June 2016 ULI Case Studies

Mercantile Place QUICK FACTS Location Dallas, Texas

Site size 3.3 acres

Land uses Multifamily rental housing, restaurants, retail, underground parking, pool, spa, fitness center

Keywords Adaptive use, historic preservation, office to apartment conversion, tax increment financing, urban redevelopment, restoration, public/private development, downtown housing

Website www.mercantileplace.com

Project address 1800 Main Street Dallas, Texas 75201

Developer/owner Forest City Residential Inc. 1800 Main Street, Suite 250 Dallas, Texas 75201 www.forestcity.net

Mercantile Tower renovation architect BGO Architects—Pitts Design Studio

The tallest structure in the Mercantile Place project, the iconic 31-story Mercantile Tower was converted from office Element Building architect space to apartment uses. Redevelopment involved the restoration of the historic clock tower and lighted weather spire Dimella Schaffer Architects at the top. BGO Architects—Pitts Design Studio PROJECT SUMMARY Continental Building renovation architect Merriman Associates Mercantile Place is a rental apartment community in downtown Dallas that Marley+Co Interior Design consists of four separate and diverse buildings with a total of 704 apart- Interviewees Brian Ratner, president, Forest City Texas Inc. ments. Two of the apartment buildings were converted from office buildings James Truitt, senior vice president, development, (one of which was historic), the third involved the renovation of a historic Forest City Texas Inc. Lisa Ratcliff, regional manager, Forest City building previously converted from office space, and the fourth is a new Enterprises 15-story apartment building. Though the buildings are located on three Karl Zavitkovsky, director, City of Dallas Office of Economic Development separate blocks, they share amenities and parking, and the four buildings Gary Pitts, senior associate, REES have been positioned and marketed together as one residential community. (formerly with BGO Architects) The project also includes four restaurants at street level. Mercantile Place involved the use of tax increment financing (TIF) and is part of a public/ private effort to renovate older structures and bring more housing to downtown Dallas. casestudies.uli.org Mercantile Place Case Study 1 Introduction were addressed via a partnership between that Forest City had developed with successful the city of Dallas and Forest City, resulting public/private redevelopment efforts in other It is not often that two urban problems can be in revitalized buildings and blocks in the cities. Forest City did not have an office in Dallas addressed with one solution, but Mercantile heart of downtown that have stimulated other at the time, however. Notes James Truitt, senior Place in Dallas provides an excellent example of redevelopment throughout the downtown. vice president, development, Forest City Texas how this can be accomplished. For downtown Inc.: “A prominent broker in the city knew about Dallas, the first problem was what to do with The Site and the Idea the city’s interest in redeveloping the property numerous vacant and largely obsolete office and he called David Levey, an executive vice buildings in the heart of the historic core of the The idea behind the project originated with the president with Forest City at the time, and [invited city. The second problem was how to bring new city, which was faced with the two problems him to visit the property]. David came down to housing and residents to the downtown to enliv- discussed previously. When redevelopment was Dallas from Cleveland, met with Mayor Miller, en the city center and create an 18-hour use pat- being considered in the early 2000s, many real who wanted to see downtown developed, and that tern there. Mercantile Place is a redevelopment estate investors had expressed interest in in- is how it started. It took about a year to put [the and adaptive use project, initiated by the city of vesting in downtown Dallas, but were reluctant deal] together.” Dallas and Forest City Residential Inc., that ad- to do so unless they were convinced that the city dresses both of these issues. would invest in revitalizing the downtown. In The site and location. When Forest City first The redevelopment effort involved response, the city sought to stimulate redevel- considered redevelopment, the site comprised renovation, adaptive use, demolition, and new opment via the creation of several TIF districts a variety of buildings erected during the 1940s construction. The numerous vacant office that were put in place during the early 2000s, and 1950s or earlier, located on three separate buildings on the site were no longer suitable but there were still headwinds. Many developers blocks facing Main and Commerce streets in the for office use and had to be either converted looked at the costs of redevelopment versus the heart of downtown. The principal building on to another use or torn down. But converting value created and found a large gap. the central block, between Main and Commerce, 1940s- and 1950s-era office buildings, one To jump-start redevelopment, the city was the historic 31-story Mercantile National historic, to residential use is an expensive reached out to Forest City Enterprises—with the Bank Building, erected in 1942 and for many undertaking with costs that can easily exceed Mercantile Place conversion and redevelopment years the tallest building in Dallas. This large those of new construction. These challenges idea in mind—in part because of the reputation central block also included three other sizable

