Credit crunch boosts cost of redevelopment
Homeowners and lenders aren’t the only ones feeling the financial pain of the nation’s subprime mortgage mess and credit crunch.
A first wave of road, utility and other improvements for the city’s North Nevada Avenue redevelopment project will cost millions more than expected because the Colorado Springs Urban Renewal Authority will have to pay a higher interest rate on money it’s borrowing to fund the work, an authority official said Monday.
The higher cost, however, isn’t expected to delay construction of a Costco Wholesale Club, Lowe’s Home Improvement Warehouse and Kohl’s department store, which will anchor a shopping center that will be a centerpiece of the Nevada project, the official said. The stores are expected to open in summer 2009.
Also, the higher cost isn’t expected to affect the University of Colorado at Colorado Springs’ plans to build a research and development park along Nevada, the official said.
At stake is a vision of city, UCCS and business leaders to transform Nevada Avenue, from Garden of the Gods Road to Interstate 25, into a regional retail and economic development hub. The City Council declared the corridor an urban renewal site in December 2004; much of it is now home to dingy motels, a campground and small businesses.
Springs developer Kevin Kratt and partners plan to build the University Village Colorado shopping center on Nevada’s west side. UCCS owns land on the east side, where it envisions a jobs-generating research and development park and cultural and sports facilities, among other amenities.
But millions of dollars in improvements are needed along the corridor.
Last week, the Urban Renewal Authority sold $54 million in bonds to finance Nevada’s widening, the burial of power lines, construction of an underpass between the shopping center and UCCS and sidewalk, traffic signal and street light upgrades, among other improvements.
Completion of the bond sale — akin to the closing on a home — is scheduled for Thursday.
Though the Federal Reserve has cut interest rates in recent weeks, bond buyers are jittery because of the subprime mortgage crisis, said Chuck Miller, a retired city planning executive who works as an Urban Renewal Authority consultant.
Millions of homeowners with risky credit were able to obtain so-called subprime mortgages but now can’t pay their escalating loan rates and are losing their homes to foreclosure. Mortgages that were packaged into large pools were sold to Wall Street investors, who now are taking huge financial losses.
Because of the crisis, investors wanted a higher interest rate in order to purchase the authority’s bonds. As a result, the authority is paying a 7.09 percent rate on its bonds, up from the 6.5 percent that its financial consultants had estimated, Miller said.
That means principal and interest payments over the bonds’ 23-year life will total about $114 million, a $6.1 million increase from the original estimated payments of $107.9 million, Miller said.
The bonds will be repaid with sales tax revenue generated by the shopping center.
If there’s enough revenue, the authority will go ahead with a second, $10 million bond issue in 2010 to finance a second phase of Nevada upgrades, Miller said. That work would include construction of acceleration and deceleration lanes on Nevada, at the Garden of the Gods Road and I-25 intersections.
A revenue shortfall, however, will mean the city, Urban Renewal Authority, developer and UCCS will have to prioritize the second round of improvements and decide which ones might need to be delayed beyond 2010, Miller said.
CONTACT THE WRITER: 636-0228 or rich.laden@gazette.com
