5,897,184 -2% $6,047,911 SfaWs ~uo Cumuladve Cash
Renwation Net Present Value $2,904,058 •12% $3,294,085 Status Quo NPV
Variance 6tt StaWS ~uo 8 Renavation
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 scenario
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 building
has to plan to make a significant ($250k+) cash investment into the building.
This financial analysis forecast is based on assumptions g25 S3o $32.5 S35 $37.5
that will likely change. Therefore, it is important to consider $25 -25% -s% e% 15% 2s^io
variations of these assumptions. For example, a building
owner considering reinvestment might wonder what the
cash flow variance between scenarios would be if a
different rent is achieved after renovation than the one used
by RCG. Additionally, tne status quo rent for a particular
building owner may be lower than the $35 per s.f. that was
used in the analysis. The attached sensitivity table
demonstrates such an assumption variation. The table
demonstrates the effect on the Cumulative Cash Variance
between the scenarios. Importantly, it is not the status quo
Ross Consulting Group UHGID Business Plan
$2T -31% -12% -3% 6% 16% 25%
$28 -33% -15% $% 3% 12% 21%
$29 -35% -18% -9% -1% S% 17°/a
$30 37% -20% -12% ~% 5% 13%
$31 -39% -23% -15% -7% 1% 9%
$32 -41% -25% -17% -9% -2% 6%
$34 -44% -29% -22% -14% -7% 0%
$35 -45% 31% -24% -17% -10% -2%
Status ~ Cumulative Cash
Quo Rent
Final Draft Business Plan
Page 32
rent that is the determining factor in the analysis, but instead the increment beriveen the status quo rent
and the renovation rent. As can be seen, a$5 increment or less between the status quo rent and the rent
after renovation will resuit in less cumulative cash in the renovation scenario than in the status quo.
Further, because renovations are likely to last longer than the 7 months indicated (either through phased
lease expirations, unexpected conditions encountered on renovatlng old buildings, or delays due to permits
or building department inspections), actual economic performance is likely to be worse than projected.
The potential benefit of utilizing historic renovation tax credits was not taken into account for the following
reasons: historic renovation will require the property owner to expend monies for preservation that would
otherwise not be spent. While the historic tax credits will help the property owner recapture some of those
monies (approximately 20% of every doliar spent on the renovation), the additional expenditure and
additional time spent in pursing a historically accurate restoration, will effectively offset savings achieved
through the tax credit.
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Economics of Building Reconstruction Today
This average Hiil building owner might be incfined to consider more than just renovation of their building.
Under current zoning, a Hill property owner could tear down and reconstruct their building in order to
maximize density allowed under current zoning to achieve a greater size, add additional uses, and
modemize the retail space. As with the renovation scenario, the owner will have to judge the financial
outcome of reconstruction against the status quo scenario under which no changes are made to the
building. The owner's status quo scenario remains the same as with the renova6on comparison with a$6.0
million cash value and a$3.2 miilion net present value. The following financial assumptions are made
about the reconstruction scenario:
uilding Owner ReinvesUnent Scenario • RECONSTRUCTION of Average Hill Buildin
. . . . .
3rcel Size - Existina and New New Uses
6cistina Bidq Max Bldq New Bld~c
Size Land SF Size % RBA RBA Uses RBA
8,500 7,727 14,295 95% 13,581 Retail 50% 6,790
Resid-Condo 50% 6,790
Total 100% 13,58'
Proieet Timaline Buildina Constuction Costs Revanue Flnancina
1-Jan-0S Start Oate $10.00 Demolition per bidg sf 540.00 Retail Rent pst (NNN) 7.00% Construction Loan Interest Only Rate
1 Demolition (months) $110.00 Building Hard Cost psf $300.00 Residential-Condo Price psf 80.0% Loan-to-Cost Ratio
72 Construction (months) 20% Soft Cast 9.00% Residual Value Cap Rate 7.00°h Pertnanent Loan Interest Rate
5 Absorptbn (months) $132.00 Total Cost psf 60.00% %Pre-Leased 25 Pertnanent Loan Amortiza0on Term (years)
$1,972,000 Total Cosl (w/o inflation) 5.00% Shabilized Vacancy 125.0% °h Loan pst Paydovm (~ Condo Sales
$10.00 Opereting Exp. psf (on vacant s~ 2.00% Mnual Income Inflation
2.00% Annual Expense Inflatlon 15% Discount Rate till 1 Year Stabiiization
10Ma Discount Rate (a~ 7 Year Shabilfiation
One of the more important assumptions to call out is the new buiiding size. Under current zoning, buildings
are allowed have up to a 1.85 Floor to Area ratio (FAR). By assuming that the average Hiil's buildings 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 buiiding 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 original 8,500 square foot building. This additionai space allows
for a residential condominium use on the upper floors to be added to the building. By adding this use, the
building owner will be able to sell the units to finance construction. Like the renovation scenario, the retail
rents will increase by $5 NNN per square foot annually. The residential condos will sell for $300 per square
foot. The time required for both demolition and construction will also increase to 13 months.
The resulting reconstruction scenario cash flow follows:
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 34
. . ..
~
~
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Pre Reconstuction Cash Flow $282,625 $0 50 SO $0 $0 $0 50 $0 $0 $282,625
ConsVUCfionCost-EquityRequired $0 ($402,930) $0 $0 50 $0 $0 $0 $0 $0 ($402,930)
Retail Rent $0 SO $230,779 $288,239 $294,003 5299,883 $305,881 $311,999 5318,239 $324,603 $2,313,626
Residential-Apt Rent $0 50 $0 $0 $0 $0 EO SO EO $0 $0
Office Rent $0 EO SO SO bo So SO EO So So $0
S1a6ilizedVacancyExpense $0 $0 (57,065) (yt4,412) ($14,700) ($14,994) ($15,294) ($15,600) ($75,912) ($16,230) ($114,207)
Operahng Fxpense $0 $0 (517,113) ($7,206) ($7,350) (57,491) (57,64'~ (57.800) ($7,95fi) ($8,115) (570,684)
OperaGng Netlnwme $282,625 ($402,930) $206,602 $266,621 $271,953 $217,392 $282,940 $288,599 5294,371 $300,258 $2,068,431
Residential-Condo Sales $0 50 §2,119,401 50 SO SO
~ EO $0 S0. $0 52,119,401
Olfice-Condo Sales ao so so ao ao ao so ao ao so so
Principle Paydown $0 $0 ($805,859) $0 §0 $0 $0 $0 $U $0 ($805,859)
Residual Value EU $0 $0 $0 $0 SO $0 $0 $4 53,336,202 83,336,202
Principal0utsianding 50 $0 $0 $0 $0 50 $0 $0 $0 ($677,935) ($677,935)
Sale Net Income $a $0 $1,373,542 $0 $0 $0 50 $0 $0 $2,658,267 $3,971,809
Construc6on Loan Interest $0 ($42,310) ($9,402) $0 $0 $0 50 50 50 $0 ($51,777)
PermanentLOanlnterest $0 $0 (558~118) (555,097) (554J41) ($53,177) ($52,019) ($50,842) (349,579) ($48,225) ($421,738)
PermanentLoanPrinciplePmt $0 SO (512,787) ($13.212) (514.767) ($15.191) ($76,289) (Ei7.467) ($18,729) (52Q~83) (8127,925)
Total Debt Sernce $0 ($42.370) (E80,307) (S6B,308) (568,308) ($88,308) ($68,308) ($68,308) ( 68,308) ($68,308) ($600,834)
Cash Flow After Debt Service $282,625 (a445,299) 1,439,837 $196,312 203,645 5209,084 $214,632 $220,291 $226,063 $2,890,217 $5,439,406
Reconswcfion Cumuiative Cash Value $5,439,406 -10% $6,047,911 SfaNs Quo Cumulaave Cash
Reconstruction Net Prasent Value $2,900,600 -12% $3,294,085 StaWS Quo NPV
~ vanance ort a~ams uuo a neconswc~ion ~
The reconstruction scenario cumulative cash value is $5.4 million and the net present value is $2.9 million.
