The value of voting next Monday to move ahead with bonding, contingent upon receiving the federal grant, is that potential tenants would know the city's intent and could comfortably continue with planning. It could also inspire others waiting in the wings to get serious about possibly becoming a part of the Hub development. It would start the ball rolling on planning for the transportation component associated with the grant. Once the budget is signed the receipt of the federal grant will be assured. Grant money is typically not received until a project is under way, so waiting for a physical check is not a good option. There is much planning yet required on the city's part before bonds are ready for issue. The same is true for Third Street Development and for its potential tenants. The budget issue will be resolved well before bonding is ready and time and potential tenants will not be lost. Should federal funding fall through, I am in complete agreement that we are in a new and more difficult ball game, as the numbers do not work nearly as well.
The second purpose of this letter is to offer insight into how an area as large as the Hub properties is developed. The charge of Third Street Development has been to bring the entire project to life. That does not include a scenario of plugging random tenants in the street level storefronts and letting the rear and upper floors of the property remain vacant, as is the case with many other downtown buildings. The sheer mass of the project at 80,000 square feet requires a sizeable anchor tenant to justify the cost of upgrading the roof and infrastructure, including facade, wiring, plumbing, HVAC, additional elevators, etc. This can be done in two phases by concentrating on the Hub (corner property) or the Gilcher (center property). The cost of either, or both combined, are significant enough that no financial institution will commit to speculative financing without long-term (typically 15-year) leases signed by stable companies that have the financial strength to withstand business cycles. Plugging in one small tenant here or there will not result in funding for the project being available since the leases must amortize the debt.
This brings me to the third purpose of the letter and that is to dispel misinformation that is circulating in some parts of town concerning the status of past or present tenants. First, we have had only one potential tenant that has indicated a desire to locate in the project and not require parking. Architectural Investments has communicated with that tenant off and on over a several-month period. That prospect's primary interest was for one-half of the third floor of the Hub corner (4,500 square feet), with the possibility of taking the entire third floor (9,000 square feet) and subleasing to others. That square footage represents only 11 percent of the total project and this is not enough to justify the funding of the infrastructure upgrades. This prospect does not require parking because of a very low number of permanent employees.
Another rumor that has surfaced is that the O'Charley's Restaurant chain was ready to put a brew pub in the Hub and did not require parking. That is not true, as we have had no definitive conversation with the O'Charley's chain. We were approached by a former middle management O'Charley's employee with a dream of having his own restaurant. He had no capital and no backing and after working with Architectural Investments for several weeks decided it was way beyond his scope. He now works in a Lexington restaurant and has commented to Third Street Development board members that he made the right decision.
The bottom line is that no significant tenant (courted in the past, looking at us now, or a future possibility) will come without parking for employees and/or customers. The development of this property has always been a mixed-use project looking for a combination of professional and retail tenants. When that first significant tenant can be landed with parking available, local banks, with funding through the Federal Home Loan Bank, are ready to step in and see this project become a reality.
I encourage the City Commission to vote now to move ahead contingent upon the federal budget and the parking garage line item being approved. In the time between now and when the Federal grant is assured, I encourage the Commission to complete the preparatory work for the bond issue so that it can be completed and construction begun in the most expeditious manner.
Third Street Development