By Sarah Vogelsong, The Progress-Index
HOPEWELL — When developer Dave McCormack was approached in 2014 about developing property in downtown Hopewell, all of the existing market research pushed him to say no. The foot traffic was virtually nonexistent. Parking was limited. There was almost no remaining undeveloped land. The location was what he described as “textbook sort of bad.”
But McCormack didn’t say no. Instead, the pioneering Tri-Cities developer, who has made his name through the rehabilitation of apparently hopeless properties in downtown Petersburg, embraced the proposal. And if all goes according to plan ─ an “if” that in the sphere of economic development is sometimes very big indeed ─ his company, Waukeshaw Development, Inc., will usher in two new Hopewell businesses this September.
Why McCormack moved in direct opposition to the prevailing wisdom was straightforward: “The risk,” he said, “is being offset by the progressive approach the EDA is taking.”
BRIDGING GOVERNMENT AND ENTERPRISE
In Hopewell, the Economic Development Authority has over the past five years become one of the most significant engines for change in the city, displaying a willingness to cut “creative” deals that has drawn both praise and criticism from citizens.
“We feel that we are a conduit to help the city move forward,” said Debbie Randolph, chair of the EDA.
Economic development authorities first came into existence in Virginia in 1966 with the passage of legislation authorizing localities to create such bodies for the purpose of encouraging industrial development using more flexible tools than were available to local governments.
In that era, the bodies were uniformly known as “industrial development authorities,” and their focus tended toward larger-scale enterprises. Hopewell’s IDA wasn’t created until May 1974, and although early on it was closely involved in attracting business to the city, over the years its efforts waned. Minutes from a December 2011 City Council meeting tersely state: “The IDA has not been very active.”
It was in 2012 that the status quo changed. An end-of-year ordinance from 2011 rebranded the IDA as the EDA, a change permitted by a 2004 General Assembly amendment to the original legislation that allowed authorities to broaden the scope of their activities to embrace non-industrial growth. In spring 2012, then-economic development director Andy Hagy convened the first EDA meeting and began setting wheels in motion.
The two primary advantages an EDA has over local government are that it can negotiate and cut deals with businesses directly without going through the public hearing process, and it can make loans or extend credit to businesses. Consequently, it can move faster and more flexibly than local governments.
Still, even with that greater latitude, it can’t “go rogue”: Members must be appointed by City Council, and city fund transfers to an EDA, like any other appropriation, must be publicly voted on and approved.
Some localities fund EDAs in regular block sums, but Hopewell has opted for a different approach, funding the authority on a case-by-case basis as deals come to fruition.
“Each deal we are kind of dependent on the city to work with us,” said Randolph.
When the EDA came into being, it had in its coffers $33,000 left over from the IDA. Since then, it has received a string of appropriations from the city, including $700,000 in September 2014; $25,000 in April 2015; and $50,000 and a “short-term loan” of $350,000 in July 2015.
As the dollar figure of the appropriations mounted, some Hopewell residents began to object to the expenditures, particularly as the details of many of the deals weren’t publicized for fear of adversely affecting the EDA’s negotiating position. Under state public records law, the EDA was allowed to keep those details private, but the secrecy still rankled some, particularly in light of the large sums Council had poured into the Hopewell library, the City Marina and the Beacon Theatre.
“I understand that citizens are leery,” said Assistant City Manager Charlie Dane, who also acts as Hopewell’s liaison with the EDA. But, he continued, “We’re not giving money away. We’re investing money.”
In choosing those investments, the EDA has taken some creative approaches to financing, but with a conservative approach to risk, said Randolph, herself a bank compliance officer with a background in lending.
“We expect to be shown, just like a bank does, the financials,” she said. “We try to alleviate as much risk as possible.”
“We’ve been very careful in our selections,” said Dane. A track record of success can help nudge the EDA toward a deal, he noted, as can the existence of other financial backing.
