By Nancy E. Oates
Anyone who has played Monopoly understands you don’t trade Park Place to the player who owns Boardwalk in exchange for Tennessee and New York avenues, especially if you don’t already own St. James Place.
Yet that is what Grubb Properties is asking the Town of Chapel Hill to do — and expecting the town to throw in extra cash to cover an imbalance in the appraised property values.
Grubb Properties bought the Bank of America building that runs from East Franklin to East Rosemary streets and began redeveloping it after the town won a federal Opportunity Zone designation for that swath of land that gave Grubb’s investors a serious tax break.
In order to maximize the project’s profit potential, Grubb asked the town to trade the Wallace Deck at 150 East Rosemary for a parking deck Grubb owns across the street, at 125 and 135 East Rosemary, plus pay Grubb $1.7 million for the difference in the appraised values. The town must promise to build an 1,100-space parking deck where Grubb’s deck is on the north side of Rosemary, but the town can’t do that without first buying an adjacent parking lot now owned by Investors Title Co.
At the Sept. 9 council meeting when the deal was showcased, some council members trilled about how the project would transform the area (true) and add parking for customers of current downtown businesses (not so much). Only council member Hongbin Gu broke down the numbers.
The deck the town must commit to build is projected to cost $32.9 million, plus 2 percent interest for 20 years. That’s roughly $40 million all told. Plus, the town has agreed to pay Grubb $30,000 a month to rent back the Wallace Deck until the new deck opens. And the town still must pay off the existing loan on the Wallace Deck of $1.4 million.
The town can keep any revenue from parking fees in the 307-space Wallace Deck until the new deck is ready, but even before the significant drop in parking demand during the pandemic, the town barely broke even on parking. Gu learned that even in high-demand years, the Wallace Deck collected between $300,000 and $500,000 annually, countering Mayor Pam Hemminger’s claim of $1 million in revenue. The CVS deck, which Grubb will replace with office and wet lab space, brings in another $200,000.
Yet town staff insisted that the new deck would generate $3 million to $5 million annually in fees, though staff didn’t respond when Gu asked how they came up with that figure. UNC will buy 100 spaces for a flat rate of $2.4 million. (The plan for UNC to pay an additional $40,000 a year has quietly disappeared.)
That leaves only 1,000 spaces to generate revenue. Even if demand returns to pre-COVID levels, the town would have to raise rates at least 400 percent to generate that much revenue, more if the deck construction goes over budget. (The town could add an escape clause in the contract to address a spike in construction costs.) A consultant hired by the town warned that an increase in parking rates would reduce demand.
The new deck would yield even fewer spaces for customers of existing downtown businesses. Grubb said its new office building would bring 800 new employees downtown. Even though the new deck will add 150 net new spaces (1,100 minus the spaces lost from the Wallace Deck, CVS deck and the parking deck on the north side of Rosemary that will be demolished to build the new deck), they would likely be absorbed by demand from employees of Grubb’s new office building.
The deal doesn’t address what happens if Grubb doesn’t build the office complex. The town has the option of buying back the deck for 6 percent more than its current appraised value. Realistically, the town likely won’t have the money to do so. Grubb could then be free to sell the real estate to another buyer, probably a developer of luxury apartments, none of which would be guaranteed affordable, because the town would have given up its authority to have any say in what gets built.
Taking on the multimillion-dollar commitment maxes out the town’s debt capacity. There would be no room to borrow a similar amount to replace and expand any of the town’s public housing complexes, including Trinity Court, which has sat empty for years. Every council member currently on the dais campaigned in support of affordable housing. Yet council doesn’t appear to have a majority willing to direct the town manager to find money to invest in making room for people of modest means to live in town. Council seems to prefer subsidizing housing for cars, not people.
Grubb says it won’t build the office and lab space unless it gets the Wallace Deck land. (A suspected rock shelf under Parking Lot #2 would make expansion to the west expensive.) The town refused to trade the Wallace Deck to UNC for land on Estes Drive Extension to build a new police station because the Wallace Deck land was far more valuable. The town is in a position to drive a hard bargain.
Instead, it gives up a strategically valuable piece of property and locks taxpayers into a crushingly expensive project to subsidize parking for wealthy investors who are already getting a tax break.
I fear we have just lost the game.
Nancy E. Oates is a former member of the Chapel Hill Town Council.