The Continental building, as lit at night, also was an office-to-apartment conversion. The Mercantile Place pool and amenity area appear in the foreground.

2 Mercantile Place Case Study casestudies.uli.org but not historically significant buildings that park. Neiman Marcus is located directly across Wilson became available in 2008. We thought were part of the bank complex. Notes Gary Pitts: Ervay Street from the Merc, and the newly there was an opportunity to upgrade that “There was originally 1.3 million square feet on renovated and historic Joule Hotel is located on building.” Forest City executives also felt they the property and the entire block had been built Main Street approximately one block to the west could operate the building efficiently together out, including the Dallas Tower, which was 20 of the Merc building. with the other structures, and that it would stories, the Securities building [14 stories], and Site assembly. Assembling the site involved strengthen the overall neighborhood. the Annex [four stories].” several property owners. Most of the Merc block Forest City’s goal in acquiring all of these A second, smaller block to the south was site was owned by a private development company, was to establish a critical mass of residential the site of a 1950s-era office building—now and the Continental building was owned by a sec- rental units, with varying price points and with the Continental building—also part of the ond group, both fee-simple owners. One parcel on shared amenities, that would serve as the heart bank complex and also unoccupied. Lying to the Merc block, where the pool deck now sits, was of a new neighborhood in downtown Dallas. the north and west of the Merc building, a third controlled by a family via a ground lease, and the Public/private effort. In crafting the deal, corner site featured a historically significant family wasn't eager to sell. Forest City acquired the Forest City initially tried to obtain historic tax former office building that had previously been sites from the fee-simple owners and planned on credits on the Merc building, but the National converted to apartments—now known as the moving forward without the ground-lease parcel, Park Service (NPS) would not allow this for the Wilson building—by another developer and but eventually Forest City was able to acquire that Merc because several of the buildings in the Merc was being used for that purpose. parcel as well. Forest City acquired the sites for the complex were to be demolished. When the NPS The project is adjacent to the newly created Merc, the Element, and the Continental in 2005. said no, Forest City withdrew from negotiations Main Street Garden Park, and three of the Forest City acquired the Wilson building with the city and said they could not do the deal. completed buildings offer units with views of the from Post Properties later. Notes Truitt: “The The city then stepped in to provide an enhanced

SITE PLAN

The core Mercantile Place block site plan. The Mercantile building is on the left and the Element building is on the upper right. The Jewel building connects the two and serves as the lobby for both structures, as well as the access point for the amenity area in the lower right-hand area of the plan. The Wilson building is located off the plan to the upper left, on the opposite corner from the Mercantile building, and the Continental building is located off the plan to the south, on Commerce Street directly across from the pool.

