Chapel Hill needs office space. Should local government incentives help pay for it?

The 1950s-era shops and apartments at Glen Lennox will make way over the next decade for 3 million square feet of new apartments, retail, offices and a hotel.

But without a tax incentive, developer Clay Grubb said it’s going to be hard to build more right now than the 215 apartments, clubhouse and parking deck currently under construction at Fordham Boulevard and Brandon Road.

The 70-acre project will preserve about half of the 140-acre community, about a mile east of the university’s campus. The town approved it in 2014 after years of public meetings and hearings with Grubb Properties.

Glen Lennox won’t be a run-of-the-mill community when the work is done, Grubb said.

Affordable housing, pedestrian-friendly

The redevelopment involves extensive stormwater upgrades, new roads and high energy-efficiency standards, he said.

A master leasing pilot program will create affordable housing for lower-wage workers, while a Vested Renter program limits the rent increases for residents who have lived there for over five years.

A $34.2 million U.S. Department of Housing and Urban Development loan will help pay for the workforce housing.

Grubb Properties also hired Denmark-based Copenhagenize Design to map a pedestrian and bike network, including a new, stoplight-controlled crossing to campus and downtown at Glen Lennox Drive, a new street south of Brandon Road.

The goal is reducing car traffic to and from Glen Lennox by 50 percent by 2030, Grubb said.

“There’s no way that we could promote that we’re a bike-friendly community if you can’t get across U.S. 15-501, because now you have go out to 54, under the bridge, and that is equally as scary,” he said.

The Glen Lennox Shopping Center in its final stage of construction in 1953. The site is a possibility for a mixed-use project. NEWS & OBSERVER FILE PHOTO

But improvements cost money, and the price of construction amid tariffs and rising interest rates, is going up, Grubb said.

It’s also been hard to pre-lease a planned office building to tenants, which would help secure bank financing. The developers can delay construction until the building is leased, Grubb said, or seek an incentive to reduce the cost.

“Basically, it comes down to can you get the capital to build the building and can you get the leases, and right now, we’ve got a gap to be able to achieve that,” he said. “We’re struggling to raise the rest of our capital for the office building, because most of our investors think it’s too risky.”

Investing in jobs, taxes

Grubb asked Chapel Hill and Orange County in 2016 for about $3.5 million in tax incentives to start building the first office building, which Chapel Hill needs. An incentive, if approved, could reimburse some future property tax payments in return for new jobs and investments.

The Town Council could consider the issue this spring, said Dwight Bassett, the town’s economic development officer. He noted the property and sales tax revenues from the project will be substantial.

Town estimates released this week show 488,000 square feet of office space planned for Glen Lennox could add $97.9 million to its assessed property value. At current tax rates, that would bring the town nearly $2.6 million in new property tax revenues over five years, Bassett said; the county could see $4.2 million.

The project also will include 100,000 square feet of shops, 150 hotel rooms and over 1,100 new homes and apartments. A separate analysis shows the retail and hotel could add another $19.6 million in property value, or $270,511 in town and county tax dollars. Neither analysis includes sales tax revenues or the potential cost of town services.

Incentives for jobs

Since a $3.4 million incentive — equivalent to half of Glen Lennox’s new town and county taxes — is more than the town can afford on its own, the county was asked about paying half.

The Orange County Board of Commissioners discussed the incentive at a closed meeting in December. They most recently split a $4 million incentive for the Wegmans being built on U.S. 15-501 in Chapel Hill. But that incentive and others have come under scrutiny in recent years. In Durham, a new group that formed last year wants better accountability for public development incentives.

The Durham-Raleigh Equitable Development Collaborative wants to create a scorecard to track incentive benefits, including for traditionally disadvantaged communities and those who might be displaced by a particular project. It’s the first step toward more equitable development outlined in a 2018 report from the national Partnership for Working Families.

Orange County Commissioners Chair Penny Rich declined to talked about the board’s December incentives discussion, but she lauded Grubb’s dedication to a community process, and his understanding of high-density construction and affordable housing.

“We want to be supportive of what the municipalities are doing to get involved with economic development, however, we need to be involved from the very beginning,” Rich said. “You can’t ask us after the groundbreaking happens.”

Reviving the office market

Chapel Hill needs the Glen Lennox office space now, Bassett said, because the town is losing medium and large companies to other counties.

After four decades of steady office growth, Chapel Hill fell behind in the 2008 recession, Bassett said. Only two buildings have gone up since then, and some downtown land now is selling for downtown Raleigh prices, he said.

Combined with the town’s sometimes lengthy approval process and the total tax bill for the town, county and city school district, it makes the town less competitive, he said.

While most people don’t think about Glen Lennox or Chapel Hill for office space, Grubb said, the town has made “a real commitment” to be friendlier to developers, change perceptions and grow its tax base. Local government will need “some skin in the game,” he said.

“I don’t know that I would have believed 10 years ago that they would have even considered something like this,” Grubb said. “The reality is we want to do Glen Lennox right. But to do it right, it’s going to be expensive, so we’ve got to have some support to do it right.”

Related stories from Durham Herald Sun

Tammy Grubb has written about Orange County’s politics, people and government since 2010. She is a UNC-Chapel Hill alumna and has lived and worked in the Triangle for over 25 years.