Chambersburg could redevelop Southgate

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CHAMBERSBURG—Chambersburg Town Council is investigating a plan to redevelop the Southgate Shopping Center into a mixed-use neighborhood.

Several elected councils over the last few decades have explored the concept of redevelopment at the Southgate Shopping Center. The 2007 Elm Street Neighborhood Plan included the concept of a public-private partnership to redevelop the shopping center into a new mixed-use neighborhood.

Over the last 14 years, since that plan was adopted by the Town Council and submitted to the Pennsylvania Department of Community and Economic Development in the form of a community goal, the current adopted Comprehensive Plan called for economic development in the Southgate neighborhood. Finally, Town Council adopted the project as a 2021 priority when the 2021 budget was approved in December 2020, directing staff to determine a way to fund such a project.

In October, Town Council approved a list of projects to utilize the Borough’s share of the American Rescue Plan Act (ARPA), Coronavirus State and Local Fiscal Recovery Funds (SLFRF). This Federal grant, with no local match, will fund eight transformational projects in the Borough including subsidies for landlords, low-income utility customers, restaurant owners, extensive improvements to the Storm Sewer System, the purchase of a derelict warehouse on South Fourth Street and the Southgate Shopping Center. These projects were important goals in the approved 2022 Budget.

The Borough of Chambersburg, in collaboration with the Elm Street Advisory Council (ESAC), embarked on a proposed initiative to redevelop the Southgate Shopping Center into a mixed-use residential neighborhood.

The Town Council, working with the Chambersburg Area Municipal Authority (CAMA), a separate body politic, organized in the 1940s to assist with, among other things, community and economic development, set about to use the Federal funding provided to move forward with a decades old community vision to redevelop the Southgate Shopping Center.

The project’s goal is to create a new sustainable neighborhood that promotes a mixture of uses to include housing, employment, retail, and health services into the Elm Street Neighborhood while increasing the Borough’s tax base and utility sales. The proposed project is not to be funded with Borough taxes. The project would have no impact on the tax rate.

Town Council and the current owners reached a negotiated sales agreement to permit CAMA the opportunity to purchase the existing shopping center in two phases so it can be subdivided and resold to responsible third-party private developers for redevelopment.

A Resolution was approved by Town Council on October 11, 2021 authorizing entering into an agreement to purchase of the Southgate Shopping Center in the two phases, with a 90 day due diligence period for Phase 1 (the shopping center between W. Catherine Street and W. Washington Street) and 365 days for Phase 2 (the shopping center between W. Washington Street and Loudon Street). 

Town Council authorized the execution of an Agreement of Sale for the purchase of the Property, for a total purchase price of $4,500,000 for both phases. The Federal funding will provide any necessary money to accomplish the purchase of Phase 1 and maybe all of Phase 2 as well. There would be no local taxpayer money used.

Franklin Southgate LLC and the Borough of Chambersburg reached an agreement to extend the timetable on the due diligence period until March 1, 2022 to allow the newly elected Town Council time to research the project.

In the preceding four months, at the direction of Town Council, staff has been undertaking research, investigations, engineering studies, and planning in order to permit Town Council the opportunity to make an informed decision on whether or not to proceed with permitting CAMA the opportunity to buy the shopping center.

When the newly elected Town Council assumed responsibility on January 3, 2022, they began regularly meeting with staff to determine the best course of action.

On December 7, 2021, the Borough Planning and Zoning Commission reviewed and discussed Borough Plan RE-1571, which permits the subdivision of the shopping center to allow CAMA to buy the portion of the site from Catherine Street to Washington Street. Phase 2 would be retained by Franklin Southgate Company until October of 2022. The plan proposes no new land development at this time, only the subdivision of parcels necessary to accommodate the sale of Phases 1 and 2 and to enable the Borough to proceed with management of land within Phase 1, if purchased by CAMA. Council would approve the subdivision in March 2022 if the sale is to move forward.

On January 4, 2022, a special exception permit was granted by the Zoning Hearing Board to confirm that the required parking spaces within the shopping center are all within 600 feet of the principal building uses and would be in the same ownership as the principal uses should the subdivision be approved. This was also a necessary step to permit the shopping center to be subdivided should CAMA move forward with the purchase of Phase 1 soon.

The shopping center would be owned on an interim basis by CAMA until resale, but managed by the Borough.

It is important to note the role the Chambersburg Area Municipal Authority (CAMA) will play if the Town Council decides to permit them to purchase the shopping center. CAMA is an existing entity with the mission to support the community and economic development of the greater Chambersburg area. An independent agency, CAMA is organized under the State Law known as the Municipality Authorities Act. The Act permits CAMA to undertake a series of important projects for the community. Most commonly, CAMA provides “pass through tax exempt debt sales” for community organizations including the Shook Home, Wilson College, SpiriTrust Lutheran, and other tax exempt organizations. In addition, CAMA stands by to help with “pass through financing” associated with the Borough, including the proposed shopping center purchase, and the water and sewer systems of the Borough. They have more flexibility than the Borough when making real estate purchase and sale decisions whereas Council can only sell real estate to the highest bidder through the public bidding process. As such, they are a critical component of the shopping center purchase and redevelopment process to ensure the land is acquired and then sold to developers that will redevelop the land based on a newly developed realistic and market based plan, that was developed by the recently elected Town Council.