casestudies.uli.org Mercantile Place Case Study 3 The Wilson is the oldest building in the Mercantile Place project. When it was acquired, it had already been converted from offices to apartments. The Mercantile Tower is a former office building with large floor plates; the conversion to apartments involved TIF offering to fill the financing gap. Notes Brian upfront money, beyond the developer’s equity, the creation of many deep and narrow units. The Wilson building is in the right foreground. Ratner, president, Forest City Texas: “The city to start the project and to obtain debt financing. understood the importance of [what needed to be Thus, to make the project work, the city agreed started in 2011, and was financed with a $28 done] here; they very much wanted what we were to alter the typical TIF deal, and agreed to issue million nonrecourse U.S. Department of Housing trying to do.” As part of the deal, the city also bonds and provide funds to Forest City upfront. and Urban Development (HUD) loan, a $7.5 committed to developing the adjacent block into Notes Truitt: “The city took the TIF receivable.” million HUD 108 loan, a $2 million city housing the new Main Street Garden Park. Observes Karl Zavitkovsky, director, City of department loan, $6.5 million in historic tax The city was committed to working with Dallas Office of Economic Development: “The credits, and $12 million of Forest City equity. Forest City, and a pretty clear understanding city agreed to issue some TIF bonds that would The developers also expect a future TIF award existed between the city and Forest City put enough front-end money into the deal to of $7 million. Notes Ratner: “The section 108 about the final deal before Forest City put the make it financeable. The city also had to agree loan was integral to getting this [latter] project properties under contract. There were no other to guarantee the bonds in the event there was going. I don’t think the building would have been groups vying for the properties. any kind of deficit. The city council felt strongly economically feasible without the 108 loan.” This Construction on Mercantile Place began in about preserving the historical integrity of at financing package required that 20 percent of the 2006; the converted Mercantile building opened least one of the buildings, and that had a cost to units be reserved as workforce housing. in 2008, the new Element and the refurbished it—a very significant cost. But once this block The total development cost for the Wilson Wilson building opened in 2009, and the con- was successfully renovated, combined with building was $29 million. The costs for the verted Continental opened in 2013. some of the other things going on, that really entire project totaled $199 million. set the stage for what’s been a real renaissance Development Finance here in our downtown. [Today] we have close to Planning and Design In assessing the financial feasibility of the project, 10,000 permanent residents in the downtown.” The planning and design challenge for the de- Forest City quickly determined that the project was The entire development encompassed velopers involved the removal of three fairly not feasible without financial assistance of some a public/private financing partnership that large but obsolete buildings, the conversion of kind. Notes Truitt: “The cost to demo, abate, and included both the TIF and other city and two office buildings to residential use, the con- rebuild is more than the cost to build new. But for federal funds. The Mercantile, Element, and struction of a new apartment building with un- the help of the city, it just didn’t work.” After the Jewel buildings were financed with $48 million derground parking, the creation of a new lobby/ historic tax credits idea failed to pan out, the in debt financing, $15 million in Forest City amenity building that joined old and new build- developer analyzed the current city TIF offering, equity, and a $57 million TIF award from the ings, the restoration of an existing apartment in which the investor gets the TIF money when city, with a total cost of $120 million. building, and the creation of an attractive ame- the tax increment is realized, and concluded The Continental building involved a total nity/pool area and a new streetscape. The entire that that would not work from a financing per- development cost of $50 million. The conversion complex includes 511,000 square feet of space spective, either; Forest City needed additional was financed during the Great Recession and and 704 residential units.

