Downtown: What you need to know about the Dol-Soul deal

  • This rendering shows Do-Soul Properties LLC's most recent vision of what its Main Street apartment complex might look like. The view is from the corner of South Main and Fayette Streets. City of Concord—Courtesy

  • The former Department of Employment Security building on S. Main Street.

Published: 7/7/2019 5:24:06 PM

On Monday, members of the public will have a chance to speak on what could be one of the biggest investments the city has made in Main Street since the downtown makeover.

It’s no secret that the city badly wants something to happen with the former Department of Employment Security building. It’s been empty for years, and people have a distinct love-hate relationship with the architecture.

Developer Dol-Soul Properties, LLC wants to make something happen there, too; specifically, it wants to build over 100 market-rate apartments and, purportedly, a restaurant. But nearly two years after the city first entered into a purchase and sales agreement with the company, the project has grown to include an additional 16 apartments and $7 million to its price tag, for a total project cost of $30 million.

To make that happen, the city wants to use $3.5 million from its tax increment finance (TIF) district funds to move the project forward. The Concord City Council won’t decide on whether to make that move until next month, as state law requires a waiting period between a public hearing and a vote to change TIF district finance plans.

We talked to Matt Walsh, deputy city manager of redevelopment, about everything you might want to know about the project.

Why $3.5M?

It comes down to a bigger project and rising construction costs.

When Concord starting courting Dol-Soul nearly two years ago for the DES building project, the company – which owns Pembroke Place on Manchester Street and Penacook Place on Fisherville Road in Concord – was promising a seven-story building with 5,000 square feet of commercial space and 109 market-rate apartments, ranging from studios to two-bedrooms, and 50 to 100 parking spaces, some underground.

But those plans were preliminary and didn’t include concrete designs, market analysis or firm construction costs, Walsh said.

“They were working with what they thought they could get on the property with zero design at that point,” Walsh said.

That changed this fall when Dol-Soul came back with a bigger project – and a bigger budget. In October, the city said Dol-Soul needed more time to complete its market studies and financial analysis.

Some of the cost increase is due to the developers determining they can now fit 125 apartments on the space, something Walsh said the city supports.

“We try to maximize the highest and best use of real estate any time we do a development project,” Walsh said.

But a lot of the cost increase comes from climbing construction costs related to more people looking to build after the recession, a low supply of capable construction workers, and prices for materials, like steel, which increased due to tariffs.

According to the New Hampshire Housing Finance Authority’s 2019 annual housing market report, residential developments require “higher soft costs, including professional fees (engineers, designers, attorneys)” to obtain local and state approvals.

Combine that with a low state unemployment rate that causes a scarcity of skilled construction labor and increases wage rates, and construction has gotten a lot more expensive.

Dol-Soul says that $7 million increase is too much for them to bear alone, which is where the city comes in.

How would the $3.5M be spent?

How the money would be spent is unclear for now; the city doesn’t have to decide that until February 2020.

It could be spent on the project itself or off-site improvements. It could reduce the $1 million sale price, or cover other costs like building permits or impact fees.

Walsh said it’s too early to know what the best course of action would be. “I know what the ingredients are, but I can’t tell you the exact recipe at this point,” he said.

Whatever the city decides to do will have to fit within that $3.5 million box, regardless of whether costs associated with the incentives rise by February.

“We’re offering up to $3.5 million, nothing more,” Walsh said.

Where is the money coming from?

The $3.5 million is expected to come entirely from the Sears Block TIF district, which covers 22 acres in the downtown from Depot to Theatre Streets, South State and Storrs Streets.

As a refresher, TIF districts are tools municipalities use to encourage economic development by offering to pay infrastructure costs as an incentive to the private sector.

The additional tax revenues generated by increased assessed property values is held onto by the city to pay off that infrastructure work and to pay for the operating costs of the district, like snow removal and street paving.

Is this going to affect my tax rate?

No, since the money will come from the Sears Block TIF fund.

We’d be remiss, however, if we didn’t mention the warring perspectives on TIF districts.

