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Post Office ‐ Development Scenarios………………………………………………… Union Square SITE FEASIBILITY STUDY A report prepared for the City of Somerville Fort Point Consulting, Inc. Development Advisors Richard Graf Principal Study Author With Peter Quinn Architects LLC Architecture and Graphics R.W. Sullivan Engineering Sullivan Code Group Building Code Consulting Landmark Structures Corporation Construction Estimating September 22, 2011 2 Union Square Site Feasibility Study Table of Contents 1. Overview……………………………………………………………………………………………………….. 5 2. Four Sites in Union Square: Urban Context………………………………………. 7 3. Prevailing Market Conditions........................................................................... 15 4. Zoning: Allowable Use Types........................................................................... 23 5. Building Code: Collateral Impacts………………………………………………………… 31 6. Proforma Analysis 6.1 Methodology…………………………………………………………………………………………………… 39 6.2 Post Office ‐ Development Scenarios………………………………………………….. 43 6.3 Fire Station ‐ Development Scenarios…………………………………………………. 59 6.4 Backer Eberly Building ‐ Development Scenarios…………………………. 77 6.5 Kiley Barrel Site ‐ Development Scenarios……………………………………….. 87 7. Proforma Results / Funding Strategies……………………………………………… 103 8. Post Office ‐ Performance Center ………………………………………………………… 109 Appendices Appendix A: Historic Inventory Form – Post Office………………………………. 138 Appendix B: Historic Inventory Form – Backer Eberly…………………………. 139 Appendix C: Historic Inventory Form – Fire Station……………………………… 140 Appendix D: List of People Interviewed………………………………………………..……… 141 Appendix E: Non‐Profit Organizations, Financial Status……………………. 142 Appendix F: Initial Stage Layouts in the Post Office…………………………….. 145 Appendix G: Cultural Facilities Fund, Relevant Grant Recipients… …. 147 Appendix H: Funding Sources for Cultural Facilities…………………………….. 152 Fort Point Consulting, Inc. 3 4 Union Square Site Feasibility Study 1. Overview Union Square is the largest and oldest of Somerville’s commercial districts. It is currently experiencing renewed growth after a long decline throughout much of the 20th century. The City of Somerville has methodically laid the groundwork for Union Square’s renewal. The Square was recently rezoned to allow denser and more diverse development types and will be reached by long‐anticipated Green Line transit within the current decade. Union Square is the site of Somerville’s first Arts Overlay District, a zoning‐based initiative to bolster the Square as a center of creativity. Major new infrastructure has been installed, readying the Square for a concluding round of streetscape improvements. The stage is set for substantial public and private development. This study was jointly commissioned by the Office of Strategic Planning and Community Development and the Somerville Arts Council. Its primary goal is to help the City of Somerville anticipate and coordinate development in the Square. Through an analysis that combines market data, zoning, building code, design, construction and financial modeling it seeks to answer questions such as these: Will tenants pay sufficient rent to support code‐complying renovation of office space? Can lab development in the Square offer space at a rate that draws business from established centers and still remain profitable? Can a landlord afford to build studio space in the empty floors of an old building? Can a developer do a code‐complying rehab and still rent restaurant space at a price the market is willing to pay? What will it take to support a performance space in the old Post Office, or a modern concert venue in a 19th century dance hall? Four sites are used as a laboratory for delving into questions such as these. Three are existing buildings, and include the Union Square Post Office, soon to close and offered for sale by the federal government; the historic main fire station, currently owned and operated by the city; and the Backer Eberly Building, a privately owned 19th century mercantile building with a Fort Point Consulting, Inc. 5 vacant top story. The fourth site is the city‐owned Kiley Barrel property at the intersection of Prospect Street and Somerville Avenue. The underpinnings for economic analysis are set out in the in the opening chapters: Chapter 2 examines these sites in the urban context of Union Square. Chapter 3 reports on prevailing market conditions. Chapter 4 examines the new zoning regulations and identifies allowable uses, and Chapter 5 establishes a matrix to quantify the demands of the modern building code. Although it may appear to be a dispassionate display of diagrams and numbers, the crux of this report is contained in Chapter 6: Proforma Analysis. Fifteen separate development schemes are tested on the four Union Square sites. Scaled