As with the renovation scenario, there is a negative cash flow in year 2(2005) that is recouped in 2006
where a large portion of building value is monetized through sale of the new condo use. Yet, this significant
increase in density does not benefit the landowner. The pro forma 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 incurced by such a consUuction project.
While the reconstruction scenario has the benefit of a large cash payout in year 2006 from the sale of the
residential condo portion of the building, the equity investment required by the landowner to rebuild the
building is significant (+$400k). Additlonally, 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
scenario. The reconstruction net present value is also 12% less than that of the status quo demonstrating
the additional risk involved.
Th
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ll
i
iti
it
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th
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t $zs sao $32.5 sas $37.5 sao
ow
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$25 -26
/a -9% -1% 7% 15% 23
rent assumptions in the scenario are varied, the $26 -28% -13°/a -5% 3% i~^ia ~s%
reconstruction scenario's financial performance still fails to $z~ -3~~ro -~s~ro -a°io •~°io ~°io ~s~io
better that of the status quo scenano. sze asva as~ro a, ra -a^ro 3°/a „wo'
$29 -35% -21% -14% -7% 0% 7%
Today, the average Hill building owner has financial $30 -37°/a -24% -il°/a -10% -3Yo a^io
incentives to NOT reinvest in their property. s3~ -as^r> -zs~ia -~s^i -isar -s~ra o°i
$32 -0lYa -28% -22% -15% -9% -3%
$33 -43% -30°/a -24% -18% -12°/a -5%
$34 -04°/a -32% -26% -20% -14°/a $°/a
$35 -46% -34°/a -28Wo -22°/a -i6% •10°/a
StaNS Cumulative Cash Vananee
Quo Rent
Ross Consulting Group UHGID Business Plan Final D raft Bus iness P lan
Page 35
Economics of Transferable Development Rights
Financially feasible redevelopment on The Hill becomes possibfe for the average Hill building owner when
there are changes made to the allowable density on The Hill for individual owners. These density
variances could be allowed under the system of transferable development rights (TDRs), aithough this
process would require more public review in order to achieve a height variance. When this occurs, it is
possible for individual building owners to reinvest in their buildings and reap a greater profit than if they
were to remain in the status quo scenario and do nothing to improve the buildings. The following financial
model demonstrates the economics of transferable development rights whereby the density not used on
one parcel is transferred to another. As with the prior two 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 cumu~ative cash value of the status quo scenario is $6.~ million and the NPV is $3.2 million.
The foliowing size and use assumptions are made in the TDR model:
TRANSFERABLE DEVELOPMENT RIGHTS • Parcel X transfer development rights to Parcel Y
Existinu
Buildina Land
Size Sf
arcel X 8,500 7,727
arcel Y 8y00 7~
17,000 15,455
1
Avg District FAR 1.1
Max Bld Size
Bldg Atter
Size Transfer % RBA New RBi
14,295 8,500 95% 8,075
14•295 2y 95°/a
~ 1y
28,591 28,591 27,161
.85
Blda Uses RBA
Retail 40% 7,635
Resid-Condo 30% 5,726
OffiCe-Condo 30% 5,726
Total 100% 19,08f
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 ailows Parcei X to sell to Parcel Y
the density it has not used under cuRent zoning. Parcei Y then takes this density and adds it to its
allowable density under zoning. Therefore, Parcel X retains its 5,500 square foot building while Parcel Y
density grows to allow a 20,091 square foot building. The resulting 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 similar to those in the reconstruction scenario. Retail rent is increased by
$5 per square foot to $AO NNN per square foot, residential condo prices are $300 per square foot and
construction takes 13 months to complete. Additionally, the office condo price is $25Q per square foot.
ProiecY Timeline Bmldina Conswctbn Costs Revenua Finaneina
t,lan-05 Start Date $10.00 Demolition per 61dg sf $40.00 Retad Rent psf (NNN) 7,00% CoasWCfion Loan Interest Only Rate
1 Demolilion (months) $110.00 Bmiding HaM Cost psf $300.00 Residenlial-Condo Pnce psf 80.0% Loamto-Cost Ra6o
12 Construchon (monihs 20°k Sofl Cost $250.00 O~ce-Condo Pnce psf 7.00% Permanent Loan Interest Rate
5 Absorytion (months) $132.00 Total Cost psf 9.00°h Rasidual Value Cap Rata 25 Pertnanent Loan Amortrzalion Penod
$2,737,000 Total Cost (wlo mflanon) 60.00% % Pre-Leased 125.0% °/, Loan psf Paydrnvn (a~ Condo Sales
$5.00 Operating Ezp, psf (on vacant s~ 5.00% Stabilized Vacancy
2.OD°lo Annual Expense InOabon 2.00% Annual tncome Inflafion
15% Discount Rate llll 1 Year SWbihzation
10% Discount Rate (a~ 1 Year Stabtlizahon
Page 36
The resulting cash flow that follows demonstrates why the use of transferable development rights makes
property reinvestment feasible for property owners.
. •~
, ~.
, .
. ..
~ .
.
