2016-12-22 / Front Page

Sheffield Incubator to Break Ground in May

Council Approves $1.92M Project Loan
By Olga Enger

Newport officials are aiming to begin construction as early as this May on a $6.29 million project that will transform the former Sheffield Elementary School on Broadway into a business incubator.

Last month, the Rhode Island Commerce Corp. approved the final piece of the project’s financing package with $2.1 million in Rebuild Rhode Island tax credits. The city will redeem the credits over a five-year period for a total amount of $1.92 million.

To cover construction costs in the interim, the Newport City Council approved a $1.92 million bridge loan at their Dec. 14 meeting in a 6-0 vote, with Councilor Kathryn Leonard absent. The state will charge a 2.5 percent interest rate on the loan, which will be covered by rental income once the project is completed.

As a condition to earn the tax credits, the city is required to break ground on the project no later than July 2017 and obtain a certificate of occupancy no later than October 2018.

“We think we are going to do it much earlier than that,” said City Manager Joseph Nicholson, naming May as a reasonable goal to commence work.

As envisioned, the 33,600- -square-foot Sheffield building will be converted into an office complex to assist entrepreneurs, innovators and small businesses. The intent is to provide a high quality, cost efficient office and development space for early stage technology companies. It will also offer a cafe, conference and presentation rooms, public meeting space for seminars and professional forums, and onsite parking for tenants and customers.

Nicholson assured councilors there is ample interest from potential tenants. The city manager added that an anchor tenant is interested in leasing 11,000 square feet, and there is “significant interest from three solid tenants.” The city also receives regular inquiries from a wide spectrum of businesses, he said.

“There seems to be plenty of interest in occupying that building and becoming some type of tenant – small tenant, big tenant,” Nicholson said. “And there seems to be a lot of enthusiasm in the sectors of business that we are trying to [attract]. Targeted industries are the marine, climate change, environmental, digital and defense sectors, as well as allied industries, including underwater technologies and cybersecurity.”

“This is an extremely exciting project,” said First Ward Councilor Susan Taylor, who asked a series of financial questions related to the incubator. She inquired whether the $6.29 million capital budget is dependable, considering that initial estimates were around $3 million.

Nicholson explained the initial figure indicated several years ago was a “very, very soft estimate” and was inserted into a business plan although it “probably shouldn’t have been.” Today, four detailed estimates have aligned with the $6.29 million figure, he reported.

The project will be funded by a series of grants and city funds, in addition to the $1.9 million in tax credits and the loan. The federal Economic Development Administration provided the initial funding of $1.67 million in 2014, which the city matched with $1.6 million from the Urban Development Action Grant (UDAG) account. The city pulled another $400,000 from the UDAG fund for the construction budget. Finally, council approved the appropriation of $700,000 from the city’s Property Acquisition Fund, which is derived through the sale of old school properties, including the $2.5 million sale of the former Underwood Elementary School, said Nicholson.

“What’s the current status of our UDAG funds?” asked Taylor.

Nicholson said while the project will deplete the UDAG fund for now, $871,000 in receivables are owed to the account from outstanding loans.

Councilor Jeanne-Marie Napolitano thanked Nicholson for pursuing available monies for the project and leveraging UDAG funds, which are reserved for low- and moderate-income neighborhoods such as the location of the former school.

“There will be a lot of interest once they see the work that we can do and how we can transform the building,” said Napolitano.

Any net revenue generated from rental income will be filtered directly back to economic development projects, said Nicholson.

By year five, the incubator is expected to generate $234,294 in rental income after expenses, according to the project’s pro forma. The analysis predicts modest increases to $271,611 after 10 years of operation.

“It’s not a heck of a lot of money, but it is still money that we could use to help out businesses … or loan them a little money to perpetuate economic development.”

“This is a huge step forward in the rehab of Sheffield School, and I really think it will be a model property for other cities,” said Council Vice Chair Lynn Ceglie.

The incubator is one of three sizable economic development projects on the horizon, including the proposed redesign of the Pell Bridge ramps to free up land for redevelopment and re-purposing the former U.S. Navy hospital property.

“Doing these projects will fulfill the vision we have had for so long,” said state Senate President Teresa Paiva Weed, D-Newport, in a November interview with Newport This Week. “A number of us have been advocating for the North End for years.”

For more information, visit innovatenewport.com.

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