Commission lays groundwork for sale of I-195 land

A little more than a year since the Interstate 195 Redevelopment District Commission first met, few changes are visible on the 41 acres of urban scrubland freed by the removal of the highway overpass. But that doesn’t mean that nothing is being done in the effort to take advantage of one of Rhode Island’s best real estate and economic-development opportunities in decades. Through environmental work and pre-permitting, the commission has already made the 21 buildable acres much more attractive to potential buyers. The next steps facing the commission include taking ownership of the land from the R.I. Department of Transportation and then figuring out how to pay for maintenance of the parcels, sidewalks and 14 acres of parks.
I-195 commission Chairman Colin Kane discusses the financial side of the redevelopment project.
PBN: Some people are probably still confused about how the commission is taking ownership of the properties and why a quasi-state agency is floating bonds for a state commission to buy land from a state agency in connection with a highway relocation project mostly funded by the federal government. Can you walk us through the process?
KANE: From the beginning, when the relocation of I-195 was conceived, the sale of land was identified as a source of revenue to fund projects such as the reconnection of roads and infrastructure and creation of open space. But because federal highway money was used during the original construction of the highway in the 1950s, the R.I. Department of Transportation is compelled by statute to sell the property at fair-market value as determined by a third-party appraisal approved by the federal highway administration. DOT became the owner when properties were condemned and there was a fair-market value paid for them through eminent domain. In a sense, it is the reverse of that process, a reverse of the taking. So if they hadn’t created an I-195 commission, the alternative would have been a piecemeal disposition of the parcels by DOT. That is a cumbersome process and DOT is not a redevelopment agency; it is not their skill set. Having to go through this process every time a parcel was sold would not reflect market norms. As an example, the [parcels purchased by Johnson & Wales University] were carved out in legislation 16 months ago and are just about to close now. So really it was quite ingenious for the commission to be established to create a funding mechanism to detach the property from that cumbersome process and at the same time fulfill the obligations to complete the roadways and follow the statute.

PBN: Are the bonds like a mortgage the commission has to pay off by selling the land?
KANE: The obligation to repay the bonds is the state’s obligation, but the commission is bound by the bond documents that when it sells a property, the proceeds, minus some minimal transaction costs, go to the bond-holders. The sale of property is indeed the primary repayment mechanism. The bond has a 20-year term and the commission’s term is 20 years. At that point, if they are not already repaid, it would be the state’s obligation, but you could also refinance or amend the statute. The alternative would have been transportation bonds. In this case we have the benefit of a value-creation project to help pay off those bonds.

PBN: What did the appraisal determine the land was worth and did it include the parks?
KANE: It’s roughly $2 million per developable acre. So there are about 21 acres of developable pads, and it comes to approximately $42 million. The appraisal does not show any consideration for the parks, which we do take possession of, or the roughly 7 acres of roadways and sidewalks, which will end up city property.

PBN: Does paying off the bond create any tension between seeking the best purchase price for parcels and seeking the best long-term public or economic- development option for them?
KANE: Not yet. I am sure there will be once we are out of the acquisition phase. Another benefit of decoupling from the cumbersome highway-disposition process is the commission has the latitude to use a discounted sales price on land as an incentive to attract jobs and interesting users. At the end of the day though, the cost of land relative to the overall cost of projects that would be built is small. To go vertical on a downtown parcel, whether it is in Providence or Memphis or Des Moines, is an expensive proposition and the cost of land relative to the overall cost of development is pretty low. So I am confident that if we do our job, we will yield fair value for the bond-holders. If we went out and gave land away to the expansion of a nightclub, we would see some challenges. But if it is something like Apple headquarters, I think people would recognize the call there. I don’t know if there will be lots of proposals, but anyone who has the capability to put a stake in the ground on a several-hundred-square-foot tower will be sophisticated actors who understand the land has value. What we are selling is not just raw dirt. We will be selling improved pad sites with utility, road infrastructure, environmental, stormwater and, hopefully, parking. A lot of the effort someone would have to put in if they were going to come in and build something has already been done. And if you are going to build a tower in any urban setting, at $300 to $500 per square foot, the cost of land quickly bleeds out. Anyone willing to make that kind of investment is presumably going to bring some economic-development benefit.

PBN: A few weeks ago EDC had some concerns, have those been addressed?
KANE: I wouldn’t call them concerns. They just want to do it right and we do to. It is not hung up. It is like any other closing I have been involved with. There is no estimate of when it will go through right now. I would be surprised if it is done by year end. But the commission’s stuff will be complete.

PBN: Is the commission going to have enough money to do what it has to do to sell the parcels, maintain the land when it takes title, and then maintain the parks? KANE: I am confident we will be resourced appropriately. We are actually saving money by not taking title immediately. It will not be maintained to a very high standard because there is no mechanism to do plowing of the sidewalks or grass cutting. There just isn’t. We are hearing proposals for scope of work right now. We don’t have estimates and it is an ongoing process of figuring out what it is going to cost us to maintain the completed parks and sidewalks. But that is still a few years away. Conceptually I can say how it will work in 10 years. In 10 years there will be building fabric there. A typical approach would be not unlike how the Downtown Improvement District is structured: you will charge your buyers to plow sidewalks and maintain the parks. Whether that will be sufficient for everything we want to do with the parks, I don’t know yet. The challenge is the interim condition when we are trying to produce a retail product, but there are no buildings to subsidize it.

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PBN: While the commission has been waiting to take control of the land, you have done a lot in preparing the sites for sale that is pretty dry and hasn’t gotten a lot of attention. Describe what you have accomplished so far?
KANE: I think we have done extraordinary things prior to taking title with profound support of the Department of Environmental Management and Coastal Resources Management Council and DOT. We were able to compile all previous environmental studies that had been completed. We were able to fill in the data gaps in record time. We have completed our investigation on every single parcel to financeable standards. We have been able to get endorsement from DEM on a global remedial-action work plan. So when someone comes in to build, they don’t have to come up with their own engineering solution on remediation of hotspots, removal of soil or creation of a cap. What we have accomplished in 14 months, would take someone two years on a parcel-by-parcel basis. We will be able to hand that material to a buyer and they will have a running start with DEM. •

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