Reviviendo Gateway District Real Estate AnalysisPhoenix/Research/GLC Development... · Reviviendo Gateway District, Real Estate Analysis Executive Summary GLC Development Resources,

Reviviendo Gateway District, Real Estate Analysis

Reviviendo Gateway District Real Estate Analysis

a memorandum for the

Reviviendo Gateway Steering Committee

GLC Development Resources LLC October 2002

GLC Development Resources LLC 359 Boylston Street Boston, MA 02116 · Tel: 617.262.2121 · Fax: 617.262.55509


Memorandum Reviviendo Gateway District, Real Estate Analysis

CONTENTS

Executive Summary i Introduction 1 I. Property Survey 2 • North Common • Essex Street/CBD • North Canal Historic District II. Market Survey 6 • Commercial • Residential • Retail III. Development Objectives 10 IV. Financial Analysis 11 • Commercial • Residential V. Implementation Issues 15 Sources 17 Glossary 18 Appendices A. Property Inventories, GLC Development Resources B. Buildout Analysis, GLC Development Resources and Groundwork Lawrence C. Economic Development Strategy for the Merrimack Valley (Excerpt) D. Financial Feasibility Analysis, GLC Development Resources E. Measuring Retail Market Potential, GLC Development Resources F. Sample Target Mix, GLC Development Resources


Executive Summary GLC Development Resources, a Boston-based real estate advisory firm, worked with staff and members of the Reviviendo Gateway Steering Committee (“Steering Committee”) from July to September 2002 to assist in the development of a series of “bricks and mortar” guid-ing principles for the Reviviendo Gateway District (“Gateway District“). GLC’s task was to provide a quick survey of real estate issues which would help the Steering Committee (and in particular the Bricks and Mortar subcommittee) assess existing conditions and key issues for an action agenda. Using information gathered from market and census data, previous planning studies of the district, and conversations with local property owners, public officials and other stakeholders, GLC developed: (1) a property survey of the district, (2) a review of market conditions, and (3) a financial feasibility assessment for development within the district. GLC then worked with the Bricks and Mortar subcommittee to develop a series of development targets, and to identify key development issues. Property Survey and Redevelopment Potential There is approximately 6.05 million square feet of land in the Reviviendo Gateway District, divided between three subdistricts. • North Common Neighborhood (“North Common Subdistrict“): 35% or 2,160,000 square

feet • Essex Street/Central Business District (“Essex Street Subdistrict“): 10% or 620,000

square feet • North Canal Historic District (“North Canal Subdistrict“): 55% or 3,250,000 sf The property survey focused on opportunities within the Gateway District for the redevelop-ment of vacant or underutilized property, both vacant lots which might be suitable for new construction and existing “soft space” in buildings with potential for renovation. Reuse as-sumptions were then applied to the property survey to yield estimates for redevelopment po-tential within each subdistrict, and in the Gateway District as a whole. Key findings include: • A combined total of 550,000 square feet of vacant land suitable for new development

was identified in the Gateway District. This land can accommodate an estimated 500,000 square feet of new development.

• Over 1,000,000 square feet of “soft space” in buildings was identified in the Gateway District. Of this, over 90% is located in the North Canal Subdistrict.

• Taken together, the vacant and underutilized property in the Gateway District represents a total development potential for 1.5 million square feet of new development within the district.

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Market Survey The market survey projected potential demand for new space in the Reviviendo Gateway District by 2010. Key findings include: Commercial. • If projections of employment growth are accurate, the City of Lawrence can be expected

to capture approximately 4,200 jobs by 2010, requiring 1,400,000 square feet to 2,000,000 square feet of commercial space (including office, R&D/flex space and retail). It is expected that the Gateway district would capture a subset of the City total.

Residential • The population of Lawrence has been projected to grow by 11,680 net new residents be-

tween 2000 and 2010. This is a very high rate of growth of 16.2% versus 5.2% for greater Boston as a whole. Assuming that the average household size stays constant, the new population will support demand for 4,022 new housing units in the City of Law-rence by 2010. The Reviviendo Gateway District would capture a subset of the munici-pal total.

Retail • Retail market potential is based on capturing potential consumer spending from two

groups: (1) existing and future residents and workers within the local market area, and (2) customers who neither work or live in the market area but make it their destination for specific “destination” retail or other attractions. A thorough retail analysis should be undertaken to understand the full potential for the Reviviendo Gateway District to attract both local and destination consumer spending beyond current levels.

