A developer’s proposal to borrow $1.5 million from the City of Statesville, renovate the city-owned former Vance Hotel and lease apartment space in the building has one big problem.
It won’t make any money. At least not if current plans for the project remain in place.
That’s according to a review of the plan by the UNC School of Government’s Development Finance Initiative, presented to city council on Monday. The review found that developer Third Wave Capital’s financial assumptions and projections were overly optimistic.
DFI predicted construction costs would be $1.5 million more than Third Wave’s $7.52 million estimate, the loan terms would not be as favorable as originally forecast, and operating costs would be $4,155 per unit rather than $3,705.
DFI representative Matt Cook said a developer could not fund project.
“Does this project need city investment? Yes,” Cook said. “As it stands, if a developer were to use their own checkbook, they would actually have negative returns on this project.”
Cook said Third Wave’s suggestion of 60 percent rentable space in the building is not feasible.
“If you don’t have enough space that’s rentable, if you’re not able to generate enough rent for that space, then you’re actually having to spend a lot of money to renovate an entire space,” Cook said.
DFI estimated that 75 to 80 percent of the building is rentable if the first floor and basement become commercial rental spaces.
The project also needs additional city funding because Third Wave’s rent estimates are too conservative, according to the report. The city also would have to provide parking for renters.
Cook suggested that Third Wave complete schematic drawings with additional smaller, one-bedroom units, and commercial space. Third Wave should also compare rent in similar projects statewide and existing units in downtown Statesville, he recommended.
Cook said the city should request new schematic drawings, a budget based on those drawings and a new proposal from Third Wave within 90 days.
Council postponed any decision until its next meeting on Dec. 19.