Slump doesn’t slow tide of projects in downtown Norfolk

NORFOLK
 
Amid a meltdown in the credit markets and with the economy slumping, downtown is experiencing a building boom.
 
Three-quarters of a billion dollars of construction is under way or planned.
 
Norfolk is pushing ahead with a big helping hand from taxpayers. City, state and federal dollars account for nearly half of the new construction. Much of that money is for light rail.
 
“All over the country, projects are being shut down,” Mayor Paul Fraim said. “We are bucking the trend.”
 
Developers and city leaders broke ground this week on one of the projects, the Wachovia Center. The $171 million, mixed-use development will include a 22-story office tower, 175 apartments, 250,000 square feet of office space, 50,000 square feet of retail and nearly 2,000 parking spaces.
 
Other major developments bolstering downtown renewal efforts include:
 
- Light rail, a $232 million mass transit system being funded by the city, state and federal governments, will run from the city’s medical complex through downtown and to the Virginia Beach border. Like the Wachovia Center, it is under construction and scheduled to open in 2010. The city’s share will be $33 million.
 
- A $27 million, nine-story Residence Inn by Marriott at Brambleton Avenue and Duke Street is being developed by LTD Management of Chesapeake. The land was sold to LTD at $1 million less than its appraised value, but city officials say the appraisal was overly generous.
 
- The Belmont at Freemason, a 241-unit apartment complex costing $41 million, is being built by Kotarides Developers just west of the Residence Inn. The city sold land to Kotarides for the appraised value of $1.1 million.
 
Officials also expect to announce next week the finalization of a deal for a 300-room, 25-story Westin Hotel. It will be attached to a $50 million convention center and a parking deck.
 
The Westin project, at a cost of nearly $200 million, will be one of the most heavily subsidized projects downtown. The city will build the convention center, which will be paid for with meals and hotels taxes. It will also provide LTD Management, the hotel’s majority developer, with a $7.5 million “performance grant.”
 
Performance grants are paid for with tax revenue generated by a project. City Councilman Barclay C. Winn defended the city’s involvement in the project, which the council approved unanimously several years ago.
 
“The convention center will fill a void downtown,” he said. “It’s expensive, but that’s the nature of building a convention center.”
 
The city has long focused most of its economic development efforts downtown, constructing Scope, Waterside, Nauticus, Harbor Park, Town Point Park and a cruise ship terminal over the past four decades. The $330 million MacArthur Center shopping mall was jump-started with about $100 million from the city, most of it for parking garages, streetscape improvements and a loan to build the Nordstrom store.
 
City leaders have spent money on downtown redevelopment over the objections of some community leaders, including members of Norfolk Tea Party II, an anti-tax group, which has said the city has neglected many of its neighborhoods.
 
But the city’s downtown investments have resulted in increased tax revenues, Fraim said. A study done for the city by Chmura Economics and Analytics, a Richmond firm, found that from 1996 to 2006, downtown generated $18.5 million per year in taxes in excess of what the city was spending there. Employment downtown also has increased, from 16,916 jobs in 1996 to 24,933 jobs in 2005.
 
Wachovia officials, who are financing the Wachovia Center for developer S.L. Nusbaum Realty, said their lending standards have tightened since credit markets hit a slump. But they say they have confidence in downtown Norfolk, in part because the city is helping to subsidize large projects by providing grants, land or parking garages.
 
Nearly a decade ago, Wachovia financed the downtown office building at 150 W. Main St., and later the first office tower built by Armada Hoffler at Town Center in Virginia Beach. Both projects were supported with city dollars.
 
For the Wachovia Center, Norfolk is contributing $5.4 million for utilities and right-of-way improvements and is giving developer S.L. Nusbaum land valued at about $3.6 million. The city also is spending $53.4 million on parking garages; parking fees will pay for the 1,950 spaces.
 
When the Wachovia Center opens in 2010, it will generate about $3 million in direct taxes for the city, Fraim said. That revenue would not exist without the city’s participation in the project, he said.
 
Christopher W. Brown, director of income property for Wachovia’s downtown Norfolk office, said city participation helped make Wachovia Center an attractive project to finance. Brown said the bank will centralize its administrative activities from four offices in the region – 130 jobs in all – at the Wachovia Center. That gave bank officials a sense of ownership in the project, he said.
 
“The city has created an atmosphere downtown for good projects,” he said.
 
The office vacancy rate downtown is about 7 percent, down from historical averages of 10 to 12 percent. The timing is right for a building the size of the Wachovia Center, said Donald Crigger, senior director of office properties for GVA Advantis, a real estate company with offices in Norfolk.
 
“I wouldn’t say the demand is all that robust, but it’s been very stable,” he said.
 
Although vacancies will be created when tenants move from other downtown office buildings into the new center, those spaces should be easily absorbed, Crigger said.
 
Hotel occupancy rates are flat, given the sluggish economy and rising gas prices, but the long-term prospects “are very good” for the hotels planned for downtown, said Anthony DiFilippo, president and CEO of the Norfolk Convention and Visitors Bureau.
 
Two other large projects are proposed for the downtown area.
 
Norfolk physician Keith Newby and the Lauth Property Group of Indianapolis plan to build a nine-story, $66 million medical office building across Brambleton Avenue from the city’s medical complex. The city will provide a performance grant for the project, to be called Fort Norfolk Plaza, but the amount has not been announced.
 
The Aniesh Corp., a Norfolk hotel-management company, plans to build a 15-story, $18 million Hampton Inn on Brambleton Avenue, half a block from the Residence Inn project.
 
Developer Raj Randeria has said he hopes to begin construction late this year on the project, which will have no city participation.
 
One large downtown project remains in limbo – the $180.5 million Granby Tower, a 34-story condominium that was to be downtown’s tallest building.
 
Work halted last year when developer Buddy Gadams lost his financing, in spite of a $22 million performance grant from the city that would be awarded after construction was nearly finished.
 
Gadams has said the project will resume, but several contractors have sued the developer over work for which they have not been paid. Eventually, Fraim said, Granby Tower or some other development will rise there.
 
“Buddy just got caught up in a very difficult market,” he said. “We’re still hopeful that as the market improves, that Buddy will be successful.”
 
Staff Writer Deirdre Fernandes contributed to this report.
Harry Minium, (757) 446-2371, harry.minium@pilotonline.com