4 Mercantile Place Case Study casestudies.uli.org In planning the main block, the developers were constrained at first by the ground-lease parcel that had not yet been acquired, so they concentrated the plan along Main Street. They went through six or seven schemes over a series of months before settling on the final scheme for the main block, which involved converting the Merc, constructing the Element, and creating a new pool amenity. The plans for the Wilson and the Continental buildings were not finalized until after the main block was well underway. The en- tire project includes the elements below. Mercantile Tower. The first element in the plan involved the restoration and adaptive use of the 1943 Art Moderne–style Mercantile Tower. The 31-story landmark building, on the western side of the main block, had stood vacant since the early 1990s. The plans called for the resto- ration of several historic elements. Forest City restored the original clock tower and lighted weather spire atop the building, which is illu- minated at night. The three-story tower com- prised catwalks and mechanical units, and the spire included a lot of neon. They restored the tower and spire and replaced all the neon tubes with LED lights. The clock works again, and the spire includes a ball and lights that change with the weather, just as it did on the original tower. Many other historic features, including elevator doors, mosaics, and sculptures, have also been restored or reused. In addition, the lower exterior of the building had been modified over the years, and restora- tion and repair were required there as well. “An essential requirement of adapting the historic edifice was that it be faithfully restored to its 1942 design intent,” Pitts notes. The entire facade of the lower four floors of the building had been wrapped in a curtain wall “belt,” and much of the architectural detail behind this was demolished. Pitts and his team researched old newspaper articles and found one image that The Main Street facade of the Mercantile Place block, including the lower portion of the Merc on the right, the showed the original details of the lower facade; two-story Jewel building in the middle, and the Element to the left. this image was used to re-create historically ac- Planning background. Gary Pitts, senior asso- the floor plates were too large to make these curate design details for the facade restoration. ciate, REES, who was working for BGO Architects structures suitable for residential conver- The original building entrance was directly at the time of redevelopment, was the lead designer sion. The designer and developer also felt that on Main Street and the bank lobby itself was for the Merc. Pitts had been working on plans and they needed to loosen up the block, which was on the third floor and accessed via an escala- concepts for the site for over 20 years, including nearly 100 percent covered by buildings. Notes tor. Because the developer wanted to create a plans proposed by other developers, and had com- Pitts: “When you take a building out, it opens common lobby area that bridged the Merc and pleted extensive surveys of the building. up views to the other building and makes that the new Element buildings, the entrance lobby At the outset, the developers considered building more leasable.” Thus, three structures for the Merc building was moved to the left retaining several of the buildings that were later were demolished to make room for a new build- site of the structure and is now on the interior demolished, but they were unattractive and ing, new parking, and new amenities. of the new Jewel building. The older entrance casestudies.uli.org Mercantile Place Case Study 5 and lobby were converted to office space that is now occupied by an architecture firm. Ac- cess to the new residential lobby area required knocking out a wall of the Merc and the cre- ation of a new Art Moderne lobby in this loca- tion adjacent to the Jewel building. The Merc includes generally large floor plates and four different floor sizes and shapes as the building rises, which presented chal- lenges for the conversion. As the floor sizes changed, the plans had to change as well. The 230,000-square-foot structure includes 213 units and around 50 different unit layouts, many long and narrow, especially on the lower floors where the floor plates were large and the depths were substantial. In addition, observes Pitts, “As the building wedding-cakes up, you have units that don’t align with the units below [them], leading to an offset in the plumbing; the plumb- ing tree has to run horizontal at times.” The new lobby of the Mercantile Tower, which is accessed from the main lobby in the Jewel building. Units range in size from 713 to 2,620 square feet. Around 80 percent of them are narrow one- bedroom units with limited window space; the remainder are largely three-bedroom units, with a few two-bedrooms as well. The units’ depth precluded the creation of studio units. Balconies were added along the entire length of the east side of the building, and numerous other bal- conies are located on various floors where the building steps back as it rises. Most of the units are laid out with the living and kitchen areas on the exterior near windows and the bedrooms on the interior. To ensure that natural light reached the bedrooms and interior areas, the architect designed the units with partial walls that allowed light into the bedrooms over the walls. Ceiling heights vary throughout the building, but are gener- A unit interior in the Element, which includes 153 units in a new 15-story structure. ally at least nine feet, often ten or 11 feet. “Unit interiors took many cues from the Art Moderne Architects and BGO Architects. The 15-story mailbox room can be serviced only from the aesthetic,” notes Pitts. post-tension deck building includes 153 units inside, and this area is a secure space controlled in 151,000 gross square feet of space. Units by the U.S. Postal Service; to change the bulbs The Element. The only new apartment build- range in size from 708 to 1,910 square feet. ing in the project, the Element offers great views requires coordination with the U.S. Postal Ser- onto both the park and the pool area. Located on The Jewel building and outdoor amenities. vice deliveries. the northeast corner of the main block, the build- The Jewel is a two-story structure that joins the The Jewel also provides access to the ing was erected on the site previously occupied Mercantile Tower and the Element building, pro- amenity area, on the southeast corner of the by two older structures that were demolished. The viding a common entrance and lobby, a mailbox block, for all residents of Mercantile Place. new building features a highly stylized roofline area, and an amenity area on the second level This amenity area includes the pool, a deck structure (a shallow V-shape) with an open steel that features a board room, a catering kitchen, a area with fountains, a double-sided fireplace, frame that extends out from the building to party room for rent, and a poker table room. The an outdoor lounge, cabanas, and a grilling and the east. Balconies are located at the corners Jewel also includes access to a fitness center dining area. Several adjustments were made and along the Main Street facade, while large in the Element Tower. One issue that has been to the outdoor landscape based on operat- windows are featured on the pool-side facade. encountered with the mailbox “square” is the ing experience. The original water wall had to The building was designed by Dimella Schaffer fact that lighting features on the outside of the be redesigned to allow for more air flow, since