Walsh will tell you TIF districts have created economic development in “blighted” areas developers otherwise wouldn’t touch.

If not for that funding mechanism, there wouldn’t be places like Mennino Place, or the Smile building, or Capital Commons, or the Horseshoe Pond development, Walsh said – and he thinks people forget that too often.

The thing is, the money from TIF districts can’t be released until all its debt service is paid off or it’s retired. If they generate a lot of development, the city might release some of the revenues to support the general fund, which could in turn lower tax rates. Currently, only one of the city’s three TIFs – the North End Opportunity Corridor – contributes to the general fund each year.

That means the new tax revenue from the increased assessed values doesn’t go to paying off city, school and public safety costs, the biggest drivers of your tax rate right away. It could take decades for the revenue to have an impact, and that frustrates a lot of people.

What has the city done for this project already?

Concord has already sunk millions of dollars into the site itself, including a $1.58 million purchase price, and several hundred thousand dollars to weatherproof it.

Then there is the incentives offered to Dol-Soul already. The City Council voted to rezone the DES building’s location from urban commercial to central business performance and amended the city’s impact fee ordinance so that the project’s impact fees could be capped at $150,000.

It also revamped its parking permit system, another agreement with Dol-Soul, and agreed to provide up to 82 permit parking spaces.

It also discounted the sale price of the building, which it purchased for $1.575 million almost five years ago, by $500,000 and promised to cover the cost of the building’s demolition, priced at $300,000.

If the City Council approves the administration’s request, it will mean the city has put at $4.6 million into the project.

Didn’t we already have an agreement with Dol-Soul?

Yes, the City Council voted to enter into a purchase and sales agreement with Dol-Soul in October 2017. That agreement has been altered seven times since then.

What if Dol-Soul backs out?

There are a number of safeguards the city plans to put in place if Dol-Soul tries to back out once the project begins.

Those protections include:

■Increasing Dol-Soul’s deposit from $100,000 to $300,000, to be paid out in four installments starting on Nov. 8 through Aug. 4, 2020. That’s about 1% of the project’s total expected cost.

■ A “performance mortgage” on the building, which Walsh said will require Dol-Soul to have risk insurance on the building. That way, if something damages the building – a fire, an earthquake, something – the damage will be repaired and the project will continue. It also protects against foreclosure.

■An agreement that Dol-Soul will purchase the building as soon as the city completes its on/off-site improvements.

■ A “claw-back” provision, meaning the developer will reimburse the city 50% of the difference between the actual final cost of the project and $23.4 million, should the project come in under $23.4 million after all.

■Provisions preventing the city from having to demolish the DES building that include Dol-Soul completing its due diligence, securing its development permits and approvals, finalizing its financing scheme and securing construction estimates within their budget.

What does the city have to gain here?

It’s fair to say this could be the biggest development project on Main Street from a housing and a financial perspective in quite some time.

Scores of apartments have been added here and there in downtown during the last decade. The Endicott Hotel revamp added 36 units; Mennino Place added 45. Elm Grove Companies’ acquisition of four buildings on Pleasant and South State Streets will add 41 apartments.

But 125 apartments at once? That hasn’t happened. Walsh says that influx of people – childless young couples or empty nesters, he thinks – will immediately impact the downtown economic scene.

When all is said and done, the building is expected to be worth about $20.7 million, generating about $625,000 in property tax revenue each year.

To put that in perspective: the Capital Commons building is worth about $15 million; the Smile building is worth $9 million; the entire Steeplegate Mall is worth $10.2 million, according to city assessing data.

Although taxpayers won’t see an impact from the building’s increased assessment in their tax bills, Walsh said the site’s base worth will revert from $1.4 million to $392,800 once the DES building is demolished and turned over to Dol-Soul. Once it’s no longer city-owned, the property will start paying taxes – about an additional $11,520 tax revenue each year, Walsh said.

It may not seem like much, but Walsh says it’s something. After all, due to being state owned, the building hasn’t been generating taxes since it was built decades ago.

(Caitlin Andrews can be reached at 369-3309 or candrews

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