°,,S?0~;~~ ~4 " "" ~., ~a;~-
Prr Construction Cash Flow $282,625 $0 SO $0 $0 $0 $0 $0 $0 $0 $282,fi25
ConsWCtlon Cas4 Equity Required $0 ($559,250) $0 $0 SO $0 $0 $0 $0 $0 ($559,250)
RetailRent $0 $0 $259,471 $324,074 $330,555 $337,166 $343,910 $350,788 $357,803 $364,960 52,668,726
Residentlal-Apt Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
ORce Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
SGbilized Vaancy Expense $0 $0 (57,943) ($16,204) ($16,528) ($16,858) ($17,195) ($17,539) ($17,890) ($18,248) ($128,406)
OperatingExpense $0 $0 ($4,810) (b2,025) ($2,066) ($2,107) ($2,149) ($2,192) ($2,236) ($2,281) (519,868)
Operahng Netlncome $282,625 ($559,250) $246,718 $305,844 $311,961 $318,201 $324,565 $331,056 $337,677 $344,431 $2,243,827
Residen6al•CondoSales $0 $0 $1,787,171 $0 $0 $0 $0 $0 $0 $0 $1,787.171
Ofice-Condo Sales $0 $0 51,489,309 $0 $0 $0 $0 $a $0 $0 $1,489,309
PnnciplePaydown $0 $0 ($1,342,199) $0 $0 $0 $0 $0 $0 $0 ($1,342,199)
Residual Value $0 $0 $0 $0 $0 $0 $0 $0 $0 $3,827,006 $3,827,006
PnncipalOutsWnding $0 $0 $0 $0 $0 $0 $0 $0 $0 ($752,073) ($752,073)
Sale Net Income $0 $0 $1,934280 $0 $0 $0 $0 30 $0 $3,074,933 $5,009,214
Construclion Loan Interesl $0 ($58,033) ($13,049) $0 $0 $0 $0 $0 $0 $0 ($71,082)
PermanentLoanlnte~est $0 $0 ($fi8,272) ($61,122) ($60,062) (558,926) ($57,708) ($56,402) ($55,001) ($53,499) ($470,991)
PertnanentLoanPnnciplePmt $0 $0 ($14,998) ($14,657) (515,716) ($16,852) ($18,070) ($19,37~ ($20,777) ($22,279) ($142,726)
Tohal Debt Service $0 ($58,033) ($96,319) ($75,778) ($75,178) ($15,778) ($75,778) ($75,778) (375,778) ($75,778) ($fi84,800)
CashFlowAfterDebtSernce $282,625 ($fi17,283) $2,084,679 $230,066 $236,183 $242,422 $248,786 $255,218 $261,899 $3,343,586 $6,568,241
Transfer Cumulatrve Cash Value 36,568,247 9% E6,047,911 StaWS Quo Cumulalive Cash
TransferScenanoNetPresentValue $3,559,237 8°~ 53,294,085 SIaWSQuo NPV
Variance blt Status Quo 8 Trensfer Scenano
$265,152 Value of Transfer Rights (T~R NPV - Status ~uo)
By transferring development rights, the building owner is able to increase their cumulative cash value over
the status quo by 9% from $6.0 million up to $6.5 million. The NPV of this TDR scenario ($3.5 million) is
also greater than that of the status quo ($3.2 million). While this scenario requires a significant cash
investment by the property owner ($600k) in year 2005, the gains from saleable and rentable square
footage outweigh the downtime and burden of debt. For The Hill building owner that has some appetite for
risk, funds available for reinvestment, and the opportunity to increase density through TDRs, significant
financial potential exists for redevelopment.
There is also financial reason for an average Hili building owner to transfer their development rights. The
value of these rights to the owner who buys them is equal to the difference between the NPV of the status
quo scenario and that of the TDR scenario, 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
development rights.
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 37
Economics of Assemblage
Another scenario in which it is possible for a property owner to make economic gains by reinvesting in their
property over those that would naturally accrue from the status quo is by participating in an assemblage
development. Doing so allows for maximized density, additional complimentary uses, and the unique
opportunity to partnerwith the UHGIDICity of Boulder on parking needs.
In analyzing the economics of an assemblage scenario, RCG has looked to three of the four microzones.
These are the Broadway District and the North and South Gateways. A status quo scenario was developed
for each microzone using rent estimates and actual building sizes. Then, a financial assemblage model
was built for each microzone. Each microzone includes a UHGID/City of Boulder operated parking lot. It
has been assumed that the UHGID/City of Boulder lots will be included in the assemblages and that the
assemblages will then be built to include an expanded number of city parking spaces. These spaces wouid
be financed exclusively from property tax and revenue bonds. UHGIDICity of Boulder paRicipation in these
assemblaaes is crucial to their success.
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 38
North Gatewav Assemblaae
Economics
The North Gateway encompasses roughly
1.5 acres of land and today holds 33,566
square feet of buiidin s In RCG status
NoRh Gateway STATUS QUO
10% Discount Rate 1301-1311 Broadway 10,222 95°/a 9,711
10% Residual Value Cap Rate 1313-1335 Broadway 17,769 95% 16,881
$25.00 Rent NNN Estimate 1339 Broadway 5,575 95% 5,296
g' I 3°(o Mnual Rent Inftation ~ Pleasant St 0 95% 0
quo assumptions of future building
revenue, we have used a$25 NNN rent Totai 33,5ss 3~,888
estimate to reflect the off 13~ Street location and generally run down condition and configuration of the
buildings but assumed a 3°/a inflation to account for the strong retail sales demonstrated in recent years by
North Gateway businesses. Actual retail sales dollars are not shown to protect the privacy of individual
businesses housed within the buildings.
The cumuiative cash value of the status quo scenario for private buiiding owners in the North Gateway
assemblage area is $16.1 million over a ten year period and it is assumed the buildings are sold in year 10.
The net present value of the cash flow is $8.6 million.
