Editor’s Note: This is the second part in a series regarding mixed-use projects and the market for commercial space and student housing in Boone.
By Jesse Wood
A surplus of commercial space already exists in Boone and these vacant spaces aren’t going away anytime soon – especially considering the mixed-use developments that are currently being constructed or planned in Boone.
A mixed-use development usually consists of commercial space on street level and apartments above. As the ending in the first part of this series stated, developers are struggling to rent out commercial space (which they didn’t want to build to begin with) that exists underneath apartment complexes (which they really wanted to build).
The town’s Unified Development Ordinance (UDO) requires mixed-use development for apartment complexes in the town’s business districts. This regulation was enacted in 2010 because the majority of the Boone Town Council felt apartments were taking up prime commercial space.
Then in 2013, the Boone Town Council enacted supplemental standards to the town’s multi-family housing regulations in the UDO for all zoning areas, including R-3 multi-family districts. These new standards featured an exemption for mixed-use projects under condition B-3 district rezoning.
These 2013 amendments under section 15:10 of the UDO allow for only two unrelated people to live within a unit in new developments. Any unit with more than two bedrooms requires a “master suite” bedroom that is at least 25 percent larger than other bedrooms. Other changes include required garages or carports and 50 square feet of storage space, a 0.5 ratio of outdoor livability space and limiting parking spaces to two per unit.
The new standards, however, can be avoided through an exemption under conditional B-3 district rezoning.
“The approved exemption would allow for the new standards to be bypassed in mixed-use projects so long as either, the commercial properties are built in the first phase of construction; no more than one-third of the multi-family units are built prior to completion of all commercial buildings; or the developer offers financial commitments in advance to finish all the residential and commercial properties,” HCPress.com previously reported.
But even this exemption was met with criticism. See developer Phil Templeton’s letter withdrawing his $19 million offer for the old Watauga High School property in May 2013. Templeton was also entangled in an eight-year lawsuit with the Town of Boone over a proposed medical clinic on State Farm Road.
Apartments Subsidizing Commercial Space
James Milner, CCIM, president and owner of Appalachian Commercial Real Estate, said that the apartments are essentially subsidizing the commercial space in these mixed-use developments.
“It is my observation that the residential component of these mixed-use developments carries the operational costs of these projects and so the commercial space can remain vacant with little impact to the developer. We are seeing the true economic impact of what developers are doing in order to bypass particular sections of the Town of Boone Unified Development Ordinance.” Milner said in a prepared statement, referring to the multi-family housing regulations enacted in 2013.
“It is a simple economic lesson of supply and demand. As the market gets flooded with new supply, whether it be Highland Crossing, Winkler Square or The Standard (existing or in construction projects) and demand is low, the only component that can be used to correct the situation is price. This is not giving consideration to future projects within the Town of Boone to include Riverwalk, Shadowline, the Marketplace project in downtown and MET Holding’s project which will only more so flood the market with supply. While local tenants would like to see prices fall to more reasonable rates these commercial spaces in these types of mixed-use developments are merely added income to the developer. Therefore, in order for these spaces to be occupied the rental rates and terms will need to be lower or more favorable, respectively.”
Milner mentioned that excessive land prices are partly to blame.
While not a mixed-use project, the recent sale of the old Kmart property along Blowing Rock Road depicts how expensive land is in Boone. Publix recently purchased the 6.52 acre property for $10.5 million, which equals $1,610,429 per acre.
“Commercial land prices along Blowing Rock Road are at an all-time high. Developers are trying to maximize the utility of the land and the income that they can generate from it. With the current affordable housing regulations that dictate all multi-family development, developers are choosing to utilize the mixed-use standards instead,” Milner said. “Thus why we are seeing a new wave of mixed use development within the Town of Boone.”
Milner also mentioned that what is happening today is reminiscent of “speculative” building practices – unlike what, he said, happens in larger metropolitan areas, where developers obtain commitments from tenants or users that want to lease or operate the buildings before they are actually built.
“The barrier to entry in the Town of Boone is already high enough. It is time that policies are revisited so that commercial development can fall in line with not only what will work but also what the town wants,” said Milner, who wants to see the town utilize incentives with developers rather than mandates.
Owner of Templeton Tours and son of Phil Templeton of Templeton Properties, Jeff Templeton attributes the current state of student housing in the Town of Boone (huge complexes along the highways such as The Standard and the commercial vacancies underneath these mixed-use projects) partly to the steepslope and viewshed ordinances the Boone Town Council passed in 2006 and mixed-use regulations in 2010.
The Boone Town Council passed these regulations after the Villages at Meadowview was constructed on the hillside above Walmart. According to the town, these regulations were adopted for safety and aesthetic reasons.
Here is a prepared statement from Templeton:
“The saying ‘a camel is a horse designed by a committee’ is perhaps the best way to describe the current development environment in the town of Boone. The trend of mixed-use multi-family housing projects being developed in commercial districts around town is the result of years of reactionary regulations. The issue began in 2005 when the town council issued a moratorium on Multi-Family Housing in an attempt to prevent the development of additional student housing projects on the hillsides of Boone. An unintended consequence of the resulting regulations, known as Viewshed & Steepslope, was to alter the supply of multi-family zoned property in town. With demand still strong from the growth of ASU, multi-family projects began showing up on commercial parcels along the business corridors of town.
In reaction to this trend, the Town Council passed yet another moratorium on Multi-Family Housing projects in May of 2010. This time the resulting regulations, known as Sec. 179 Mixed Use Districts Established, required mixed-use developments in business districts to provide street level commercial space. This too has had unintended consequences. Properties that should have been developed with banks, hotels, and restaurants, have instead been developed as mixed-use projects with ground floor commercial space. Lacking sufficient parking, the inability to offer a drive-thru, and limited functionality, many of these commercial spaces have remained unoccupied for years.
