Downtown Boise projects come to screeching halt

An economic funk hangs over downtown Boise.

• A new $25 million convention center is on hold after voters refused to authorize a bond issue to pay for it.

• The second and third phases of a $136 million classroom, research and office complex are stalled as the state investigates loan irregularities.

• The $63 million Boise Tower high rise is still nothing but a huge foundation pit at 8th and Main as its developer struggles to regain a permit cancelled by the city.

Michael Journee
The Idaho Statesman

Just six weeks ago, all three projects seemed to be moving ahead. They were hailed as drivers of even more downtown development.

The uncertain futures of Boise Tower, University Place and Boise Centre at Capital Station are raising questions about how serious the situation is and what should be done to improve it.

Is downtown in trouble?

The bleak outlook for those big projects, however, may have more to do with a stretch of bad luck than a significant trend for downtown projects in general, according to a number of local developers.

And despite the recent setbacks, developers say their commitment to downtown development remains solid.

One property seen as critical to downtown growth and health is the 8th Street Marketplace.

Its new owners, out-of-town BoDo Partners Ltd., aren´t wavering from their plans to transform the long-struggling shopping district, according to David Wali, a Colliers International commercial real estate official who helped broker the sale to BoDo.

“My guys are not deterred by what´s occurred here,” said Wali. An announcement about BoDo´s plans for the project can be expected in the next few weeks, Wali said.

Like BoDo, many local downtown developers see little to worry about in the recent developments, even though many of their smaller projects also are on hold because of the poor economy.

“I think it´s a combination of things, personally,” said Scott Stewart, a partner at Stewart Laney Oaas, a local commercial real estate development company.

Stewart´s firm killed plans for a proposed four-building mixed-use office complex call The Blocks near the new Ada County Courthouse when demand for the space didn´t materialize.

A common problem?

Stewart and other developers say the lack of demand for less extensive projects like The Blocks, which included a hotel and some residential and retail space, is typical of the downtown´s cyclical real estate market in a down phase. Demand for new space — retail, office or residential — is low, but will return whether these larger projects are built or not.

However, the fate of these big projects relies more on their own unique circumstances than on the local market´s inability to support development, they said.

Others, including Boise Tower developer Rick Peterson, insist the uncertain future of these projects is directly tied to larger problems facing downtown and the economy and that pushing through those hard times can only happen with bold projects and long-term planning.

“My building isn´t the only one with problems,” Peterson said last week.

“I don´t think (downtown development) will come back without a real comprehensive push,” Peterson said. “It just seems that it´s reached a plateau. And it seems that it happened before the economy went down.”

The reality lies somewhere in between, said Phil Kushlan, executive director of the Capital City Development Corp., a quasi-governmental agency charged with the long-term planning of downtown´s revitalization.

“The major projects are pretty unique,” Kushlan said. “They have their own individual funding nuances and problems that are tied up with the economy. You can´t get away from the economy.”

Boise Tower´s planned 110 condominiums are seen by developers as a significant step toward bringing new residential properties to downtown, which has been a major focus of planners in recent years. The tower, which would be the tallest building in the state at 25 stories, is also seen as a fitting grand finale for CCDC´s revitalization of downtown´s core.

Peterson has secured an April 1 appeal hearing with the Boise City Council over the cancellation of his Boise Tower building permit, and the CCDC board still holds out hope that some kind of accommodation can be found that would allow construction to resume.

Cost overruns and questionable loans mean University Place may never be built. The classroom, research and office complex is intended to extend the reach of the University of Idaho and Idaho State University into downtown Boise.

At least a portion of University Place will be built at the intersection of Front Street and Broadway Avenue. A construction contract for the University of Idaho´s delayed Idaho Water Center building, a 196,000-square-foot building within the three building complex, was approved Feb. 27 by the Idaho State Building Authority board.

But the remaining two phases of the project — U of I´s 87,000-square-foot classroom building and Idaho State University´s Health Professions Center — are indefinitely delayed as the state Board of Education investigates $10 million in loans from the U of I´s cash management fund to the non-profit University of Idaho Foundation.

And Boise Centre at Capital Station, a new 128,000-square-foot, $25 million convention center intended to be a companion to the existing Boise Centre on the Grove, was rejected by voters in a Feb. 4 bond election. Opponents said the project´s complicated financing would end up being dumped in local taxpayers´ laps — a claim its proponents, who include most downtown developers, still dispute.

Pat Rice, project manager of the Greater Boise Auditorium District, said several dates for a new bond election for the Boise Centre at Capital Station have been identified by the Auditorium District board. The issue should be before voters again before the year is out, he said.

University Place and Boise Centre at Capital Station had been envisioned by CCDC and others as “bookends” for a massive redevelopment effort along the Front/Myrtle streets corridor, a major swath of downtown´s southern flank.