The assemblage scenario against which this status quo scenario will be compared, allows for a large scale
redevelopment. The new uses that are enabled by assemblage include Office condominiums and
Residential condominiums in addition to replacement of the existing retail and parking with updated
versions. The assemblage assumes that the City donates their Pleasant Street lot into the mix and then
builds the parking underground parking component of the assemblage. In doing so, this aliows the City to
expand their parking capacity and collect parking fees from the associated development. Therefore, under
an assemblage scenario, building square feet goes from 33,566 square feet at .76 FAR exciuding the
Pleasant St Lot to 118,010 building square feet at a 1.85 FAR including the Pleasant St Lot. Total rentable
retail space also increased ftom 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-Assemblaae - Existina Structures Assemblaae - Densitv and Blda Size Ooen
Parcel Land SF Bldq SF Land SF FAR Bldo SF % RBA RBA # Floors Saace
1301•1311 Broadway 13,564 1022 63,789 1.85 118,010 95% 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 10001per Required Retail "
Total 63,789 33,566 Bldq Use~ RBA unit Parkinq Sales osf
Retail 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
Ro i u n
Page 39
The status quo total cash flows for all private building owners in the North Gateway foliows:
The financial assumptions are similar 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 projected at $40 NNN psf with Residential condo sales at $300 psf and Office condos at $250
psf. While the $40 NNN psf rent is considerably higher than the pre-assemblage rate, it recognizes the
ability of this parcel to attract retailers on a broader basis to The Hill. Rents charged will be higher than
existlng rates on 13~ Street because of the new construction, higher ceiling heights, access to parking, and
ability 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 assumptions follow:
Prolect Tlmelina Buildina Constuctlon Costs Revanue Finaetle9
i-Jan-05 Start Date $10.00 Demolition per bldg sf $40.00 Retail Rent psf (NNN) 7.OOYa ConsWction Loan Interest Only Rate
t Demolition (monihs) $170.00 Building Hard Cost psf $300.00 Residential-Condo Pnce psf BO.Oqo Loan-to-Cost Ra6o
12 ConsVUCtion (months) 20 % Soft Cost $250.00 ORce-Condo Pnce psf 1.OOqo Permanent loan Interest Rate
5 Absorylion (months) $132.00 Total Cast psf 9.00% Residual Value Cap Rate 25 Pertnanent Loan Amortization Term
$15,912,934 Total Cost (wlo inflallon) 60.00°~ % Pre-Leased 125.0% %Laan psf Paydown (a~ Sale
$5.00 Operaling Exp. psf (on vacant s~ 5.00% Sfabilized Vaancy
2.00% Mnual Expense Inflation 2.00% Mnual Income InflaBOn
15% Discount Rate tll 1 Year Stabilizahon
10% Discount Rate ~ 1 Year Sfabilization
The following private building owners' cash flows result from the above mentioned assumptions:
.. .~
~ ~-r m~', ~' ~
'
Pre Constuction Building Cash Flow $656,887 $0 $0 $0 50 $~ SO $0 $0 $0 $656,087
ConsWc6onCost-EquityRequired 50 ($3,251,535) $0 $0 $0 $0 EO 50 $0 $0 ($3,251,535)
Reqil Rent $0 $0 $2,667,131 §3,337,192 $3,397,816 $3.465,772 $3,535,088 $3,605,789 $3.6P,905 53,751,463 527,432,157
Residenfial-Apt Rent 50 $0 $0 $0 $0 $0 $0 SO $0 $0 $0
Otfice Rent $0 $0 $0 $0 $0 $0 $0 30 $0 $0 80
SWbilizedVacancyEZpense $0 $0 ($87,64n ($166,560) (E169,891) (§i73,289) ($176,754) (E180.289) ($183,895) ($187,573) (31,319.898)
Operetlng Expense $0 $D $104,706 $147,344 $146,927 $146,503 $146,069 $145,628 $145,171 $744,717 $1,127,077
OperefingNetlncame $0 $0 ;2,690,190 $3,311,976 $3,374,853 $3,438,986 $3,504,403 53,571,128 $3,839,187 $3,708,607 $27,239,329
ResidanUal-Cando Sales $0 $0 $10,497,454 $0 $0 $0 $0 EO $0 SO $10,497,454
OfficaCondo Sales $0 $0 58,747,878 $0 $0 $0 50 SO $0 $0 $8,747,878
Pnnciple Paytlawn $0 $0 ($7,803,683) $0 $0 $0 $0 $0 $0 $0 ($7,803,683)
Residual Value $0 $0 $0 $0 $0 $0 $0 $0 $0 541,206,747 $4t,206,747
, Prinqpal0u4standing $0 $U $0 $0 $0 $0 $0 $0 50 ($4,372,629) ($4,372,fi29)
Sale Net lnwme $0 $0 $11,441,649 $0 $0 $0 $0 $0 SO $36,834,118 $48,275,767
ConsWCtian Loan Interesf $0 ($333,864) ($75,869) $0 SO $0 50 $0 $0 $0 ($409,733)
PermanentLoan Interest $0 $0 ($396,940) ($355,368) ($349,208) ($342,6D3) ($335,520) ($327,925) ($319,781) ($311,048) ($2.738,393)
PemianenlLoan PnnaplePmt $0 $0 ($87,199) ($85,274) ($91,375) ($97,980) (5705,063) ($N2,658) (5120,802) ($129,535) ($829,826)
TotalDe6lService $0 ($333,864) ($560.007) ($440,583) ($440,583) ($440,583) ($440,583) ($440,SB3) ($440,583) ($440,583) ($3,977,952)
CashFlowAfterDebtSernca $656,A87 ($3,SB5,399) $13,571,832 $2,871,393 $2,934,270 $2,998,403 $3,063,820 $3,130,545 $3J98,604 $40,102J42 $68,942.49fi
NoM Galeway Cumula~ve Cash Value $68,942,49fi 328q, $16J01,349 SIaNS Quo Cumulatlve Cash
NorthGatewayNelPresentValue $34,542,492 301N, $8,608,913 5WNS4uo NPV
~ Vanance Wl SIaNS ~uo 8 Assem6lage ~
As can be seen, the cumulative cash value of assemblage ($68.9m) is dramatically more than that of the
status quo ($16m). This is primarily due to the significant value unleashed through greater density,
additional land and uses. While a significant investment ($32 million) is required, the payout over that
which is possible in a status quo scenario is tremendous.
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 40
While the financial pro fo~ma details of the City portion of the assemblage are not presented in this report in
order to protect the City's privacy; these pro formas do demonstrate adequate financial incentive to the City
to warrant participate. Assuming 3 levels of subterranean parking, the City wiil be able provide up to 407
parking spaces in the North Gateway that will serve the need of both The Hill district and the new
development in the assemblage. The underground structure wiil be built by the City and could be
financed from the parking revenue generated on site, through general obligation bonds, or other forms of
public financing: not from any sales tax increment generated through development. However, the City will
see dramatically increased sales tax revenue from such a redevelopment.
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 41
South GatewavAssemblaae
~.
ECOnomiCS 10% Discount Rate
10% Residual Value Cap Rate
South Gateway Status Quo
Bldq SF%R8A RBA
014th St 0 0% Q
The South Gateway encompasses 1352-1370 Col~ege Ave 17,557 95% 16,679
less than one acre of land and today $25.00 Rent NNN EsGmate 1350 College Ave 1~302 95% 1_,237
holds 18,859 square feet of ~% Mnual Rent Inflation 18,859 17,916
buildings. In RCG assumptions of status quo future building revenue, we have used a$25 NNN rent
estimate to reflect the off 13~ Street location, age and configuration of the buiidings. Rents are assumed to
increase at 1°/a to reflect historic retaii sales growth in the South Gateway's current building stock. Again,
actual retail sales dollars are not shown to protect the privacy of individual businesses housed within the
buildings
The cumulative cash value of the status quo scenario for private building owners in the South Gateway
assemblage area is $4:~9_6 million over a ten year period also assuming building sale in year 10. The net
present value is $3~5_2 million.
. ~..• . ~ .