diagrams provide the basis for construction estimates and show general use relationships. Cost, income and expense detail is presented intact, enabling those with an interest in budget items to examine it closely, while the average reader is free to skip to the bottom line. Here one sees the relationship between a project’s cost and its value in the competitive real estate market. At this time, more so than any in the past decades, investors and lenders demand a realistic market value greater than project cost. Chapter 7 recaps the bottom lines of the 15 development scenarios in a single chart. Several projects should be able to move forward with standard debt/equity financing ‐ but most require some form of subsidy or re‐thinking. Wherever they are applicable, the proformas calculate the impact of state and federal historic tax credits, as well as New Markets Tax Credits. Beyond the triad of major tax credits there are other sources of funding available: directed grants, subsidies, low‐interest financing sources, and creative deal structures are among those discussed in Chapter 7. Chapter 8 takes an in‐depth looke at reus of the Post Office as a performing arts center. Fort Point Consulting conferred with experts in the performance and hospitality communities and modeled the finances of a facility in Somerville. The model shows that substantial up‐front fund‐raising is required to avoid a crushing debt burden. Ultimately the performance center will not only compete among greater Boston’s performance venues for audiences ‐ it also will compete in the fund‐raising arena. The study cannot “handicap” the success of such a fund‐ raising campaign, but is does indicate that if the funds are raised the project has good prospects for success and should generate important economic benefits for the Square and the City at large. The Union Square Site Feasibility Study is intended to be a working document. Proformas and diagrammatic plans can be modified as conditions change, or as new ideas emerge. They are meant to be a template for further study of uses that generate interest from landlords, developers, planners, or prospective tenants. 6 Union Square Site Feasibility Study 2. Four Sites in Union Square: Urban Context Site Adjacencies A favorite saying of real estate professionals: “When I check out a property I stand in the doorway and look out at the neighborhood. That means more than what I see inside” Backer Eberly Building Fire Station Kiley Barrel Site Post Office Site Adjacencies: Relatively Stable Redevelopment Likely Much of the real estate in Union Square may be replaced in near future, following the recent rezoning and the planned arrival of rail transit. The solid black lines on the diagram above denote frontage unlikely to be replaced with new development in the near future. The dashed yellow lines denote frontage along sites that are actually vacant or currently developed far below the allowable FAR. Much of the land at the eastern edge of Union Square – where three of the study sites are located – is vacant or underdeveloped. Of these three the Fire Station currently has the most valuable adjacencies from a development perspective. Its two entry facades face a well‐used plaza, a convenient parking lot and an economically solid block of retail and restaurant storefronts – all adjacencies that add to its value. Its south and east facades face parcels that Fort Point Consulting, Inc. 7 are likely to be redeveloped, including a long stretch of single‐story commercial properties on Somerville Avenue. Across Washington Street to the east is a colorful flower market with lavish displays of living merchandise. It is a popular place‐holder that sets a high visual standard for future redevelopment of its block. Diagonally across the Prospect/Somerville intersection from the Fire Station is the Kiley Barrel Site, currently in use as a public parking lot, but recently rezoned. To the south and east the Kiley Barrel site abuts industrial properties that have also been re‐zoned for dense mixed‐use TOD development. It faces a car‐oriented fast‐food operation across Prospect Street. Both of these adjacencies will be attractive for more urban uses when land values rise in the area. The study presumes that the four story residential property immediately to the east on Somerville Avenue will remain until land values have risen quite dramatically. The Union Square Green Line station will exit to Prospect Street less than 500 feet south of the Kiley Barrel site. The Union Square Green Line station will exit to Prospect Street less than 500 feet south of the Kiley Barrel site, and within easy walking distance of the other study sites. The Post Office is somewhat isolated at the edge of the commercial core. It extends back into a stable and well‐maintained
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