Can Chapel Hill force developers to build more stores, offices, in Blue Hill district?

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@TammyGrubb

Despite the town’s efforts, residents and shoppers may not see more offices and stores built any time soon in the Blue Hill District.

The district has generated a smattering of retail in four years, over 1,000 apartments and concerns about whether the redevelopment experiment is working.

Projects in the district — located along East Franklin Street and Fordham Boulevard — are built according to a form-based code that streamlines the town approval process and is supposed to create predictable results.

The goal is to transform a suburban, car-centric commercial district into an urban, walkable community of apartments, shops and offices that provides the town with more property and sales taxes.

While supporters say that is happening, critics see rising rents closing local businesses, and multistory apartment buildings towering over single-story shopping centers. There are no new offices, and some new retail spaces are vacant. There’s a fear that development will worsen traffic and flooding, and add to the cost of providing town services.

David Adams, with the citizens group Chapel Hill Alliance for a Livable Town, noted that most of the town’s tax burden — at least 80 percent — falls on homeowners.

Expectations that the Blue Hill District would help shift the tax burden have not panned out, he said. Instead of 60 percent residential and 40 percent nonresidential construction, as predicted, new construction has been over 95 percent residential, he said.

“If council does not act, new construction will continue to be almost exclusively residential, exacerbating the very problem that the Blue Hill redevelopment was meant to help remedy,” Adams said.

While town staff didn’t expect the 60/40 split for 20 years, some Town Council members have shared similar frustrations with the pace of development, pushing this spring for a way to get more commercial projects.

“I don’t want to discourage development, but I think that if we have to wait a little bit longer to get what we really want, then that‘s OK with me, too,” council member Jessica Anderson said. “If all this gets filled up with residential, we won’t build office because there won’t be any space for it.”

Commercial required

The council first considered restricting six lots in the district to only commercial development. Their owners protested, and the council approved new rules for the entire district in June:

▪ Every development must include at least 10 percent commercial space, whether it’s one or multiple buildings

▪ Over 10 percent commercial space triggers an incentive that gives developers more square footage on the upper stories

While buildings still can abut the sidewalk, the incentive increases from 10 feet to 20 feet how far back upper stories must be from the building’s edge.

The 10 percent commercial requirement likely would have killed the Berkshire Chapel Hill project, said Ben Perry, with developer East West Partners. The district’s first and only mixed-use building, near Whole Foods, has 266 apartments and 15,250 square feet, or 5 percent, commercial space About half of the storefronts are vacant, leasing documents show.

That’s less overall commercial space than mixed-use buildings offer downtown. Online listings show 140 West, which opened with 7 percent commercial in 2014, is 47 percent vacant. Greenbridge, which opened in 2010, has 17 percent commercial and is nearly full.

Carolina Square is the anomaly, with roughly 41 percent commercial space leased across three buildings. Carolina Square, located at 123 W. Franklin St., benefits from its connection to UNC, noted Ben Hitchings, the town’s director of development and planning services.

‘A lot going on’

Dwight Bassett, the town’s economic development director, said what’s happening in the Blue Hill District is typical. Office space must be leased before construction in most cases, and retail needs a large customer base living nearby. By adding more apartments, Bassett said, the district can attract more retail and restaurants, which drives demand for places within walking distance to live and work.

Developers agree, including Perry, who said the district may have enough apartments to meet demand for a couple of years. It’s not just housing for people who already live here, economic and development official said. David Klepser, development director with Ram Realty Advisors, noted the more urban-style apartments, like at the new Fordham Apartments, also attract people who never thought about living in Chapel Hill before.

“I think that the residential in the Blue Hill District will certainly help the district … because it’s just been kind of this retail destination,” Klepser said. “Now when you can live there and walk to restaurants and the stuff we’re doing at Elliott Square and the stuff that Federal’s doing at [Eastgate]. I think there’s a lot going on there.”

