Measures necessary to slow the spread of COVID-19 pushed Idaho’s unemployment levels to a record high, but many local developers are moving ahead with major projects anyway.
Prior to the sudden economic slowdown, the Treasure Valley was in the midst of a yearslong boom that drew thousands new residents, spurred business expansions and a saw a slew of high rise tower projects spring up. Even though the country is in a new stage of economic uncertainty due to the pandemic, the vast majority of Boise’s major development projects currently underway will continue as planned.
However, that doesn’t mean there aren’t questions about the future.
Developers say lenders have tightened up their requirements for projects, the length of stay-at-home orders brings questions for parking revenue and the era of social distancing means offices could be laid out differently than ever before. But regardless of the changes, several of Boise’s developers believe the Treasure Valley will continue to grow as people flee densely populated cities such as San Francisco and Seattle to stay away from the virus.
Clay Carley, general manager of Old Boise LLC and developer for several major downtown Boise projects, said the pandemic has not slowed the demand for housing in the area. He still plans to break ground on his two-building, 60-unit development on Sixth Street in downtown Boise, but he is concerned the area’s affordable housing crisis will only get worse if housing development slows down due to the pandemic while more people continue to flood in.
“(Housing is) still undersupplied and oversubscribed,” he said. “As a result of this pandemic the growth to this area is going to increase because it’s a safe haven compared to other dense, urban areas. So I think we’re going to have a lot more people looking for Boise as a place to call home.”
The project will be backed by low-income housing tax credits from the federal government, but these still require private lenders. Carley said days before the final deal was going to be sealed with two of his financers, they backed out due to the pandemic, so he had to scramble and find other financing. Luckily he was able to negotiate a better deal, but he is concerned that the tightening of financing requirements will further slow housing construction and cause rents to jump even higher.
“Someone on their loan committee asked for more security in these projects,” he said, about the lenders who backed out. “Usually that means you think the market is going to go down or this project isn’t going to absorb and pay the debt, but I can’t imagine why they would think that in this market, in this location.”
Some projects delayed
The latest numbers available on building permits in the city of Boise during March show development ticking down in some areas by as much as 20%. The valuation of permits for residential construction decreased from $16.9 million in March 2019 to $13.4 million in March of this year. Although the valuation of commercial projects permitted increased from $39 million to $45 million, the total number of building permits decreased from 115 in March 2019 to 92 in March 2020.
At least two downtown Boise housing projects are delayed right now. The first, St. Louis-based Collegiate Development Group’s 243-unit project, is on hold due to difficulty closing the deal with lenders. CDG co-founder Brandt Stiles said the company requested an extension on its development agreement with the city requiring the deal be closed with the intent of finalizing the deal this fall once lenders have more capacity to sign financing deals.
“All of our lenders right now are moving a lot slower,” he said. “There is a lot of focus on (Paycheck Protection Program) loans and looking back at their portfolios, so they’re a little bit slower to respond and take action. But we’re still extremely confident we will get this thing closed in the fall and start construction.”
Construction also has reportedly stopped on the eight-story, 75-unit residential project on the corner of Front and Sixth streets. The project was in the middle of construction, but has not progressed in several weeks. Ithaca, N.Y.-based company Visum Development Group did not respond to a call about the project.
Amazon is still in the works on a 650,000-square-foot fulfillment center in Nampa, which was originally scheduled to open in the fall. The Idaho Press was unable to get an update from Amazon officials by press deadline.
Office space projects on track
On the other end of the spectrum, developer Tommy Ahlquist is moving full steam ahead on projects worth hundreds of millions of dollars throughout the Treasure Valley. His development at Ten Mile Crossing has six buildings underway, three of which are multistory office buildings. He is also pushing ahead on two multistory buildings at the corner of Eagle and Overland roads, plus he announced the construction of 16-story building earlier this month with two towers for the corner of Fourth and Idaho Street in partnership with Idaho Central Credit Union.
Just like Carley, Ahlquist said he expects the demand for office space, retail and residential to continue to grow in Boise because of its location. Although he acknowledges Idahoans are facing a lot of economic struggles right now, he said this should be a short-term disruption because the cause of the recession is known and fixable.
“There’s a lot of unemployment and a lot of problems right now, but … if you lived through the last recession, the unknown elements of the last recession were very different than this one,” he said. “We know what’s causing this, and we know there will be a vaccine and treatments and better testing, and we know it will go away.”
Changes in configuration?
There has been a lot of speculation about if the pandemic will usher in a mass migration from traditional office environments to working from home, but Ahlquist is not convinced. He said it will likely result in more capability for people to work remotely occasionally, but the need for a collaborative office environment, free of distractions, will always be necessary.
Scott Schoenherr, a partner with real estate development firm Rafanelli & Nahas, agrees. His company is building a 10-story office building at 11th and Idaho streets in downtown Boise set to open this fall, but he is not worried about filling the space any more than usual. If anything, he said expanding companies might be looking to dedicate more space per person in each office than before due to COVID-19.
“You’re going to have these counteracting forces, because you will have a small percentage of the jobs who may stay home, but there’s also going to be people who want a little more space in their offices,” he said. “They’re going to need more space for the same amount of people.”
These kinds of subtle design changes could take the form of 8-by-8-foot cubicles, instead of 6-by-6-foot, taller barriers between urinals in restrooms, or a shift from an open office plan to more closed off workspaces so workers can keep their distance.
The pandemic has also helped companies realize new efficiencies, which local developer David Wali said could lead to reductions in staffing. He said along with changes in the office environment and work culture, companies could also take the opportunity to look at how the company functioned during the time of remote work and make some cuts.
“I know companies where they have a couple of thousand people at home right now, but the business is still functioning and they’re going to have a good understanding of what the population number needs to be when they all come back,” he said. “Employers will probably use this opportunity to look and say, ‘Not only will my business floor plan look different, but the number of employees I need might be different and how I use them.’”