Development Targets Using this preliminary information from property and market surveys, development scenar-ios and targets can be created. Ten-year development targets for the Reviviendo Gateway District, for instance, might identify specific uses as percentages of total development as fol-lows. Sample Target Mix Residential – 50% Commercial office/R&D – 40% Retail/Restaurant – 5% Public/Community – 5% Parking — as required to support desired uses Development targets can also be expressed in terms of jobs created, new housing units cre-ated, and tax revenue generated. Development targets should also identify the associated

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parking that will be required, and other project impacts. In this way the benefits and trade-offs between alternate development scenarios can be compared. For instance, a projection for 1,000,000 square feet of new development could look like the following: Resulting Program Impacts (of identified uses) Residential 500,000 sf Parking Spaces Required 1,200 – 2,150 Commercial/office 400,000 sf parking in square feet 360,000 – 645,000 Retail/restaurant 50,000 sf New employees 680 – 1,020 jobs Community/Public 50,000 sf New housing units 340 – 405 units TOTAL 1,000,000 sf Development Feasibility GLC also used information from the property and market surveys to analyze if on a parcel-by-parcel basis there would be adequate financial incentive for the private sector to deliver space to meet the established development targets. Renovation and reuse of vacant and underutilized mill space constitutes almost 60% of over-all development potential in the Gateway District, however renovating these buildings in-volves special physical and financial challenges relative to new construction. Using a ge-neric mill building parcel as an example, GLC prepared sample pro forma financial analysis that assessed the feasibility of redevelopment for both residential and commercial reuse. The analysis included two important assumptions: 1. Rezoning throughout the Reviviendo Gateway District to allow mixed-use development as of right 2. The ability to provide on-site or convenient off-site parking without extraordinary cost All of the renovation scenarios tested appeared financially feasible according to conventional financing standards if the projected rents and occupancy can be achieved (in some cases with assistance from select public financing or funding opportunities). New Construction Scenarios involving new construction were not explicitly tested under this study. The as-sumption was that if the redevelopment scenarios for the mill building could be made finan-cially attractive, then new construction could also be assumed to be financially feasible. Implementation Issues GLC’s review of development opportunities in the Reviviendo Gateway District indicate several key issues that will be crucial for achieving redevelopment that supports the goals of

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the Reviviendo Gateway Steering Committee. • Revise Existing Zoning

Revisions to the zoning such as those proposed by zoning consultant John Connery will remove some of the existing regulatory obstacles to owners and developers creating the kind of mixed-use district envisioned by the Committee. Most notably, zoning should be amended to allow a greater mix of uses as of right in the North Canal and Essex Street sub-districts, especially to allow residential development as of right. Zoning should also be amended to facilitate investment in existing buildings and the development of infill housing on vacant lots.

• Support Public Infrastructure, Marketing and Asset Building Initiatives Regional data indicates that the Reviviendo Gateway District has the potential to capture new market share that will support redevelopment throughout the district. In order for the redevelopment potential to be fully realized, however, the Reviviendo Gateway Dis-trict will need to take affirmative steps to realize market potential. The strategies that are currently being established through the Public Infrastructure, Marketing, and Asset Building subcommittees will support a positive district identity that will retain and attract residents and tenants, increase the amount of disposable income that stays in the district, and support asset building within the district (including development of a skilled workforce, increased consumer spending within the district, and growth of existing busi-nesses), all of which will in turn support real estate objectives.

• Focus Planning Efforts on Reuse and Renovation as well as New Construction

The Reviviendo Gateway District contains a limited amount of redevelopable land out-side of the North Canal Historic District, and much of the redevelopable property that ex-ists within the North Canal district is already improved with structures. Approximately 60% of net new development in the Reviviendo Gateway District will involve the reuse or renovation of existing space. There are very limited opportunities for new construc-tion. Further planning efforts should give attention to the unique opportunities and challenges of reuse and renovation, including diverse topics such as the code issues related to subdi-viding large structures for multiple uses and the ability to use Historic Tax Credits for the reuse of historic buildings.

• Encourage Collective Solutions to Address Parking Shortage

The need to provide additional parking to support new uses will bring additional compe-tition for prospective development sites. Parking solutions will be especially crucial in North Canal District, where at least some shared parking will be required if the needs of all of the property owners are to be met. A further challenge is provided by the fact that currently all land in the Canal District which could serve as a location for shared parking

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is privately held. • Actively Promote Desired Mix

To the extent that the desired mix of uses will include uses that are more or less finan-cially or physically feasible for owners and developers, strategies will need to be put into place to actively promote the desired mix. Outreach to owners and developers, financial incentives, and other mechanisms can be implemented.

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Introduction

GLC Development Resources, a Boston-based real estate advisory firm, worked with staff and members of the Reviviendo Gateway Steering Committee (“Steering Committee”) from June to September 2002 to assist in the development of a series of “bricks and mortar” guid-ing principles for the Reviviendo Gateway District (“Gateway District“). GLC’s task was to provide a quick survey of real estate issues which would help the Steering Committee (and in particular the Bricks and Mortar subcommittee) assess existing conditions and key issues to support the development of Guiding Principles for future action. Using information gathered from market and census data, previous planning studies of the district, and conversations with local property owners, public officials and other stakeholders, GLC developed: (1) a property survey of the district, (2) a review of market conditions, and (3) a financial feasibility assessment for development within the district. GLC then worked with the Bricks and Mortar subcommittee to develop a series of develop-ment targets, and to identify key development issues.