Assemblage • Densitv and Bldq Size Ooen
Pre-Assemblaae • Existinst Structures Land SF FAR Bida SF % RBA RBA # Floors Space
Land SF Bldq SF 29,871 1.85 55,261 95% 52,498 2.5 26%
014th St 16,888 0
1352-1370 College Ave 11,390 ,557 Assemblane • New Uses Pkq per
1350CollegeAve 1,593 1,302 10001 Required
Total 29,87t 18,859 Bld Uses RBA ep r unit Parkinq Sales s
Retail 40% 20,999 0 0 $420.00
Resid-Condo 30% 15,749 1 16
Office•Condo 30% 15,749 3 47
Totel 100°/a 52,498 63
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 Residential
condominiums in addition to replacement 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 builds the parking
underground parking component of the assembiage. In doing so, this allows the City to expand their
parking capacity and collect parking fees from the associated development. Therefore, under an
assemblage scenario, building 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 adding approximately
31,000 square feet of office and residentiat space.
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The status quo total cash flows for all private building owners in the South Gateway follows:
The financial assumptions are similar to those on 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.
Retaii rent is projected at $40 NNN psf with Residential condo sales at $300 psf and Office condos at $250
psf. While the $40 NNN psf rent is considerably higher than the pre-assemblage rate, it recognizes the
ability of this parcel to attract retailers on a broader basis to The Hill. Rents charged will 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 developmenYs scale. It is also assumed that upon completion
of construction, it takes 5 months to absorb the uses on the site. All financial assumptions follow:
• '
ProleMTimeline BuildinoConstucUonCosis Revenua Rnancin
1-Jan-0S Start Date $10.00 Demoli~on per 6Wg sf $40.00 Retail Rent psf (NNN) 7.00% Conshucbon Loan Inlarest Only Rate
1 Demolitlon (months) 5110.00 BuYding Harti Cost psf $300.00 Residentlal-Condo Price psf 80.0% Loan-ta-Cost Rauo
12 Conswctian (months) 20% SoR Cost $250.00 OficeCondo Price psf 7.00% Pertnanent Loan Interest Rate
5 Absory6on (months) $132.00 ToWI Cost psf 9.00% Residual Value Cap Rate 25 Permanent Loan Amortization Term
$7,483,088 ToGI Cost (w/o inflatlon) 60.00% % Pre-Leased 125.Oq, °h Loan psf Paydovm @ Sale
$5.00 Operatlng Ecp, psf (on vacant s~ 5.00% Stabilized Vacancy
2.OOqo Mnual Expense Inflahon 2.00% Mnual Income Infla6an
15% Discount Rate tll 1 Year Sfabilization
10°h Oismwt Rate (d} 1 Year Stabilirafion
The following cash flows result from the above mentioned assumptions:
' .. .
° ~:E€ :~:. :~k- ., ~~,16'~r;,
Existlng Buiiding Revenue $452,380 $0 $0 $0 $0 $0 $0 $0 $0 $0 $452,380
~
ConstructlonCost-EquityRequiree $0 (51,529,030) SO $0 $0 $0 $0 $0 $0 $0 ($7,529,030)
ReNail Rent $0 $0 $713,691 $891,386 $909,213 $921,398 $945,945 $964,864 $984,162 $L003,845 $7,340,504
Residential-AptRent $0 50 $0 30 $0 $0 $0 $0 $0 $0 $0
ORce Rent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
StabilizedVacancyExpense $0 $0 (521,848) ($44,569) (545,461) ($46,310) ($47,29~ ($48243) ($49,208) ($50.192) ($353,188)
Ope~ating Expense $0 $0 ($13,237) ($5,571) ($5,883) ($5,798) ($5,912) ($6,030) ($6,151) ($6,274) ($54,648~
Operahng Netlncome $0 $0 $678,613 $847,245 $858,070 $875,231 $892,136 E910,597 $928,803 $947,379 $6,932,667
ResidenGal-Condo Sales $0 $0 $4,915,729 SO $0 $0 $0 $0 $0 $0 $4,915,729
Office-Condo Sales $0 $0 $4,096,441 $0 $0 $0 $0 $0 $0 $0 $4,096,441
Prinaple Paydown $0 $0 ($3,669,672) $0 $0 $0 $0 $0 $0 $0 ($3,669,672)
Residual Value $0 $0 30 $0 $0 $0 $0 $0 $0 $70,526,429 $10,526,429
Principal0utsianding SO $0 $0 $0 $0 $0 $0 $0 $0 ($2,056,2Z3) ($2,056,223)
Sale Net Income $0 $0 $5,342,498 $0 $0 $0 $0 $0 $0 $8,470,206 S73,B12,704
Construction Loan Interest $0 ($157,687) ($35,677) $0 $0 $0 $0 SO $0 SO ($193,364)
PertnanentLoanlnterest $0 30 ($186,660) ($167,112) ($164,215) ($161,109) ($157,778) ($154,206) ($150,376) ($146,210) ($1,287,72fi)
PemianentLoanPnncipiePmt SO 50 ($41,005) ($40,072) ($42,969) ($46,075) ($49,406) (552,977) ($56.807) ($60,914~ ($390,225)
TotalDebtSernce 30 ($157,887) ($263,343) ($207J841 ($201.184) ($207,184) ($207,184) ($207,184) ($207,184) ($207,184) ($1,871,315)
CashFlowAfterDebtService 3452,380 ($1,686,117) 35,757,768 $634,062 3650,886 5668,048 5685,552 5703,407 3721,679 59,210,401 517,197,407
SouN Gateway Cumula4ve Cash Value 577,797,407 84°/> 39.680,575 Stams ~uo Cumulahve Cash
SouN Gateway Net Present Value 39,506,603 80% 35,2T2,637 StaWS Quo NPV
~ Vanance blt Slatus Quo &Assemblage ~
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The cumulative cash value of the South Gateway assemblage is $17.7 million and dramatically more than
that of the status quo at $4:~9_6 million. This is due to the significant value unleashed through greater ~
density, additional land and uses. As in the North Gateway assemblage, a significant cash investment of
$1.6 million is required in the South Gateway to obtain this dramatic cash improvement over the status quo.
Again, pro forma details of the City 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 City can provide up to 190 parking spaces that will serve the need of both The
Hill district 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 obligation bonds, or
other forms of public financing: not from any sales tax increment generated through development.
However, the City will see dramatically increased sales tax revenue from such a redevelopment.
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Broadwav Disfricf Assemblape
Economics
The Broadway District encompasses roughly
1.1 acres of land and today holds 50,403
square feet of buildings which equates to an
FAR of .98. RCG uses a$25 NNN status quo
rent estimate to reflect the off 13~ Street
location and the generally obsolete condifion
10% Discount Rate
10% Residual Value Cap Rate
$25.00 Rent NNN Estlmate
1% Annual Rent InBation
District SWtus Quo
BIdqSF %RBA RBA
0 Broadway Lot 0 0% 0
1111 Broadway 9,541 95% 9,064
1121 Broadway 6,900 95% 6,555
1127 Broadway 2,735 95% 2,598
1135 Broadway 3~7 95% 2~66
50,403 47,883
and configuration of the buildings. Rents inflate at 1°/a a year in line with historical sales growth in the
Broadway District. Sales dollars are not shown to protect the privacy of individual businesses housed
within the buildings.