So when driving by these new student housing projects with their empty street level commercial spaces, please resist the urge to blame the developers, and instead direct your attention to the party responsible for the design of this ‘camel’, the Boone Town Council.”
Preserving Commercial Space & Boone’s Environment from Apartments
There probably doesn’t exist a better example that highlights reasoning for the Boone Town Council to do something about the development of apartment complexes in town than the old Daniel Boone Hotel – which today is nothing but apartment complexes in the heart of downtown.
When the Daniel Boone Hotel was demolished in 1984, downtown Boone wasn’t a thriving business district.
In the early-to-mid ‘80s, businesses along King Street, such as Belk’s, left for the Boone Mall that opened in 1983 and the Mast General Store had yet to open at the corner of King and Depot streets. The economic situation got to the point that parking meters in the downtown district were removed to compete with the new mall.
The hotel was nearly 60 years old at the time of the demolition, and it was torn down to make way for the Daniel Boone Condos, which exist today, beside the Jones House and across the street from the old Appalachian Theatre.
Though there wasn’t a big business need to preserve commercial space at the old hotel site back then, can you imagine what a commercial – not to mention historical – asset that site would currently be to the downtown area if it was a mixed-use development with shops level with King Street and perhaps a portion of Grand Boulevard?
“I think everyone is kicking themselves because the town didn’t make an effort to save that property and turn it into a small indoor mall,” said one local business owner recently.
Pilar Fotta, the town’s downtown development coordinator, said as much in 2011 before the town acquired the old Appalachian Theatre in a bankruptcy auction: “We would hate to see its fate be the same as the old Daniel Boone Hotel, which was once located right across the street.”
It’s with a long-term perspective in mind that Councilwoman Lynne Mason, who has served on the Boone Town Council since 2001, reflects on these laws regulating student housing in Boone.
For example, regarding the ordinance requiring mixed-use projects in business districts, Mason said:
“We need to protect spaces for businesses. They may not be there today, but we are thinking about the future of Boone. If everything is residential space, there will be no space for new businesses or for business expansion and growth in the community.”
Mason noted that as the community grows, there will be a need for different services, retailers and business applications along the major corridors.
“There is a real strong reason why we want to have mixed-use,” Mason said. “The mixed-use model allows residential while preserving business space.”
As for the multi-family housing standards adopted in 2013, Mason said that these standards came about after the realization that the town was lacking housing options. She mentioned that the thinking was that the apartments with four bedrooms and four bathrooms would be difficult to repurpose or reuse once student housing is overbuilt in town.
“Most single individuals and even families couldn’t afford the rents these three and four bedroom units were charging,” Mason said. “It was an attempt to level the playing field and to make sure diverse housing was offered.”
Student housing may be more profitable for developers, but Mason said it’s not the only housing option needed in the Town of Boone. Several years ago, she said her in-laws moved to Boone and had trouble finding a place to live.
“What they didn’t have are options for good rental housing,” Mason said, adding that apartments designed for students aren’t fit for the retired, disabled and elderly – as well as families.
As the High Country continues to be a hub for healthcare in Northwestern North Carolina, Mason said that she hopes we see more housing options for those that retired, disabled or elderly.
As for Templeton’s argument that the 2006 steep slope and viewshed ordinances correlate to huge complexes like The Standard being built near McDonald’s, Mason said that was bound to happen.
“I think we knew in order to preserve hillsides and mountains, that would mean allowing for higher density development,” Mason said. “I think we need to wait and see how The Standard project turns out.”
When HCpress.com published an artist rendering of the finished design, it went viral with people both astounded at the size of the five-story project and ready for something else besides run-down and condemned hotels.
Mason noted that the developers of the project did a “beautiful job” daylighting the stream and that a “trade off” of having this big development where it is located would mean less traffic congestion.
And she noted that this is more preferable than having a development like The Cottages, which is located in the county’s jurisdiction off of N.C. 105, where there is not infrastructure such as public water and sewer to support a big development.
Mason noted that the The Standard project is consistent with the 2030 plan, which has “broad community participation and support.” The Boone Town Council adopted the Boone 2030 plan in the fall of 2009 and cites pedestrian-friendly, higher-density, mixed-use development among future planning priorities
Mason said she’s willing to take a look back and see if the 2030 plan spurred hoped-for development achievements. If it didn’t, she said that she would be willing to make modifications if they will retain or improve the community’s character going forward.
Realtor Offers Four Reasons for Commercial Space Vacancies
Todd Rice, co-owner of Blue Ridge Realty & Investments, offered four reasons why there are vacant commercial properties in Boone.
While some have been critical of the town, Todd Rice simply said, “the town’s been great to work with” on his projects and said he didn’t attribute commercial vacancies to any of the town’s ordinances.
Rice’s first reason is that the property owner didn’t hire a licensed realtor.
No. 2 is the old adage, “location, location, location.” But, Rice said, this can be solved by lowering the price.
His third reason is the space isn’t finished in a manner that potential leasers are looking for. Rice mentioned that some leasers don’t want the place finished prior to leasing because they might want to customize the space or vice versa.
“A lot of folks might want something more than a dry shell. The leases are structured in a way that if a tenant leases a dry shell, it’s less per month and the onus is on them to build out as they see fit,” Rice said. “If the onus is on the property owner to build it out, then the leases are more expensive.”
And the fourth and final reason, Rice offered is price.
“The pricing is too high,” Rice said. “It goes back to supply and demand.”
Editor’s Note: In upcoming parts to this series, High Country Press will explore the demand for student housing in Boone, ASU growth trends and also whether or not the multi-family housing regulations initially recommended by the Affordable Housing Task Force are actually affordable.