ABOVE Local artist Claire Godbee painted the mural in the Roots & Revelry restaurant dining room, on the second floor.
Traffic was leisurely on the streets of downtown Birmingham on a recent Sunday morning, but things were bustling on the second floor inside the stately Thomas Jefferson Tower on Second Avenue North.
Patrons were lined up for brunch at Roots and Revelry, a new fine dining establishment that opened in the tower the first of February.
The Thomas Jefferson Tower, one of Birmingham’s tallest buildings, has undergone a $30 million redevelopment into a 96-unit apartment building, part of a burgeoning resurgence in downtown Birmingham.
The Tower was completed in 1929 as the Thomas Jefferson Hotel, then became the Cabana Hotel and operated as a low-rent apartment building until 1983, when public health officials declared it uninhabitable and closed it.
Renovation began in 2015 by Portland-based Reed Realty Group, with Chef Brandon Cain and real estate developer Brian Beshara as partners.
The restaurant and the tower are part of what is being called in some quarters “the 18-hour city” — where cities like Birmingham, South Carolina and Richmond are beginning to follow the 24-hour model of the larger cities.
A lot of the credit for the surge in redevelopment in downtown Birmingham goes to the state’s Historic Rehabilitation Tax Credit program, which is under consideration for renewal in the state Legislature.
The three-year program expired in 2016. The state Legislature failed to renew the historic tax credit program before the end of last year’s legislative session, which is only one reason renovating a historic building can be risky.
Justin Benefield is an assistant professor of finance at Auburn University, where his areas of expertise are real estate brokerage, sustainable real estate and real estate investment trusts.
There are specific types of risk developers might face, Benefield says, “and this would be true of any construction, whether it be new or rehabilitation, whatever. A really small miscalculation can have dire consequences. The key is understanding where the property is going to fit into the marketplace.”
Scott Reed, managing director of Reed Realty Group, the developer of the Thomas Jefferson Tower, says the tower will fit just fine in the downtown Birmingham market.
“What we do here in Portland is we look at certain demographic profiles of communities by their census tracts, and that identifies for us certain traits of markets that are about to blossom, ” Reed says. “We particularly look at downtowns. In 2012 and 2013, Birmingham was really coming up to the top of the models showing that this was a downtown that was really about to hit its stride and blossom, so we went into that market and said ‘Hey, if the state historic tax credit that is being discussed at the state level comes through, this is going to be a great market to invest in.’”
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Reed says Reed Realty Advisors is involved in projects across the country, mainly in urban areas.
“I would say that Birmingham is really doing well. It’s coming together, with a lot of pieces that are important, ” he says. “The housing stock is keeping up with the restaurants, and then the other essential services like the full-sized grocery store are coming in.”
Cities sometimes develop downtown areas with restaurants only or residential only and “there is nothing to do downtown, ” says Reed. “Sometimes you get both the residential and the amenities downtown, but you are missing the day-to-day things like grocery shopping. Birmingham has really sort of figured those things out. And they also added this amazing Railroad Park, which glued the north and the south sides together.”
Reed says the addition of the Birmingham Barons baseball park “was like the cherry on top.”
“So we are looking from Portland and going, wow, Birmingham is performing even better than our model suggested it would perform, ” Reed says.
Reed also took note of the Birmingham food scene, which he says is “right now, sort of shining on the stage. The food scene in Birmingham is talked about in a lot of other major food cities like Portland. Five years ago there was nobody in Portland talking about anything in Alabama besides football.”
Investor Brian Beshara says the historic credit made the Tower a good choice.
“There is always a little hair on these old buildings, but we are happy to get this beautiful old historic building back in service, ” says Beshara. “There is always risk in construction and real estate development, but I think the state historic tax credit kind of helps hedge that risk a little bit.
“There also is construction risk and market risk, ” Beshara says, “but I feel like the market here in Birmingham is strong and ready for some more apartments. I feel like our debt service might be a little bit lower than other new buildings coming on line. I think we are priced competitively and finished out competitively, and, so far, the leasing has been going well.”
According to Reed, “Risk sort of falls into three buckets in development. There is entitlement risk, and the city of Birmingham and Mayor William Bell really helped to get us comfortable with the notion that our entitlement risk was not anything to be concerned about. Entitlement risk is, are you going to be able to build what you think you are going to be able to build?
“The second risk is the market risk. When you build this, are people going to pay for it and pay what you want them to pay?
“Our market risk, we felt very comfortable with. We are always going to have this great product with this great view.
