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Swords into Plowshares

by Joe Sullivan

It's time for the factions that have been feuding over Market Square redevelopment to coalesce behind a unified effort.

Rival plans submitted by Memphis-based developer John Elkington, on the one hand, and an association of Market Square property owners, on the other, actually have a great deal in common. In addition to the mixed-use (commercial, residential and office) development they both favor, they stand together in opposition of the coercive means of gaining control over all property adjoining the square proposed by developers Worsham Watkins and endorsed by the Public Building Authority.

The biggest difference between Elkington's plans and the association's is that he has a list of prospective tenants to fill much of the commercial space on the square as well as a fleshed-out set of financial assumptions. The association, by contrast, is still in a formative stage on all accounts.

The tenant list circulated this week by Elkington to association members represents the first time that anyone involved in downtown's heretofore close-to-the-vest redevelopment efforts has publicly divulged the names of prospective players. The list of tenants who've signed letters of intent includes:

Lifestyle Ventures, a Memphis-based firm that would be the principal food vendor in a festive market place in the former Watson's building that Elkington has billed as the centerpiece of the development.

Dick's Last Resort, a Dallas-based restaurant and bar with live entertainment.

Java Blues, a Memphis-based coffee house.

MacArthurs's Chop & Crab House, which is Atlanta based.

Sambuca, a Dallas-based jazz café.

The Flying Saucer, a Dallas-based restaurant and beer emporium.

The continued presence of The Tomato Head is taken as a given, and the presence of Earth to Old City will be welcome if its owners, Scott and Bernadette West, go ahead with plans to relocate on the square. Elkington stresses his commitment to bringing more locally and regionally based tenants into the fold. But in the plan he has submitted to the city, he cautions that, "The unproven nature (and credit) of the more pioneering, authentic, local components of these types of projects causes developers to be conservative in the selection of tenants, resulting in a dependence on national chain credit tenants... In the long term, this can create real potential for consumer boredom. Every effort including subsidized start-up assistance should be put forth to substitute quality, creditworthy, unique local merchants in place of national chains."

This tenant list and philosophy is totally in synch with the views espoused in a report by the property owner's association to Mayor Victor Ashe last week. So is Elkington's contemplation of multiple ownership so long as owners comply with structural standards for their buildings. Ditto for his advocacy of zoning rather than the threat of condemnation as the means to exercise control over the use of property on the square. While his plan does assert that "property owners who comply will have to be encouraged to enter into long-term ground-floor leases" with his firm, he insists that carrots, not sticks, are the inducements he has in mind. "We have to make it worth their while. It's all about lease terms and rates," he says.

Susan Key, who is a prime mover in the association, would be welcome to keep her building with an antique gallery on the ground floor and a residential loft above. A year ago, Key seemed bent on opposing concerted commercial development around the square, especially entertainment venues, to the point of sounding at times as though she wanted to make it into a residential enclave. But of late she's become more proactive. Now phrases like "optimum tenant mix" and "bankable leases" come naturally to her, and she has spearheaded the association's search for a consulting firm to guide its development planning. The firm that was heralded in its report to the mayor last week is Annapolis-based ZHA, Inc. And Key has singled out for praise one of its principals, Sarah Woodworth.

Contacted in Annapolis, Woodworth says she's not familiar with Key or any other members of the association, but she is very familiar with John Elkington and thinks highly of him. ZHA has recently collaborated with Elkington on projects in Baltimore and Clarksville, Tenn, and has enlisted him to serve as a member of its planning team on a proposed project in Pittsburgh. "We are planners, not developers, and we respect John Elkington's point of view from a commercial development standpoint," Woodworth says.

Commendations from its own prospective consultant ought to go a long way toward overcoming the association's biggest single hang-up about Elkington: namely, lack of trust. He's gotten a reputation as someone who tells people what they want to hear and promises more than he delivers. As a further step to allay these concerns, Elkington has enlisted as a partner in newly-formed Market Square Development, LLC, the man who has emerged as downtown Knoxville's leading and most respected developer, David Dewhirst. He also happens to be Market Square's largest property owner.

"We're trying to do everything we can to build consensus," Elkington avows.

These efforts have not gone unnoticed within city government where Mayor Victor Ashe and his staff are shaping downtown development recommendations that are expected by month's end. It remains to be seen, however, to what extent the mayor will embrace elements of the plan that MSD has submitted to the city. These include:

City purchase and lease-back of as much property along the square as owners wish to sell at their own acquisition cost. The purpose here is to take the property off the tax rolls as a development incentive. The property would go into what's known as a PILOT (an acronym for "payments in lieu of taxes") under which the sellers/lessees would pay rent for 15 years and then have the right to buy the property back from the city.

A city commitment of $7 million for what are termed "core shell improvements" to the buildings on the square. These include bringing the buildings up to code, utility infrastructure and the like. Elkington says "it's negotiable" whether this commitment would take the form of grants or loans.

An upgrade of utilities supporting the square as a whole at city expense. The PBA's chief, Dale Smith, has estimated that the upgrade could cost up to $4 million. But KUB's chief operating officer, Bill Elmore, says that figure is way too high.

City construction of an 800-space garage just to the west of Market Square to make it easily accessible. The MSD plan stipulates that, "The height of the garage should be kept in scale with the buildings on Market Square and thus should not have additional development on air rights." What that means is elimination of Worsham Watkins plans' for an apartment complex on top of the garage. The above-ground garage that is envisioned would figure to cost about $11 million.

MSD itself would invest $11 million in the project, mainly for tenant improvements, according to the plan. The plan projects that, "The Square could draw three million visitors during its first full year of operation. It is anticipated...that gross restaurant and retail sales will exceed $27,000,000."

If these projections prove correct, the city's sales tax take (including recapture of state sales tax) would be on the order of $1.65 million. That's enough to cover debt service on city capital outlays of more than $20 million.

A crucial component of the mayor's downtown development recommendations is the terms on which developers would be selected. Worsham Watkins is known to be pressing for an approach under which a single master developer would be designated for the multi-block corridor that was covered by WW's grandiose, $370 million proposal of a year ago. This approach would effectively exclude the Market Square property owners, or MSD, from submitting a plan covering the square alone—or at least subordinate them to WW, whom they dread. But any such exclusion would produce a groundswell of protest, not only from the vicinity of the square but also from the city's body politic at large.

Earl Worsham and Ron Watkins originally tapped Elkington to be their Market Square subdeveloper, and they now consider him a renegade for trying to cut a deal with the city on his own. Reports have been circulating that WW is threatening to abandon its entire downtown development effort if Elkington gets his way. When asked about these reports, Worsham initially responds, "I don't know whether that's true or not." But after some further discussion of Elkington off-the-record his final word is that, "We wish him well."

While recognizing that he's not a candidate for sainthood, the property owners should welcome Elkington's involvement also, especially with Dewhirst as his partner. As Dewhirst puts it, "At least he's offering a much better starting point than anything we've seen in the past."

May 17, 2001 * Vol. 11, No. 20
© 2001 Metro Pulse