A financial gap often exists for downtown development, relative to suburban development. High land costs are a primary driver. A review of raw land sales from 2005-2009 showed that downtown land prices were on average more than $980,000 per acre, 13% higher than land sales throughout the City of Greensboro as a whole. An additional examination for a generic residential condo development suggested that land costs must be in the $433,000-$725,000 per acre range (or less) to produce the internal rate of return (IRR) of 15%-20%1 expected by developers and investors.
Small lot size, and the need to accommodate parking onsite, also add challenges to developing infill sites. Due to the small size of many potential development sites in downtown’s core, residential developers face the challenge of accommodating parking needs while ensuring a development project large enough to be worthwhile. HR&A’s 2008 Church Street Investment Strategy found that, In the case of rental properties, every parking space that can be removed from the footprint enables 0.9 more apartments, equivalent to $40,000 in net present value to the developer and $170,000 in additional assessed value to the City for a condo development.
Demand for downtown housing remains strong. City View at Southside has been one of the most successful multi-family residential developments in downtown in recent years. Now at 272 total apartments, following the completion of a recent new phase of development, the building remains at 95% occupancy, essentially full occupancy.
Despite this demand, sales prices and rents are not high enough to make most projects financially feasible. Recent developments have showed that sales of upscale residential space, with prices to match, haven’t performed as expected.
Southside is a prime example of where local government support improved a community and produced significant fiscal benefits. The new urbanist revitalization of the Southside neighborhood has been a huge financial success for the City of Greensboro. In addition to a host of social benefits (e.g. reduced crime, improved health, etc.), Southside’s assessed values have climbed 800% since 1995, or over $13 million. Based on property tax revenues alone, the City will recover its $6.3 million investment in less than 25 years.