The status quo scenario Broadway District cash flows for both the privately owned buildings follows:
Residual Value
~Sfatus~uoNelPresentValue $14,091,771~
174
The cumulative cash value of the status quo scenario for private building owners in the Broadway District
assembiage area is $25.8 miilion over a ten year period. The net present value of the cash flow is $14.0
million.
The new uses that are enabled by assemblage include Office condominiums and Residential
condominiums in addi6on to replacing the existing 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 builds the parking underground parking component of the
assemblage. The development rights on top of the former CU-owned fot wiil be of significant value, thus
creating the possibility of surplus cash for the City after selling one of their other Hill parking locations. In
participating in this assemblage, the City can expand its parking capacity and coflect parking fees from the
associated development. Therefore, under an assemblage scenario, building square feet goes from 50,403
square feet at 1.3 FAR excluding the Broadway Lot to 94,204 building square feet at a 1.85 FAR including
the Broadway Lot.
: ~.. ~ ...• . . .
Pre-Assemblaqe - Existin g SWCtures Assamblaae • Densitv and 81dq Size pen
Parcel Land SF Blda SF Land SF FAR Bldq SF °/a RBA RBA # Floors Saace
0 8roadway Lot 11,055 0 0,921 1.85 94,204 95% 89,494 2.5 26%
11118roadway 13,230 9,54t
1121 Broadway 6,849 6,900 ssem aae - ew ses
11278roadway 6,913 2,73 ~~D~ef Reauired Sales
1135 Broadway 12,874 31, Bldq Uses RBA unit pyrkinq ~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
Total 100% 89,494 107
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The financial assumptions are similar to those previous 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 projected
at $40 NNN psf with Residential condo sales at $300 psf and Office condos at $250 psf. It is also assumed
that upon completion of constNCtion, it takes 5 months to absorb the uses on the site. All financial
assumptions follow:
~
•
••
•
Proiect Timeline Buildina Constuction Costs Revenue Financina
1Jan-05 Start Date $10.00 DemWilion per bWg sf $40.00 Rehil Rent psf (NNN) 7.00% Construclion Loan Interest Only Rate
1 Demolition (months) $110.00 Building Hard Cost psf $300.00 Residential-Condo Price psf 80.0°/a Loan-to-Cost Ratio
12 ConsWclion (months) 20% Soft Cost $250.00 Office-Condo Price psf 1.OOqo Pertnanent Loan Interest Rate
5 Absorption (months) $132.00 Tofal Cost psf 9.00% Residual Value Cap Rate 25 Permanent Loan AmoNzatlon Period
$12,938,938 Total Cost (w/o inflation) 60.OO~o %Pre-Leased 125.0% %Loan psf Paydown (a] Sale
$5.00 Operating Exp, psf (on vacant s~ 5.00% Stabil¢ed Vacancy
2.OOYa Mnual Expense InBation 2.OOYo Annual Income InAation
15Yo Discount Rate till 1 Year Slabiliza6on
10% Discount Rate (d 1 Year Stabiliratlon
The following cash Flows result from the above mentioned assumptions:
.. •.~. ~
Pre-ConsWCtion BuiWing Cash fbw $1209,042 $0 $0 $0 0 $0 $1.209.042
ConsWcfionCosbEquityRequired $0 ($2,843,771) $0 $0 $0 $0 $0 $0 $0 $0 ($2,643,771)
Retail Rent $0 30 51,216,627 $1,519,542 $1,549,933 51,580.932 $1,612,550 $1,644,801 81,677.697 $1,711,251 $72,513,334
Residential•AplRent $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Ofice Rent $0 $0 $0 EO 50 $0 $0 $0 $0 $0 $0
SWhi~zed Vaancy F~ense $0 SO ($37,244) (575.97~ ($T7,497) ($79,04~ ($80,828) (582,240) ($83,885) ($85,563) (E802,079)
OperetlngExpense $0 $0 (522,554) ($9,497) (59,68~ ($9,887) ($10,078) (310,280) ($10,486) ($10,895) ($93,159)
peraung e ncome , , , , , , . , , , , , . . , , . ,
Residentlal-CondoSelas $0 $0 $8,379,828 $0 $0 $0 $0 50 $0 $0 $0,379,828
Offico-Cando Sales $0 $0 $8,983,190 $0 50 $0 $0 $0 $0 $0 $6,983,190
PdnciplePaydawn $0 $0 ($6,345,051) $0 SO $0 $0 $0 $0 SO (56,345,051)
Residual Value 50 50 50 50 $0 $0 $0 $0 $0 $17,944,371 $17,944,377
Pnndpal0utstanding $0 $0 $0 $0 $0 50 $0 SO $0 ($3.555,315) ($3,555,3t5)
Sale Nel Incoma $0 0 9,017,9fi7 0 0 0 0 0 14,389,056 23,407,023
ConsWCfion Loan Interest $0 (3278,628) ($fi7,688) $0 $0 $0 $0 $0 $0 10 (5338,316)
Permanent Loan Interest $0 $0 ($322]45) (5288,944) ($283,936) ($278,565) ($272,W8) ($266,630) ($260,009) ~ (5252,908) (52,228,544)
PertnanentLoan PnndplePmt $0 $0 ($70,900) (E69,287) ($74,295) (579,666) ($85,425) (591,601) ($98,222) ($705,323) ($874,719)
o e ernce
ow r e ervice
&oadway Oislnct Cumulatrve Cash Value $30,550,811 18Yo 5,872,388 Status Quo Cumulatlve Cash
Broatlway Dishict Net Present Value $16,475.420 i l% $14,091,771 SIaNS ~uo NPV
~ Vanance 61t StaNS Ouo & Assemblage ~
The cumulative cash value of the Broadway District assemblage to private building owners is $30.5 million.
This is substantially more than that of the status quo at $25.8 million. This is due to the significant vaiue
created by greater density, additional land and uses. The cash investment required is high in the
Broadway District at $2.9 million.
Ciry pro forma details are not disclosed but do demonstrate financial viability of City participation in the
parking portion of the assemblage. Assuming 3 levels of subterranean parking, the City can provide up to
325 parking spaces that will serve the need of both The Hill district and the new development in the
assemblage. The underground structure will be built by the City and could be financed from the parking
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revenue generated on site, through general obligation bonds, or other forms of public financing: not from
any sales tax increment generated through development. However, the City will see dramatically increased
sales tax revenue from such a redevelopment.
