write a phd proposal about the real estate developers and urban development

36 Reaching for the Future: Creative Finance for Smaller Communities

Sugar Land, Texas Redevelopment of the Imperial Sugar Site

COMMUNITY DATA

SUGAR LAND POPULATION 83,000

HOUSTON METRO AREA POPULATION 6,200,000

CHALLENGE Vacant historic factory

STRATEGIC ELEMENTS City Hall Hotel Historic building restorations Interpretive trail system Sugar Land Heritage Museum Performing arts center Corporate headquarters Condominiums Parking

Lessons Learned ■■ Serving as a facilitator allows the city to be effective in its partnerships

with developers while continuously educating the community. This ap- proach consistently enhances local opportunities for successful planned developments.

Like many communities, the city of Sugar Land uses available municipal financing tools to enable successful development. But Sugar Land has expanded its concept of successful planned devel-

opment beyond just the revenue stream and the typical public/

private partnership. Its planned development efforts also incorporate

the city’s broader quality-of-life objectives, including the importance

of cultural arts and preservation of the community’s story.

Redeveloping the sweetest place in America. JOHNSON

DEVELOPMENT CORP.

Reaching for the Future: Creative Finance for Smaller Communities 37

■■ Incorporating historic and cultural resources into new development expands the opportuni- ties for including new partners in the typical public/private partnership.

■■ Maintaining a focus on the city’s mix of uses in planned development illustrates how those uses enhance the city as the best place to locate, whatever the reason.

The Setting Sugar Land, Texas, is located just 20 miles south- west of Houston. As home of the Imperial Sugar Company for nearly 150 years, Sugar Land’s name, heritage, and economy reflect its origins as a sugar plantation and company town. Imperial Sugar employed many residents, and company leaders supported Sugar Land and its institutions. Sugar Land was incorporated as a municipality in 1959 with a population of about 2,300. During the past three decades, the city has experienced rapid population growth, from slightly more than 8,800 residents in 1980 to about 83,000 in 2013. Sugar Land also increased in afflu- ence and diversity and welcomed a large Asian population. Sugar Land has also grown through annexations and the development of a series of master-planned communities. The city’s master plans and master-planning processes have been the framework for three significant developments over the past decade. Each development has unique financing attributes. Two of those develop-

ment processes are ongoing; all three exhibit the city’s willingness to think creatively about devel- opment finance.

Sugar Land Town Square Sugar Land’s most notable and successful mixed-use planned development is Sugar Land Town Square. The first phase of that 32-acre, 1.4 million-square-foot mixed-use development was completed in 2003, with two subsequent phases. Completed in 2009, Sugar Land Town Square includes the town’s City Hall with a 1.4-acre pub- lic plaza and event space, a 300-room Marriott hotel complex, three parking decks, 566,000

A city hall and town square for a new community. JOHNSON DEVELOPMENT CORP.

Sugar Land’s master planning efforts. JOHNSON DEVELOPMENT CORP.

38 Reaching for the Future: Creative Finance for Smaller Communities

square feet of office space, 252,000 square feet of retail and restaurant space, and 167 condo- miniums. Sugar Land Town Square is located at U.S. Route 59 (I-69) and Texas Highway 6 in Sugar Land.

This development, originally conceived by the city in 1996, was designed to be Sugar Land’s downtown, or central business district. The city passed the original planned development zoning specific to Town Square in 1998, with five subse- quent modifications. Master developer Planned Community Developers Ltd. was engaged at that time. The project’s financial challenge was to provide attractive lease rates for a project with high-end amenities and infrastructure. The city proposed Tax Increment Reinvestment Zone (TIRZ) No. 1 to enable reimbursement through public financing. This TIRZ process was pro- tracted and took nearly three years to complete. Other taxing bodies participating in the TIRZ in- cluded Fort Bend County and Fort Bend County Levee District No. 2. The project ultimately re- quired the city of Sugar Land to replace the local school district’s participation in the TIRZ with the city’s percentage of sales tax revenue generated by Town Square.

