Expanding downtown development program breathes new life into struggling town centers
About two weeks ago the State of Delaware expanded its Downtown Development District program, which offers state incentives to projects that hold promise for revitalizing downtown areas.
Capital projects in portions of four cities - New Castle, Middletown, Clayton and Delaware City - are now eligible for the program, which was started in 2015. Wilmington, Dover and Seaford were the initial districts. Smyrna, Milford, Harrington, Georgetown, and Laurel were added in 2016.
Officials say the program already shows signs of having the desired impact. We asked contributor Jon Hurdle to delve into what that impact has been.
Farhad Baqi and his brother Seyar wanted to open a new dentist office in downtown Smyrna. They found a run-down building that was mostly empty, bought it and then discovered that it needed extensive renovations that would cost well over $200,000.
They started gutting the 2,700 square-foot, two-story building and fixing the overgrown landscaping and parking lot that had become an eyesore in the town center.
Then they heard about Delaware’s Downtown Development District program which provides state assistance for development projects that promise to revitalize town centers.
As a new business setting up in the district that was designated a ‘DDD’ by the state in 2016, Blue Hen Dental qualified for funding, and ended up being awarded $49,000, or about the maximum 20 percent of total construction costs, a sum that played a big role in getting the practice up and running, Farhad said.
The funding allowed the brothers to pay off a loan that was called in by a bank early in the project, and came just a few weeks before the repayment was due, he said.
“If we hadn’t had that money, we would have been deficit in our bank accounts by a lot,” said Farhad, 24, a business studies graduate from the University of Delaware, and now the practice’s business manager. “The breathing room that that gave us as a business – you can’t put a number on that.”
He said it was a “rough start” for the practice, but now, with some 2,000 regular patients and 13 employees, it’s profitable, and the brothers are looking to expand to one or two new locations in Delaware.
Their story is among the successes of the DDD program which was started in 2015 and was expanded in mid-August with the addition of Delaware City, New Castle, Middletown and Clayton where businesses in designated downtown districts can qualify for funding. Two other applicants, Bridgeville and Dagsboro, were rejected.
The idea, officials say, is to encourage private investors to commit funds that might otherwise be withheld because developers and their lenders are just not confident about investing in lackluster downtown areas. To that end, the program has so far invested $31.6 million in rebates and leveraged $597 million in private investment.
“This program was put in place to move capital off the fence,” said Jeff Flynn, director of economic development for the City of Wilmington, whose downtown district has so far attracted $23.5 million in DDD funding, leveraging $530 million in private investment.
Thirty-four of Wilmington’s qualified projects have been completed, while another 34 are “in the pipeline”, meaning that funding has been allocated but will be paid back to the state if they are not built, Flynn said.
Among the 70 large Wilmington projects in the program since it started, 11 have returned their “reserved” funds, city data show.
In a city that has worked to create a ‘live-work-play’ environment in its downtown area in recent years, the DDD funding has been “hugely important”, Flynn said, because it has kick-started the construction of apartments, offices, shops and restaurants that might not otherwise have been built, in space that was often empty or under-utilized.
The result is an increasingly vibrant downtown area, centered on Market Street and surrounding blocks where cafés and beer gardens are opening to cater for a new generation of apartment dwellers. They are living in downtown buildings like 200 West 9th Street, a formerly under-used structure that was renovated in 2017 to create 33 apartments and an art gallery on the first floor. The $4.5 million project attracted $499,000 in DDD funding.
“Projects that were considering an investment but had not committed because the math and the returns don’t work out – this program pushes it across the line,” Flynn said. “There is no doubt how important this is.”
The DDD replicates the Upstairs Fund, a former Wilmington initiative that provided City money to encourage the owners of downtown buildings to renovate unused space, typically on the upper floors of buildings that housed ground-floor retail, Flynn said. That program, which operated from 2010 to 2012, awarded $15 million to 30 projects that created 65 new units on the upper floors of downtown buildings.
Anas Ben Addi, director of the Delaware State Housing Authority, which oversees the state-wide program, said applications are evaluated on the basis of three main criteria: whether there are needs such as low home values or high commercial vacancy rates; whether there is a plan for businesses to invest there, and whether local government is willing to put its own “skin in the game” with incentives such as tax breaks or reduced fees.
The existence of the program doesn’t guarantee that all dormant projects will be brought to life, Addi, said, but there’s good evidence that it works in some cases, and makes others happen sooner than they would have done.
He cited plans for a 72-unit apartment complex in Seaford – one of the towns that received the DDD designation in an earlier round – where the developer got “cold feet” before committing the funds, and allowed the contract to expire.
But when the developer heard that $670,000 was available from the DDD, he renewed the contact, submitted zoning plans to the City of Seaford, and has now completed 36 of the units that are fully occupied, Addi said. The company is now working on phase two of the project.
In Dover, the Gray Fox Grille, a bar and restaurant on State Street, was closed for a while but then reopened after the owner used DDD funds for a rehab project, Addi said.
In total, the program has backed 167 projects, of which 77 are “large” – costing more than $250,000 -- and 90 are small, he said. Under the enabling legislation, there is room for three more cities to have designated districts, for a total of 15, but any more cities are unlikely to be added before the performance of the latest additions becomes known. The maximum funding for any project is $1.5 million.
Eventually, officials are hoping to measure the program’s success through economic metrics like home values and job growth, but for now, it’s gauged by the amount of private money that is leveraged, Addi said.
“The rebate is for people who are thinking about buying, improving or rehabbing or making capital improvements but they are still on the fence,” he said. “And then they realize: ‘this is more financially feasible, it makes sense for me to go for it and take the risk with this extra assistance.’”
In Georgetown, whose downtown district was previously accepted into the DDD, the signs are encouraging that the program is creating the right conditions for a ‘live-work-play’ environment, said Gene Dvornick, the town manager.
"Projects that were considering an investment but had not committed because the math and the returns don't work out, this program pushes it across the line." - Jeff Flynn, Wilmington Eco. Development Director
He cited a large mixed-use commercial/residential project that is under construction and which may not have been started without help from the DDD. The project is in Kimmeytown, an old neighborhood that hadn’t seen any new investment for a while but which is now better placed to attract more development.
Among small projects, a pizza restaurant has moved across East Market Street to take advantage of the downtown designation, and in the process has boosted its own business while helping to make the downtown more attractive, Dvornick said.
In 2018, three small projects and one large project attracted a total of $485,000 in DDD funding and leveraged $2.79 million in private investment, he said.
“It’s meeting the demand for services that aren’t currently available, and it’s increasing our housing options, which we have not seen in quite some time,” he said. “It’s a little bit more attractive to the private investor to take advantage of the program. Some of their earlier costs get deferred or eliminated, which sometimes is the most critical part for any project.”
In Smyrna, there’s no immediate evidence that the new dental practice is breathing new life into the downtown area but Farhad Baqi feels confident that it’s only a matter of time until that happens.
“We are on the main highway; it’s a prime location,” he said. “Two years ago, it was just vacant; now there’s beautiful landscaping and people are coming in. I’m sure it’s having some impact.”