Plans for the 16-story Thistle Station apartment tower have been shelved, and that has left some people wondering what it says about the viability of other downtown Lexington projects.
Developer John Cirigliano said he decided after two years of work to abandon the $34 million project and sell the four-acre site at Newtown Pike and West Third Street for several reasons: costs, high projected rents, financing and a lack of government incentives.
The 200-apartment and retail project was approved by the Planning Commission and City Council. But Cirigliano struggled with financing after state officials refused to go along with the city’s decision to use more than $2.5 million in taxes generated by the project over 20 years to help pay public infrastructure costs.
Thistle Station’s failure comes amid other difficulties downtown. After nearly nine years of delays, the CentrePointe parking garage is finally under construction. And if developer Dudley Webb wants to recover some of his infrastructure costs through tax-increment financing, he must find private money to build tax-generating properties on top of the garage.
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The 12-screen Kirkorian theater and entertainment complex beside Rupp Arena has yet to break ground two years after it was announced. Several projects on the east side of downtown have taken much longer than expected, although their developer says construction will begin soon.
Developers say the slow pace of downtown development reflects the fact that not enough new, high-paying jobs are being created in Lexington to create demand.
But the delays and setbacks also speak to the fact that urban infill and redevelopment is harder and more expensive than “green field” suburban development for many reasons. For example: a suburban subdivision can build units as the developer sells them, but a downtown developer must build a tower all at once.
Land prices are higher downtown. Property ownership has fragmented over time, making it difficult to assemble large parcels. High-rise development costs about 20 percent more than low-rise construction.
Zoning issues can be complicated. And although developers say the city’s bureaucracy is getting more efficient, government rarely moves as quickly as the private sector. Downtown infrastructure can be antiquated — and developers sometimes don’t discover just how antiquated it is until they start digging.
“Infill is always going to be more expensive,” said Derek Paulsen, the city’s commissioner of planning, preservation and development. “But we’re always going to be an infill community, even if we expand” the Urban Services Boundary.
The biggest downtown conundrums are housing and retail: residents want stores nearby, but stores won’t come until they are assured of customers. Lexington’s historic single-family neighborhoods have seen strong price appreciation. But the downtown condo market is still weak from over-building before the Great Recession.
“The condo market I would say is at equilibrium,” said developer Phil Holoubek. “There’s not too much demand or supply.”
Holoubek finished the 500s on Main condos across from the Lexington Civic Center after taking it over from another developer three years ago, but eight of the 17 units remain unsold, he said. Most are in the $250,000 to $350,000 range.
Demand for downtown rental apartments is much stronger, which has led to high rents. Anecdotal evidence also suggests that rents are rising because of the number of apartments being rented short-term through Airbnb.com.
After longer-than-expected delays, Holoubek said he will break ground in the next few months on three mixed-use apartment and retail projects on the east side of downtown. Two are owned by the non-profit Community Ventures Corp. and have tax-increment financing incentives to help with infrastructure costs.
Holoubek’s long-delayed Main & Vine project will have an Old National Bank office and retail space on the first floor, a second-floor parking deck and four floors with 60 apartments above that. It is next door to a former auto customizing shop that was remodeled to house Carson’s restaurant. Holoubek said he is close to leasing the back half of that building to a restaurant concept not now in Lexington. Across Main Street, developer Jeff Morgan is building 24 two-bedroom condos, street level retail and a 52-space garage on the former A1A Sandbar property.
Holoubek also plans to begin construction of two mixed-use projects near East Third Street and Midland Avenue, which will have retail, a medical clinic, a 150-space parking deck and another 60 apartments. Seventy percent of those apartments will be rented at market rates, with 30 percent subsidized as “affordable” housing.
“Infill development is just hard,” Holoubek said. “There’s a reason a lot of other guys aren’t doing what I do. But I am so optimistic for this city.”