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I. Property Survey: What Property is Available for Development or Redevelopment? How Much New Development Can Be Accommodated?

There is approximately 6.05 million square feet of land in the Reviviendo Gateway District, divided between three subdistricts. • North Common Neighborhood (“North Common Subdistrict“): 35% or 2,160,000 square

feet • Essex Street/Central Business District (“Essex Street Subdistrict“): 10% or 620,000

square feet • North Canal Historic District (“North Canal Subdistrict“): 55% or 3,250,000 sf The property survey focused on opportunities within the Gateway District for the redevelop-ment of vacant or underutilized property, both vacant lots which might be suitable for new construction and existing “soft space” in buildings with potential for renovation. Reuse as-sumptions were then applied to the property survey to yield estimates for redevelopment po-tential within each subdistrict, and in the Gateway District as a whole. See Appendix A for detailed parcel information and Appendix B for buildout projections. Data on the North Common neighborhood and Essex Street/CBD was provided by Ground-work Lawrence and the City of Lawrence. Data on the North Canal Historic District was provided from a 1997 inventory of land and buildings prepared by RKG Associates, Inc. and Vanasse, Hangen and Brustlin, Inc. (VHB). Key findings include: • A combined total of 550,000 square feet of vacant land suitable for new development

was identified in the Gateway District. This land can accommodate an estimated 500,000 square feet of new development.

• Over 1,000,000 square feet of “soft space” in buildings was identified in the Gateway District. Of this, over 90% is located in the North Canal Subdistrict.

• Taken together, the vacant and underutilized property in the Gateway District represents a total development potential for 1.5 million square feet of new development within the district.

North Common Neighborhood There are 43 vacant or abandoned parcels in the North Common neighborhood. These lots total 295,000 square feet of space (192,000 without the Brook Street Laundry Site). 20 lots are already improved or development is planned, including: • 1 lot is slated for a new Spicket River Park (Brook Street Laundry Site) • 1 lot is slated for new school (Holy Rosary Building)

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23 lots are vacant and unimproved: • 6 vacant lots are greater than 5,000 square feet [minimum lot size for new residential de-

velopment under proposed zoning] • 7 lots could be combined with adjacent vacant lots to form areas of greater than 5,000

square feet • 7 vacant lots are less than 5,000 square feet and are not adjacent to other vacant lots The vacant and underutilized property in the North Common Subdistrict can accommodate approximately 82,000 square feet of new development on currently vacant lots, and approxi-mately 70,000 square feet of new development in currently vacant buildings. Essex Street/CBD The Essex Street Subdistrict contains 11 vacant lots (all used currently or planned for surface parking), and 9 lots with vacant buildings. The 11 vacant lots include: • 8,600 square feet between Appleton and Jackson Streets are slated for a city parking lot • 5,000 square feet of parking at Jackson and Essex Streets • 13,200 square feet of vacant lots on the south side between Newbury and Mill Streets • 9,700 square feet on east side of Mill Street between Essex and Methuen Streets • 34,000 square feet on north side of Methuen between Newbury and Union Streets • 70,500 square feet total The 9 lots with redevelopable buildings include: • 17,000 square feet in five contiguous lots on Essex between Newbury and Jackson • Four additional lots documented with high vacancy or incompatible uses on Essex Street The vacant and underutilized property in the Essex Street Subdistrict can accommodate ap-proximately 25,000 square feet of new development on currently vacant lots, and approxi-mately 40,000 square feet of new development in currently vacant buildings. North Canal Historic District The North Canal Historic District contains 3.25 million square feet of land and 5.26 million building square feet. GLC used “hard/soft” analysis which groups the properties into four categories according to their current development status and potential for redevelopment. Those properties that are unlikely to redevelop due to being fully tenanted, recently tenanted, and/or occupied with an intensive level of use are classified as “hard space”. Those which are likely to redevelop are classified as “soft space.” “In process” refers to properties where specific projects are plan-

