A PLACE FOR ALL OUR PEOPLE

With guidance from the UNC School of Government and its Development Finance Initiative (DFI), the county of Durham pursues sustainable development downtown.

By Mary Lide Parker

Gentrification. Affordable housing. Mixed-use development. As cities across the country experience revitalization, these buzzwords have become more and more commonplace in conversations about urban development.

Durham is no exception.

“What is happening in Durham is happening all over the country,” said Wendy Jacobs, chair of the Durham Board of County Commissioners. “With revitalization of downtown areas, we are seeing a lot of economic opportunity and development. But we’re also seeing the displacement of people who have lived in downtown neighborhoods for many decades. People can no longer afford to live in neighborhoods and homes that they have lived in for generations.”

With new businesses and economic growth comes a major increase in property values. As taxes go up, the number of low and middle-income families drops.

“If we want to have a vibrant, diverse, and inclusive downtown, we have to have places for all kinds of people to live,” Jacobs said.

The idea of affordable housing is simple enough: create homes for low and middle-income families in the downtown area.

“In county government specifically, we have law enforcement, public health workers, social workers, librarians, EMS, and first responders,” Jacobs said. “All these people work in downtown Durham and they should be able to live where they work.”

Making those homes a reality, however, is a bit more complicated.

Recognizing the Challenge

In the last four to five years, downtown Durham (the largest neighborhood in the county) has seen a significant surge in development.

“We’ve had about three or four thousand residential units added during that period of time,” said Wib Gulley, a former mayor and North Carolina state senator.

“Downtown is also the most expensive neighborhood in the county,” Gulley said. “And until very recently, it had zero affordable housing units.”

Gulley volunteers with an organization called the Coalition for Affordable Housing and Transit, commonly known around Durham as “the Coalition.”

“The first thing you learn about affordable housing is, it’s complicated,” Gulley said. “It’s not just people who are homeless getting into temporary shelter, or people transitioning from shelters to permanent housing. It’s not just people who rent, and it’s not just people who want to become first-time homeowners but can’t find anything they can afford. It’s all those scenarios and more.”

Developing affordable housing is a lengthy and complex process. It requires a high level of expertise to navigate the tax credit requirements, lexicon, and many regulations that are unique to affordable housing development.

That’s where the UNC School of Government comes in.

Making it work

As part of the School of Government, the Development Finance Initiative (DFI) partners with local governments to attract private investment to generate transformative projects. The program does this by providing specialized finance knowledge and development expertise.

“DFI helps take a community’s vision and ground it in market and financial realities,” said Sarah Odio, a DFI project manager.

After the Capital Improvement Plan identified the 300 and 500 blocks of downtown Durham as sites for new parking decks, the county commissioners stepped in. “They said, ‘time out—let’s look at doing more on these properties,” said Peri Manns, Deputy Director of Engineering and Environmental Services for Durham County. “They wanted to look at putting some type of affordable housing component on it.’”

It is important to note affordable housing is not limited to public housing. Public housing relies on ongoing federal funding and is publicly managed by local housing authorities, while private affordable housing leverages private investment and typically operates independently from local governments.

DFI’s approach to pre-development involves several steps: community engagement, a parcel analysis to understand current conditions in downtown, a site-specific market analysis, site planning, and financial feasibility. Ultimately, DFI’s goal is to identify a project that meets the public interests and “works” for a private developer.

“Public sector and private sector people sometimes have a difficult time communicating,” Odio said. “So, we sit at the table to help translate and make sure public interests are protected. We also help local governments understand the real constraints faced by the private sector. In the end, we want to create a project that works for everyone.

“The biggest issue is navigating the regulatory requirements around affordable housing and all the various laws regarding tax credits,” Manns said. “Since the County does not traditionally invest in affordable housing, we did not have a true understanding of what’s required, and that’s why it was so critical to get DFI on board—it has been a huge learning experience.”

