Public-private partnership turns decrepit store into shops & apts.
By Betsy Bean, Small Cities Publishing
Probably most historic downtowns have at least one vacant, deteriorating “white elephant” of a structure that nobody knows what to do with. Shelby, N.C. (pop. 20,000) is no exception. In 1984, when Belk department store moved to the new mall, (sound familiar?) the saga began. The 40,000 sq. ft., 1920s brick building stood mostly vacant for the next six years. While it didn’t look so bad from the outside, there were huge holes in the roof, causing everything in it to be sopping wet, and covered with mold and mildew. It was so bad that Ted Alexander, the director of Uptown Shelby Association, contracted pneumonia from going in the building too much.
“We’d go stand around and watch it fall in,” recalls Alexander. By 1990, the choices looked grim; the most viable appeared to be demolition and make do with a parking lot. But no one, not the city nor the downtown leadership, really wanted to see a huge, prominent hole in the middle of town. In order to stave off destruction, the mayor at that time persuaded the owners to donate the building to the fledgling Cleveland County Arts Council, which only agreed to take it to get the building into sympathetic hands. Unfortunately, studies showed the building was indeed too far gone for use by the Council.
It was then that city government stepped up to the plate. Agreeing to a complicated swap/purchase, the city purchased the historic, former post office building from the county and donated it to the Arts Council with protective covenants. In return, the city reluctantly agreed to accept the Belk building from the Arts Council if Uptown Shelby would obtain an option, guarantee its development, and pay the city $25,000 once it was developed.
“We were all, staff and council, very skeptical in the beginning,” recalls Hal Mason, assistant city manager. “It took the leadership of Uptown Shelby to convince us the project would work.”
A cast of thousands
From 1992 to 2000, the effort to save the old department store came to resemble a Hollywood production that included the efforts of many different actors, a lot of plot changes, and a struggle for financing. The first thing Uptown Shelby did was bring in a resource team from the North Carolina Development Association in 1992. The team concluded that even though the building was in the worst condition they had ever seen, it still had merit within the architectural and commercial context of uptown. A layout and pro forma analysis showed the financial feasibility of converting one-third of the building into six 1,000 sq. ft. storefronts and six upstairs apartments, using two-thirds of the back for parking.
Using this report, Uptown Shelby contacted dozens of potential developers throughout 1992. They hit paydirt when one board member saw a newspaper article about Ron Morgan, a creative architect/developer in Charlotte. They contacted Morgan who was so enamored of the project that he brought in a partner and they agreed to take no upfront funding for architectural work and planning in return for a one-sixth equity share in the building. In 1994, a local banker took it upon himself the huge task of assembling a group of private investors and a loan pool with participation from six uptown banks. The banks agreed to finance 100 percent of the $1.3 million project at one-half point below prime rate. The unique aspect of the loan was that the full financing was based on the ability of the investors to obtain the 20 percent federal tax credit and a five percent state tax credit for rehabbing a historic property. The deal was predicated on the investors obtaining their credits and then repaying that portion of the full loan. In essence, the tax credits were serving as the investors 20 percent down payment.
A local attorney and Uptown Shelby board member then volunteered thousands of dollars worth of his time to create an LLC (limited liability corporation), which would make it easier to recruit investors because of the LLC’s greater flexibility for those wishing to take advantage of tax credits. At the same time that a financing vehicle was being developed, Uptown Shelby was continuing to explore all types of scenarios, everything from low income housing to rehabbing the whole building. The various studies were consuming time and money, which were rapidly running out by 1996 when a plan was finally submitted to the National Park Service based on the original idea of turning the building into shops and apartments. Incredibly, they rejected it!
With virtually every avenue of funds dried up, Uptown Shelby applied for and received a $2,000 grant from the National Trust for Historic Preservation that was used to pay the architect to draw up yet one more plan; heretofore, he had been paid nothing for years. Finally, a compromise was reached with the National Park Service, which had not been satisfied with the plan to only leave the walls around the parking area. The new plan was approved, which involved keeping all of the steel frame structure and two elevator shafts as well as construction of a truss system that suggested a rafter system. The Park Service approved the new plan on the day the city council had to vote whether to extend Uptown Shelby’s option or demolish the property. On top of that the city was persuaded to spend the $100,000 it had budgeted for demolition on cleaning out the interior.
“Our patience was stretched to the nth degree many times and toward the end, the city had to make some concessions we hadn’t intended to make,” says Mason. “But once the project got its own momentum, we recognized our role was as important as that of the developer.”
Finally, following a couple of near disastrous mishaps during interior demolition, the building was transferred by the city on June 30, 1997 to Uptown Shelby, which, in turn, sold it, with protective covenants, for $1 to Lafayette Street LLC. To ensure the viability of the project, Uptown Shelby also committed its $65,000 nest egg to construction, which began in March, 1998 and was completed within budget in January 2000.
Happy ending
The final product of ten difficult years of effort by a variety of private and public entities is an attractive, award-winning, financially viable building. The original 1920s faÇade has been restored and now includes six 1,000 sq. ft. retail shops and 12 loft apartments with 24 parking spaces enclosed by the original walls. All six shops are rented and all 12 apartments are leased. It is estimated that the annual economic impact will result in annual sales of over $1 million, $16,000 in increased annual property taxes; $22,000 in annual utility sales, and nearly 20 jobs. The city will get back its $100,000 investment in four years and Lafayette Place has spurred at least five other major uptown rehabilitation projects, including one $5 million restoration.
In retrospect, Mason notes that cities should “consider every possibility before rushing to judgment and tearing a building down.”
Betsy Jackson, president of the International Downtown Association, which presented the project with an economic development award, cites the project as an example of the challenge and the beauty of such projects for small communities.
“The challenge is that small communities don’t have huge resources but the beauty is that you have a variety of players, all of whom have an interest in downtown but none of whom are being asked to carry it alone,” she says. “A project like Shelby’s allows so many varied interests and talents to make a difference without bankrupting any one of them.”