6 Mercantile Place Case Study casestudies.uli.org moisture was building up that was corroding The building contains 135 units in 140,000 features on the lower levels. In 1958, eight addi- the steel. Also, a grassy area was replaced with square feet, most of which include the original tional floors—all in a 1950s style—were added artificial turf, since the grass could not reason- office doors, many with the names of the office to the building. The upper and lower sections of ably be maintained in the location. tenants still on the door glass. Units range in the building are quite different in appearance, and Service and delivery entrances for the size from 508 to 2,285 square feet. A small metal the overall image as an office structure was very entire block complex are located behind the building with a lounge and an outdoor patio was dated and unappealing; the building stood largely Jewel building and are accessed from Com- added to the roof to create a rooftop amenity area. vacant after Mercantile Bank moved out in 1987. merce Street. The Continental. The Continental was the last While the building was no longer suitable The Wilson. Listed on the National Register building in the complex to be completed. The for office tenants, the contemporary architec- of Historic Places, the Wilson building is the original building was erected in 1948 as a three- ture translated reasonably well into residen- oldest and most obviously historic of the four story office/retail structure over a four-level tial space. The creation of a new elegant lobby structures. Originally built in 1904 as an office parking garage, including stone and tile exterior and social space—combined with the unusual building with a lower-level department store, modeled on the Paris Opera House, the struc- ture was expanded in later years with a taller adjacent building. The building was converted to apartments around the year 2000 by Post Properties. Forest City acquired the structure in 2008 and made further renovations that year, primarily focusing on the unit interiors. The units include all of the original flooring and windows. The building remained occupied during the rehab; some rehabs were done with tenants staying in place, while others involved moving tenants to other units.

An outdoor lounge near the pool includes a double-sided fireplace.

The main entrance lobby within the Jewel provides access to the Mercantile Tower, the Element, and the pool and amenity area.