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ner or underway. “Long-term planning” properties are those where the size, configuration, location or existing use makes redevelopment less likely. This is a loose grouping and certain properties may not fit neatly into one category or an-other. (The Everett and Washington Mills have been placed in two categories because of the large amount of space represented.) However it is helpful as a starting point for identifying the amount of developable land in the Gateway district. “Hard Space” includes properties that are unlikely to redevelop within the next 10 years be-cause they are recently improved, fully tenanted, etc. with an intensive level of use. This group includes 56 and 60 Island street, 181 Canal Street, the parking garage, Museum Square, Historic Park and Visitors Center, One Mill Street, the Courthouse, and portions of the Everett and Washington Mills. These buildings occupy 550,000 lot square feet and contain 1,980,000 building square feet. “In Process” refers to properties where specific projects which are planned or underway. The two projects which are known at this time are the GenCorp/Oxford Paper projects and a planned residential/retail development at the AdTech parcels. GenCorp/Oxford Paper occupies 540,000 lot square feet and contains 200,000 building square feet. The AdTech parcels occupies 40,000 lot square feet and contains 56,000 build-ing square feet. “Long-term Planning” properties are those where the size, configuration, location, or exist-ing use makes redevelopment less likely. This group includes large warehouse/industrial buildings with high occupancy: Southwick, Newark Atlantic and Pacific Mills. These buildings occupy 920,000 lot square feet and contain 1,570,000 building square feet. Finally, “Soft Space” includes properties that are vacant or where existing buildings have high vacancy, where the location and/or size of buildings are most attractive for redevelop-ment, or where the owner has expressed active interest in redevelopment. This group in-cludes Lincoln Foods, Levis, Ippolitos, Pemberton Mill, the Ferrous Technology lots, Stone Mill, and portions of the Everett and Stone Mills and Washington Mill. These buildings occupy 1,050,000 lot square feet and contain 1,180,000 building square feet. Of the building square feet, 245,000 square feet is ground floor space (best location for re-tail/restaurant). 340,000 lot square feet (30%) belongs to the Ferrous properties (adjacent to Southwick). It is not clear whether environmental or other constraints would restrict the amount of this

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property that would be redevelopable. Preservation of a portion of this property for open space may also be desirable. The vacant and underutilized property in the North Canal Subdistrict can accommodate ap-proximately 350,000 square feet of new development on currently vacant lots, and approxi-mately 925,000 square feet of new development in currently vacant or underutilized build-ings.

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II. Market Survey: What is the potential demand for new space? GLC next examined market trends in the City of Lawrence, the Merrimack Valley and Greater Boston to find indicators of the demand for net new space that Lawrence might ex-pect before 2010. Industrial and Commercial Space In 2001 the Merrimack Valley Planning Commission (MVPC) issued a lengthy report on economic development trends in the Merrimack Valley. The Report predicted an employ-ment increase of 21,200 jobs in the region by 2010, which would in turn generate demand for 7 to 10 million net new square feet of space. The City of Lawrence and the Gateway dis-trict can be expected to capture some portion of this demand. The report, which covers all types of employment, forecasts that, “The largest net employ-ment increases over the next decade will occur in administrative, professional and service-related occupations…[and] in non-manufacturing, services and retail trade industries.” According to data collected by the Commonwealth of Massachusetts’s Department of Em-ployment and Training, approximately 20% of the year 2000 employment in the MVPC re-gion was located in Lawrence. If Lawrence continues to capture a similar share of future employment gains over the next decade, we would expect approximately 4,240 of the 21,200 predicted jobs to locate in Lawrence, and 1,400,000 to 2,000,000 square feet of space being required to accommodate those jobs. The Reviviendo Gateway District would be expected to capture a further subset of that mu-nicipal total. While recent employment data which match the precise outlines of the Revivi-endo Gateway District is difficult to locate, in 1997 a detailed employment survey performed by the planning firm VHB measured employment in the North Canal and Essex Street areas at 3,000 people or approximately 15% of the citywide employment figure of 21,000. • If the study area performs equal to past trends and captures 15% of new employees, we

would expect 636 new employees, requiring 210,000 square feet to 300,000 square feet of space

• If the study area performs better than past trends and captures 25% of new employees, we would expect 1,060 employees, and 350,000 to 500,000 square feet of space.

• If the study area performs worse than past trends and captures 10% of new employees, we would expect 424 employees, and 140,000 square feet to 200,000 square feet of space.

These numbers help provide some benchmarks for how much net new commercial develop-ment can be expected in the Reviviendo Gateway District. New development in this cate-

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gory would be expected primarily in the North Canal Historic District, with more limited op-portunities in the Essex Street/CBD. Commercial uses would range from office use to R&D/flex space, and retail. Residential The demand for new residential development remains strong throughout Lawrence and the Merrimack Valley as it does throughout Greater Boston. Demand in Greater Boston is driven by steady population growth which will require the production of as many as 4,200 new units of rental housing annually within the decade. Lawrence’s population has been projected to grow by 11,680 net new residents between 2000 and 2010. This is a very high rate of growth of 16.2% versus 5.2% for the Boston cen-sus area as a whole. If the average household size stays constant at 2.9 residents, the new population will include 4,022 households. Between 1990 and 2000 Lawrence’s population grew at 2.6%. One might therefore use 2.6% growth as a lower limit for the amount of population growth we can expect. Growth of 2.6% would add 1,873 residents or 645 households to the City’s population. Assuming that past trends continue, 68% of these new households will occupy housing as renters and 32% as owners. For the higher growth projection: • 68% x 4,022 households = 2,735 rental units (or demand for 274 units per year average) • 32% x 4,022 households = 1,287 owner-occupied units (or demand for 128 units per

year average) • TOTAL demand: 4,022 units before 2010 For the lower growth projection: • 68% x 1,500 = 1,020 rental units (102 per year average) • 32% x 1,500 = 480 owner-occupied units (or 48 per year average) • TOTAL demand: 1,500 units before 2010 In 2000 the census measured 1,138 vacant housing units in Lawrence, or 4.4% of the total housing units. That vacancy rate is consistent with regional data. If demand leads some of those vacant units to be filled, the demand for the production new housing would decrease proportionately. The Reviviendo Gateway District currently contains 1,400 housing units, predominantly in

