Time Kills Deals:
Using Time as a Retail Development Incentive
A question on every city leader or economic development official’s mind is, “What are the best incentives to bring new retail and restaurant development to my town?” Beyond monetary incentives, how about accelerating permitting, streamlining work with the city, and removing barriers that cost a retailer time to get a new store open?
- Delays with the development team or the city?
- Should we “front load” our development process?
- How do we keep delayed deals?
- Is it 100% based on demographics?
- What are the risks of prevailing wages?
- Are utility costs a good incentive?
- What would a long-term incentive mean to you?
- How do we draw attention to our regional market?
It is important from the retail development side to choose the right team (e.g. architects, engineers, etc) and to get them involved quickly with the permitting and regulatory team in the City in order to open communication and meet timelines. If you are seeing delays in a project, contact the Economic Development staff to check in with City staff on the project. Sometimes the hold-up is with the development team and not the City.
At Café Rio, we choose local or regional development teams (preferred developers) to ensure some level of experience with where we look to develop in a State. It’s still the company’s responsibility to be proactive in speaking with cities before submitting plans, setting the table, and connecting a company with a city is key to understanding and working through permitting.
What is the value of pre-application or pre-submittal meetings with all of the relevant City departments prior to submittal? Our philosophy is “front-loading” our development process which might take more time at the front end but makes for a smoother entitlement process.
It is highly valuable to have one person a developer can call to see 1) is it an approved use 2) what is required for approval and 3) take all phone calls and help developer navigate the process.
The pre-submittal is very helpful if it lays the groundwork for what is needed with timelines. The developer’s biggest frustration is when the rules are changed in the middle of the game. Or if the city requires a change, the requested change is quickly made, then there is an extended waiting period for the final approval.
We are working hard to streamline our permitting processes, but after rushing to get projects through our process we have three projects that haven’t been able to start construction because of delays in the delivery of equipment. What can we do to make sure we don’t lose these deals?
Other than “Time Kills Deals” another industry term is “Hurry Up and Wait”. Other analogies include hot potato, don’t let the ball stay in your court, or bottleneck. Ultimately, if there are delays to the project that are outside of the government’s control, there is nothing you can do about that. However, your cadence of urgency cannot mirror the supply chain timelines or delays. Even if you have to wait weeks or months on others, your turn around should be as quick as possible.
What part can residents play in bringing a specific restaurant or business to an area? Is it 100% based on demographics?
The annual sales volumes need to support a profitable store year-over-year. If a handful of supporters are extremely vocal about their desire for a brand, but those supporters cannot personally finance the store, it will not make a difference.
What will make a difference is if the demographics are close, but the city was not on the radar and a prime real estate opportunity becomes available. Retailers look at three-to-five-year projected plans for where they would like to expand. Sometimes there may be a good market or a comparable market not on the radar. A new economic driver such as a housing development, major employer or new school could change the demographics.
Keep in mind that your dollar is your vote. Spending money locally and driving up sales volumes of existing businesses, will be an indicator that new businesses can be supported in the market.
In California, any incentives above $600,000 or 2% of the project cost will trigger prevailing wages, which sometimes will kill a deal. Free land doesn’t always make the deal pencil out when prevailing wages are required for construction.
Any project that can avoid prevailing wage should do so with current construction costs and the current labor pool. This is again another example of leveraging time as an incentive from the city’s standpoint and if the city owns the land, they often can get even more creative with the cost when selling the land. This is especially true in the case of a catalyst project that will bring more value beyond just the current project itself.
How about utility costs as an incentive? As a city with municipal water, sewer, and electric utilities we typically blow the doors off of our neighboring cities. Our utility costs can be 30 – 50% less.
WOW, yes. This is definitely an incentive the city should be promoting.
What would a long-term incentive mean to you?
Incentives are best structured to finance the development or startup costs in the short-term cost on the front end. Then the incentive is paid back by the new business or development over the long term. If development costs do not “pencil” pre-project, the development will not be approved. Retailers, restaurants, and service businesses start with projected sales volumes to determine profit. It typically takes 3-5 years before average annual sales can be established for the location.
How does a community get retailers to see its potential within regional economies (e.g. larger activity centers at exits north and south)? There is untapped market potential in our community, but certain retailers have to come to the same conclusion.
For Cafe Rio, when we open in a market, we seek to penetrate that market to become the market leader. We are that leader in Utah and Idaho, and very close in Montana, Las Vegas, Phoenix, and others. This is because we seek out emerging communities.
We look to understand the following:
- The current population, daytime population, and other traffic drivers unique to an area
- The future growth of the item
- Ideally, a planning/zoning map shows existing, but also future development, throughout a community
Also, we have some cities that will introduce us to property owners and developers known in the community, to prompt constructive conversations about how we can open.