“The last bucket of risk, which is the hardest to manage on old buildings, is construction risk. That was the riskiest thing for us. Taking a building that is 20 stories tall and that has been occupied by the homeless for 30 years and bringing that building back on line — that was the risk that we had to manage.
“For us, I look at it like this. You can’t teach height. Our building is three and half times bigger and taller than all of our competitors. If you look at all the rental properties in downtown Birmingham, they are mostly four to six stories, so, for most of our competitors, we are three and half times taller.
“We always know that no one can ever afford to build a 20-story rental project brand new, and I can look around and see that there are no more other 20-story historic properties that are already occupied. So for us our market risk was ‘we have the best product, we have this true downtown, see-for-50-miles kind of product.’
“I can watch a baseball game, look at the Vulcan statue and see the weather coming in from the west, all by standing in just one apartment up on the 15th or 20th floor. That’s special. You know, you can’t teach height. That’s what they say in basketball.”
Reed says he plans to hold on to the tower for the foreseeable future. “We buy into markets that are sort of at the front end of their growth cycle, so we are long-term holders of properties. We rarely sell a property. When we buy into a market, we don’t have an exit strategy, we have an operating strategy.”
So, after two years, completion is in sight. Some 10 residents have moved in, the ballroom is finished and final touches are being applied. Of the 96 units, 74 are one-bedroom. Rent starts at $960 a month.
ABOVE Restoration of the artisan plasterwork was managed by Birmingham artist Jurgen Tarrasch.
“It was not easy finding someone who can replicate detailed plaster work that was done 90 years ago, but we did find those resources, ” Reed says. “It took a little longer than we thought and cost a little more, but you sort of know that is going to happen when you get into these complicated rehabilitation projects.”
And there is the historic tax credit issue.
“Thirty-four other states in the nation have a state historic tax credit, ” Reed says. “When Alabama passed its state historic tax credit, it was like a flip switch downtown because tax credits not only help historic buildings, they put a lot of people to work, and they also get rid of a lot of blight, which makes new construction more appealing. So when the first credit law passed is when all this construction really kicked off downtown.
“In historic reconstruction there is a different local impact than new construction. In new construction, 60 percent of your costs are materials and 40 percent of your costs are labor, and most of those materials are being trucked in from other parts of the country, and the 40 percent that is labor, that is not coming from local labor, either.”
Reed says large new construction projects use contract labor that usually comes from out of state and returns the wages to that home state.
On historic reconstruction, Reed says, 60 percent of the cost is labor and 40 percent is materials.
“And that 60 percent of the labor does not lend itself well to being bid out to out-of-state guys. It really is a lot of blocking and tackling and you really need to have a local presence, ” Reed says.
The local presence in this case is Stewart Perry Construction of Birmingham, which includes among its projects the renovation of the Redmont Hotel — long a key element of Birmingham’s Central Business District.
Robbie Cather, project manager for the renovation of TJT for Stewart Perry Construction, says that while the historic tax credit makes a lot of historic renovation possible, it brings its own set of complications because of the involvement of the National Park Service’s administration of the tax credits.
“The trickiest part of dealing with these tax credits is that there is not a hard and fast set of requirements, because every building is a little bit different, ” Cather says, “and the interpretation of the standards is left up to the end user, left up to us and our consultants, to try to figure out just exactly what the Park Service will require us to do and what they might give us some leniency on. That whole process is a very fine line, because the project is a for-profit, multi-family project. Obviously, we can’t afford to take historic restoration to a museum level restoration; it has to work with the budget and the profitability of the project. So you are trying to satisfy the historical standards and also trying to satisfy the budget, so the balance there is the challenge of these types of renovations.”
And while big urban areas have remained stable, the cities with the most growth in real estate this year will be in the secondary and tertiary markets, according to a number of real estate projections. A combination of factors, like more millennials looking for housing, advancements in technology and more entrepreneurs have made tertiary cities more attractive in recent years.
Birmingham obviously is not a tier-1 market, Beshara says. “I am not a born and bred real estate investor, but I look at opportunities. When I started to look at this building, the wait list and the demand downtown seemed strong. So I guess time will tell. But I believe in Birmingham. I have come to really love Birmingham. And it has become home to me and my wife, so I have confidence.”
Bill Gerdes and Art Meripol are freelance contributors to Business Alabama. Gerdes is based in Hoover and Meripol in Birmingham.
text By BILL GERDES // Photos by art meripol