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the North Common Neighborhood. New housing production could be located in any subdis-trict of the Reviviendo District. Opportunities for the creation of net new units is limited in the North Common Neighborhood and Essex Street CBD, however, because of relative lack of available sites. The greatest opportunities for new housing production lie in the North Ca-nal Subdistrict, with currently contains very limited residential development. Homeownership The 2000 Census calculated homeownership in the City of Lawrence at 32%, compared with ownership rates of around 70% for the rest of Merrimack Valley. The Reviviendo Gateway District has an even lower homeownership rate of 6%. Increasing the rate of homeowner-ship in the Gateway District will require the availability of units that are both attractive and accessible to prospective homebuyers. Further market research can help advise on the spe-cific housing features that would be most desired by prospective homebuyers, both those moving from within and outside of the Gateway District. Retail/Restaurant Estimating the current and potential demand for retail/restaurant space is dependent upon several complex variables and inputs. In making decisions about locating or enlarging a business in Lawrence, retailers will examine many factors including the existing and antici-pated customer base, the presence of other retailers and how those retailers might offer com-petition or synergies with the planned use, and the types of buildings and space available to accommodate retail development. Site-specific factors such as visibility, access, and parking will also affect location decisions. For instance, retail and restaurant uses have a strong preference for a ground floor location. Of the 1,180,000 square feet identified as “soft space” in the North Canal Subdistrict, for in-stance, approximately 245,000 square feet is located on the ground level. This provides one measure for the maximum additional retail/restaurant buildout in that particular subdistrict, assuming no new construction and that all ground floor space would be attractive to retailers. One would also expect to see more intensive use of existing retail and restaurant space throughout the Gateway District, either through the growth or replacement of some subset of existing businesses. While quantifying the retail potential in the study area is beyond the scope of this assign-ment, we would offer the following comments related to retail market analysis. A primary factor in location decisions for retail tenants will be the expectation of consumer demand for the products or services offered by establishment. For the Lawrence study area, it is useful to think about two kinds of customers as sources of demand:

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1. Existing and future residents and existing and future workers within the market area 2. Customers who neither work or live in the trade area but make it their destination for

specific “destination” retail or other attractions One standard method for measuring market potential is included as Appendix D. Such ana-lytic methods work especially well for a relatively captive market such as residents or em-ployees. Establishing strategic niches to serve “destination” or “comparison” markets, how-ever, requires a different kind of planning, as well as a coordinated marketing and business recruitment effort. An improved retail environment could both increase the quantity and quality of retail/restaurant establishments in the Essex Street CBD and introduce a desirable ground floor re-tail presence to a mixed-use North Canal Mill District. Community/Public Uses Community and public uses is a broad category that includes all public, non-profit and insti-tutional users. While program and space needs will vary widely among these users, in gen-eral they will prefer a location with visibility, good transportation access, and adequate and convenient parking. Like retail, these users will also prefer a ground floor location.

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III. Development Objectives: What is an appropriate target mix? After property and market surveys have identified the availability of appropriate develop-ment parcels and the market demand for net new space, development scenarios and targets can be created. Development targets will reflect the amount of redevelopable space, the market demands for various uses, and public and community priorities. Ten-year development targets for the Re-viviendo Gateway District, for instance, might appear as follows, to reflect the community’s desire to encourage mixed-use development, especially residential development, throughout the Gateway District. The “other” category would allow for flexibility in the mix of uses be-yond the minimum targets established in specific use areas. Residential – 35% Commercial office/R&D – 25% Restaurant/Retail – 5% Public/Community – 5% Other – 30% Parking — as required to support desired uses Development targets can also be expressed in terms of development impacts (both positive and negative) such as jobs created, new housing units created, tax revenue generated, and parking required. Such data is useful because identifying an appropriate target mix will in-volve measuring priorities and tradeoffs among impacts. For instance, residential uses re-quire less parking than commercial. Intensive commercial uses require a great amount of parking, but also bring employment opportunities. A sample table follows. See detailed assumptions in Appendix F. Development Impacts Scenario 1 Scenario 2 Scenario 2 Assumptions Target Mix As above As above As above Total SF Developed 1,000,000 sf 1,000,000 sf 1,000,000 sf “Other” assumed as: Housing Housing/Office Office Resulting Program Residential 650,000 square feet 500,000 square feet 350,000 square feet Commercial/office 250,000 square feet 400,000 square feet 550,000 square feet Retail/restaurant 50,000 square feet 50,000 square feet 50,000 square feet Community/Public 50,000 square feet 50,000 square feet 50,000 square feet Impacts (of identified uses) Parking Spaces Required 970 – 1,880 sp 1,200 – 2,150 sp 1,400 – 2,400 sp parking SF 291,000 — 564,000 360,000 — 645,000 420,000 — 720,000 New employees 425 – 625 jobs 680 – 1,020 jobs 925 – 1,400 jobs New housing units 440 – 530 units 340 – 400 units 240 – 280 units


