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Editorial


Front Page - Friday, April 12, 2019

Solution for the ‘missing middle’


Holdsclaw Ave. property to feature mid-level housing, commercial



Michael Kenner was driving down Main Street in Chattanooga when he saw the tips of sculptures peeking over the buildings that line the Southside thoroughfare. When he turned right on Holtzclaw Avenue and saw the building that stood there, he fell in love.

The installations at Sculpture Fields had led Kenner to 1601 Holtzclaw Ave., where a spacious industrial structure stood sprawled across the better part of 8 acres of land.

The red brick exterior, neat rows of tall windows and clerestory roof told the 39-year-old Kenner a story about an edifice that had been built many years ago with commerce in mind. But as he looked at the aging-but-solid bones, he was already writing the next chapter of the building’s narrative in his head.

As a developer, Kenner saw an industrial building remade into a small community complete with office and retail space, townhomes and amenities that make home a comfortable place to be.

Kenner also envisioned additional buildings along Holtzclaw with shops and more residential space, and mentally removed a large section of the back of the building and placed multifamily units there.

He also saw a road extending from Holtzclaw to Sculpture Fields, providing easier access to one of Chattanooga’s major art installations.

Once the picture in his head was complete, Kenner called the number on the real estate sign and asked, “How much?”

He liked what he heard. “It was $3 million for 150,000 square feet, or about 20 bucks per square foot,” he says. “I liked the price.”

Kenner also liked the part of the town in which he was standing, but as a developer from Nashville, he was unaware of its potential significance in the ongoing evolution of Chattanooga’s Southside.

Stretching from Warehouse Row past Main Street, the Southside was once a hub of industry in Chattanooga. But by the latter 20th century, it had become a patch of empty warehouses and dilapidated buildings. Then, about 10 years ago, grants from The Lyndhurst Foundation sparked a revitalization effort that breathed new life into the community.

Once a desolate patch of urban decay, the Southside is now defined by dozens of business that have brought food, culture and entertainment to Main Street, making it one of Chattanooga’s most vibrant corridors.

Residents can walk from their townhomes or apartments and eat breakfast at Bluegrass Grill, view artwork by Chattanooga’s homeless population at Hart Gallery or enjoy an evening of music at The Granfalloon.

The presence of sustainable living advocate green | spaces reminds people that Chattanooga has a mission that extends beyond commerce.

This growth is now expanding past Main Street and Central Avenue to Main Street and Holtzclaw.

Although Kenner was an outsider, he was no rookie. As an infill developer with $50 million worth of projects in Nashville under his belt, he was experienced in the art of developing vacant or underused parcels of land within urbanized areas.

Also, Kenner was armed with a business model that was working for him at home. “Our goal is to create the missing middle,” he says of MiKen Development, the Nashville-based company he founded in 2012. “We try to create a diversity of product that meets a price point you rarely find in the city anymore.”

Kenner also liked the potential of the Chattanooga residential and commercial markets. “Young people are moving here, and the amount of tech draw I see because of that is amazing,” he points out. “Also, Chattanooga is surrounded by mountains, which creates natural growth boundaries. That makes it a great breeding ground for building an urban community.”

Kenner also says the development climate in Chattanooga favors investors. Since 2014, Downtown Chattanooga alone has received nearly $1.2 billion of private investment in commercial and residential projects, according to River City Company, a private nonprofit which works to stimulate growth in downtown Chattanooga.

A large portion of that investment resulted from demand for residential product, says Amy Donahue, director of marketing and community at River City Company.

“We were behind the game in terms of residential options downtown, so there was a lot of demand for that product,” she acknowledges. “The land was there, the buildings were there and the ability to obtain money for those kinds of projects was favorable.”

Believing all signs pointed toward success, Kenner purchased 1601 Holtzclaw Ave. nine months after he first laid eyes on the property. He then assembled a team of residential Realtor Sarah Brogdon, commercial Realtor Anne Najjar and architects Heidi Hefferlin and Craig Kronenberg. Kenner also tapped EMJ Corporation to handle construction.

From stem to stern, Kenner’s team consisted of local talent. Although 1601 Holtzclaw Ave. was MiKen’s first venture beyond Nashville, Kenner knew bringing in outside muscle would only hurt the project.

“The only foreign objects in this project are me and my bank,” Kenner adds. “When you go into a new community, you have to embrace the local practices. No one knows how the system works as well as someone who works it every day.”

Kenner’s development instantly became part of a larger effort involving other parties to rebrand the area the Park Central district, so named because of the presence of Sculpture Fields.

Within walking distance of Kenner’s project, which he’s calling Park Central Lofts, are several developments which are adding townhomes, single-family dwellings, apartments and more commercial space to the area. An artists’ co-op, event venue and distillery are also in the works.

