Filling the Voids

Stakeholders look to redevelop handful of city’s numerous empty eyesores

By Sarah Baker

Last year was a banner year for adaptive reuse projects in Midtown and Downtown.

Developers announced plans for the Sears Crosstown building, Overton Square, Hotel Chisca, James Lee House and old United Warehouse in the South Main Historic Arts District. Construction began on The Pyramid, turning it into a 220,000-square-foot mega-Bass Pro Shop Outdoor World, and Memphis in May moved into its new headquarters at 56 S. Front St., a 14,600-square-foot building that’s on the National Register of Historic Places.

Several old Downtown warehouses kicked off redevelopment in 2012 – including the Printer’s Alley Lofts and The Cabinet Shop apartments on South Front and the former Blue Light Studio on Union Avenue, while Van Vleet at Second and Gayoso wrapped up its massive renovation.

Still, gluts of properties citywide remain vacant eyesores. Some 180 blighted assets ranging from historic skyscrapers to abandoned lots have been identified from the Downtown Memphis Commission alone since it ramped up its anti-blight initiative in April 2011.

“We’ve got a fairly decent-sized list of properties that we’ve worked on – had results on several, are in progress on several and have been frustrated by others,” said DMC president Paul Morris. “There’s a different level of attention that we’re paying to properties based on what we think are the highest priorities and what we think can make a difference.”

The DMC is a redevelopment agency with a mission of generating more demand to live, work and play Downtown. Morris said blight is one of the top three concerns of the 38103 ZIP code, and is directly correlated to the “work” component.

“The biggest reason we have blight in Downtown is not bad property owners, it’s not lack of regulation, attention and enforcement by us or the city,” Morris said. “The biggest reason is there’s not enough demand to drive up rent rates and property rates to justify putting more product online. If we could get more office users Downtown, then more of these buildings in the core especially could be redeveloped.”

The anti-blight effort is aimed at increasing the cost of holding blight and decreasing the cost of developing. Attorney Steve Barlow, hired by the DMC for the legal components of its anti-blight strategy, defines blighted property as “almost certainly vacant and in its current condition, uninhabitable.”

That means there is no capacity to plug in, turn on power or electrical, and that significant work would be required to get the property even to the basic level of occupancy.

“There’s no right under the city ordinances to hold a property indefinitely boarded up,” Barlow said. “If we do nothing or very little to hold owners to that standard, the owners get a free pass, save money and the buildings continue to deteriorate.”

Barlow said a single-blighted vacancy has a direct negative value impact on properties within a minimum of a half-mile radius. The take away, he said, is that blight is not just an eyesore but a drain on the city’s tax base.

“It’s causing harm to all of the other owners nearby,” Barlow said. “In a state like Tennessee where local property taxes are the main source of revenue, a vacancy when it gets out of control can be devastating because the value of the property goes down, meaning the tax collections go down.”

Here’s a list of eight blighted properties that could see movement in 2013:

1. Hotel Chisca, 272 S. Main St.

One of the properties in the DMC’s initial anti-blight effort that was a very high priority for the organization, Hotel Chisca is where Elvis Presley was first played on Dewey Phillips’ “Red, Hot and Blue” radio show from the building’s WHBQ studio in 1954.

The eight-story, 100-year-old hotel was finally purchased by Main Street Partners LLC for $900,000 in October from the Church of God in Christ. Main Street Partners – made up of Gary Prosterman, Terry Lynch, Gail Schledwitz and J.W. Gibson – plans to pump more than $20 million in renovations into the 292,000-square-foot historic hotel to convert it into 151 market-rate apartments and 5,400 square feet of retail space on the ground floor.

“We’re going to be upscale market-rate apartments,” Prosterman said. “We’re going after the Downtown workforce, as well as young people that just want the urban lifestyle.”

The city is spending $2 million on blight remediation of Hotel Chisca; Main Street Partners is spearheading the remaining investment and recruitment of private equity to conduct the extensive rehab. Hotel Chisca is expected to break ground in May for the 16-month project.

