A striking design, but challenges galore at 360 Market Square tower
It promises to transform Downtown, cutting a bold profile into the sky.
But already, the 360 Market Square luxury apartment tower, a major component of Mayor Greg Ballard's Downtown revitalization, has been beset with cost overruns, contaminated soil and delays in securing financing.
And the developer, Flaherty & Collins acknowledges that controlling costs for this marquee project will continue to be a major challenge. The initial estimate of $81 million already has soared about 50 percent to $121 million.
It's a bumpy start for a project that won praise for its daring design and ambitious engineering.
When completed, it will be the tallest apartment building in Indiana, at 300 feet, edging out the nearby Riley Towers by about 5 feet.
With a sweeping, curved look and 28 stories of shimmering, floor-to-ceiling glass, it's a skyscraper that is certain to turn heads.
Moreover, it could radically change the East Market Street edge of Downtown, long a sea of parking lots since Market Square Arena was demolished in 2001.
Ballard deemed the project so important that he held a national competition. The city chose the winner based on the unique design, which Ballard called a "bold new landmark to Indy's skyline."
The tower will feature some of the most expensive rents in Indianapolis. Projected rents will run from about $1,600 a month for the most modest units to more than $4,000 for penthouse suites with stunning skyline views.
That's a healthy premium over the average Downtown apartment rent of $1,273, according to a survey released last month by brokerage DTZ.
City officials and the developers say they are confident the project will succeed. But some question how long the demand for pricey apartments will hold up — and whether the construction price tag will continue to climb, which could force rents even higher.
While demand remains brisk and occupancy rates are hovering at 96 percent, developers have been building apartments Downtown at a furious pace, nearly doubling the number of units from 4,400 in 2011 to 8,200 next year.
"If you had asked me three or four months ago, I would say everything is being absorbed without delay," said George Tikijian, senior managing director of Tikijian Associates, an Indianapolis apartment broker. "But I think we've reached a point now where we're delivering more units than the market can handle."
Scott Pollom, senior vice president of DTZ brokerage in Indianapolis, said the market, in recent years, has been "quick to gobble things up." But that's changing, he cautioned.
Supply is increasing. Competition is growing. Not every project can expect to fill up.
Joe Whitsett, principal of TWG Development, which has built or rehabilitated several Downtown apartment projects, said there's a huge pent-up demand for urban living. "But I personally don't think it's going to last forever at the pace it's going now," he said.
Not just 'a hunch and a desire'
360 Market Square's supporters dismiss such concerns. They say construction is underway and all signs point to finishing it on time in the spring of 2017.
Adam Collins, the deputy mayor of economic development, said the city examined market data on rents, demand and occupancy rates from numerous sources.
"We didn't invest on just a hunch and a desire," he said.
The city donated the land, valued at about $5 million, and nearly $18 million in cash.
Collins took the job last year, succeeding Deron Kintner, who left government to take a job as general counsel for Flaherty & Collins — a move that raised ethical questions about the relationship between City Hall and developers.
The developer, for its part, says the project is moving forward full steam, after a few setbacks.
David Flaherty, chief executive, ticked off a series a features he says will draw prospective tenants: panoramic rooftop views, private terraces, a resort-style pool and sundeck, a fitness center and a streamlined design that will make a mark on the Downtown skyline.
It also won't hurt that the development will be anchored by a Whole Foods Market, a high-end supermarket specializing in organic foods.
"We'll have the best amenities in town, the best finishes," Flaherty said. "People will pay more to be in a high-rise development with floor-to-ceiling glass and panoramic views."
In case you miss his point, Flaherty lays it out plain and simple: "There will be no living experience like this."
Speaking about the Whole Foods Market, he talks as if he hit the jackpot. Just about every developer in every city is trying to land a deal with the upscale grocer, he said.
"Having a Whole Foods in our development, or just having a Whole Foods Downtown in a mixed-use development, makes a great statement about your city," he said.
That kind of brash confidence is common in the world of real estate developers, where sales charm and big smiles are the coin of the realm.
But Flaherty acknowledges that one of the company's biggest challenges will be controlling costs.
