Developers opting not to build apartments downtown

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Downtown advocates know that one of the primary ingredients for revitalization is residential development, but apartments are going up everywhere around the city except in the urban core.

In the last year, developers have announced or started work on seven apartment projects. If they are all completed, the city’s apartment market will have nearly 2,000 new units. None of them will be anywhere near downtown Colorado Springs.

So, why aren’t apartment builders choosing downtown?

“It’s pretty simple,” said Chris Jenkins, President of Nor’wood Development Group, which owns downtown land but is building four of the seven suburban apartment projects. “It’s suburban versus urban economics. The suburban apartment market is proven. The urban market isn’t.”

There are no other apartment projects downtown to use as a basis of comparison, he said. There’s no example to offer up to lenders as evidence of success.

Cost is also a factor.

“Land is less expensive in the suburban market,” Jenkins said. “Beyond that, materials are more expensive. It’s stairs versus elevators, wood construction versus steel, surface parking versus structure parking.”

Chuck Murphy, who leads Mayor Steve Bach’s Downtown Solutions Team said parking is one of the biggest barriers.

Murphy, who also owns Murphy Constructors, owns land downtown and has stalled plans for a mixed-use development near Colorado Avenue and I-25.

He said structure parking can cost up to $30,000 a spot and adds to building costs significantly.

He said he believes there is a market for residential development downtown and developers are just waiting for the market to improve. In the meantime, his solutions team is concentrated on other downtown issues like panhandling and safety, he said.

Kevin McKenna, a Colorado Springs broker with Denver-based Apartment Realty Advisors, said parking structures could add up to 50 percent to the cost of construction.

The typical suburban unit costs $130,000 to build, he said.

“The highest rents we see in the suburban stuff is about $1.25 per square foot,” he said. “To justify something that costs up to 50 percent more, you’d need rents of $1.80 per square foot or more. I don’t think anyone has been able to make it pencil out yet.”

But he said there is likely one more big reason for a lack of residential development downtown.

Colorado Springs developers are, by nature, suburban developers.

“There are only a select number of them who do infill and downtown type work,” he said. “Most of them are used to doing what they’re used to doing — that kind of suburban walk-up stuff. That’s their sweet spot.”

Some interest

Zocalo Community Development in Denver is not one of those suburban developers. The company focuses almost exclusively on multi-family projects in urban settings.

“We like downtowns because it gives us an opportunity to bring community back to downtowns where community once was 50 or 100 years ago but where it may have been lost,” said principal David Zucker.

Zucker and his team toured downtown Colorado Springs earlier this year with Ron Butlin, executive director of the Downtown Partnership.

Zocalo is researching downtowns throughout Colorado and considering new markets to develop. Zucker said he’s just in the earliest stages of research.

He said he wouldn’t fault Colorado Springs developers for shying away from downtown.

“Downtowns are a horse of a different color,” he said. “They’re very difficult to predict. That means there is greater risk for the multi-family developers.”

Darsey Nicklasson, who is not a developer, is finding that unpredictability to be a barrier in her quest to develop downtown apartments.

She lives downtown with her husband and two children and moved to Colorado Springs after years of being able to walk and use public transportation everywhere in Washington, D.C. She counts herself among a class of young professionals in Colorado Springs who desperately want to revitalize the urban core of the city.

She has been looking for downtown property suitable for apartment development and has done market research and conducted surveys to see who might be interested in living downtown. Young professionals between 25 and 32 are particularly interested, as are those over 55.

She would like to build 50 or so units, depending on the size of the lot she finds. That would allow her to keep the building under five floors tall and use wood construction, which is significantly less expensive than steel.

New markets are often tested with smaller projects like Nicklasson’s, Zucker said. Condominiums are also common test subjects.

Daniel Robertson, who’s Springs-based S&R Construction built and sold downtown lofts during the height of the real estate market left the top floor of his project at 101 N. Tejon St. unfinished when the market dropped.

He said this week he might start work again on six one-bedroom lofts. They’ll likely be about 800-square feet each and be priced under $300,000 to cater to the current market. The project would depend on pre-sales.

Jenkins said that despite barriers, he is also working to get a residential project off the ground, but that none of his plans have progressed to the point at which they could be discussed.

City support

To mitigate risks in large early-stage residential development Zucker said cities usually need to step in with support.

“I’m sure the city understands there might be a role it or the county could play,” Zucker said.

He said Colorado Springs took a big step when it implemented form-based code, which allows any type of development in the downtown core with few limitations and no need for neighborhood comment as long as the physical structures fit in with the landscape. That removes a lot of the entitlement risk, which is one of the scariest parts of new projects for developers, Zucker said.

Cities can also encourage development with tax increment financing, he said.

Beyond that, it’s about atmosphere, he said.

“The Mayor could come up with a set of residential goals,” Zucker said. “The written goal could be adopted by the mayor and city council. It might be a little softer, but if it’s not a written commitment it tends to become somewhat temporal and forgotten.”

Mayor Bach did not return a call for comment Tuesday, but his public relations representative forwarded and e-mail comment from him.

The comment did not say whether he would support drafting a set of residential goals for downtown or whether he would support tax increment financing.

“We must update the community plan, based on new assumptions, such as the future of Banning Lewis Ranch,” the e-mail said. “City Council controls land use decisions and should take the lead on this opportunity in partnership with the Mayor.”

City Councilman Tim Leigh said he felt like drafting a written commitment to downtown residential was a “no-brainer” if it would make developers feel more secure.

“TIF financing is probably a no-brainer as well,” he said. “As long as the numbers work.”

City Economic Vitality Chief Steve Cox said the city might not be ready to take those kinds of steps or discuss that yet. He said the downtown solutions team is focusing on safety issues, downtown lighting and addressing panhandling.

Revitalization

Nicklasson doesn’t feel like conversations about safety and panhandling are productive. She said she feels like those issues are symptoms of a bigger problem that would be cured with residential development.

“I think unwanted activity will take care of itself if we have people living down here,” she said. “We’ll have more eyes on the street. And I’m not talking about cameras.”

Zocalo has proven the rejuvenating power of residential development in other areas. The company bid in 2006 on an empty Denver police station in Jefferson Park, a neighborhood just north of Mile High Stadium and just south of the trendy Highlands area on the west side of I-25.

Jefferson Park, like Colorado Springs, had very little residential construction in the 30 or 40 years leading up to Zocalo’s entrance. It was an unproven market.

“The park was drug infested with lots of gang activity,” Zucker said. “The neighborhood had the fourth highest crime rate of Denver’s 50 or so neighborhoods.”

The front desk of the police station Zocalo bid on was covered in Kevlar.

The developer built two condominium projects in the neighborhood and it started to transform. Other developers put in projects. Houses were renovated and resold.

In 2011, Jefferson Park was listed among the top five most exciting neighborhoods in Denver’s 5280 Magazine.

“We’ve been getting to know Colorado Springs,” Zucker said. “It’s way too early. But I really like so many of the characteristics of downtown Colorado Springs. It has got to be one of the most beautiful settings for a city in the world. You can’t reproduce that.”