2. Sterick Building, 8 S. Third St.

The 29-story Sterick Building was built in 1929 and was the tallest structure in the region for several decades. The 350,883-square-foot Gothic-style office building is on the National Register of Historic Places but has stood vacant since the 1980s. It’s also been on the DMC’s list of top redevelopment sites for at least seven years.

Niles Grosvenor leased his single-family house and the land around it where the Sterick now stands on May 1, 1926, for 99 years. The deal was to keep the property in good working order, save normal wear and tear, and turn the keys back over to the Grosvenor family at the end of term. The 99-year-lease ends in 2025 for current owner New York-based AXA Equitable Life Insurance Co.

Morris said the Sterick not having a sole property owner complicates its fate, but it’s also positive because there are two entities under the law to hold responsible for the building. The real challenge is its size, which would make renovation very expensive – and that’s if there’s a plan for its highest and best use.

“If you turn it into all office, there’s not enough demand, so you couldn’t get enough rent in return,” Morris said. “The apartment market is as hot as it’s ever been, but if you’re talking about turning an entire huge Sterick Building into apartments, that would be difficult at the current rent rates to get your return.”

3. Hickman Building, 240 Madison Ave.

Another long-time vacant structure in Downtown where the DMC is working with the property owner to encourage development is the Hickman Building. The concrete steel building with terracotta tile façade was built in 1925 by a group of doctors as the Medical Arts Building and was later bought by cotton broker Francis Hickman. It became a multi-tenant office building until the 1980s when it was vacated.

The 99,159-square-foot Hickman and its attached two-story parking garage are owned in a family trust overseen by Chris Agee. His group bought it in 1993 when talks of the city razing it surfaced following fire damage to its upper deck.

“I didn’t want them to tear it down,” Agee said. “It’s part of our history. I wanted to help it as much as I could.”

The late Gothic Revival structure is on the Historic Register, thus is eligible for historic tax credits, and it also qualifies for a tax freeze. Agee said he’s soliciting a joint venture partner to develop the Hickman into a mixed-use apartment community with one, two and three bedrooms that could be converted into condominiums within the next five to 10 years.

“There used to be 50 buildings Downtown that could be made into apartments and now there’s just a handful,” Agee said.

4. Nylon Net Building, 7 Vance Ave.

Memphis native and California resident Dana Gabrion bought the 186,263-square-foot warehouse in March 2011 for $110,000. It was built in 1907 in what is now the heart of a residential area overlooking Tom Lee Park and the Mississippi River. The building is in the stabilization phase, as Gabrion tackles its caved-in roof in the rear, removing water and mold, and getting it placed on the Historic Register. Gabrion said she “would make an immediate profit by razing it and selling the historic brick,” but that “would be tragic.”

Gabrion recently completed a rehab of the Cherokee Arms Apartments in Midtown and hopes to get “heavy into the idea phase” for Nylon Net later this year. She envisions a combination of apartment and hotel that could “help be catalyst for a renaissance for the arts community in Memphis.”

“If I had all of the money in the world, my dream would be to make it into a loft-style hotel that preserves all of the old natural brick – the inside has beautiful brick arches – and wood floors,” Gabrion said. “On top, it’s five stories in some areas and three in some – that was due to a fire in the ’50s or ’60s. My idea would be to build up that area in more glass and steel. They do this a lot in Rome where they sort of incorporate the historic with modern – almost like Victorian and Edwardian combined with modern steampunk.”

Gabrion plans to tear down the two-story 1970s brick addition to Nylon Net, convert it into parking initially and eventually perhaps add on much smaller tower.

5. Jefferson Plaza, 147 Jefferson Ave.

This 105,564-square-foot office building was built in 1954 at the southeast corner of Jefferson and Second Street. The DMC filed suit against property owner Adam Airman in February 2012, claiming it and adjoining properties at 62 N. Second St. and 66 N. Second were a public nuisance. But Morris said the DMC “subsequently began working cooperatively” with Airman, reached a settlement agreement and dismissed the lawsuit a few months later.