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IMPACT OF HISTORIC DESIGNATION
The City of Boulder, together with The Hill landowners, may also wish to pursue designation of a Historic
District on 13~ Street. Historic Districts 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 District, the area and a preponderance of buildings (50% or more) must possess
two of the following three criteria:
1) Significant and documented history in the buildings, or a significant history of the overall piace;
2) Significant historic architecture
3) Significant historic geography
Based upon our discussion with David Cohen, a Colorado advisor to the National Trust for Historic
Preservation, member of the Landmark Commission, properly owner in the University Hill residential area
and noted developer of historic properties, The Hill should qualify in at least two of the aforementioned
categories.
Establishing a Historic District has distinct positive and negafive impacts, which should be rarefully
understood and evaluated prior to any decision to proceed. The positive benefits inciude:
Building Owner Economic Benefit (incentive to reinvest)
o Access to Federal and State tax credits in retum for money spent on rehabilitation. These
tax credits generally comprise 20% of every dollar spent above the acquisition cost, but
total dollars spent must exceed the acquisition cost.
o Access to grant funds from the Colorado Historicai Society
o Both contributing and non-contributing buildings have access to historic tax credits in a
Historic District, whereas only contributing buildings wouid otherwise be eligible for historic
tax credits when pursuing an individual landmark designation (see below). Non-
contributing buildings may have a more difficult time obtaining grant funds for renovation,
preservation, restoration, or investigation.
• Collective Marketing Benefit
o Opportunity to rally merchants and neighborhood behind district awareness campaign
o Historical interpretation markers through out streetscape
Design Control
o Strict review of building renovations, and evaluation of application for demolition of non-
contributing structures
o Strict review process contro~s what is built and how things are renovated
o The District has a very strong control over its own destiny, and what gets constructed
within the District.
• Grant Benefit
o The Historic District may have the ability to apply for State of Colorado and federal grants,
which could be utilized as matching funds for streetscapes, sidewalks, lighting, and other
renovations to the District. The availability of these grant funds couid effectively reduce
the district tax othenvise levied to make those improvements.
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The negative impacts of historic designation are:
Review Process
0 3 layers (local, state, & nationai) of review required to obtain approval for individual
building rehab can add significant time to the developmenUredevelopment process. This
could act as a disincen6ve for renovation and redevelopment to occur in the area.
o Interpretation of design guidelines in flux on a national level and subject to change
Limitation on Redevelopment Potential
o Contributing buildings need to be restored to very high standards, such that the original
building integrity is not compromised. This standard of redevelopment will likely force
property owners to incur significant additionai expense, which may offset any benefit from
historic tax credits.
o The cost for individual property owners to sell the historic tax credits to tax credit investors
is very high, often providing a disincentive for property owners of smaller buildings to go
through the application process.
o Non-contributing buildings within a historic district may loose development potential
currently availabie to them under existing zoning absent the historic district.
City Burden
o The cost of managing a historic district would fall to the City of Boulder. This cost,
covering significant design review, site review, and monitoring 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 additional revenue source to offset the
additional expenses.
Alternatively to application for a Historic District, individual property owners of historically significant
buildings may apply for Landmark status, which provides their individual building access to economic
benefits available under a Historic District. Under this structure, only the applicants for Landmark status
are bucdened by the procedural costs, preservation costs, and time required to go through the historic
review process. Non-contributing building owners would not have access to historic preservation dollars,
and would retain more latitude in redeveloping or renovating their properties.
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POTENTIAL CITY INVOLVEMENT
The City of Boulder can certainly influence and stimulate redevelopment and re-investment on The Hili.
This can take the form of financing centralized parking structures, considering zoning modifications where
appropriate, considering historic designation on the district, and helping to midwife discussions with
landowners and developers. The City's role can be either proactive or passive, but willingness to engage in
meaningful discussions with property owners, developers, and other stakeholders will be cri6cal in order for
any of these discussions to result in meaningful change.
Parkina
The City of Boulder does not own land that is large enough or in a location that would benefit from
construction of a centralized parking facility on The Hill. Consequently, any parking garage would
necessitate cooperation with other landowners on The Hill. if private landowners approach the City with a
credible plan that involves land in a location that could support structured parking, the City should evaluate
that plan on its merits.
UHGIDICity of Boulder, under delegation from City Council, could have access to public revenue bonds or
general obligation bonds that would allow consWctlon of parking structures on The Hill. These parking
structures would likely need to be financially self-supporting in order for such consideration to be taken
seriously, and will therefore warrant a more detailed parking study concurcent with a serious redevelopment
proposai and guidance from a bond underwriter as to the pros and cons of public revenue bonds, general
obligation bonds, and other possible financing vehicles. The parking study should be engaged once an
appropriate site has been identified by a private-sector proposed assemblage, and should heip UHGID and
the City determine whether such public participation 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 would
consider partnership with the private developer. Any eventual joint venture will require approval of City
Council, which would not be sought until after UHGID and City staff have made recommendations
regarding participation.
Plannina 8 Zonina
As previously discussed, one possible outcome involves potential zoning modifications to encourage and
channel reinvestment on The Hill. The administrative review process falls under the jurisdiction of City
Planning and Development Services, while approval is contingent upon ratification by City Councii. It is
possibie that certain administrative changes could be done without City Council approval, although City
Planning and Development Services will help guide the process.
Prior to consideration of any zoning change, however, detailed land planning and architectural studies
should be performed in order to help understand the aesthetic ramifications of concepts outlined in this
paper. The architectural studies will help determine building massing and potential ramifications of density
transferslincreases, and will also help provide design and construction alternatives to help achieve
increased densities. The land planning studies help understand civic spaces and interaction with
retaillentertainmenUofficelresidential uses on The Hili. Further, land planning will help guide placement of
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Page 50
potential civic spaces, piacement of increased or decreased buiiding density areas, and help guide how Hill
visitors will access the various areas. Lastly, land planning wili help address how these potential changes
to The Hill can be best integrated into surrounding residential areas-most importanUy, the high density
residential area between The Hill and the neighboring single family residential district.
Reinvestment Catalvst
By actively participating 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 private property owners and developers:
improving the success and draw of The Hili. To that end, the City can continue shaping reinvestment in
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 Corporation (CDC) to assist in these discussions, and to provide a formal framework within
which the discussions may proceed.
By both sponsoring and engaging in redeve4opment discussioos, the City of Boulder also retains a strong
ability to guide development during the conceptualiza6on phase. This participation helps inform the City as
to proposed plans and helps insure better design compatibility within the neighborhood context. Further, it
assures the City's ability to participate in the development of a parking structure within the context of a
larger, mixed-use plan, and to contribute to that plan at an early phase which could result in better parking
functionality, lower costs, and better overall design.