A unit interior in the 135-unit Wilson building, which features original floors and windows. The lobby of the Continental building is spacious and is designed to look and feel like the lobby of a boutique hotel. casestudies.uli.org Mercantile Place Case Study 7 The rooftop deck of the Continental building, which overlooks the pool and amenity area and The pool and deck area, with the Continental in the background toward the right. the nearby park. architectural style, the decorative elements for retail to date. At present, the project includes The apartments at Mercantile Place— and sculpture above the entrance on the front 14,144 square feet of occupied restaurant space. the Element, the Merc, the Wilson, the of the building, wonderful elevator doors, the One restaurant is located in the Element building Continental—represent the most eclectic new rooftop indoor/outdoor lounge, and the on Main Street, and three others are located in offering of apartment homes in Downtown indoor spa with a large hot tub and saunas on the Wilson building along Ervay Street. Dallas. Individually, they’re as different the ground floor—has allowed this building to Parking. The complex includes 792 parking as night and day. With one-of-a-kind emerge as one of the most distinctively differ- spaces in three locations, including 133 spaces layouts, luxury finish packages, upgraded ent apartment buildings in the city. at the Wilson, 237 spaces at the Continental, appliances, sustainable features, historic The building also benefits from attractive and 422 spaces in an underground parking charm, and enviable locations, they offer views. The front of the structure overlooks the pool structure under the Element, Jewel, and Merc unrivaled opportunities to create an urban across Commerce Street, and offers additional buildings. The latter includes 30,000 gross lifestyle that’s completely yours. No matter views of Main Street Garden Park as well. Lighting square feet of adaptive use parking on one level which community you choose, you’ll enjoy adds varying colors to the exterior at night. under the Merc itself, and 110,000 gross square all the benefits of a resort-level amenity The Continental includes 203 apartments feet of parking in a new three-level underground package that makes a Mercantile Place in 220,000 square feet of gross building area. structure under the Element and Jewel build- apartment the Downtown place to live Units range in size from 778 to 1,728 square ings. The developer estimates that they are may- The four buildings offer considerable variety feet. The building is Leadership in Energy and be 20 spaces short of what buildings need. The in style and features, including a true loft prod- Environmental Design (LEED) Silver certified, project has about 1.2 parking spaces per unit. uct (the Wilson), a new modern building (the and 20 percent of the units were set aside for Element), a boutique building (the Continental), low-income residents. Marketing, Management, and and the flagship building with deep units (the HUD, which provided substantial financing Leasing Merc), all with different unit designs and price for the building, initially wanted the developers points. While the units vary, all amenities are to put a swimming pool on the roof, which did Mercantile Place opened in 2008 during the shared, creating one large community. not work from a structural perspective. Forest Great Recession; the Merc also opened in 2008 While the individual buildings were impor- City proposed a spa on the ground floor in- and the Element opened in 2009. While the re- tant, branding of the overall Mercantile Place— stead, with a whirlpool, a sauna, steam rooms, cession was not as severe for Dallas as for other bringing it all together under one umbrella and massage rooms; the spa has turned out parts of the United States, it did slow the initial brand—was also critical for a pioneering rede- to be very popular with residents. The lobby is lease-up process considerably. But the develop- velopment project like this. But the Mercantile very spacious and elegant in design, and the er was committed to a long-term strategy for the Place brand did not emerge immediately. In overall result is a bit like a boutique hotel. project and was able to weather the initial storm, fact, the project was initiated without the name Retail elements. Retail space for the project eventually obtaining attractive rents with high or brand fully in mind, notes Lisa Ratcliff, re- is concentrated along Main Street in the Element occupancies, as well as substantial rent growth, gional manager, Forest City Enterprises, but as and the Merc, and along Ervay Street in the Merc once the recovery was underway. the buildings were completed and new struc- and the Wilson. Although the Merc is located Marketing and branding. The Mercantile tures were added, it became natural to refer to directly across Ervay Street from Neiman Mar- Place website markets the complex with the the entire complex as part of the one Mercan- cus, the location has offered limited opportunities following introduction: tile Place brand.

