Charting new waters

Myrtle Beach base redevelopment takes off as Noisette seeks bond plan to get started

Myrtle Beach base redevelopment takes off as Noisette seeks bond plan to get started

Mic Smith
The Post and Courier

Construction crews work on street buildings inside The Market Common at the old Myrtle Beach Air Base Wednesday.

MYRTLE BEACH

Dozens of four-story buildings are going up in an area the size of 75 football fields, one that promises by next spring to provide a new downtown for an area that never really had one. The buildings, which will have stores on the ground floor and 174 apartments above, are going up on a new tight grid of streets named after people who served here at the former Air Force base.

Some 15 years after that base closed — and three years after the developer bought the 100-acre site — the developer and city plan to cut the ribbon on a development that will include businesses such as P.F. Chang's China Bistro, Tommy Bahama clothing store and an upscale Piggy Wiggly.

The nature of the redevelopment project is similar in scope, ambition and financing to what the Noisette Co. hopes to build on the northern end of the former Charleston Naval Base.

Both involve transforming an old military base into a new urban core at a time when many developments still aim for cheaper land in the suburbs.

The challenges differ.

At the helm of the Myrtle Beach project is a nationally recognized developer, McCaffery Interests, with a record of building on this scale and backed by Leucadia International Corp., a holding company with billions of dollars in sales.

Noisette is a start-up development that partnered with North Charleston in 2001 to redevelop the Navy base but also to plan improvements to the surrounding area. Over the years, the partnership has been strained by the project's slow pace and questions about the quality of the work being done.

Beyond that, Noisette has a much harder piece of dirt to transform, an industrial site that's three times the size of the Myrtle Beach project, with a complex mix of aged water and sewer lines, homes, offices and warehouses, much of which will have to come out to prepare the land for reuse.

North Charleston City Council soon is expected to decide whether to approve a bond deal that would help Noisette attract private financiers who are in a position to turn on the cash spigot needed to rip out and re-engineer roads, utility lines and public space at the entrance to the base.

The stakes are high: Without North Charleston's help, said a councilman briefed by the company, no one will lend Noisette the money to begin work.

Even with the city's help, Noisette still has a load of work ahead to arrange permits, financing and construction contracts for the infrastructure work as it hunts for developers interested in buying parcels or joining forces.

Instant city

On a recent afternoon, bulldozers, dump trucks and cranes jockeyed for space around a construction site that covered several city blocks in Myrtle Beach.

The skeletons of four-story buildings where workers are welding steel and hanging drywall testified to a virtual city rising from where almost 100 nondescript military buildings stood just a few years ago. This new development, known as The Market Common, has sprouted in the past year from what was a hub of the Myrtle Beach Air Force Base.

While the construction site seems impressive and will be open for media tours in two weeks, those behind its creation say it didn't happen easily.

Ever since the base closed in 1993, a community plan identified this as a perfect site for new urban development, given its close proximity to the beach and Myrtle Beach's core. The challenge facing the Myrtle Beach Air Force Base Redevelopment Authority was to find a developer willing and able to pull it off. No one bit.

The authority later tried to sell off parcels as small as 5 acres in hopes that those deals would combine to jump-start redevelopment. That didn't work either.

Then, three years ago, McCaffery Interests, a Chicago-based real estate developer that had tackled similar large-scale urban renewal projects in Arlington, Va., Pittsburgh and Minneapolis, bought the whole 103 acres and began planning a development that would include 400,000 square feet of stores, 1,800 residential units and upscale office space.

Groundbreaking occurred almost exactly a year ago. The company already has 80 percent of the commercial space leased, and 300 of the residential units are expected to open this year. The apartments above the shops are being leased.

Buddy Styers, who now is helping McCaffery manage the project, previously worked for the redevelopment authority. "We changed course three or four times," Styers said. "We've been very fortunate. It hasn't been easy, I promise."

As McCaffery made its plans, it struck a deal with the city about how to pay for $30 million worth of new streets, sidewalks, parking lots and garages that the city eventually would own.

In development, time is money. That city support, coupled with millions in private investment, has allowed new buildings to rise while nearby roads, sidewalks and parks take shape, speeding the timetable for it to reap profits and generate tax money that will pay off the bonds.

As part of the $30 million that will be repaid by future property tax revenues from the land, the city required a backup plan in case those future tax revenues weren't enough to pay the bonds. The company agreed essentially to tax itself to create another source of revenue to pay the bonds. Leucadia not only bought a third of the bonds but also agreed that the remaining two-thirds would be paid off first.

