Developers Aiming To Remake Downtown Richmond But Waiting For Market Recovery

Sitting in the heart of downtown Richmond, Virginia, next to a major medical campus and convention center, Activation Capital's Bio+Tech Park shows the challenges the city faces — as well as its promise.

"So there are 70 companies, 2,000 employees, 34 acres, and there's nothing going on," Activation Capital Vice President of Operations Kipton Currier said. "When you walk down the street, it's exciting when you pass someone else on the street."

But Currier, speaking last week on Bisnow's Greater Richmond 2024 Development Forecast at the Henrico Sports & Events Center, has plans to change that. 

Activation Capital, an independent state authority that operates the complex, in February received a $15M grant from Gov. Glenn Youngkin's administration for life sciences development to help kick-start its next phase, the 102K SF Innovation Center. And it is planning to build additional mixed-use development after that. 

"As dead as the Bio+Tech Park feels right now, I think the future is really bright. We've identified a million square feet of new and conversion development that could occur over the next 10 years," Currier said. "So imagine adding a million square feet, creating a vibrant culture where companies want to come, people want to live. We could absolutely go into the billions of dollars of economic impact for that 34 acres in downtown Richmond."

The challenge that Currier faces is finding a lead tenant for its next phase amid the slowdown in the biotech industry. The Innovation Center has 35K SF of lab and office space planned for an anchor tenant, in addition to its incubator space for startups. 

"The market has softened," she said. "We have an extensive list of anchor tenant targets, and a lot of them have had layoffs, they've had reorganizations, and they are changing and really looking at their real estate practice and holdings."

In response, she said the development team may shift its plan to break the third and fourth floors up for multiple tenants rather than one anchor, or it may look for an anchor tenant in a different field, such as artificial intelligence. 

"The outlook looks different for a bioscience company anchoring the innovation center right now," Currier said. 

The project benefits from its location next to the Virginia Commonwealth University Medical Center, and it also sits across the street from another major property that Richmond is looking to redevelop. 

The city is in the process of selecting a development team to demolish the shuttered Richmond Coliseum and redevelop the 9.4-acre site with a mix of uses, including a 500-room hotel to support the adjacent Greater Richmond Convention Center. 

Capital Square leads one of the four development teams vying for the site after the city narrowed its search and unveiled the proposals in June. Capital Square co-CEO Whitson Huffman, speaking at the Bisnow event, said the developer is looking to create housing and retail that complements the nearby employment hub. 

"If we're fortunate enough to be selected and go build it, you get a hotel, you get the armory turned into an entertainment destination for the region, you get a ton of retail, you get affordable housing, you get market-rate housing, you get an enormous park, and all those things are placemaking and can feed and help support the Bio+Tech Park," Huffman said. 

"And then as the Bio+Tech Park is successful and continues to grow, that's going to create demand in our hotel. It's going to create demand in our apartments," he added. "So there really is this amazing symbiosis we have by having a place that's been created, that has placemaking, but then we have a natural employment hub right there."

Currier said she looks forward to seeing housing and a hotel built across the street.

"We think it's desperately needed downtown," she said.

But to get new projects out of the ground, developers said they need the financing environment to improve. 

Huffman, whose firm is also planning projects in the Scott's Addition neighborhood in Richmond and in other East Coast markets, said high interest rates and the conservative approach banks are taking are forcing developers to put more equity into the project. 

"It's making it a lot harder to get deals started," he said.

The projects that have been able to start are ones where the developers already own the land at a lower basis than what they could buy it for today, Huffman said. 

"We're seeing a lot of land acquisitions get pushed, dropped, retraded," he said. "And I think that's reflective of the challenging capital markets environment. But you haven't yet seen enough deflation in construction pricing to make the numbers pencil. And so what we're spending our time doing is we've got a few opportunity zone projects, we've got a few things that we've gotten to a point in design where we could commence, and now we're trying to find that exact right sweet spot of when we want to deliver."

Taylor Williams, co-founder and principal of Richmond-based development firm Spy Rock Real Estate, also said he is having trouble getting projects out of the ground.

In addition to high construction costs and cautious construction lenders, he said falling property pricing has made it harder to project exit values that would allow a deal to pencil. 

"The math just doesn't work right now," he said. "We have capital to deploy, we're able to borrow, but without the returns in place, we really can't do anything. I do have optimism that each of those key inputs will improve. But it might take some time. So we're trying to pick our spots but are prepared for a pretty slow 2024. And so we're looking to tie up sites for longer than we normally would, ideally into 2025. Because I think we're going to need that much time."

In addition to local firms like Capital Square and Spy Rock, Richmond is attracting a series of developers and investors from outside of the market. Capital Square founder and co-CEO Louis Rogers, speaking at the start of the event, said these outside firms are drawn to Richmond's growing population, vibrant neighborhoods and the ease of developing in the city. 

"We had an event at the Otis last night, and all sorts of carpetbaggers — that's probably an old-fashioned term — people from up North like Northern Virginia, Bethesda, D.C., New York, and even some Southerners were looking at the Otis, and they're saying, 'Look at the magic. These people have magic in Richmond. And we want to steal that magic and replicate it,' and compete with us local folks, and that's a great thing," Rogers said. "That's because our region is so wonderful for developers.

"We have thousands of out-of-town investors investing in the Greater Richmond region," he added. "They get it. Why the developers? Why the investors? I think we take it for granted because we live here. And I learned this pitch from one of the elders in real estate, who passed away this year, and he told me, 'Richmond is one of the oldest cities, but it's modern and vibrant.' Look at Scott's Addition. Look at Manchester. It's really vibrant."