Peterson and Rice say projects like Boise Tower and the Boise Centre at Capital Station are what it will take for downtown to maintain its momentum through the lean times. It´s a point of mental attitude, Rice said.

“The more willing people are to knock down projects (like the new convention center), they´re just signing their own death warrants,” Rice said. “There are people who would invest millions, if we could get our own project off the ground. But people won´t believe it.”

How much blame goes to the economy?

Pat McMurray, Wells Fargo´s president for the Idaho region, agrees that the public projects are probably more insulated from market forces than private construction. But he said the economy likely plays a larger role in the recent troubles than some may realize.

“I don´t know how you can say that when voters turned down the convention center that they weren´t, in part, concerned about their own economic situation,” McMurray said.

McMurray, the banker, and Kushlan, the CCDC leader, both pointed out that money is tight, but that good, solid projects can get it.

“There´s money out there, but the lenders are less risk tolerant,” Kushlan said.

Kushlan agrees that large-scale development, especially publicly funded development, is important.

Public development, he said, allows productive momentum when developers might otherwise be on the sidelines.

“You don´t have to have as quick of a return on public projects as you do on private projects,” Kushlan said.

This “counter-cyclical” development concept is behind CCDC´s involvement in the current construction of 299 apartments on top of the parking garage just east of Ada County Courthouse and in a new building just next door to the courthouse and University Place.

But critics of projects like the Boise Centre at Capital Station say public investment in projects with uncertain demand only invites the construction of potential white elephants.

Some developers continue to support large-scale private projects like Boise Tower, even if they´re not sure there´s demand for them.

“I love the building,” Stewart said. “I think downtown needs it. But is there enough demand for it? I don´t know.”

Stewart agrees with Peterson that all of downtown´s problems, including the troubles of the big projects, stem from the economic uncertainty.

“I think what´s holding us back right now is the economy, the threat of war,” he said.

What will revive private development?

But Bill Clark, whose five-story, mixed-use Veltex building is one of the few private building projects under construction downtown, said each of those larger projects has its own unique problems that have stalled progress or forced a scaling back.

“What´s happening is not reflective of some big underlying issues,” said Clark, whose building is going up on the northeast corner of 5th and Main streets.

The two publicly funded ventures, University Place and the Boise Centre at Capital Station, face very different questions about the nuances of their complicated financing plans, Clark said. And Boise Tower faces larger questions about its viability after failing to secure a project loan for years.

The only real downtown trend to be concerned about, Clark said, is the inability of smaller developers to get their projects started because of lack of demand.

Bob Hosac, owner of R.S. Hosac Inc., has one of those on-the-shelf projects. He agrees with Clark that the troubles of the larger projects have nothing to do with problems he faces with the six-story office building he wants to build on the northeast corner of 11th and Main streets.

“It is designed and ready to go,” Hosac said of his planned project. But he hasn´t been able to scare up enough “tenants that would get us to half or three quarters full” — the magic number of presales he wants before starting construction.

Is suburban growth hurting downtown?

Wali and Bill Beck, of Tenant Realty Advisors, a commercial real estate firm, say the lack of demand for office space can also be seen in the climbing office vacancy numbers. Wali said that rate is resting at about 8 percent on about 3 million square feet of office space downtown.

But downtown´s rate is much better than the 13 percent rate in many areas of the western Treasure Valley, both Wali and Beck said. And the Treasure Valley is better off than most other metropolitan areas in the Northwest, they said.

“We´re not in bad shape overall,” Beck said. “(The vacancy rate in) Meridian is higher than anywhere else, and their rate compared to other cities isn´t that bad, either.”

Wali said he didn´t have downtown-specific numbers for retail vacancy rates, but he said retail accounts for a miniscule portion of downtown´s overall square footage. Still, retail vacancies track similarly, Wali said, with downtown typically fairing better than most other Treasure Valley areas.

That bodes well for downtown´s future, Wali and Beck said.

Just how bad is it?

Clark said his Veltex building has been fortunate to avoid Hosac´s lack of tenants, but he said his project is in just the right place at just the right time.

“We´re not overly ambitious in the terms of the size and quantity of what we´re building,” Clark said. “And people recognized the benefit of our great location.”

He´s been able to get commitments for three of the five condominiums on top of his Old Boise building. One floor of two floors of office space has been leased already.

But he´s sympathetic to other developers´ plight.

“It is very difficult to pre-sell or pre-lease space in a building that doesn´t exist yet,” Clark said. “Some markets are more accustomed to that. Boise´s not really there yet, but it will be some day.”

Kushlan, whose projects with the CCDC rely on a more steady tax-based funding stream, says the development industry is tough even in good times.

“None of this stuff is easy,” he said.

“And these times make it more difficult. But that´s why we´re all here — to keep looking for and finding solutions.”

To offer story ideas or comments, contact Michael Journee
[email protected] or 208-377-6465

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