IV. Financial Feasibility Having examined general indicators of the demand for space, GLC then tested whether or not there will be adequate financial incentive for the private sector to deliver space to meet the demand. To do this, GLC looked at the financial feasibility of redevelopment of a single parcel from an owner/developer perspective. Due to the large amount of vacant or underutilized mill space in the Reviviendo Gateway District, GLC’s analysis focused in particular on the economics of converting mill space to either commercial (office) use or residential use. GLC developed pro forma scenarios based on a generic 100,000 sf warehouse mill building (“Lawrence Mill”) and four different development scenarios. These appear in Appendix E. Commercial • conversion to Class B commercial/office • conversion to Class B commercial/office, use of public financing Residential • conversion to multi-family rental • conversion to for-sale loft-style units While these findings do give indications of the critical issues for financial feasibility, further feasibility analysis should take into account site– and project-specific factors such as site conditions and program requirements. Commercial Two commercial pro forma scenarios were developed which differed from each other only in the sources of financing. The first pro forma scenario was analyzed using only private sources of debt and equity, while the second pro forma added several public programs to the mix. These programs included: Historic Tax Credits, New Markets Tax Credits, Commer-cial Revitalization Deductions, Abandoned Building Deductions, and Tax Increment Financ-ing. Assumptions • Use: Class B Office/R&D throughout the building (including ground floor) • Rent: $10 NNN target rent — based on achievable rents in today’s market • Efficiency: 94% of gross area assumed rentable; 84% of gross area assumed to be the

net tenant area • Parking: Assume a total of 3 parking spaces per 1,000 sf leasable area required by the

market: one parking space/1,000 sf of leasable area available on site as surface parking,

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and two additional spaces per 1,000 sf located off- or on-site in structured parking. • The cost of structured parking to the owner is assumed to be the construction cost (versus

leasing or another arrangement) • Acquisition cost: The acquisition cost is based on the value of the income that the owner

is currently receiving from the property. In this case the assumption is that the building is currently occupied with a low intensity use and that the acquisition cost will be rela-tively modest.

• Construction phasing and rent-up: It is assumed that it will take four years to completely lease the building (or 25% of leasable area leased per year). The building core and shell will be completely renovated in the first year, with tenant improvements taking place over time as space is leased.

Comments on Analysis The high cost of structured parking is one key challenge in financial feasibility, as it ac-counts for approximately one third of project hard costs. If fully utilized, several of the tar-geted funding programs tested in the pro forma appear to have the potential to greatly in-crease the attractiveness of a project that might have otherwise appeared infeasible. Residential/Condo: There are many different styles of residential development that might be pursued in the Gateway district, for different target market segments. For the purposes of this analysis, GLC looked at two different products that have been frequently discussed in relation to the district and for which there are readily available comparable project from which to draw data: loft-style condominium development and multi-family rental. (As discussed in Sec-tion II, future market research should focus on the feasibility of affordable and attractive homeownership opportunities.) Loft-style development is appealing for reuse of mill buildings for a variety of reasons: the space can be sold in a relatively unfinished state and therefore involves less construction costs than standard units; loft units are more adaptable to irregular building configurations; and loft development builds on the strongest asset of the Gateway District — its distinct his-torical and architectural character. Multi-family rental is of particular interest because family housing makes up a great amount of Lawrence’s current demographic (in the 2000 Census 70% of Lawrence’s households were identified as “family households”). Assumptions Loft Style • Use: Loft-style condominium development; 1,250 net square feet per unit average.

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• Sale/rental: SALE • Sales price: $150.00 per nsf. Price bases on comparable developments in greater Bos-

ton. Average unit cost: $187,500. Affordability: 10% of units available for sale to buy-ers at or below 80% Lawrence median income

• Efficiency: 85% of gross area assumed for net sf. • Parking: 1 parking space/1,000 sf of leasable area available on site as surface parking.

Parking ratio follows current zoning requirements for adaptive reuse. • Acquisition cost: same as commercial scenario • Rent-up: 25% of units are assumed to be sold per year (4 years to full occupancy) Multi-Family • Use: Multi-family rental; 1,050 net square feet per unit average. 1,050 nsf is a gener-

ously sized 2-bedroom apartment. • Sale/rental: RENTAL • Rent: $1.25/nsf target rent ($1,312 per month average). This rent target is consistent

with rents at comparable properties in the Merrimack Valley and with asking rents at Museum Square in the Gateway district.