Elliott Square, located across from Burger King on South Elliott Road, is being renovated now and adding new tenants, including Burn Boot Camp, Noire Nail Bar and Haw River Grill. Klepser said they don’t expect the 10 percent commercial requirement to cause issues if the shopping center is redeveloped in the future.

Elliott Square and the entire Blue Hill District can benefit from its unique character, noted Ashley Saulpaugh, Ram Realty investment director.

“Chapel Hill’s an anomaly in that small, local boutiques, which probably wouldn’t survive in most other markets, do well here because of the incomes in Chapel Hill and the mindset of Chapel Hill residents that really do a good job of supporting the local businesses,” he said.

The requirement could create a short-term problem, however, where commercial isn’t a natural fit or would be isolated, Klepser said.

Decision questioned

Crowell and Daphne Little, who own the Staples building and the strip mall behind Whole Foods, said they do see potentially negative effects on their property from the 10 percent requirement.

The couple didn’t name the developer but said they’ve signed a mixed-use contract for the narrow five-acre lot that could keep the Staples store, even though its owner plans to downsize.

“What we do know: Brick and mortar is still in flux,” she said. “Is mandating a percentage of commercial the best decision? Telecommuting is revolutionizing workspace. Is it wise to require traditional office space? We want to ensure that our parcel remains productive for this community and for ourselves.”

Ephesus Church Road landowner Wes Pope also has concerns. While his family is in a long-term lease with University Ford, the town’s requirement could create problems when it’s time to redevelop, he told the council.

“A lot of properties like ours are not that walkable. I just don’t see retail being successful on the east side of [Fordham Boulevard],” Pope said. “Redeveloping is expensive, and when you put the restrictions on there for commercial and office, I think it may be cost-prohibitive.”

He also questioned potential offices, noting vacancies at the nearby Europa Center, where about 47,000 square feet is waiting to lease.

That space, like much of Chapel Hill’s office market, serves smaller companies, Bassett said. The town averages a 10 percent vacancy rate and hasn’t built many new or larger offices since 2008, he said, so midsize and larger companies look to surrounding counties.

Colliers International reports the Triangle had roughly 68.4 million square feet of office space in 2017, and another 2.6 million square feet under construction. About 3 million square feet was in Orange County, compared with 8.8 million in Cary, 24 million in Durham and roughly 30 million across the rest of Wake County, the report shows.

Chapel Hill is starting to catch up, Bassett said, noting new offices planned at Glen Lennox and Carraway Village, and redevelopment options in the Blue Hill District, from the former Holiday Inn to Europa Center and Elliott Square. A permit application submitted last week would add a three-story office building at the Hong Kong restaurant/Quality Inn site in Blue Hill.

Long-term vision

But change will take time, in particular, because Chapel Hill pushed commercial away for so many years, Perry said.

“I’m not going to say that office buildings can’t or won’t be built in Blue Hill,” Perry said. “It’s just you’re not going to suddenly see 500,000 square feet of new offices pop up overnight regardless of what the regulations are.”

An initial forecast had the Blue Hill District adding more apartments in the first four years, with retail and office growth in 2024 or later. The anticipated increase in property values, totaling $263 million in 2017, also beat projections, the Chapel Hill-Carrboro Chamber of Commerce reported.

Donna Bell, the last seated council member who voted for the district, said more people are walking in Blue Hill now, and more shops and restaurants have opened to serve them.

“We are at year four of a 20-year build out. It’s like wanting your 4-year-old to be able to drive,” Bell said. “We are really early on to start talking about how out of balance we are.”

In four years

The Blue Hill District has added about 33,361 square feet of retail since 2014 but lost roughly 28,000 square feet of service station, hotel and restaurant space. No office projects have been built.

That’s out of line with the town’s forecast for the first four years, which anticipated roughly 30,000 square feet of retail and 200,000 square feet of hotel space.

The four-year forecast also predicted 1,000 new apartments. That’s been exceeded, with more than 1,800 now approved, planned or built.

 

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