During this early phase of development, Sugar Land’s city council had authorized the creation of the Sugar Land Town Square Development Authority to assist both the city and the developer with the Sugar Land Town Square development. Texas law allowed this authority to assist the city in its planning and finance functions. The city and developer had started discussions with Marriott to build a new hotel and conference center. The conference center required the city to finance its construction and the hotel’s parking garage. The authority’s focus became the development of the Marriott hotel and conference center with an accompanying parking facility in TIRZ No. 1. The development authority entered into a conference center and parking lease agreement with a pri- vate entity to lease and operate the conference center and to allocate parking garage spaces in Town Square.

One important city incentive tool that was ap- plied during the development of Sugar Land Town Square predates its development. Sugar Land voters approved the creation of the Sugar Land Development Corporation in 1993. Organized

under Texas’s 1979 Development Corporation Act, Sugar Land Development Corporation levies a 0.25 percent sales tax to fund incentives and in- frastructure improvements that support economic development throughout the city. As of 2014, this fund had provided $68.1 million in capital im- provements and $7.9 million in incentives specific to business recruitment and retention.

Town Square’s second phase of development was initiated in 2005. The construction of the first Class A office building (with ground-level retail) in Sugar Land was key to this phase. With a $2.4 million incentive from Sugar Land Development Corporation, Planned Community Developers secured Minute Maid as its primary tenant, occu- pying 115,000 square feet. Minute Maid agreed to move its corporate headquarters to this Sugar Land location. As part of this incentive, Minute Maid, like all Town Square office tenants, was granted a seven-and-a-half-year 100 percent tax abatement for property improvements. This abatement is granted from the city and its TIRZ No. 1 partners, Fort Bend County and Fort Bend County Levee District No. 2.

Sugar Land Town Square has received multiple awards for innovative development over the years. Among them, Houston Business Journal recognized the development as its 2005 Best Community Impact award winner, and ULI Houston named Town Square as a 2011 Development of Distinction. TIRZ No. 1 property values have also grown exponentially. As of year- end 2014, the total appraised value of TIRZ No. 1 properties was nearly $96 million, up from a tax increment base of $5.6 million.

Imperial Refinery Sugar Land’s former Imperial Sugar refinery site, at U.S. Route 90 and Texas Highway 6, is another ongoing example of creative funding for rede- velopment. In 2003, Imperial Sugar announced plans to vacate its 715-acre site in Sugar Land. The city approved a general plan for the site in 2007. An initial planned development application was submitted and withdrawn in 2008 because of the economic downturn.

The development structure for the Imperial Sugar site is complex. Cherokee Sugar Land LP and the Texas General Land Office own the real estate as tenants in common. Cherokee Sugar

Reaching for the Future: Creative Finance for Smaller Communities 39

Land Management LLC serves as manager of the Imperial Sugar redevelopment project. Johnson Development Corporation is the project’s man- ager. The city has the following role within this structure:

■■ The city annexed what is known as Tract 3 within the overall Imperial Sugar redevelop- ment site. This tract, originally a state prison located outside Sugar Land’s city limits, was formally annexed in 2005. Tract 3 and the former Imperial Sugar refinery form the 736- acre site included in the city’s general devel- opment plan.

■■ Through the creation of the Imperial Re- development District in 2007, the district and its board implemented project plans for the TIRZ, considered a bond issuance, and estab- lished property tax rates for the district.

■■ TIRZ No. 3 was intended to fund infrastructure improvements for the Imperial Sugar site. The city and Fort Bend County are the participat- ing taxing bodies. This TIRZ has an appointed board to review improvement requests. The plan for TIRZ No. 3 also includes funding for the preservation and reuse of former Imperial Sugar buildings, which are considered his-

toric locally, and for creating a Sugar Land Heritage Museum within one of those build- ings. The city extended this TIRZ for an ad- ditional five years in 2013. The total estimated project costs to the TIRZ are approximately $147.8 million, including $4.7 million estimated for historic structures.

■■ The city contributed 0.5 percent of the incre- mental sales tax attributable to the Imperial Sugar development. The original redevelopment agreement for

the Imperial Sugar/Tract 3 planned development between the city and Cherokee Sugar Land LP was executed in 2007. One aspect of that agree- ment called for Cherokee to preserve the site’s artifacts as public art and serve as the anchor for an interpretive trail system through the site. Plans were also made to preserve the char house and other significant Imperial Sugar structures, as “the historic focal point of the redevelopment.”

