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published on May 1, 2018 - 1:11 PM
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“If you have a vacancy, you have to bend a little,” Veronica Stumpf, real estate broker at Stumpf & Co., tells both landlords and tenants in Downtown Fresno.

As total investment in downtown reaches into the hundreds of millions of dollars, issues of rehabilitating old buildings, keeping rents affordable and updating old infrastructure leaves many passing the buck. The give and the take between landlords and tenants, developers and the city have many questioning what it will take to make downtown work.

According to the Downtown Fresno Partnership’s end-of-year report for 2017, there is $106 million in private construction planned for the downtown triangle, fenced in by highways 41, 99 and 180. There is another $142 million in ongoing or planned construction in the public sector.

Transformative Climate Communities projects netted in more than $70 million for clean energy projects and Fulton Street construction received more than $20 million in federal and state grants. A high-speed rail station planned for H Street in Chinatown is still on the horizon.

There are about a dozen empty storefronts on Fulton Street, with eateries including Casa de Tamales and Parsley Cafe recently shutting down. In all of downtown, vacancies total 247,000 square feet, which, according to Stumpf, may be high, but percentage-wise, is actually lower than the city as a whole.

The problem is bad enough that even Fresno Mayor Lee Brand is putting holds on building sales in an effort to get rid of speculators. “Escrow does not close until you have all your permits and all of your plans and specifications,” said Brand.

Property owners are actively trying to fill those spaces. What so many agree on is the need for restaurants and nightlife that thrive at lunch and can bring people after hours. But many of the older buildings are not outfitted for those uses.

The Payless ShoeSource at Mariposa Mall and Fulton Street would not seem like a place that would house both a Japanese restaurant, Toshiko Japanese Cuisine, and a fried chicken joint, The Chicken Shack, but property owner Bob Gurfield knew that getting those tenants would take an investment, and he installed brand new kitchens in the old shoe store.

That expense is running into the six figures for a building untouched in 40 years.

“In one sense, it was expensive. In another sense, I couldn’t expect that the tenants would carry the full cost of this,” Gurfield said, his hope being that the cost could be amortized by the income.

But therein lies a bigger problem. Construction costs have gone up and rehabbing buildings that have gone untouched for decades can uncover daily problems.

When Gurfield discusses rent with a tenant, he has to speculate on the cost of construction. Then there is bargaining with the banks for financing. With all the restrictions on lending, it can be difficult for lenders to buy into your vision for a space.

“His data is from the past, my data is from the future,” Gurfield said.

The value of downtown properties is still largely determined by the numerous attempts at revitalization, according to Gregg Palmer, vice president of James G. Palmer, Appraisals, Inc. A couple of high-speed rail purchases and even the 2010 closure of the Fresno Metropolitan Museum are still affecting the comparables that appraisers use to determine property value.

The opening of Fulton Street has created some optimism in his outlook, Palmer says, but it’s still too soon to tell whether what property owners believe their buildings are worth and what banks believe they are worth.

“The problem is the financing gap,” said Fresno Mayor Lee Brand. “The market rate for downtown properties is about $1 a square foot, but in order to be profitable, prices are going for about $2 to break even.”

The problem with the financing gap extends beyond older buildings and onto newer developments like housing. Developers are gambling on the idea that Downtown Fresno will be an entertainment hub rather than just a lunchtime oasis.

“Creating the thousands of jobs that the city is by getting GAP, Ulta and Amazon to South Fresno will help bring more residents to Downtown Fresno,” said Darius Assemi, president of Granville Properties, which built some of the first lofts and apartments in downtown.

But as it stands, the housing is not in place to take in a new influx of well-paying distribution jobs, according to Assemi.

He thinks it will take 3,000 units to support the retail that property owners are trying to sell, but according to the Downtown Fresno Partnership at the end of 2017, there have only been 585 residential units built since 2011, with another 23 units underway by Granville and 54 units being done by Noyan Co. and TFS Investments.

But developing new properties in downtown incurs some of the same obstacles as rehabilitating old ones.

“Downtown Fresno is the most difficult, complicated place to develop because of old infrastructure and the different agencies you have to go through to get approval,” said Assemi.

The city recently executed Recharge Fresno, which updated many of the outdated water lines in downtown. Additionally, high speed rail is working with state and federal funds to upgrade gas, water, sewer and electrical lines, but that only extends so far as H Street on the west and F Street in the east, according to Diana Gomez, Central Valley regional director of high-speed rail.

The LA Times reported Wednesday that the scope of the work required to update that infrastructure was vastly underestimated. The new estimate for 29 miles of infrastructure upgrades is $369 million, up from $69 million.

Numerous developers have cited the high-speed rail investment as helping, but the problem extends beyond utilities and Broadway Street.

Developers like Terance Frazier, who with Mehmet Noyan, are undertaking projects on H Street, said that he wants to see taxpayer money going to roads, gutters, sidewalks and putting telephone cables underground so developers don’t have to do those things.

“If you’re telling us that we have to do that, it’s going to slow down development,” Frazier said in an interview with The Business Journal last month.

For its part, the city administration cites access to other gap financing sources to bring down cost.

New market tax credits (NMTC), historical credits and cap-and-trade dollars are available but not always easy to access and slow to receive. The Rowell Building that was slated to house the Fresno County district attorney’s office is still reportedly waiting on the status of a NMTC application as well as a historical credit.

“We have incentives in place and I can’t give away tax dollars foolishly,” Brand said. “There’s always an element of risk involved. That’s why these guys make the money — because they’re risk takers.”


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