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Multimillion-dollar developers fighting for Interstate 81 retail supremacy

August 31st, 2013 8:49 pm by Nathan Baker

Multimillion-dollar developers fighting for Interstate 81 retail supremacy

Three multimillion-dollar retail developments on Interstate 81 are making plans to enter the Tri-Cities market in the coming years.

Each developer claims his proposal has regional significance, will draw millions of visitors to the area and generate millions in tax revenues.

Each project has received varying degrees of public funding and is in a different stage of completion.

Only time will tell if the shopping centers will be gold mines, enticing new businesses and entertainment opportunities, or ghost towns, leaving behind more empty storefronts and unfulfilled promises.

Heritage Point Towne Center

“I really believe I have the best site,” Heritage Point Towne Center developer Stewart Taylor said last week. “I have the best demographics of all the sites — there are 200,000 people within 20 miles, 47,000 people drive by it every day on I-26 and 20,000 on I-81.”

Taylor’s 400 acres lie in the southwest corner of the junction of Interstates 26 and 81, between Johnson City and Kingsport.

It took him 12 years to acquire all the virgin farmland for the 1.4-million-square-foot shopping center he envisions.

“When I started, I did not know that I would be able to accumulate what I have,” he said. “Three of the farms had land grants from King George, they’d been in families for 300 years, but they had enough faith in me to sell it to me. I take this project very seriously, and I feel very honored  to be able to make this a reality.”

Taylor’s initial master plan for the site included a sporting goods retail anchor, a wholesale club, a movie theater, department stores, smaller retail and a handful of restaurants. A hotel was to be built near the interstate off ramp, just across from a fuel and convenience store.

Planners estimate the first phase will create 1,415 jobs and $141 million in annual sales, but as of yet, Taylor has not officially announced any deals with major tenants.

“We’re talking to a lot of people, but really at this moment, we’re not committed to anybody,” he said. “We’re getting the site ready, and I hope to have something to announce at one time.”

Without any contracts in hand, he plowed ahead in March with a ceremonial groundbreaking at the future site of Heritage Point, spending about $8 million on grading work.

Taylor said the level of cooperation from local government is one of the major factors that sets apart the three developments.

“The city leaders were more aggressive for those communities,” he said of Bristol, Tenn., and Va. “There are a lot of fish out there, a lot of different companies I’d like to see come here, but you have to have a government that is willing to work with you on this.”

Kingsport’s Community and Government Relations Director Tim Whaley said Friday that the city has and does support Taylor and the other property owners hoping to develop along the interchange.

“It’s a key location,” Whaley said. “City leaders very early on recognized the importance of the commercial retail development possibilities at that site. It’s one of the last of its kind in the area.”

Years ago, Whaley said, Kingsport annexed the area and spent more than $6 million finishing roads and sewer infrastructure on the site, something that has not yet been completed at the other two.

The city also holds an option on, and is actively marketing, 17 acres of Taylor’s land, of which Whaley said it “would be fair to say there’s a great deal of interest.”

The city also heavily lobbied state lawmakers to approve legislation allowing Tennessee municipalities to recapture sales tax revenue and offer a portion to retailers as incentives.

“One of the key differences between Tennessee and Virginia is the sales tax rate,” Whaley said. “City leaders crafted legislation to allow us to win back some of those businesses that were locating just over the state line and drawing customers from our community.”

Kingsport’s border region targeted for development is 950 acres along the Interstate, including Taylor’s 400.

Whaley said the city is working closely with Taylor because his site is the farthest along, but said the municipality also holds an option on another property and is actively marketing the entire corridor.

“If we have growing commercial retail, it means we have a growing tax base,” he said. “That’s a positive for any municipality.”

The Pinnacle

Less than 20 miles north, where Interstate 81 meets U.S. Highway 11W, the worksite for Steve Johnson’s The Pinnacle is a hive of activity.

Earth movers flatten the hilly terrain while work trucks kick up the red dust on the land that will eventually be 1.3 million square feet of super-regional retail, if Johnson has his way.

“It’s going to be over the top,” the developer said, looking out over a hill crest where footers were being poured for a 100,000-square-foot Bass Pro Shops. “From a qualitative standpoint it’s just going to blow you away. You have to go to some bigger markets like Dallas, or L.A. or Atlanta to see the top-down quality that’s going to happen right here.”

Unlike Heritage Point, Johnson seemingly had no problem securing contracts with anchor stores, and in addition to Bass Pro, has already revealed a Belk department store, which announced plans to relocate from the Bristol Mall in early 2015.

He estimates that the first half of the project will create approximately 1,200 jobs and add $250 million in yearly sales to the local economy.

Like the developer to the south, he said much of the quality of his site lay in its location and the regional demographics.