• Affordability: 10% of units rented to tenants at or below 80% Lawrence median income • Efficiency: assumed same as condo • Parking: assumed same as condo • Acquisition cost: same as commercial scenario • Rent-up: lease-up within one year. Comments on Analysis Both of these scenarios appear feasible if projected rents and occupancy can be achieved. As for the commercial scenario, the assumption of available on-site or convenient off-site parking is key. Minimum parking ratios have been assumed. A higher percent affordability could be achieved through the inclusion of public funding / financing such as Low Income Tax Credits. Zoning: In preparing this analysis GLC assumed changes in the existing zoning such as those pre-pared for the Reviviendo Gateway Steering Committee by consultant John Connery. Devel-opment was assumed to be as of right, and therefore not to involve exceptional permitting cost or risks. Residential reuse was assumed to be permitted in the historic mill buildings. John Connery has also done some important preliminary research on the issue of segmenting larger buildings into smaller buildings for the purposes of meeting code requirements. Seg-mentation is especially advantageous for larger buildings because it allows the owner to bring subsets of the building to code at a time, over time. John Connery reports that there is

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no technical or building code regulation that prevents a large building from being segmented into a smaller building with the proper application of fire wall standards. However, since the heating and cooling systems must be separate for each “segment”, segments that are too small will be financially inefficient.

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V. Implementation Issues The preceding discussions of existing buildout conditions, market conditions, buildout sce-narios, and financial feasibility indicate several key issues for redevelopment of the Gateway district. • Revise Existing Zoning

Revisions to the zoning such as those proposed by zoning consultant John Connery will remove some of the existing regulatory obstacles to owners and developers creating the kind of mixed-use district envisioned by the Committee. Most notably, zoning should be amended to allow a greater mix of uses as of right in the North Canal and Essex Street sub-districts, especially to allow residential development as of right. Zoning should also be amended to facilitate investment in existing buildings and the development of infill housing on vacant lots. GLC’s financial feasibility assessment has assumed rezoning throughout the Reviviendo Gateway District.

• Support Public Infrastructure, Marketing and Asset Building Initiatives Regional data indicates that the Reviviendo Gateway District has the potential to capture new market share that will support redevelopment throughout the district. In order for the redevelopment potential to be fully realized, however, the Reviviendo Gateway Dis-trict will need to take affirmative steps to realize market potential. The strategies that are currently being established through the Public Infrastructure, Marketing, and Asset Building subcommittees will support a positive district identity that will retain and attract residents and tenants, increase the amount of disposable income that stays in the district, and support asset building within the district (including development of a skilled workforce, increased consumer spending within the district, and growth of existing busi-nesses), all of which will in turn support real estate objectives.

• Focus Planning Efforts on Reuse and Renovation as well as New Construction

The Reviviendo Gateway District contains a limited amount of redevelopable land out-side of the North Canal Historic District, and much of the redevelopable property that exists within the North Canal district is already improved with structures. Most of the redevelopment opportunities in the Reviviendo Gateway District involve the reuse or renovation of existing space. There are very limited opportunities for new construction.. Further planning efforts should give attention to the unique opportunities and challenges of reuse and renovation, including diverse topics such as the code issues related to subdi-viding large structures for multiple uses and the ability to use Historic Tax Credits for the reuse of historic buildings.

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• Encourage Collective Solutions to Address Parking Shortage The need to provide additional parking to support new uses will bring additional compe-tition for prospective development sites. Parking solutions will be especially crucial in North Canal District, where at least some shared parking will be required if the needs of all of the property owners are to be met. A further challenge is provided by the fact that currently all land in the Canal District which could serve as a location for shared parking is privately held.

• Actively Promote Desired Mix

To the extent that the desired mix of uses will include uses that are more or less finan-cially or physically feasible for owners and developers, strategies will need to be put into place to actively promote the desired mix. Outreach to owners and developers, financial incentives, and other mechanisms can be implemented.

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SOURCES 1. Brownfields Pilot Project, North Canal Mill District, Lawrence, MA, A Physical and En-

vironmental Assessment, Final Report, RKG Associate, Inc./VHB (December 10, 1997) 2. Brownfields Pilot Project, North Canal Mill District, Lawrence, MA, Inventory of Land

and Buildings, Final Report, RKG Associate, Inc./VHB (December 10, 1997) 3. Economic Development Strategy for the Merrimack Valley, MVPC with Economic De-

velopment Research Group (May 2001) 4. Merrimack Corridor Enhancement Plan, VHB (1997) 5. Office Buildings, 2002 6. Dollars & Cents of Shopping Centers, Urban Land Institute (2002) 7. Memorandum, Parking Action Plan – Quadrant/Gateway Area, VHB (February 1, 2001) WEB SOURCES 1. City of Lawrence: www.ci.lawrence.ma.us 2. Commonwealth of Massachusetts: www.state.ma.us 3. Merrimack Valley Economic Development Council: www.mvcouncil.org 4. Merrimack Valley Planning Commission: www.mvpc.org 5. U.S. Census: www.census.gov

