Chapel Hill Changes Strategy to Retail

CHAPEL HILL — For years, the Town of Chapel Hill has watched as retailers and commercial offices chose cheaper real estate and fewer developmental hurdles on the Durham side of Interstate 40, taking with them potential tax revenues from the town and Orange County.

When Rochester, N.Y.-based grocer Wegmans Inc. looked toward expanding to the Triangle, it saw great potential in the growing and relatively prosperous Durham-Chapel Hill area. The company was weighing a few options: one lot in Chapel Hill, where Performance Auto Mall was vacating, and two or three more on U.S. 15-501 in Durham.

Wegmans would have chosen Durham, too, repeating the familiar script of retailers locating just across the county line. But this time Chapel Hill and Orange County offered a $4 million performance-based incentive to choose the former auto mall site, and Wegmans took the offer.

The Chapel Hill Wegmans is projected to be the the largest sales tax generator in Orange County once it is completed, expected to have $63 million in sales in its first year, a number the town and the county felt it couldn’t pass up.

“I think [before] there was a different philosophy about business in Chapel Hill and how to attract it,” Chapel Hill Mayor Pam Hemminger said. “I think that we have now seen that with the philosophy we had before, a lot of business built right outside of our borders … Sometimes you are going to have help make the deal work rather than waiting for something to happen, so we decided to be proactive.”

If the deal with Wegmans seemed odd for the town, it’s because it was an incredibly rare act for Chapel Hill to do. In fact, the town had never incentivized retail at all before.

“I know that’s a shift for Chapel Hill,” Hemminger said, confirming that incentives were now on the table for the town to use.

LOSING MONEY

According to data collected by the Chapel Hill-Carrboro Chamber of Commerce, Orange County significantly underperforms when raising funds from retail sales. In 2013, the county had the second-highest per capita income of any county in the state, but ranked 42nd in per capita retail sales.

And out of Orange, Durham, Chatham and Alamance counties, Orange County had the worst retail gap, which is the difference between retail demand and retail sales. In 2014, Orange County residents spent $1.8 billion on retail but the county only brought in $900 million in retail sales. Comparatively, Durham County residents spent $3.3 billion, but the county had sales of $3.4 billion.

Orange County’s retail gap has also been growing for the past few years, while it’s neighbors have been shrinking or posting surpluses, and according to a survey from the Town of Chapel Hill, 24 percent of residents leave the town once a week to shop and 33 percent say they leave a few times a week.

It also shows in Orange County’s tax structure. The town said that roughly 84 percent of its tax revenue comes from residential property taxes. That’s a number town officials want lowered through increased retail sales taxes, with one official saying anything over 70 percent coming from residential property taxes excessively burdens residents.

“For years, Chapel Hill Councils and I guess Chapel Hill citizens too, because I think those councils were doing what they thought their citizens wanted, have discouraged a lot of retail and commercial from coming into Chapel Hill,” Chapel Hill Town Councilman George Cianciolo said. “That area, particularly near I-40 and 15-501, a lot of development went across the line… because it had been discouraged when people applied to bring things into Chapel Hill.”

That anti-development reputation has stuck.

“We still have a very strong [anti-development] reputation that we have to live with regionally,” said Dwight Bassett, Chapel Hill’s economic development officer. “And that is part of why our message has been for years that we are open to business and open for business. Our development process had previously said that maybe we are [open for business], maybe we aren’t, it depends.”

Bassett said the incentive with Wegmans was used in part to show that Chapel Hill was serious about changing that reputation.

“We normally wouldn’t be in the retail incentive business,” he said. “That’s not where we want to be long term, no one does, but we saw this [incentive] as a critical message to the region and critical message to retailers.”

ATTRACTING RETAILERS

Bassett said that in his time working for the town, it wasn’t until this past year that the town had seriously considered the use of incentives to attract or retain businesses. And now, for the first time, the town is formally drafting guidelines for how it will handle performance-based incentives going forward.

The town’s Economic Development Sustainability Committee is hoping to have a guideline for incentives done by the end of the year, in part so that town doesn’t create an expectation for incentives following Wegmans.

“Everyone will probably come with their hand out now,” Town Councilwoman Jessica Anderson said. “What I’d like to see is us have a strategy that we think through carefully.”

Currently the working guideline, which was hashed out in partnership with Orange County in February, has a minimum requirement of 25 jobs created and $2.5 million in investments, with incentive grants varying at the level of job creation and investment.

Previously the town also had a serious lack of approved space for retail and commercial usage, but over the past two years the town has approved a large amount of retail and commercial space, Bassett added. About a million square feet of retail space and a million square feet of office space has been approved for Chapel Hill, with around 50,000 square feet going up so far in the past year, he said.

The space was approved because the town is projecting the next market cycle to be retail heavy, as the current market cycle has been bountiful for multi-family residential units, Bassett said.

Bassett sees increased demand coming, and with all of the approved retail and commercial space and the precedent of working with Wegmans, he thinks the town will be positioned to take advantage of that demand.

Specifically, the town is expecting retail growth around the intersection of Ephesus-Fordham district in the short term, from Eastgate Shopping Center up to University Place.

For the long term, the town is targeting Obey Creek across from Southern Village and the Carraway Village development on Eubanks Road, which received a $1.3 million incentive earlier this month from the town to help with road improvements.

“Hopefully we are moving to a place where we have a lot more interest,” Bassett said. “We think and we believe that the attention that comes from Wegmans committing to locate here that others might consider taking a second look — now that we have opportunity.”

Contact Zachery Eanes: zeanes@heraldsun.com, 919-419-6684

Zachery Eanes covers business news for The Herald-Sun. He graduated from the University of North Carolina at Chapel Hill in 2016, where he studied business journalism and history. He is originally from Thomasville, N.C.

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