“This is the right site, it’s the right location and it’s got the right kind of tenants,” Johnson said. “This industry has a bit of a herd mentality, and I know where the herd is.”

Just on the Tennessee side of the state line in Bristol, The Pinnacle takes up about 250 acres off I-81’s Exit 74.

Right now, Johnson is building on and marketing that property, but in June, his limited liability company finalized the $3.14 million purchase of another 250 adjoining acres in Washington County, Va.

“With the addition of that land, I could have a super-regional retail center that can be accessed from two different Interstate exits,” he said. “This will be a destination center, and will draw people from Roanoke, Knoxville and Kentucky.”

Johnson said the cooperation from Bristol and Sullivan County was instrumental in getting the project off the ground so quickly.

“Bristol, Tenn., has been great,” he said. “The public portion of the project they were willing to take on, and I really applaud them for being creative and having an open mind to how we address all of the specific and different nuances of this magnitude.”

In January, Bristol approved a $25 million loan package for the developer, and immediately sold $9 million worth of bonds to help fund construction of the Bass Pro Shop.

The city also agreed to fund an $8 million road project through the retail center, $2 million of which are expected through a state grant.

Both the city and the county approved a tax increment financing district for the property, through which about $10 million in tax revenues will be used to pay back a portion of the debt used to finance the development.

Johnson, who worked to develop much of Exit 7 along I-81 in Bristol, Va., said he’s unsure if the regional economy can support all three of the huge retail centers.

“The Tri-Cities is a great market, or I wouldn’t be doing a project of this magnitude,” he said. “If someone asks if there’s room for three projects in this market the size of mine, are they all going to succeed? I think that would be difficult, the market’s not that big.”

The Falls

A little more than 6 miles farther into Virginia, the city of Bristol is hoping to cash in on the success of the development of I-81’s Exit 7.

On U.S. Highway 11, off Exit 5, grading and blasting is under way for The Falls, 1.5 million square feet of retail development expected to bring 2,000 jobs and $5 million in annual sales tax revenue.

Cabela’s — the company’s only Virginia store — Calhoun’s and Zaxby’s restaurants, a Sheetz convenience store and a microbrewery have been announced as tenants.

Cabela’s is slated for an opening in fall 2014.

Bristol, Va., is taking a larger role in developing the Falls than the other two sites, and is more involved financially than the other municipalities.

The city spent $22 million in general obligation bond funds to purchase the 140 acres slated for development, and is expected to issue approximately $10 million to $12 million more to pay for its share of a project to widen the Lee Highway. Through a revenue-sharing agreement with the commonwealth, Virginia will contribute $10 million toward the road construction.

Bristol also borrowed $3 million to move a cell tower from the site, and approved an $18 million contract with W-L Construction in June to level the land.

To pay for the site preparations, the city expects to sell $18 million in revenue bonds, which will be cashed in on expected sales tax revenues generated once the businesses open.

“When the City Council first envisioned this project, they took the stance that they wanted to be more involved to ensure taxpayers were protected,” Assistant City Manager Andrew Trivette said. “It went the way we wanted it to go, similarly to previous projects in history of the city. It’s a project of public importance, and it requires public involvement.”

Trivette said the project fits well with the city’s plans to develop the I-81 corridor and adjoins the established retail center at Exit 7.

“Obviously, we think it’s the best location,” he said. “We already have signed contracts, most of the spots are spoken for, and I think that’s because the area has already proven itself and that it works for development.”

When Belk announced its plan to move from the Bristol Mall, Trivette said the city moved quickly to draft legislation to better compete with Tennessee’s incentives and worked to have it approved in hopes of retaining the remaining businesses.

“The sales tax differences between the states has historically been an advantage,” he said. “But if you rewind the tapes and look at the beginning, the whole reason this was started was because we were threatened with the loss of tenants from the mall.”

But Bristol’s business recruiting for The Falls may have hit a little too close to home for Washington County, Va., officials, who claim the municipality-specific legislation gave the city an unfair advantage.

Charging that Bristol was using the expected sales tax revenue borrowing to poach a store thought to be Lowe’s Home Improvement, the county has initiated legal proceedings to stop the city.

Representatives from both boards are expected to soon meet to try to hash out their differences, but the county Board of Supervisors has retained an attorney and has not ruled out legal action to remedy the situation.

“The conflict with the county is unfortunate,” Trivette said. “I wish we weren’t where we are right now, but I’m confident we’ll be able to reach a resolution that will be satisfactory, and I think county feels the same.”

Unlike Johnson, Trivette said he believes there’s room in the local market for all three developments to thrive.

“With the city being what it is and sharing a state line, we have to consider it as one city,” he said. “There will be some friendly competition, but we’ve seen numerous retail stores moving in, and there’s been room for all of them.”

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