The ballooning costs reflect higher-than-expected expenses for labor and materials. They also reflect a change in plans by Whole Foods, which asked the developer to create underground parking, a much more expensive proposition than above-ground parking.
Perhaps most challenging: The new tower is designed with deep curves, rather than the traditional rectangle shape. That creates engineering and construct challenges. Cutting and installing specialty glass to fit over a curved structure can raise prices sharply.
And there's a reason most cities have only a few skyscrapers. Buildings over 10 stories tall are hugely expensive to build, power, insure and maintain.
Flaherty & Collins usually builds projects only four or five stories tall. Its Axis apartment project a few blocks west, for example, has 44 more units than 360 Market Square. But it is only five stories tall, and takes up an entire city block.
But the company wanted this project to stand out.
"To be different, you really needed to have an architectural flair, which led us to the curvature," Flaherty said. "Having more of a curve will make a statement in the skyline."
Contaminated soil causes delay
During a recent interview, Flaherty walked the project site, pointing to where the Whole Foods will sit, where the tower will rise, and where the parking garage will be sunk.
He noted the property is just a stone's throw from the City-County Building, City Market and the new Cummins office tower going up just to the south. The Cultural Trail runs down Alabama Street, right past the site.
The project was expected to get underway nearly a year ago and is running behind schedule, but if that bothered Flaherty, he didn't show it. Around him, backhoes and dump trucks excavated dirt and hauled it off.
But underneath his feet was one of the project's surprises.
Early excavation and soil analysis turned up chemically treated railroad ties, piles of buried asphalt and contaminated soil.
An 11-page report issued last September from the Indiana Department of Environmental Management told the long, dirty history of the 1.9-acre site.
Over the past 150 years, it has housed almost every conceivable type of business: a wagon shop, poultry market, horse stable, livery, auto manufacturing shop, foundry, printing company, laundry cleaner, saloon, hotels, stores and houses.
In the early 1970s, structures on the site were razed and Market Square Arena was built. The arena was completed in 1974 and was one of the city's most popular gathering spots for large events. Elvis Presley's last concert was held there in 1977, two months before he died.
The city demolished the arena in July 2001. Some of the debris was trucked away. But some of it was dumped underground.
"Whatever portion of the building could go into the hole, went into the hole," said Jim Crossin, vice president of development for Flaherty & Collins, as he peered into a large opening in the ground.
An environmental firm dug 15 soil borings 30 feet below ground. Arsenic and benzopyrene exceeded approved levels for residential and commercial buildings. In the groundwater, tetrachloroethylene and tichloroethlene were detected above the residential tap groundwater screening levels.
IDEM concluded that the conditions don't constitute "an imminent and substantial threat to human health or the environment," partly because the residential units will be high above ground. The state issued a "comfort letter" to Flaherty & Collins, saying the firm did not need to remediate the site.
But IDEM prohibited the use of any groundwater at the site for any purpose, including gardening, human or animal consumption or agriculture, without prior approval.
"IDEM encourages the redevelopment of this site," the letter concluded.
The developer said it has hauled away an unspecified amount of contaminated dirt. "Now it is just a typical excavation project," Crossin said.
Unconventional funding source
The company originally said it planned to start construction last spring. But spring came and went, and no ground was broken. The company later said construction would begin in the fall.
But the ribbon-cutting and ceremonial groundbreaking didn't take place until three months ago, as the officials worked to nail down financing.
They ended up with an unconventional financing package.
In addition to $57 million in bank loans, and $23.4 million from the city, Flaherty & Collins is turning to a controversial federal program known as EB-5 for one-quarter of the funding.
The program allows wealthy foreign investors to get on the fast track for U.S. residency if they plunk down cash to support a growing company.
Foreigners who invest up to $1 million in certain U.S. businesses — or just $500,000 in a depressed area — can qualify for legal permanent residency and a "green card" that lets them live and work here indefinitely.
The investment must create or preserve at least 10 full-time jobs within two years, after which the investor can apply for a green card.
The program has given rise to widespread complaints of fraud and abuse. Several projects across the country have gone bust, leaving investors without money or green cards.
For example, three Chinese citizens said they lost $3 million they gave to developers of a Chinese restaurant in San Bruno, Calif. The investors sued the developers, saying the restaurant wasn't built, and the money vanished.
