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Former Research Center a Complex, Catalytic Development in Danville, Va.

Published by Brad Stanhope on Monday, February 8, 2016

Journal cover February 2016   Download PDF

The adaptive reuse of a historic textile building in Danville, Va., with a mixture of tax credits came at a price. But those involved say it’s worth it.

Construction on the River District Tower began in October and is slated to be completed in early 2017. When finished, the former Dan River Research Building will hold medical and other offices, a coffee shop and restaurant. It will complete an effort that took years and myriad adjustments for a group of determined local investors.

“This is the most visible building in the city of Danville,” said John Wales, vice president at Carter Bank & Trust, which invested in tax credits and provided financing for the development. “It’s not only the most visible symbol of the city; it has a good bit of history. And it’s meaningful that the developers and investors live here.”

He’s not alone.

“River District Tower was a complex transaction, but well worth it,” said Brad Elphick, a partner in Novogradac & Company LLP’s office in Atlanta, who worked as a consultant on the development. “The combination of state and federal historic tax credits [HTCs] as well as new markets tax credits [NMTCs] meant some extra work, but you can really see the benefit to the River District in Danville. It’s a smart use of a valued historic building.”

The journey from research to reuse includes a historic business, a depressed downtown and the combination of creative investors and a determined city agency.

Historic Building from Historic Company

Riverside Cotton Mills was formed as a textile mill in 1882 near the Dan River. The original cornerstone to the Dan River Research Building, which will become the River District Tower, was set in 1882. The company grew rapidly over the coming decades, manufacturing plaids and other textiles and ultimately changing its name to Dan River Mills Inc. as it continued to erect new buildings and hire more people.

By the 1950s and 1960s, permanent press and carpeting surged, then the company began manufacturing denim for Levi Strauss Co. Following ups and downs in the 1980s and ’90s, marketing problems and the early 2000s recession plunged sales. After years of decline, the company was sold to an Indian company in 2006 and the last Danville facilities closed a year later. The former Fortune 500 company left town and the Dan River Research Building, the most visible structure, remained vacant, as it had been for years.

Linwood Wright, a consultant with the city of Danville’s office of economic development, worked in the research building and managed it for three decades. He helped facilitate its ultimate sale and development.

“This [development] is preserving the original building of Danville’s largest historic employer,” said Wright, who joined the company in 1956, around the time that it employed 12,000 people in a city of 30,000 residents. “The preservation is important for me. I love adaptive reuse.”

Getting Financing Together

Joe Foster, a Danville CPA who is a member of the ownership group and also worked through the details of the development, said the project came about because the Danville Orthopedic Group was “bursting at the seams” and needed a new location. The clinic explored several locations and ultimately selected the Dan River Research Building as the most viable candidate. Seven of the clinic shareholders and three other local businessmen formed a development group to pursue the development of the River District Tower campus, focusing on the Dan River Research Building.

“I saw it as a win-win for the city,” said Dr. Mark Hermann, the president and managing partner for the development group. “It could help our business and rehabilitate a historic building in Danville.”

The developers found a willing partner in the city. “Danville has had some significant setbacks economically,” said Erik Wishneff, vice president and general counsel at Brian Wishneff & Associates, a Roanoke-Va.-based consultant that is syndicating the state tax credits. “Dan River [Mills] was a massive employer in terms of numbers. It went under and it was a very economically depressed area, but the city is aggressively trying to reinvent itself. They targeted the River District as key.”

It was clear that tax credits needed to be involved. State and federal HTCs were one thing, but gaining NMTCs was something else. Danville city development leaders knew that their peers in Greenville, S.C., had worked through similar problems, so they consulted with them. The development group tried to work with NMTC allocatees, but failed to land the credits.

Danville followed Greenville’s example and created its own CDE. The Danville Redevelopment and Housing Authority formed the Danville Virginia CDE with the approval of the City Council, then applied for and received an award allowing it to authorize $20 million in private qualified equity investment.

The original hope was to use the allocation for multiple projects, but the River District Tower ultimately needed it all. “That suited our purposes OK,” Wright said. “We knew that this was the most important.”

Foster said the post-Recession years changed the landscape for those involved in financing tax-credit properties and made it more difficult to get the project done, but once the NMTC allocation and financing came through, things got moving. “We had a plan ready,” Foster said. “The property had been acquired and we’d spent about $500,000 in cleanup and stripping the building down to the bricks, mortar and wood. Then we ran into some other problems that caused delays.”

The developers persevered and Carter Bank and Trust was a willing investor in the federal tax credits and in other financing. “We went all in,” said Wales. “We were excited to participate in this project … everyone involved are Danville people. That’s exciting to us.”

Telly Tucker, director of economic development for Danville, said the size and condition of the building provided hurdles. “It’s a 130- to 140-year-old building and the cost of rehabilitating a building of that age and size is significant,” Tucker said. “It would have been cheaper to demolish it and rebuild it. Without the historic tax credits and new markets tax credits, none of the building could be reused from a dollars-and-cents perspective.”

The Development

Once complete, the top two floors of the River District Tower will be the home of a newly branded full-service musculoskeletal practice to include orthopedic surgical services, a spacious physical therapy department, clinical research department, rheumatology, pain management and spine surgery. The second floor will host offices of the Danville Regional Medical Center, while the main floor will feature a mixed retail leasable space to include a pharmacy, coffee shop, group insurance office and restaurant.

Foster pointed out that the orthopedic services will create a lot of traffic: as many as 100 employees and another 500 people coming through the building daily.

The excitement of the renewed building is enhanced by the fact that all developers and major investors are local. “This is done by local guys, providing the medical care, taking it on themselves to reinvest their own money into the community in a way that benefits the city,” Tucker said.

Crucial Development and Affect

The location of the River District Tower is also significant.

“Danville is working hard to capitalize on the Dan River that flows through the heart of the city,” Foster said. “They’ve added river walk trails, a minor-league ball field, entertainment venues, farmers market and other items within the area. Much of the development is occurring in an area that was a tobacco warehouse district and this project is in the hub of that area. Everything leads out from that. This will provide a lot of traffic.”

Hermann, who held the group together during the long period from the idea until fruition, is optimistic. “We’re already seeing the effects in the community,” he said. “We’ll probably see a second round of development downtown. This is a truly pivotal event that can impact the regional economy.”

Wright called the building the “focal point of the River District.” That thought was echoed by others involved in the development.

“This project, plus the jobs it brings and the specific geographic area, can be a lynchpin to continued reinventing Danville,” Wishneff said. “There are a lot of jobs moving to downtown. They’ll need places to live and shop. It’s going to go a long way in fulfilling those needs.”

“This is the most significant project in the revitalization of the River District so far,” said Tucker. “It’s the largest private employer. Now we have more than $30 million in public money and $100 million of private investment in that area and this kind of signals the renaissance is here to stay.”

Wright, who worked in the Dan River Research Building, was asked whether this is expected to spur further development.

“It’s definitely catalytic,” he said. “As an old chemist, I use that term advisedly.”

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