8 Mercantile Place Case Study casestudies.uli.org Apartment leasing and management. The Observations and Lessons and the TIF district was instrumental in assist- Merc building—the first to open—has leased Learned ing with that.” He believes that downtown Dal- a bit more slowly than had been hoped, due not las turned the corner around 2011–2012, when only to the recession but also to the fact that the Structuring a public/private partnership with the investors started acquiring buildings without building has generally larger units. Notes Truitt: city and HUD was essential to make the project asking for city help. “It is hard to drive value in big units. The other work, but it was also essential for each part- Downtown revitalization projects should buildings are more efficient. Most units are in the ner to be committed to the effort, to act in good not be viewed as isolated development efforts. 1,000-square-feet-per-unit range while the Merc faith, and to communicate openly and honestly Observes Ratner: “Be a part of the community. is closer to 1,200 square feet per unit. It is hard to during the development process. When engaged These are not one-off projects. You are part of move units of that size.” Leasing for the Element in a public/private partnership, notes Ratner, something. Get involved. [We were] involved was easier since it opened later, offered efficient “Make sure you have a willing partner. These with the Downtown Dallas Partnership and other unit layouts, and featured new and modern units downtown projects generally are more complex, things in the city. We will succeed if downtown with prime views of the pool and the park. Leas- they take longer, they are a little more difficult, Dallas succeeds. If downtown Dallas falls back- ing of the Continental proceeded as expected, as there is more financial layering, so you better ward, we will get hurt.” it opened in a stronger market, in January 2013. make sure you have a willing partner, which we The new park was an essential element to Rent increases were difficult to achieve did in the city of Dallas and HUD.” This is equal- improving the redevelopment potential of the during the first few years after opening, but ly true from the public sector perspective. Notes site. Parks create a sense of place for surround- have increased steadily since. Notes Truitt: Zavitkovsky: “If you have a good partner, you ing buildings, and the park is especially attrac- “We have seen 6 to 8 percent rent increases can work your deal and you will ultimately see tive for residents living in a dense environment. since 2011.” The Wilson offers the lowest aver- your way through a variety of situations.” Notes Ratner: “The park is active. There are age prices for units ($992 to $2,394 per month), The development of Mercantile Place kickball leagues in the summer, there are festi- followed by the Mercantile, then the Continen- required considerable public investment, at- vals, there is a constant parade of dogs, and it tal, and then the Element. Rents in the Element tracting criticism from some observers, but the has been a very good thing for downtown.” range from $1,354 to $3,725 per month. success of the project has paid considerable When one is pursuing preservation and Residents range in age across the board, dividends for the city and has had a transfor- adaptive use projects, it is imperative that the with the typical age in the 30-to-early-40s mative effect on downtown Dallas. By bringing investor have considerable equity in the proj- range. Millennials and students, coming from these buildings back to life with new uses, the ect and adequate contingency in the budget, the nearby University of North Texas or from city and the developer stimulated the revital- because unforeseen problems always pop up nearby medical schools, as well as some empty ization of other nearby areas of the downtown. when one is working with older buildings or on nesters also live in the buildings. Notes Zavitkovsky: “Most of the old large of- a renovation. Notes Truitt: “You have to pay an Forest City internally manages and leases all fice buildings have been completely redone, entry tax when you renovate buildings” because the apartments in all four properties, employing one leasing manager and three leasing sales- people who are knowledgeable about all four buildings. Forest City placed strong emphasis on choosing and training the members of the sales team to ensure that they understood the project's unique qualities. Notes Ratcliff: “When we hired, we wanted to make sure that those we hired truly understood what Forest City was going for, how the buildings fit into the market, and what our brand personalities were for each building.” Commercial leasing. Outside brokers handle commercial leasing. As noted earlier, four retail spaces are occupied by restaurants, including Wild Salsa in the Element, and Porta Di Roma, Pho Colonial, and Press Box Grill in the Wilson. Several leases are in process for unoccupied space in the Element along Main Street. PSP Ar- chitects has leased the Merc bank lobby for use as office space. Retail space along Ervay Street in the Merc has been more difficult to lease and is unoccupied as of June 2016. The new Main Street Garden Park, with the Mercantile Tower in the background. casestudies.uli.org Mercantile Place Case Study 9 you don’t know what you don’t know. “We did The right timing is often essential to the suc- ing to rebuild a neighborhood. We felt that the not have enough contingency. It ended up cost- cess of a development. Other developers tried to more we could do and the more we could influ- ing a little bit more than we thought it would.” redevelop the site previously but failed to move ence, the better off we would be.” Developers should bring in operations forward. Forest City succeeded in part because the The overall development scheme initially was team members during design and development firm came into the process at the right time, with affected by the recession, but since the recov- to ensure that the building can be operated effi- the right city council, the right mayor, the right city ery began, the developer has seen strong rent ciently and cost-effectively. Maintaining and/or vision, the right financing, and the mostly right time and property value increases. Patient capital and replacing building materials and building sys- in the development cycle. In addition, sequencing long-term strategies are essential for projects like tems can be challenging and expensive. Stain- the construction work should be carefully timed as this. Notes Ratner: “The project has performed less steel on elevators, for example, requires well. Plan first, then build. Notes Truitt: “Don’t start about as well as expected. Opening during and regular cleaning to remove handprints. The a project until you have full plans. We started a bit after the recession of ’08, ’09, and ’10 was chal- management team actually created a brushed- early, and this created some problems.” lenging. It took us longer to get to stabilization steel look on the elevators after the fact to al- Being a pioneer in any location is always than we had hoped, but today we are where we leviate this problem. In addition, the marketing a bit dangerous and fraught with uncertainty, wanted to be.” In addition, the properties have and management team can often bring valuable but scale can help overcome the risks. Offer- increased in value since opening, further contrib- insights gained from direct market contacts. At ing a range of products and a critical mass of uting to total returns for the project. Forest City’s the Continental, for example, the members of residences was essential for the overall success long-term patient strategy in building neighbor- the marketing team actually came up with the of the project. One building by itself would not hoods over time has created great value for the idea for the spa concept, based in part on what have performed as well as four. Observed Truitt: firm, and that has proven to be true here as well. they had been hearing in the market. “Scale is important, especially when you are try-