Myrtle Beach City Manager Tom Leath said it took a year to work out the deal's finer points, and that while the city could get a black eye in credit markets if the bond deal goes bad, it feels comfortable about the size of the bonds compared with the value of the land.

If the deal goes sour, he said, the city is on the hook only for about $20 million, which is about what the land is worth. In a worst-case scenario, the city would foreclose and pay off the bonds by reselling the land.

"It took us a long time to find a developer with the wherewithal to build an urban center this large," Leath said. "We were confident that there was enough equity in the deal if things go south."

Will it work here?

One hundred miles south of Myrtle Beach, the Noisette Co. hopes to apply some of the same financing plans to transform the outer parking on Spruill Avenue into a place where someone would want to build.

In a week or two, Noisette officials and financial consultants are expected to meet with North Charleston council members to outline how a deal could be structured.

The meeting will mark a major milestone in the six-year relationship between the city and Noisette, a relationship that began with a handshake deal in March 2001 that promised to revitalize the southern part of the city in an eco-friendly way.

The partnership matured in 2003, when Noisette bought 300 acres of the base from the city for $9.6 million, a deal that called for it to build a riverfront park.

Their cooperation stumbled when Noisette didn't inform the city about $3 million in borrowing on the base and council members expressed concerns over the base redevelopment's slow pace and the quality of the park. Noisette paid off its debt early, and North Charleston Mayor Keith Summey characterized their parting of the ways by saying Noisette was now like any other developer in the city.

While the city and Noisette have talked about reimbursing the company for new infrastructure once it is done, it's been unclear how that would work. That soon could change, said City Councilman Kurt Taylor.

"It's not like we're embarking on a new direction. What this is doing here is simply the next step in what we agreed to do," he said. "It's nothing but prudent for both of us to agree very precisely what's going to happen next."

According to Noisette's marketing material, the company hopes to sell up to 42 acres or to partner with another developer to build on the property. To make the land salable, Noisette is advertising that it will put in $60 million in new infrastructure.

Taylor said the proposed deal calls for Noisette to complete the work to city standards before North Charleston issues any bonds to reimburse the company. He also said that Noisette will agree to tax itself to cover any shortfall in covering the bond debt.

"They're paying for it," he said. "That's the ultimate protection for the city: We don't have to do anything unless and until Noisette has completed the improvements and it is in the ground."

Some other city leaders would prefer to avoid bonds and just pay Noisette when development brings in the tax dollars that are captured in a special account earmarked for public projects. So far, that account totals only $1.9 million based on property taxes and improvements to the base. These accounts typically don't have much money in them until development brings in shops, houses and stores.

The stakes are high.

Councilman Bob King, who met recently with Noisette Vice President Art Titus, said Titus told him that if the city balks at signing on to the bonds, Noisette won't be able to borrow money and begin work.

The special City Council meeting to consider the bond deal was scheduled for two weeks ago but was pushed back to give the city's consultant, Maryland-based MuniCap, more time. At least two council members said the delay was designed to give Noisette backers time to line up votes.

So far, neither the city nor Noisette has shed light on the details of the proposed agreement that will be put before City Council. Noisette officials declined comment last week, saying that Summey wanted to have everything prepared before briefing the public.

Another point of concern for some council members is the independence of MuniCap. The company previously was hired by Noisette to draft a similar bond plan. City Councilman Bobby Jameson said, "That's about as wrong as a football bat."

Ann Bowman, a government professor at the University of South Carolina, said the world of high-stakes municipal finance is a small one, but added, "It's always in the government's best interest, whenever possible, to find independent voices. All things being equal, it would appear that they have a stake in the proposal."

While stores, offices and residences are being built at the same time as the roads and parks in Myrtle Beach, it's unclear how much private development will go up here as Noisette builds the infrastructure for it. Noisette, which declined to comment, is expected to update council on its plans soon.

"They are going on the assumption that they will generate interest and people will be willing to buy it and it will take off," King said.

Taylor said Noisette has invested a lot in engineering and planning for the infrastructure work. But it's still early, and a check of public records shows that it has no permits for sewer, water or significant infrastructure changes.

Reach Robert Behre at 937-5771 or rbehre@postandcourier.com. Reach James Scott at 745-5855 or jscott@postandcourier.com.