The Downtown parking garage attached to the 147 Jefferson Ave. building is being demolished, the first of many steps Airman is taking to redevelop its adjacent 12-story masonry office building for a proposed mixed-use facility. Airman, an affiliate broker with Dan Stewart Realtors’ Commercial Division who bought the property in February 2011, envisions the building to include office space and possibly senior housing within the next five years.

“What I have in mind is for the building to be ground floor and the first floor support the courts … bail bond, lawyers, maybe mail companies like UPS or FedEx to support the court activities because they need a lot of that in the area,” Airman said. “And the upper floors, I’m thinking apartments for seniors maybe and people over 50 that would like to live Downtown. There will be a (new) parking garage and maybe some activity on the top floor for restaurants, weddings, whatever.”

6. French Quarter Suites Hotel, 2144 Madison Ave.

Built in 1984 at the northeast corner of Cooper and Madison next to Overton Square, this 103-room hotel has been vacant since July 2008. After a contract from two local partners to transform the 77,866-square-foot structure into a Comfort Suites fell through last year, the original ownership group including Ron Kirkpatrick and Don Pemberton remains.

But Mohamad Hakimian, owner in The Madison hotel Downtown and CEO of Unison Hotel Co. Inc., recently completed a feasibility study for converting the French Quarter into a luxury boutique hotel. His group is “at the stage of raising capital” for the four-story building.

“The hotel – we’re one developer short for either a hotel or multifamily redevelopment there,” said Bob Loeb, president of Loeb Properties Inc., the local real estate firm shelling out $19 million to redevelop Overton Square. “There are several people in pursuit of that right now, would love to see something in motion in the next six months there.”

7. Old Holiday Inn, 969 Madison Ave.

Restoring this 12-story, long-vacant structure near Pauline in the Memphis Medical Center is expected to cost Memphis Bioworks Foundation about $26 million. The nonprofit is working to renovate the old Holiday Inn building into a mixed-use facility with apartments and a hotel – in which InterContinental Hotel Groups is interested in branding.

“Even in the best of times, money for a hotel is some of the hardest to raise, but it’s even more difficult today,” said Brandon Wellford, Memphis Bioworks chief financial officer and director of real estate. “But the multifamily today is one of the easiest things to finance. We’re hoping by combining those two together, it takes away a little bit of a risk by having the multifamily component.”

Welford said multifamily would help satisfy a huge need for housing in the Medical Center, as many of the district’s neighboring apartment communities have 90-day waiting lists.

“Any time anything turns, it’s immediately leased,” Wellford said. “With all the thousands of people and students that are right here in the Medical Center, they have no place to live, except for going all the way Downtown or out East or in some other Midtown apartments.”

8. The Artisan Hotel/Country Hearth Inn & Suites, 1837 Union Ave.

This property at the southwest corner of Union and South McLean has housed many hotels since its construction in 1968, most notably a Ramada Inn and Holiday Inn. The owner of the 164,969-square-foot hotel, unoccupied since November 2010, is Integrated Financial Associates Inc., a Las Vegas-based mortgage brokerage group.

While this property’s fate may not be as an adaptive reuse, as the rest of this list indicates, market sources have reported rumors of Fresh Market looking to locate to this prime Midtown corner.

Tony Westmoreland, listing agent on the building with One Source Commercial, confirmed that it’s been under contract since last fall and that there’s “a 99.9 percent possibility” that the prospective buyer demolishes it. The $2.5 million price, which includes the old hotel and its connected 1835 Union office building, is expected to close in March.

“We’ve had a lot of people that were interested in doing something with it, but there was only really one company that was persistent,” Westmoreland said. “I don’t think it’s going to be anything that’s going to have a negative impact in Midtown. I think everybody’s going to really embrace what’s going to happen there.”