Under this vetting process, three deals have been finalized and are in varying stages of development. Other as-yet-unannounced projects are in the works (“We’ll hopefully be announcing that in 30 to 60 days” is a feature of any conversation about development with either Dane or City Manager Mark Haley), and the EDA has chipped in funds to encourage a least one business to relocate, funneling $25,000 toward the Landen Strapping Corporation to incentivize it to move from Prince George County to Hopewell’s old National Guard Armory off 6th Avenue.
The speed of the EDA’s and the city’s work has been one of its primary draws for private business.
“They get it done, and they get it done fast,” said Nathan Grubb, the owner of Battle Boats and one of the key figures in the authority’s recent deals.
“I think that demand is going up,” Randolph concluded. “People are seeing that Hopewell is changing.”
THE BIG DEVELOPER
McCormack was no stranger to Hopewell when he struck his deal with the EDA: In 2010, he converted the city’s historic Mallonee Middle School into lofts but became discouraged by a lack of support for future projects.
“At the time, the political environment and the management wasn’t conducive to progressive development,” he said.
But by the time Haley and Dane approached him in 2015, the city’s thinking had changed. Three major city-funded projects had been completed: the Hopewell library in 2010 and the Hopewell City Marina and historic Beacon Theatre in 2014, all of which provided destinations for out-of-towners. And on a more specific level, this time, the city and the EDA were willing to incentivize McCormack to put down roots in Hopewell.
Eventually, a deal was hammered out: The EDA bought the former Luck’s Beauty Salon at 246 East Broadway for $75,000 and then turned around and sold it to McCormack for $1 ─ but with stipulations. McCormack was required to generate at least $7,000 in new taxes to the city on an annual basis for 10 years. Because the property in its unoccupied state had previously generated $1,023 in property taxes to the city every year, that meant that McCormack would have to produce at least $8,023 on an annual basis until the investment was paid off. If he failed to meet those benchmarks, he would have to pay the remainder out of pocket.
To McCormack, the deal wasn’t quite as cushy as it might seem. Uninhabited buildings have higher rates of break-ins, and the costs of renovating the building were high. Besides needing a new roof, the structure required stabilization and masonry work, and the interior required a full overhaul. All in all, the improvements he would have to make amounted to hundreds of thousands of dollars.
Property rehabilitation is one of the key challenges the EDA has faced in its recent efforts. Hopewell’s FY2013 Comprehensive Annual Financial Report noted that “the City is considered developed out with respect to land use, except for several industrial zoned sites,” and “has no large undeveloped land parcels.” Viewed alongside the state and federal designation of Hopewell’s downtown as a historic district, this means that developers have to be willing to work within the existing framework of buildings that are decades old and often in poor condition.
McCormack, however, had a track record of doing exactly that in Petersburg in projects such as the Southern Express building renovation. In Hopewell, he proposed to not only rehabilitate the Luck building but to install two new businesses there: a pizzeria and a bakery, both of which would be run by Ben Cronk and Laura Boehmer, the entrepreneurs behind Petersburg’s beloved Buttermilk Bakery. Together, the businesses are expected to employ 13 to 15 people.
To Randolph, that was a good deal for the city: “They’re taking a building that was in disrepair and had been empty for a while and are now making it into two viable businesses.”
The restaurants also fit into the city’s broader plan for development, which aims to capitalize on the almost 15,000 people who come to the Beacon and the 20,000 who come to the Hopewell library on an annual basis, all of whom the city hopes to entice into eating, drinking and shopping in the downtown.
“We were leaking money out to other communities that we could capture here,” said Dane.
Ultimately, said Randolph, “We’re in the business of trying to encourage business and growth,” and McCormack was prominent enough to draw other businesspeople in his wake.
“To a certain extent we did give him a very good deal,” she said. “Do I think we gave it away? No.”
THE BUSINESS COUPLE
After McCormack was secured, the EDA entered into negotiations with Craig and Tammy Richards, a couple from West Virginia who had operated a restaurant and a chocolate business before coming to Hopewell.
Craig Richards, who is also publisher of The Progress-Index, had already been in talks with various city officials, and, said Dane, “his business plan to start with was very good.”