PROJECT INFORMATION

Development timeline Building area Mercantile National Bank Building opened 1943 Gross building area Stories Parking spaces Continental Building completed 1958 The Mercantile* 230,000 31 see Element Redevelopment planning started 2005 The Element 151,000 15 422 The Mercantile bank block acquired 2005 Jewel building** 10,000 2 na The Continental site acquired 2005 The Continental 220,000 11 237 The Merc construction started 2006 The Wilson 140,000 8–11 133 The Element construction started 2007 Total 751,000 792 The Wilson rehab construction started 2008 *Parking for the Mercantile is included in the parking total for the Element. The Wilson site acquired 2008 **Entrance and amenity building for both the Merc and the Element. The Merc opened March 2008 Land use plan The Element opened Summer 2009 Site area (sq ft) The Wilson rehab completed 2009 The Merc 20,000 The Continental construction started September 2011 The Element 15,000 The Continental opened January 2013 Jewel Building 15,000 Pool and outdoor plazas 25,000 The Continental 40,000 The Wilson 30,000 Total square feet 145,000 Total acres 3.3 acres

10 Mercantile Place Case Study casestudies.uli.org PROJECT INFORMATION

Residential information

Building Number of units Unit size (sq ft) Percentage leased Typical rent The Element 153 708–1,910 96 $1,354–$3,725 The Merc 213 713–2,620 95 $1,175–$4,473 The Continental 203 778–1,728 95 $1,448–$2,281 The Wilson 135 508–2,285 96 $992–$2,394 Total 704

Retail/offce information Development costs and capitalization—Continental Retail/office GLA leased 90% Development costs Typical annual rent (per square foot) $25 Construction costs $29,000,000 Average length of lease 10 years Abatement and demolition $7,000,000 Soft costs $14,000,000 Retail/offce space Total $50,000,000 Tenant type GLA (sq ft) Wild Salsa (Element) Restaurant 4,920 Capitalization Porta di Roma (Wilson) Restaurant 3,300 HUD loan $28,000,000 Pho Colonial (Wilson) Restaurant 2,500 Historic tax credits $6,500,000 Press Box Grill (Wilson) Restaurant 3,424 HUD 108 loan $7,500,000 PSP Architects (Merc) Office tenant 25,000 City Housing Department loan $2,000,000 Leased and unoccupied (Merc/Element) 5,000 Forest City equity $12,000,000 Unleased space (Merc/Element) 5,000 Total $56,000,000 Total GLA 49,144 Future TIF award $7,000,000 Return on cash 5.5% Development costs and capitalization—Mercantile, Return on cash after TIF award 6.7% Element, and Jewel Development costs Development costs—Mercantile Land $7,000,000 Total development cost per square foot $314 Abatement and demolition $18,000,000 Total development cost per unit $327 Construction costs $80,000,000 Development costs—Continental Soft costs $15,000,000 Total development cost per square foot $254 Total $120,000,000 Total development cost per unit $275 Capitalization TIF award $57,000,000 Total development costs Debt financing $48,000,000 Mercantile, Element, Jewel $120,000,000 Forest City equity $15,000,000 The Wilson $29,000,000 Total $120,000,000 The Continental $50,000,000 Return on cash 5.7% Total development cost $199,000,000

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