Like Park Central Lofts, many of these projects are repurposing old industrial spaces. Although any new venture is a financial gamble, several successful endeavors have already established the viability of the area, including The Wheelhouse, a modern workplace adapted from a cluster of former manufacturing buildings, and The Mill of Chattanooga, an event hall housed in a restored century-old structure.

Brogdon helped Kenner develop a residential strategy aimed at young professionals as well as people who want to downsize from their larger homes in the suburbs and live closer to downtown.

“If you value your time and don’t want to live two hours of your life in a car every day, then you can live at Park Central Lofts or one of these other locations and improve the quality of your life,” she explains. “Maybe your kids are grown and gone and you’re ready to scale things down and be able to walk to a nice dinner.”

Kenner agrees, saying growing frustration with suburban living and the daily commute to work is driving people downtown. “Happiness in America is a big house with a big yard, and to achieve that, people are buying houses further and further away from town, which means they’re spending more and more time on the road.

“Millennials are realizing they don’t want to live that lifestyle. Every one of them has a cellphone that puts everything at their fingertips, and they want everything outside their front door.”

Najjar connected the dots for Kenner on the commercial side. “Chattanooga is the No. 1 place in Tennessee for small startups,” she says, offering Branch Technology and Bellhops as examples of local companies that have exploded onto the national scene.

“Young, innovative people are coming here from large cities to start the business of their dreams. When they succeed, it brings jobs and growth to the area. These businesses want to be in these adaptive reuse developments. That’s where the demand is for commercial spaces.”

Kenner plans to offer these companies, as well as people in the market for a new home, a place they love at an appealing price.

Once home to the Gateway Hosiery Mill and then Westrock Print Group, Park Central Lofts will include townhomes, multifamily units and commercial space.

Townhomes will come in two varieties: a two-bedroom product that will sell for $299,000 and a three-bedroom, two-bath product that will sell for $369,000.

Concrete floors, exposed or painted brick and steel beams and trusses will lend an industrial feel to each unit. High ceilings will lead to clerestory windows that allow each residence to be showered in natural light and provide master bedrooms with a view of Missionary Ridge, Lookout Mountain or Sculpture Fields.

Exterior common areas will include a pool, grass courtyard and deck. Interior common areas will include a community room, fitness center and kitchenette. For residents who aren’t ready to ditch their car and embrace Chattanooga’s walkable lifestyle, there will be ample parking for residents and commercial tenants.

On the commercial front, Park Central Lofts is offering 23,000 rentable square feet with the ability to create suites as small as 3,905 square feet. Kenner is leasing the commercial space at Park Central Lofts for $15 a square foot, which he says is a competitive rate.

Although more commercial space was initially available, Najjar has already signed one notable tenant: the Austin Hatcher Foundation, a local nonprofit that serves children with pediatric cancer and their families.

Construction will take place in four phases. Phase one will consist of seven townhomes, which Kenner says he hopes to have ready by the fourth quarter of this year. The second phase will consist of 19 townhomes and should be ready in a year to 18 months.

The completion date of each phase will depend on how quickly Kenner signs pre-sale contracts. He’s pre-selling five phase one units.

Kenner is, of course, encouraging people to buy now.

“People that buy in during one of our construction phases have 30 to 40 percent equity by the time we close out the last phase because the neighborhoods we enter are on the border of change, and when other developments come in, they push up all the price points,” he explains. “We had a development in Nashville where units were selling for $238,000, and those same units now are going for $325,000.”

Phases three and four, which will consist of multifamily units and more townhomes, should be completed within three years, Kenner says.

By the time Park Central Lofts is complete, Kenner estimates he will have invested $50 million in the project.

Kenner is not against saving money, though. One of his pet projects for Park Central Lofts is a new road that extends from Holtzclaw Avenue to East 23rd Street, winding through his property and Sculpture Fields along the way. He’s currently trying to convince the City of Chattanooga to help pay for the road.

In exchange, Kenner is offering to earmark 10 to 20 percent of Park Central Lofts as affordable living.

“MiKen is a socioeconomic inclusive development company,” he says. “We try to develop mixed income communities in which we integrate workforce housing into our market rate housing.”

Kenner’s ace up his sleeve with the city is the gentrification that projects like Park Central Lofts spark in a neighborhood. As gentrification occurs in Chattanooga, Kenner says affordable housing will become a vital part of making sure the displaced people have somewhere to move. “The cool part of projects like this is coming up with innovative ways to solve a problem I create,” he says.

As Kenner has labored on Park Central Lofts, he’s done more than draw up plans to renovate an abandoned industrial complex; he’s built ties with the local community.

The day after Kenner saw Park Central Lofts for the first time, he met with District 8 City Councilman Anthony Byrd and asked for his blessing. Since then, he’s networked himself extensively, Brogdon says.

“Michael knows he can’t come in as the new guy on the block and shove something down people’s throats,” she adds. “He’s a big thinker and aggressive, but he’s also thoughtful and listens well. He knows the Chattanooga is different from Nashville and wants to do things the right way.”

