- Briefing Room
The Cap at Union Station case study describes how governments and private developers can utilize above-grade joint development both to fund an infrastructure investment and to reconnect divided neighborhoods and improve the condition of distressed areas.
The Cap at Union Station in Columbus, OH, demonstrates how governments can partner with the private sector to create and share value in highway-related investments. The project began in 1995 when the city of Columbus was looking for a way to reconnect sections of downtown that had been bisected by the construction of I-670, an inner-belt highway, about 20 years earlier. The construction of the expressway became a barrier to the development of the area north of I-670, the Short North arts and entertainment district. Community groups opposed the proposed widening of the expressway, claiming it would further damage the urban landscape. The large convention center located downtown near I-670 was illustrative of this chasm, as restaurant owners south of I-670 received regular convention traffic, while those north of the highway received very little convention-related business. 1
The location of the project is shown in Figure 1. Before the construction of the Cap at Union Station, the more prosperous southern neighborhood was separated from the less prosperous northern one by a pedestrian-unfriendly chain-link fence walkway. To heal the scar created by the expressway, the city sought to build a hard "cap" over it. While other cities such as Seattle and Kansas City have erected convention centers and/or parks over urban highways, the objective of the I-670 cap would be to create a pedestrian and retail space, one of the first speculative real estate projects of its kind.
A local developer, Continental Real Estate Companies, approached the city and expressed interest in investing in the project. The company signed a memorandum of understanding with the city in 1999 to jointly develop a cap. The city determined that the development should evoke Columbus's former Union Station, which was demolished in the 1970s to make way for the nearby convention center. A depiction of the old Union Station building is shown in Figure 2.
The memorandum of understanding (MoU) between Continental and the city included the following:
The project was ultimately composed of three separate bridges: one for through-traffic across the highway, one for pedestrian bridges, and one for retail structures. Construction of the cap structures began in 2002, and Continental began work on the buildings in April 2003. Figure 3 depicts the final project.
This section discusses the regulatory issues that arose during the project's development.
Obtaining air rights over the development proved to be a hurdle. When I-670 was constructed, the State acquired only ground rights. The city attorney's office undertook a title search on the land parcels under the proposed cap. The process of finding the owners of the air rights and procuring clear title to the project site took 2 years.
Permits from FHWA
FHWA places restrictions on use of highway easements for commercial use. Specific to this project and similar efforts involving private developers, it required that for the easement to be used for a non-highway use, fair market rent be charged to Continental for the use of the cap platforms. This proved challenging because, even without paying rent, Continental would need to charge above-market rates for retail leases to fund the project's construction cost. Also, parking was severely limited, further reducing the investment's attractiveness.
Ultimately, Continental was not willing to pay any rent, but instead negotiated an alternative arrangement whereby it would give the city 10 percent of the development's annual profits in lieu of paying rent, beyond a nominal $1 annual lease for the platforms.
The unique restrictions of a project above a highway meant the city had to agree to the following:
Key to the economic viability of the project was Continental's ability to secure long-term, above-market leases for the new buildings. Before Continental was able to secure financing, it secured tenants willing to pay rents that, at $25 to $35 per square foot, were approximately 20- to 30-percent higher than those in the surrounding area.
Tenants were willing to pay higher rents because they valued the cachet of the location and proximity to the convention center. Continental also ensured a mix of day and night tenants to keep the space as active as possible. The space currently features a wine bar, a clothing store, an apparel and gift shop and smaller specialty food stores.
The funding plan consisted of a number of elements, as discussed below.
The city spent $115,000 on the preliminary design needed to secure the regulatory approvals. Per the MoU, Continental reimbursed the city for $75,000 of this cost.
Construction of the Cap and Bridges
ODOT agreed to pay $1.3 million for the construction of the three bridges. The city paid the additional $325,000 required to extend utilities to the platform via the concrete bay.
Construction of the Retail Building
Continental assumed the entire cost of the improvements on top of the cap.
The company originally used the following to finance the construction:
Later, after securing more tenants, Continental refinanced to a $7 million conventional loan on more favorable terms. The additional financing was used to fund the higher-than-expected costs of tenant improvements.
The city also provided Continental a 10-year, 100-percent property tax abatement, improving the project's economics.
Several partnerships were required to make the project successful.
The relationship between the city and developer was important from the outset. In addition to the areas of cooperation in the MoU described above, the city had to work with the developer on the difficult task of extending utilities across a bridge to the project. This was ultimately resolved with the design innovation of an internal concrete bay.
Since FHWA funded the original construction of the expressway, the alternative use of the highway easement required FHWA approval and buy-in.
Similarly, since ODOT would be operating the highway, all the design elements of the project required close coordination with and approval from ODOT.
Other Planning Authorities
Prior to construction, Continental had to obtain design approval from the Downtown Commission, the Italian Village Commission, and the Victorian Village Commission.
This project highlights an innovative partnership between a private developer, a city, a State DOT and FHWA to support urban development. Key takeaways include the following:
1 Kathy Showalter, "Merchants Set to Open in The Cap at Union Station, Amid Concerns Over Parking," Columbus Business First, August 30, 2004, https://www.bizjournals.com/columbus/stories/2004/08/30/story1.html.