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GLOSSARY Measures of Space Efficiency Ration of Rentable Area to Gross Square Feet Gross Square Feet (GSF) The gross square feet of a building is determined by calculating the actual square feet of building space located within the exterior face of the building's exterior walls. Lot Square Feet Lot square feet measures the size of the property (vs building square feet which measures the size of the structures on the property). Net Square Feet (NSF) A subset of Gross Square Feet which may equal either rentable/leasable space or usable space. Rentable/Leasable Space The total square footage rented. This includes all common areas. Usable Space The space that your business physically occupies. This does not include common areas such as corridors, elevators, lobbies and rest rooms. Development Costs Building Envelope and Core Includes all of the shared systems in the building: structural and mechanical systems, exte-rior and windows, lobbies, elevators and shared stairs, etc. Project Soft Costs Design fees, legal and other expenses not directly associated with the cost of construction. (“hard costs”). Shell Fitout of tenant space including basic finishes, systems work, lighting, etc. Tenant Improvements (TI) An allowance for specialized fitout of tenant space paid for by landlord. Negotiated as part of the tenant lease.

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Building Operations Net Net Net (NNN) Lease Type of lease where Tenant generally pays for all operating expenses. Net Operating Income (NOI) Income after deducting for operating expenses but before deducting for income taxes and in-terest. Measures of Financial Return Capitalization Rate The discount rate used to determine the value of a stream of future earnings. (Helps to an-swer the question: “How much would someone pay today for the following future income stream?”) Higher discount rates are usually associated with projects that are perceived to have greater risk. Cash-on-Cash A measure of financial returns on a project obtained by dividing the net operating income (revenue less expenses) by the total project development cost. Internal Rate of Return (IRR) Another measure of the current value of a stream of future earnings. Return on Equity (ROE) A measure of the financial return to the equity investors (as opposed to the return to lenders of debt). Building Classifications Class A Newer properties (built since 1980) of 100,000 square feet or larger in prime business dis-tricts. These buildings usually have at least five floors and are constructed of steel and con-crete. They offer many business amenities and good access. Class B These properties are typically smaller, older and of wooden framed construction. They have usually been renovated and are in good locations. If the buildings are newer then they are typically smaller and not in a prime location.

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Industrial One to two story buildings for warehouse, manufacturing, or distribution use, not including 100% owner-occupied buildings. R&D / Flex One to three story buildings for flexible space use ranging from office to light industrial, not including 100% owner-occupied buildings.

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Appendix D. Measuring Retail Market Potential To assess the market potential from those consumers who are most likely to patronize estab-lishments in the study area due to a “convenience” factor, a retail analyst might proceed as follows to determine the overall sales potential, the amount of that potential that is likely to be captured in the market area, and methods to ensure that the target market share is achieved. 1. Determine the number of customers in the market area. A market area would be defined and the number of households and population within it de-scribed. A generic market area is typically measured as concentric circles (of ¼ mile, 1 mile, etc) around the proposed location. Tailored market areas may also be developed based on regional travel patterns, retail competition, etc.

2. Determine the amount of money that people in this group would typically spend on a given product or service. The Bureau of Labor Statistics offers data by region and income level on typical household spending across 14 general categories, including food, apparel, health care, etc.

For instance, in the Northeast region, households with income between $20,000 and $29,999 per year typically spend $2,978 in the category of food at home, or roughly $250 per month. Using this data, a total sales potential can be determined.

For example, 5,000 households who typically spend $1,500 annually on apparel would have a total sales potential of $7,500,000.

3. Determine how much money is currently being spent on this product or service in the trade area, and the difference between that amount and overall sales potential. An inventory of businesses in the study area can yield sales data in each of the sales catego-ries. The difference between the sales potential and the actual sales is the “leakage”.

Let’s assume that in the case of the apparel market, the actual sales are measured at $2,500,000 in this spending category.

$7,500,000 in sales potential less $2,500,000 in actual sales = $5,000,000 leakage

4. Determine how much of the income being spent on this product or service elsewhere could be recaptured by the trade area.

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This will require both a qualitative and quantitative assessment of the strengths and weak-nesses of the study area relative to other consumer options.

5. Determine whether the sales potential is adequate to support additional retail tenants. A data source such as the Urban Land Institute’s Dollars and Cents of Shopping Centers can be used to translate sales potential into supportable sf of retail by using data on average sales per square foot in each of the spending categories.

Assume, for instance, that we estimate that $1,000,000 of the leakage in the case above can be recaptured within the study area. If we assume that retailers are expecting an average $200/sf sales volume per sf, then we can estimate that around 5,000 additional sf of retail could be supported. Depending on the requirements of the retailer, this might or might be enough to attract a particular tenant to relocate. 6. Factor in physical space requirements. Market analysis may reveal that the Reviviendo Gateway District is overserved in some spending categories, is underserved in others, and/or that existing retail is underutilized per square foot. The final step is to examine existing, vacant or under-utilized physical space to see if appropriate space exists to create development opportunities for each spending cate-gory. For example, large, chain grocery stores will require bigger, contiguous footprints than a chain drugstore or local restaurant. The Urban Land Institute publishes industry standards for retail end-users which may be useful.

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