Najjar recalls a discussion during which Kenner yielded to her opinion on the pricing of the commercial space. “He asked why we couldn’t charge $20 per square foot,” she recalls. “I said tenants in this area need to stay at $15 per square foot. If you go higher than $20, you start pricing out businesses that would thrive and enhance the community.

“Michael was very responsive to what I said.”

Najjar says Kenner has tapped her knowledge of the local market at every stage of the project, asking questions about tenant improvement allowances, amenities and the delivery condition of the commercial spaces. “He’s listened to the team of local people he’s assembled to ensure this project succeeds,” Najjar adds.

As Kenner has established relationships locally, he’s come to be seen as an outside developer who wants to bring good things to Chattanooga, Najjar continues.

Kenner’s history suggests as much. A native of Nashville, Kenner launched his real estate career in the Seattle area after completing his military service there.

Starting from the ground up, he spent three years finding land for other developers before returning to his hometown in the aftermath of the Great Recession to found MiKen Development.

Since then, Kenner has developed a reputation as an expert on affordable housing policy in Middle Tennessee and displayed a commitment to the enhancement of Nashville’s quality of life.

Kenner was the youngest member of Mayor Megan Barry’s Nashville Business Council and helped pen policy to ensure responsibility in civic design. He’s also been involved with policy work surrounding the establishment of design standards and given presentations to neighborhoods, organizations and colleagues about equitable redevelopment, according to his biography on the MiKen Development website (mikendevelopment.com).

In 2015, Kenner received the Nashville Civic Design Center’s “Friend of Public Space Award” for his promotion of walkability and increased public space in the urban core.

Kenner is currently involved politically on a local and national level through his work with the Nashville Next initiative and the Urban Land Institute. “I’ve become a politician,” Kenner says, smiling.

Although Kenner has done his due diligence locally, he’s still an outside developer. Donahue says that simply puts him in good company.

Of the almost $1.2 billion developers have invested in the downtown area, $482.5 million came from outside developers, Donahue says. The area of greatest investment has been apartments, which has included such well-received projects as the Maclellan Building on Broad Street, delivered by Heritage Land out of Memphis, and Market City Center on Market Street by the Atlanta-based Simpson Organization.

Donahue says she welcomes the investment. “We absolutely want people from outside our community doing projects here,” she acknowledges. “When people who don’t have ties to Chattanooga come to the city, see the market and become interested in investing their money here, that means we’re doing something right.”

Even Chattanooga developers are embracing what is essentially their competition for parcels of local land and a share of the markets in which they are active. Mitch Patel, president and CEO of Chattanooga-based Vision Hospitality Group, says that’s the nature of free enterprise.

“The market should absolutely be open to all,” he says. “What you want is quality, responsible development. Reckless and poor-quality development could diminish our community, which we love, and hinder the local development community.”

Fortunately, Chattanooga is attracting high-quality development to the city, Patel says. He compliments the work of Avocet Hospitality out of Charleston, South Carolina, in restoring The Read House and says he’s looking forward to seeing what Ascent Hospitality out of Buford, Georgia, does with The Chattanoogan.

“It looks like they’re going to put the appropriate money into that property and be successful with it,” he says.

Patel is on both sides of the development fence. He started Vision Hospitality in 1997 with a single hotel at Hamilton Place Mall and then led the company as it built 45 hotels nationwide. Patel’s breadth of experience tells him Chattanooga would not have been able to meet the demand for multifamily units with only local developers. Rather, the city has benefited from outside investment.

“You have to have outside investment,” Patel says. “In every healthy market I’ve seen, there’s a good mixture of local investors and development partners, as well as outside investors and development partners.”

Ultimately, Patel adopts the Golden Rule when it comes to welcoming outside developers to Chattanooga. “When we go into another market, there’s very little resistance,” he says. “The communities are very welcoming and the development community understands that if there’s demand, people are going to build.”

Kenner has shown this to be true with his purchase of 1601 Holtzclaw Ave., which has given him a presence in a city other developers call home. If there’s one thing to watch, other than whether or not Park Central Lofts gives him a return on his investment, it’s if the development’s presence on the eastern edge of the Southside accelerates the gentrification of the adjacent neighborhoods.

Upon completion, Park Central Lofts will provide a bridge from the Southside to the historic Highland Park and Ferger Place neighborhoods. Najjar, who lives in Highland Park, expects the people there will enjoy being able to walk to Sculpture Fields and the new businesses, but admits there will be some resistance when it comes to allowing those amenities to change the character of their community.

“Those neighborhoods have a combination of young, upwardly mobile people as well as people who have been there for decades. I believe they’ll want to maintain that diversity,” Najjar says. “I don’t believe they’ll want the older homes to be torn down and replaced by new construction. They’ll want to hold on to the beauty and history of their home.”

If they do buckle against change, Najjar says they’ll find a strong advocate for their cause in Kenner.