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NEXT STEPS
RCG believes in the viability of The Hill Commercial District, and the ability for that district to broaden its
development activities to include broader retailer offerings, office offerings, entertainment uses and
residential uses. To that end, RCG suggests the following plan:
Ste Pur ose
1. Review and Comment on RCG Business Plan by Buiid consensus on findings and next steps
UHGID, Alliance, Ciry Council, and other
communi rou s
2. Engage land planner to investigate options for Inform land plan, prioritize areas for small
civic spaces parks/civic spaces
3. Engage land planner to analyze areas for higher Determine appropriateness of identified areas for
density and building heights higher densiry and higher buiiding heights
4. Engage architect to perform density and Visualize impacts from higher density
massing study development within The Hill and the surrounding
area
5. Begin discussions with property owners and Stimulate interest in property reinvestment,
developers about re-development assemblage, and area upgrades
6. Engage historic expert to advise City and Analyze best way to preserve historic value
property owners on benefits and risks of a without forestalling future redevelopment efforts.
Historic District.
7. Engage City Planning2oning in discussions Utilize infortnation and interest generated from
regarding potential district modificatlon steps 1 through 4 to inform discussions with City
on desired chan es
8. Commission parking study Once assemblages have been identified by
private sector, utilize study to prove-up demand
for structured arkin in area
9. Engage Universiry of Colorado in parking Determine whether CU parking needs should be
discussions addressed as part of overall parking solution
10. Engage University of Colorado in senior housing Determine whether CU would participate in plan
discussions to develop senior housing proximate to
Universi
11. Initiate marketing plan for The Hill Broaden exposure and interest in Hill merchants,
restaurants, and activities
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GLOSSARY
Discount Rate - Conceptually, a discount rate should be thought of as the required return for a real estate
investment based on its risk when compared to with returns eamed on competing investments and other
capital market benchmarks. For example, if the period of analysis is 10 years for our prospective real
estate investment, the discount rate selected should be greater than the interest rate on a 10-year U.S.
Treasury Bond plus a risk premium for real estate ownership and its attendant risks 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 investment's future net cash flows minus the initial
investment. The present value of a future cash flow is what that future cash flow is worth in today's doliars.
In other words, the future cash flow is discounted using the "discount rate" to yield the present equivalent 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 yield the investor desires from one year's net operating income from the current market value of
a pa~icular property, The cap rare is caiculated by dividing the annual net operating income by the sales
price (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 property's holding period. The residual cap rate is used to calcutate the sale
value by dividing the annual net operating income from the end of the holding period by this cap rate. This
calcula6on estimates the amount for which a future buyer would be willing 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 directly 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 requires.
R.B.A. -(rentable area) Area on which a landlord can collect rent. Non-rentable areas includes the
thickness of exterior walls, any columns or protrusions through the floors such as elevator shafts or
structureal support or mechanical equipment closets.
Residual Value - the asset sale value or disposition value at the end of the asseYs holding period.
Cumulative Cash flow - the total aggregate amount of cash produced over the project timeline.
Absorption - The time period in which the rentable area of a building is occupied.
Hard Cost - Costs of buildinglproperty construction that include materials and labor.
Soft Cost - Costs of building/property construction that include financing, architectural and contingency
fees.
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Operating Expense - Building expenses that include things such as ufilities, maintenance, management,
trash, water and sewer expenses.
% Pre•Leased - The percent of the building that will be leased and occupied immediately following
consUuction to tenants who committed to this immediate occupancy prior to the completion of construction.
Stabilized Vacancy - Building vacancy is difficult to estimate because of the differing timing needs of
multiple tenants and the unpredictability of competitive buiiding offerings in the future. Stabilized vacancy is
an estimate of an average overail level of varancy that a building might sustain over the course of time. 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 financing or pay the construction loan in fuli. For RCG calculations, the
consVuction loans are considered to be non-amortizing interest only loans.
Loan-to-Cost Ratio - The percent of construction cost that is financed. The remaining percent of the cost
of consUuction must be paid for by the building with cashlequiiy.
Permanent Loan - A long term amortizing mortgage, usually ten years or more. For RCG caiculations, the
permanent loan principle amount is the full amount of the construction cost that was originally financed
through the construction loan.
Amortization Term - the length of time required to repay (amortize) the loan amount.
Construction Cost - Equity Required - The amount of the total construction cost that is not financed, but
rather is required as cash to fund construction 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 during construction. This interest is calculated based on construction loan
principal amount that grows over the construction time period as construction costs are incurred.
Fioor to Area Ratio (FAR) - gross square footage of a building structure divided by the land area square
footage. This ratio reflects an areas density and height.
Ross Consulting Group UHGID Business Plan Final Draft Business Plan
Page 54
APPENDIX
SIC Code Definitions
5912 Drug Stores and Proprietary Stores: Establishments er yed in the retail sale of prescription
drugs, proprietary drugs, and non-prescription medicines, and ;,h may also carry a number of related
lines, such as cosmetics, toiletries, tobacco, and novelty merct :ise. These stores are included on the
basis of their usual trade designation rather than on the stricter erpretation of commodities handled. This
industry includes drug stores which also operate a soda fount~ ~r lunch counter.
• Apothecaries-retail
• Drug stores-retail
. Pharmacies-retail
. Proprietary (non-prescription medicines) stores-retail
5999 Miscellaneous Retail Stores, Not Elsewhere ClassifiE
retaii sale of specialized lines of inerchandise, not elsewhere
and artificiai limbs; rubber stamps; pets; religious goods; and
also includes establishments primarily engaged in selling a ge
merchandise at retail on an auction basis. Establishments prir
property of others on a contract or fee basis are classified in :
Industry Group 594: Miscellaneous Shopping Goods Stor
• 5941 Sporting Goods Stores and Bicyde Shops
• 3942 Book Stores b943 Stationery Stores •
• 5944 Jewelry Stores •5945 Hobby, Toy, and Game S
• 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
Ross Consulting Group UHGID Business Plan
~stablishments primarily engaged in the
~ified, such as artists'supplies; orthopedic
~ments and tombstones. This industry
al line of their own or consigned
y engaged in auctioning tangible personal
ces, Industry 7389.
~.
Final Draft Business Plan
Page 55
Page 1 of 1
Molly Winter - Re: Fwd: draft memo to Andy
From: Jan Ward
To: Robbins, Andrea; Roskowski, Martha; Winter, Molly
Date: 10/14/2004 1:45 PM
Subject: Re: Fwd: draft memo to Andy
CC: Coffelt, Michele
Thanks Andrea and Martha for putting the proposal together.
Molly had asked for my feedback, I just have two things.
In the second sentence of the draft I would change it to read, " This proposal " instead of 'This paper".
I did check with the Police Annex and they said they do not have the room to help us out, their space is too
small. So we need to take that out as one of the options.
I think you covered all of the points mentioned at the meeting ThaYs all I have.
thanks!
jan
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