RIO RANCHO — Slashing fees the city charges developers to put in roads and water service would make Rio Rancho a more attractive proposition, but commercial real estate experts say it would take time.
A majority of city councilors in September OK’d lower impact fees by 50 percent for residential development and eliminated them for commercial development for two years in the belief that it would boost construction and bring jobs and tax revenue to the city.
Ken Schaefer, director of brokerage activity for Grubb & Ellis New Mexico, agrees that lowering development costs will help spur construction. However, economic uncertainty, tight financing restrictions and population density remain key factors determining when projects move ahead, he said.
“Before the downturn in 2008, you could do a speculative project with 25 percent to 40 percent pre-leased. Now, many lenders are requiring 60 percent or higher to be pre-leased,” Schaefer said.
At the same time, he said, tenants are unwilling to commit to projects that haven’t been built.
“In existing spaces, asking rates have dropped in recent years, and tenants would rather pay more affordable rates than pay the higher rate for a new project,” Schaefer said.
Construction has yet to start on two large projects near the Presbyterian Rust Medical Center hospital at Unser and Black Arroyo, which opened a year ago.
Thanks to a city-approved tax incentive, infrastructure is in place for The Village at Rio Rancho, a 75-acre, mixed-use project just north of the hospital, and Petroglyph Medical Plaza, a roughly 18-acre project off Unser, west of the hospital. But work expected to start this summer on a movie theater has been postponed.
“It has been pushed back a little simply due to the economy and the slow pace of recovery,” Robert Geringer of Geringer Capital, the California firm behind The Village project, said late last month by email.
X-Ray Associates is the anchor for Petroglyph Medical Plaza but signs are still up seeking buyers for the remaining potential building sites.
Smaller developments that have been planned for a while are moving ahead. Folks involved with those projects say the impact fee reduction is welcome but wasn’t a driving factor.
“Cutting out costs like impact fees help them (small project developers) increase their profit,” said Matt Reeves, of NAI Maestas & Ward, leasing agent for Unser Pavilion, a six-acre development on the west side of Unser at Wellspring.
Leases he’s signed include an Einstein Bros. Bagels, Subway, a nail salon and Prime by Vernons, an upscale gourmet deli and a branch of Sandia Laboratory Federal Credit Union. Reeves expects construction to begin later this month.
Reeves predicts the pace of development near the hospital will pick up.
“Unser will get a lot of attention in the next year,” Reeves said.
Schaefer and Reeves agreed that it is easier to get financing for smaller projects because it’s easier to meet the pre-leasing requirements in a smaller space.
Eliminating impact fees for commercial projects was a factor for a 6,723-square-foot strip development going in near the Premiere movie theater at Unser and Southern. Tenants include a Menchies yogurt shop, a nail business and a drive-through Del Taco, said Greg Sofio of Prime Retail Development, which is in a joint venture with building owner Addision Street Investments.
“The impact fee played a role; I think you’ll see more activity because of it,” Sofio said.