A group of Chinese investors who paid $530,000 to become partners in a beef-packing house in South Dakota sued a company that recruited them, saying they did not receive crucial facts about the financially troubled project.
A Reuters investigation in 2010 found that thousands of immigrants have been burned by misrepresentations that EB-5 promoters make about the program.
Fortune magazine found that EB-5 investments are typically sold through unregistered securities offerings and rarely involve financial brokers, so deal documents receive no scrutiny from the Securities and Exchange Commission and face little due diligence.
"Because the EB-5 industry is virtually unregulated, it has become a magnet for amateurs, pipe-dreamers, and charlatans, who see it as an easy way to score funding for ventures that banks would never touch," the magazine wrote.
Flaherty & Collins had been negotiating since 2014 with CMB, an EB-5 regional center based in Rock Island, Ill., to get its project included.
CMB took on the project and issued fliers that touted its design and strong support from the city as key reasons it would succeed.
"The residential tower's iconic cutting-edge design rivals the architecture of any development in the United States," the flier said.
CMB officials said last week that it has raised more than $25 million for the project.
Despite criticism of EB-5 financing, Flaherty & Collins said it regards EB-5 as a solid source of funding.
"It's not like drug money or something," Crossin said.
"To us, it's just like any other lender," Flaherty said.
'What does that cost?'
The project is the most ambitious in years for Flaherty & Collins, which has completed more than $1.5 billion in development since it was founded in 1993.
In recent years, the Indianapolis firm has built a stunning portfolio of projects that feature a mix of apartments and retail, including: the Axis on the western edge of Downtown, a 336-unit apartment building anchored by a Marsh supermarket; the Depot at Nickel Plate in Fishers, with 242 apartment units and a pizzeria and boutique on the ground floor; and a string of similar upscale projects in Cincinnati, St. Louis, Kansas City and Chicago.
But it also has a whopper of a failure: an unfinished, 48-story condominium tower in Charlotte, N.C., that slid into bankruptcy in 2009. The developer owed more than $50 million to about 300 creditors, including condo buyers. Its own general contractor sued, saying it was owed $6.56 million.
Flaherty showed a flash of annoyance when a reporter asked about that project.
"Is this really relevant?" he said. "We have so many successful developments. Talking about that one that was so long ago. ... Do you have to talk about it?"
When pressed, Flaherty said the failure was brought on by the economic recession, which he said hammered condominium projects across the nation. Too many people were buying condos on speculation, he said, which helped fuel a bubble that exploded.
"That was an expensive lesson," he said. From now on, he plans to focus on mixed-use apartment projects, like 360 Market Square.
The lesson, he said: "Stick to what you do best."
Now that the firm has nailed down the financing and resumed excavation, it's in a contest to control costs and hope that demand for luxury rentals stays strong.
"Trying to tie down construction costs have been the biggest challenge," Flaherty acknowledged. "And with this one, you have the added challenge of making this an architectural statement in the sky. What does that cost?"
ABOUT THE PROJECT:
Name: 360 Market Square
Location: 360 E. Market St., on the north parcel of the demolished Market Square Arena. The site has been a parking lot for more than a decade.
Size: Lot is 1.9 acres. Tower is 28 stories, 300 feet tall. Floor space is 648,561 square feet.
Features: 292 luxury apartment units, some with private terraces. Floor to ceiling glass, solar shades, quartz countertops. Project is anchored by a 40,000-square foot Whole Foods Market. Includes a 525-space parking garage with electric-car charging stations. Sky Terrace on top level with panoramic views of Downtown. Resort style pool and sundeck. Fitness center, lounge, clubroom, bike-repair shop.
Groundbreaking: February 2015
Opening: Set for 2016
Rental rates: From $1,600 to more than $4,000 a month.
Developer: Flaherty & Collins
Architect: RTKL Associates Inc.
General contractor: Lend Lease
Bank loans: $57 million
EB-5 loan: $25 million
Indianapolis bond issue: $17.8 (subsidy to the developer)
Indianapolis city donation: $5.6 million worth of land.
Fang Equity: $3.3 million
Other: $12 million
Source : indystar
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