In October 2015, the couple and the EDA closed their deal. Under its terms, the EDA received $240,000 from the city to secure financing for the purchase of the former Synthetic Federal Credit Union building at 227 East Broadway. The EDA then set up a 10-year lease-to-own agreement with the couple, upcharging them a small percentage of the monthly loan payment to help pay for interest and risk, and repaid the $240,000 to the city. (Subsequently, the city passed those funds back to the EDA for use in a second deal that has not yet been announced.)
“Within 60 days, we had all the money back from buying the building,” said Dane. “It was a good, solid deal for us.”
Since the deal closed, the couple have invested $75,000 and have opened two businesses in the former bank: Sweet Tooth Candy and Boppers Malt Shop, the latter a 1950s-style burger and soda joint. A third business, Scoops Ice Cream, is expected to open in July. Currently, the businesses employ 10 full- and part-time workers, with plans to add another with the introduction of Scoops.
Craig Richards said that the businesses have “immediately had success,” with the candy shop, which fronts on Broadway, likely to see further increases in its sales as foot traffic increases.
In Randolph’s mind, the choice of businesses for the downtown fits into a larger strategic vision of what attracts modern consumers. “What better to put into a main street program downtown that can’t compete against the malls but specialty shops?” she asked.
THE ONE-MAN START-UP
The final deal the EDA concluded was for the northern side of the sprawling Broyhill property, which occupies the entire block of East Poythress Street between Randolph Road and Hopewell Street. For this, it turned to Nathan Grubb, a Hopewell native who had launched a thriving boat-building business in Petersburg but had outgrown his space.
According to Randolph, the Broyhill building, so named because it had once been occupied by the Broyhill Ford dealership, had “been an eyesore for a number of years, rather derelict, and really was something that needed to be changed to enhance the city.”
At the same time the city began to take an interest in Grubb, Dane heard that the popular K&L Barbecue in Cavalier Square was looking to move once their lease expired and decided to combine the two ventures.
Although Randolph acknowledged that a boat manufacturer was an unusual fit for downtown, the EDA, she said, was won over by the “new and innovative nature” of Grubb’s proposal.
For this deal, encompassing both sides of East Poythress Street, the EDA put forward its largest expenditure yet: $700,000, with $350,000 going toward the northern plat with the existing building that Grubb was to occupy and $350,000 going toward the southern plat, comprising an empty lot where K&L would set up shop.
For his portion, Grubb put down $250,000, with the remaining $100,000 financed through the EDA. K&L put down $100,000, with the rest to be paid at the closing of its part of the deal, which is expected to be resolved within the next two months.
Grubb quickly moved into the new building, where he also installed Whit’s Autobody and Paint, the Old Dominion Line-X Company and, most recently, JetPac LLC, a manufacturer of diesel and jet-drive outboard motors. Although construction has not yet begun, he plans to build seven one-bedroom apartments with a thousand-square-footprint on the second floor of the building, a development approach that runs “opposite” to that adopted by the Butterworth Lofts, which put in residential units first and then sought to attract first-floor retail.
With repairs to the building ongoing, Grubb estimated that the cost of rehabilitating the building would eventually cost him about twice as much as he spent on the property. A roof replacement, for example, recently ran him about $100,000.
“He’s put in a lot of money and a lot of time and effort to make a difference,” said Randolph.
'THE PENDULUM HAS SWUNG'
Simply put, the EDA deals represent a new institutional approach to local growth, one that McCormack described as “visionary.”
A lot of developers simply follow trends: the next big industry, the next big fad, the next big city. They look for existing demand and then try to supply a tried-and-true solution, often in cookie-cutter form.
That, said McCormack, isn’t the view he takes: “If you’re truly in development,” he said, “you’re actually leading something…You’ve got to kind of do it and get people on board with you.”
Dane voiced a similar view, although in different terms: “If we waited for private investment, we’d still be waiting.”
Clearly, the city isn’t waiting anymore and is in the midst of an aggressive approach to economic revitalization. Dane asserts that “the pendulum has swung” – but it may take time to see how far and if the recent economic development efforts will restore some of the luster to a town that has been called “The Wonder City.”