Mitigating uncertainty for the developer, making sure the specifics of the project are clear, and gaining input from the community are some of DFI’s major priorities. “Our work doesn’t just benefit the County,” Odio said. “It’s also providing the developers with clear expectations, saving them time, and giving them a vision to create projects with a real impact.”

Bridging the Knowledge Gap

“This was our first affordable housing project and we didn’t have the experience or the bandwidth to pull off all the leg work on our own,” Manns said. “DFI has the expertise to do the necessary analysis and the due diligence to see if this will be a viable project for a developer.”

DFI lays all the cards on the table for potential developers through a solicitation document that summarizes all of DFI’s prior pre-development work. Developers submit proposals to the County in hopes of being selected as a future partner for the project.

“The solicitation process clearly lays out the County’s expectations for its future partner,” said Marcia Perritt, associate director at DFI. “We had a lot of developers do extra leg work to impress the County. When the basic elements of the deal are unambiguous, developers can take the time to create relationships with community stakeholders and take these projects to the next level.”

“We had multiple developers who took the time to establish relationships with local organizations, such as daycare providers and grocers,” Odio said. “Some developers even found local investors that would support the project. There is huge value to that.”

Advocating for the Community

“Cities usually pursue affordable housing,” Odio said. “But the County and City of Durham tend to work together more cooperatively—their boundaries are closer, and it’s more of an urban county.”

“We’re incredibly fortunate in North Carolina to have an institution like the UNC School of Government and DFI,” Jacobs said. “We’re using this new ability to do public/private partnerships, and we needed the outside expertise to navigate that and understand what we can and cannot do.”

Engaging with the people of Durham was a critical part of the process as well, according to Jacobs. “Through the process that DFI created, we were able to hear directly from the community and identify the most important priorities based on the feedback we got.”

“When you’re engaged with a developer and a private partner, it’s important to have a non-profit who has your best interests at heart,” she said. “DFI is there to help local governments make good decisions that are going to benefit our communities. That’s really essential.”

Looking toward the future

Throughout his decades of public service, Wib Gulley has seen many different consultants work with local public governments around the issue of affordable housing. “There have been a number of times when, frankly, I don’t think they’ve done a very good job,” he said. “But DFI has been impressive—by far the best job of engaging with the community, developing options for the county to consider, and managing a rigorous process to select a development partner.”

Like many people who advocate for affordable housing in Durham, Gulley is excited to see the 300/500 East Main Redevelopment become a reality.

“This is going to more than triple the amount of affordable rental housing in downtown Durham,” he said. “I don’t want to suggest that the problem is solved—we still have quite a way to go—but the County commissioners’ commitment to making this a priority is big step forward.”

The completion of the Main Street developments will certainly represent a more inclusive and diverse downtown, but it may also serve as a framework for creating more affordable housing options across the entire county of Durham.

“What we have learned is that every neighborhood in an urban community should have its share of affordable housing,” Gulley said.

When considering the future of Durham (and cities like it), Gulley hopes to see every neighborhood offers a range of housing options. “The dream scenario would be for people to pick any neighborhood they want,” he said. “And find affordable options regardless of what walk of life they come from.”

A community wanting to transform its downtown could focus on singular projects, but UNC DFI analysis often reveals that a greater scale of redevelopment can enhance feasibility and achieve more impact. If an entire city block is vacant, the redevelopment of one building will not make a huge difference. Large-scale efforts will sometimes help mitigate the costs of development and allow for a shared vision and coordinated investment among public and private sectors—all factors that can enhance the likelihood of a successful and sustainable revitalization effort.

The Challenge

Kannapolis, North Carolina, exemplifies the scaled-up approach. In 2015, the City of Kannapolis acquired its entire historic downtown core for $8.75 million. The purchase included numerous historic buildings and large swaths of vacant land where mill structures once stood.