This redevelopment plan was amended in 2010 to include parking and infrastructure for the construction of Constellation Field, Sugar Land’s minor-league ballpark, and nearby commercial and residential development. It was amended again in 2014 to provide for major land use

The community is designed with plentiful green space. JOHNSON DEVELOPMENT

CORP.

40 Reaching for the Future: Creative Finance for Smaller Communities

changes: for 127 acres, originally proposed as office use, changed to single-family residential, and for 50 acres, changed from retail to office uses. Those changes altered the local real estate market.

This 2014 amendment to the development agreement had one unusual requirement—that the Johnson Development Corporation design and construct the infrastructure and office space in what is identified as Imperial Historic District 1 within two years. The historic district encom- passes 45.8 acres. Within the identified Historic District 1, about 27 acres were included in the Imperial Market District final development plan in 2015. (Those various subarea plans conform to the general development agreement and amend- ments.) The overall goal for this project was to recognize the importance of this specific area of the city and its story.

The resulting Imperial Market District plan includes the preservation of four major and lo- cally important buildings (char house, three-bay warehouse, engineering building, and con- tainer house), two silos, and two smokestacks, all constructed by Imperial Sugar during its time in Sugar Land. Construction in the Imperial Market District is scheduled for completion in 2017.

The three-bay warehouse will be reused as part of the district’s nearly 270,000 square feet of retail space and will serve as the location for the Sugar Land Heritage Museum and the Fort Bend County Children’s Warehouse. The char house is slated to become an Aloft hotel. The smokestacks will anchor a plaza near new commercial construction in the district, and the ground floors of the silos will be reused as restau- rant space. In addition to the historic buildings and new commercial spaces, an additional 274 housing units and 86,000 square feet of upper- story offices are proposed for the Imperial Market District.

The Imperial Market District project has an estimated budget of $160 million. Johnson Development Corporation, as project manager, purchased the land in November 2014. The project will be financed with historic rehabilita- tion tax credits, funding through TIRZ No. 3, bank financing, and developer equity.

TIRZ No. 4 The city of Sugar Land created TIRZ No. 4 for a 30-year term in 2009. This TIRZ encompasses a 698-acre site at U.S. Route 59 (I-69) and University Boulevard, and the TIRZ’s participat-

Walking the new trails of Sugar Land. JOHNSON DEVELOPMENT

CORP.

Reaching for the Future: Creative Finance for Smaller Communities 41

ing government units include two of Fort Bend County’s municipal utility districts. The stated goal of this TIRZ is to support public improve- ments that foster employment, cultural arts, and entertainment venues within the district. The goal is to create a destination for activities.

This acreage was identified as a commercial development and is located adjacent to Telfair, one of Sugar Land’s most successful master- planned residential communities. The developer for both areas is Newland Communities. The TIRZ acreage includes some of the last remaining sites for potential development along U.S. Route 59 (I-69). Major retail development, including Costco, is slated for those sites. Newland Communities and the city have actually part- nered for the development of 300 acres, includ- ing a land exchange for a performing arts center. The city is financing the public improvements and facilities to support the objective.

Development to date at the site reflects the TIRZ objectives. Fluor Enterprises has purchased 50 acres for an estimated 750,000-square- foot headquarters building. Other medical and professional office space is planned for the site, and the University of Houston–Sugar Land has now located to the area. Sugar Land’s new per- forming arts center, an $84 million, 6,400-seat theater, was under construction in 2016. The city has allocated $74.3 million in sales and hotel tax revenues for construction. In addition, the city has partnered with ACE Theatrical Group, which is contributing $10 million in equity as part of its 30-year contract to program the center. To sup-

port center operations, the city granted naming rights to Houston’s Smart Financial Credit Union for $6.7 million. First-year projections put paid attendance at 26,000, with an annual economic impact of $26 million.

Sugar Land has used the availability of large sites and its location to use multiple financing tools:

■■ Tax increment redevelopment zones with other tax-participating units of government

■■ Nonprofit development corporations ■■ Sales tax contributions ■■ Hotel tax contributions ■■ Naming rights agreements ■■ Operator equity ■■ Historic preservation tax credits

A gathering at the Sugar Land public plaza. JOHNSON DEVELOPMENT CORP.