“The entire financing structure is one of the largest and most complex, using these types of redevelopment financing tools layered together, in the United States,” Cross Street Partners, the lead developer out of Maryland, said in a statement.
MORE: Arcade rehab called ‘most complicated project’ in Dayton history
Getting to this point took years of work and wouldn’t be possible if not for new financing tools and shifting preferences of younger generations who are flocking to urban areas and want to live, work, play in interesting and inspirational spaces, officials said.
There’s still much to do — restoring the buildings will not be easy.
But the project is happening.
“Until the financing happens, it doesn’t happen,” said Dayton Mayor Nan Whaley. “The financing is closed. This is happening.”
For years, the skeptics were right
Public skepticism was understandable. Since the arcade closed in 1991, many redevelopment proposals generated attention and excitement, but hope faded after years of big ideas made little progress.
Some said the complex’s nine buildings were too deteriorated, renovations would be too expensive, the property was too big. Too many title and tax issues would make rehab too complicated for the arcade, which opened in 1904.
MORE: Dayton Arcade buildings in developer’s hands
It’s hard to blame people for feeling like that after years of watching downtown empty out, as jobs fled for the suburbs and department stores and other businesses closed up shop, said John Gower, who served as the city’s downtown planner from 1971 to 2001 and planning director for 10 years after that.
“Older people who lived through the end of Dayton’s manufacturing era and who watched the sprawling out of the region and what that meant for downtown,” Gower said, “they were saying, ‘You’re kidding yourselves. They need to tear it down and turn it into a parking lot.’”
Thursday’s financial closing involved dozens of wire transfers, some real estate transactions and other steps.
The project was too important and there was too much at stake to fail, said Gower, a place-making engineer with CityWide and the city of Dayton.
Certainly, however, there were times when it seemed like the project might be on the verge of collapse.
The arcade did not win a state tax credit award in late 2016, a surprise and disappointment that disrupted the project’s timeline.
MORE: Miller-Valentine withdraws from Dayton Arcade project
The federal tax law changed after 2017, and the arcade developers had to work hard to “grandfather in” some tax credit funding to keep its pricing and value intact.
Miller-Valentine Group, the development partner handling the arcade’s housing, announced it was pulling out of the project in early 2018, as the company underwent a major restructuring.
Despite those and other setbacks, the project stayed on track.
Cross Street Partners, the lead developer, reached out to McCormack Baron Salazar, which agreed to take over the housing components. Model Group, out of Cincinnati, agreed to come aboard as the general contractor.
The arcade ended up being awarded $9 million in state historic tax credits — more than any Dayton project before it.
There were other first-time milestones that made it clear this project was not like past revival efforts.
Nothing more complicated
In Dayton’s long history, there’s never been a more complicated project than the arcade, officials say.
The funding is the primary reason for this. It’s also the reason this project succeeded when others failed.
The project has secured about $22 million in Low Income Housing Tax Credits, $15.9 million in Property Assessed Clean Energy funding, $16 million in federal historic tax credits, $12.5 million in New Market Tax Credit equity and $9 million in state historic tax credits, developers said. The arcade is among the largest PACE and New Market projects in Dayton’s history, officials say.
Some of these funding sources didn’t exist in the 1990s and 2000s. Tax credits essentially reduce the cost of the project, keeping developers from having to take on large and unmanageable debt payments, officials said.
The city also bet big on the arcade. The project is the largest investment the city has made since the construction of the Schuster Center and, before that, Fifth Third Field, the home of the Dayton Dragons.
MORE: Demolition work finally begins inside Dayton Arcade
The city has loaned the arcade $10 million and provided about $2 million in early release funding. The city also forked out $1 million for professional services, like design and architectural work.
The city’s first big investment was $750,000 in 2015 for “dry and stable” work and repairs to stop the arcade buildings from further deterioration, as recommended by the arcade task force.
City leaders said the investment will be worth it — the arcade will change downtown.
Innovation Hub and more
The arcade’s anchor tenant will be the Arcade Innovation Hub LLC, a joint venture between the University of Dayton and the Entrepreneurs Center.
UD and the Entrepreneurs Center plan to invest more than $10 million over 10 years to cover rents, operating expenses, equity support for the closing and furniture and equipment.
The Innovation Hub is UD’s largest investment in downtown in its history.
“Our innovation hub will fuel economic growth and spark creativity by enabling students, faculty and staff from across campus, including engineers, artists and business majors, to work alongside local entrepreneurs,” said UD President Eric Spina.
MORE: UD partnership signs 10-year, multi-million dollar lease for Dayton Arcade space
Other tenants in the arcade are expected to include a coffee shop, restaurants and visual arts center.
Big property, big impact
The arcade is going to be a catalyst for economic growth and redevelopment of downtown buildings, city officials and developers say.
“The arcade will become a beating heart 24 hours a day, seven days a week and 365 days a year with Daytonians living, learning, playing, working and creating in this city within a city,” Cross Street Partners said.
There’s nothing out there like the arcade, and this project will provide exactly the kind of things that are bringing people back to urban centers — walkable and compelling live, work and play options, said Dave Williams, senior director of development with Cross Street Partners.
Williams said it’s scary to think a beautiful and irreplaceable piece of Dayton’s history nearly faced the bulldozer.
He said it would have cost as much as $12 million to demolish the arcade to end up with an empty lot.
“If we got rid of the arcade, what do we end up with? I can show you a bunch of vacant lots and parking lots around here — what’s that going to do to bring people to Dayton, Ohio?” he said.
The arcade’s revival should be the tipping point for downtown, bolstering 10 to 15 years of market growth, said Gower, with the city and CityWide.
Millennials and young people are responsible for the urban renaissance taking place in Dayton and cities across the nation that make projects like the arcade feasible project, he said.
“It’s been such as blessing to see the market shift, and to see the groundwork that’s been laid over all the decades from the people who never gave up,” Gower said.
Dayton has always been kind of a “show-me city,” and undoubtedly some people won’t believe the arcade is reopening until they actually see it happen, Gower said.
They’ll likely have to wait until mid-2020 for that. The innovation hub is expected to open first. Housing is expected to start opening by the end of next year.
But there were many believers and supporters who felt the arcade had to happen because downtown’s comeback depended on the giant awakening.
In 1996, Jim Nichols, the publisher of the free weekly Dayton tabloid the Downtowner, wrote how an out-of-town visitor on the street asked him if the “dirty-looking” building was the arcade.
Nichols wrote, “I had to admit that it was, but promised, ‘Go inside. It is a gem. Something exciting to see.’”
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