Much of Kannapolis’s downtown had been built and run for employees of Cannon Mills, the city’s namesake and once the largest textile factory in the world. In 2003, the mill closed and the 4,300 jobs that were lost marked the biggest permanent layoff in North Carolina history. The downtown, as well as the mill, had been acquired from Cannon Mills in 1982 by billionaire and Dole Food mogul David Murdock, who sold the mill in 1987 but held onto the downtown and surrounding acreage. Having a single owner of the area helped to facilitate the sizeable transaction between the City of Kannapolis and Murdock.

In 2015, more than half of the downtown was vacant and many of its historic structures were in states of disrepair. Few vestiges of Kannapolis’s formerly bustling downtown, where three movie theaters once played the newest films in sync with mill workers’ shifts, remained. Although the tax assessed value of downtown totaled $24.5 million, it represented less than 1% of the city’s total tax base.

With the downtown under local government ownership and a 10-year partnership with UNC DFI in place, city leadership regained control over the fate of arguably its most unique asset.

The Project

Since 2015, Kannapolis—with the help of DFI—has made major investments in its downtown, radically transforming its infrastructure, providing more greenspace, and refocusing on pedestrian-centered designs. The downtown’s primary street, for example, is being transformed into an urban, linear park. Its innovative design will tie into surrounding commercial and community spaces, providing outdoor seating and recreational opportunities.

The construction of a new baseball stadium with expected opening in Spring 2020 complements the city’s vision. Known as the Sports and Entertainment Venue, or “SEV” for short, the new stadium will host 70 baseball games annually, seating roughly 5,400 people, while also providing a venue for outdoor concerts and events.

These strategic and innovative investments signal the City’s commitment to revitalizing its downtown, and though not yet complete as of Summer 2019, they have already begun to usher in new private investment.

Through DFI’s help in master planning, Kannapolis is beginning to transfer its downtown land holdings to private parties for redevelopment. A mix of residential, office, retail, and hospitality uses are planned, which—once implemented through a series of solicitations and Public Private Partnerships (P3s)—will breathe new life into this once-vibrant downtown.

As each property is turned over to private partners, UNC DFI conducts detailed predevelopment analyses to better inform the appropriate development program as well as the appropriate level of public investment. And as a long-term partner, DFI will remain by the City’s side throughout its downtown’s redevelopment. By continuing to provide updated financial, market, and site analyses, UNC DFI protects the City’s potential financial liability, limits public investment, and upholds the public interest.

Ultimately, as Kannapolis works to reposition itself, DFI provides resources that expand the capacities of City staff and elected officials and inform better decision-making.

The Outcome

In 2016, the City and DFI released the downtown’s first solicitation for private development. Known as the Demonstration Project, this mixed-use development opportunity served to showcase the market’s appetite and development potential of downtown Kannapolis. With UNC DFI’s help, the City successfully negotiated and executed a development agreement with an experienced partner and the project broken ground March 2019. Known as VIDA, the development will add 286 apartments, 19,000 square feet of commercial space, and 417 structured parking spaces to downtown.

Since the success of the demonstration project, UNC DFI has released additional solicitations for townhouses to be constructed at the former mill site and the adaptive reuse of several historic downtown buildings. The City and DFI will continue to release solicitations to realize the City’s goals of seeing more than $400M of investment in downtown Kannapolis.

Wilmington, North Carolina: Water Street Parking Deck

The City of Wilmington, North Carolina, hired the Development Finance Initiative (DFI) in 2013 to conduct a pre-development process for the Water Street Parking Deck (parking deck). The parking deck is an aging public parking facility prominently located in the city’s historic downtown on the Cape Fear riverfront.

Wilmington is one of North Carolina’s largest and fastest growing cities and a popular tourist destination. Its downtown area is an economic and social hub for the region. With a nearly 300-block historic district, the area includes cobblestone streets with ancient trees and lovingly restored historic homes, restaurants, shops, music and art venues, hotels, a river walk, a college campus, and a convention center.

The Challenge

The two-story Water Street Parking Deck was constructed in the 1960s and sits on 1.2 acres along Water Street overlooking the Cape Fear River. Though it is nearing functional obsolescence, the parking deck serves as primary public parking for tourists and locals alike. Surrounded by vibrant retail and entertainment businesses, the parking deck is an eyesore.

City officials long believed that a parking structure alone was not the highest and best use for the high-profile location. They envisioned a future for the site that would spur additional private investment while respecting the historic fabric of the surrounding built environment.

What city officials hoped would be a straightforward redevelopment project was much more complicated. In the last two decades, the city released two different Requests for Proposals that received no responses from the private sector. Numerous factors made consideration of development particularly challenging. The property was constrained by the physical limitations of a site surrounded by existing structures and the necessity to provide generous space for public parking. There was public discord over the use and density of the site as well as a lack of a shared vision among political leadership.

Meantime, owners of other valuable downtown properties had put redevelopment on hold until the parking deck could be refurbished.

Frustrated by the lack of interest in what they saw as a desirable development opportunity, city officials turned to the School of Government—a long-trusted and respected resource to local municipalities. In 2013, the city hired the School’s Development Finance Initiative (DFI) to help.

Roger Johnson, the City of Wilmington’s special assistant to the city manager for economic development, has been a central participant in the search for a viable solution to the Water Street Parking Deck. “Our decision to hire DFI for this project,” he said, “was greatly influenced by its association with the School of Government and the broad expertise they bring to the table.”

The Project

The city asked UNC DFI to define an economically feasible redevelopment project for the parking deck that would be attractive to the private sector while also serving varied (and sometimes competing) public interests.

DFI led a 12-month pre-development process that guided the city to key decision points about the program, the public investment, the structure of the public-private partnership, and selection of a private sector partner. This iterative process included a market analysis, site analysis, public stakeholder engagement, and financial feasibility modeling.

The market analysis provided an assessment of supply and demand dynamics aimed at understanding what types of specific uses (residential, retail, office, hotel, and parking) the downtown market could support. For the site analysis, UNC DFI directed an architecture firm in their work to determine the configuration and massing of the potential redevelopment uses identified through the market analysis.

DFI also worked with Allen Davis, urban designer in the city’s Planning, Development, and Transportation Department, to make sure the parking deck project would integrate seamlessly into its surroundings. This included urban design elements as related to adjacent building and public space, as well as emphasizing the important connection an elevated walkway provides between the redevelopment site and several existing businesses on Front Street.

Public engagement occurred throughout the pre-development process and took on several forms – one-on-one meetings, an online survey, public forums, and small group stakeholder meetings. Finally, UNC DFI performed a financial feasibility analysis of the proposed redevelopment program, informed by the site and market analyses, as well public interests collected through stakeholder engagement and endorsed by city officials.

The Outcome

DFI’s pre-development process resulted in an economically sound program and partnership structure for the parking deck, which DFI then used to actively recruit qualified private developers to the project. The city received proposals from eight development teams from across the Southeast, and with UNC DFI’s guidance, selected a skilled development partner with a successful track record in mixed-use projects in urban cores.

The Impact

Roger Johnson noted an additional unanticipated benefit to the process. “DFI brought in eight developers who had not before considered Wilmington for development, but who, because of UNC DFI’s intervention, were willing to consider building something transformative in our community,” he said. “And now, in addition to the parking deck project, I am still in contact with another five of the developers who are considering other large scale projects around the city.”

Johnson describes the parking deck and the possibility of additional business as having the potential to “transform our urban core in a powerful manner and result in large scale capital projects that will improve our community overall.”

population at project start: 110,000 people

County: New Hanover County

Tier Designation: 1

Project Type: DFI

Solicitation Archive

Description:  The City of Wilmington, North Carolina, hired the Development Finance Initiative (DFI) in 2013 to conduct a pre-development process for the Water Street Parking Deck (parking deck). The parking deck is an aging public parking facility prominently located in the city’s historic downtown on the Cape Fear riverfront.

Tags: adaptive reuse, masterplan, downtown, in-fill