A new more realistic and market based concept plan was requested by the newly elected Town Council. This is a vision of what private third-party developers might build at Southgate. The Borough and the CAMA Board will not be the final developers. They are merely providing the conduit to sell the land to private developers for the project.

The Authority is governed by a five-member Board, including Eric Oyer, Chairman and former Borough Manager, Sharon Bigler, Council Member, Greg Lambert, Borough resident and Greene Township employee, Tom Newcomer, Council Member, and Chris Snavley, local business owner.

As a part of the due diligence period, staff has prepared the following information for Town Council and the CAMA Board:

A valuation study by a Pennsylvania licensed real estate valuation expert;

A grass roots community survey of citizens and stakeholders;

A phase one environmental review of the site;

A structural engineering analysis of the buildings and phased demolition plan;

A market-based analysis of real estate needs in the Borough of Chambersburg;

A confidential review of existing tenant agreements and anticipated revenues and expenses from the facility;

A subdivision plan for the organization of tax parcels;

A parking analysis;

A utility systems analysis;

A  revised realistic and market based concept plan based upon existing zoning now in place for the neighborhood;

A new realistic and market based concept plan rendering to assist in the marketing of the site to private third-party developers.

No local taxpayer money would be involved in this plan: the American Rescue Plan Act of 2021 provided a $7,763,037 non-competitive, federal formula grant from the U.S. Treasury Department to the Borough to help the community respond and recover from the COVD-19 pandemic. Of that amount, Town Council allocated $4,151,857 to purchase the Southgate Shopping Center, which qualifies for the funding and would allow CAMA to make the purchase without local match that could impact Borough real estate tax rates. If Town Council authorizes the purchase, and the ARPA funding is used, it is a unique opportunity to provide an avenue for private developers to redevelop this area by leveraging federal grant money rather than local tax revenue and/or bonds or loans.

Using the ARPA money, CAMA is able to obtain control of the site, something no other private developer has been able to do for generations. This is as a result of the Borough obtaining a grant which makes the project make sense.

The purchase price is a negotiated contract between the Borough and the current owners. The Borough’s real estate valuation professional pointed out that the Borough, as a local government, would be required to pay a price based upon “highest and best use” of the property. Furthermore, that consultant has stated that the valuation is very difficult to pin down given the transitional nature of the project site. The average price from the recently sold comparable parcels is $293,934 per acre, which when used as a measure of value, supports a value of over $4,000,000 for Southgate.

In addition to no local taxpayer money being used in this project, none of the ARPA money recovered through the resale of the site will need to be returned to the Federal government. Any money recovered by resale can be re-programed by Town Council for use at Southgate or at any eligible community and economic development project.

It remains to be seen what will happen to the existing businesses as the site is redeveloped. CAMA will inherit the leases for the businesses which are of various lengths of time, and have many other commercial lease attributes. While the businesses remain open and the shopping center redevelopment plans unfold, the businesses will continue to pay rent and taxes. The rent income will help subsidize the planning process. Most of the leases make the tenants responsible for many things including ongoing maintenance of the stores and even the local property taxes. The stores or the commercial part of the shopping center will continue to be taxable property. CAMA and the Borough hope that the large parking lot will become tax-exempt. Generally, public parking lots, such as the Borough-owned parking lot next door near the CVS, are tax-exempt properties. The Borough will ask for the large parking lot to not pay taxes, but ultimately that is up to a Franklin County board that makes such decisions.

It is anticipated that Town Council may make a decision about permitting CAMA to buy the Southgate Shopping Center at their meeting on Monday, February 14th, at 7:00 p.m. Public participation is welcome.

Following public comment, Town Council will consider requesting that the Chambersburg Area Municipal Authority (CAMA) obtain from the Borough the Sales Agreement previously agreed upon between Town Council and Franklin Southgate LLC, which is fully assignable to CAMA. Also, to permit CAMA to enter into a Subrecipient Agreement, which provides sufficient funding from the Federal American Rescue Plan Act, to CAMA, to permit the Board to execute the purchase of Phase 1 of the shopping center by CAMA. Finally, this action will permit the leaseback agreement between the Borough and CAMA whereby the Borough will manage the shopping center on behalf of CAMA until the site is resold to private developers in parts. The CAMA Board would proceed from this point forward to complete the purchase items if Council permits the transactions to move forward.

Town Council, if it takes action to authorize CAMA to proceed, will be reaffirming the following project attributes:

No local tax money, only Federal grant money, may be utilized for the Southgate Shopping Center purchase; no impact on Borough taxpayers or tax rates;

Funds from the inherited leases that provide significant rental income from the current tenants will be used for the interim management of the facility until resold;

The goal of the project is to increase tax revenue and utility sales for the Borough of Chambersburg;

Economic revitalization is a core mission of local government in Pennsylvania;

The Borough of Chambersburg will not be the long-term owner of a shopping center and will not be the developer of this site;

Staff will move expeditiously to prepare the resale of the land in parcels to private third-party developers and CAMA should own the site as long as is needed to prepare it for resale;

A portion of the site will be dedicated to the Borough for public parkland, open space, and storm water management, which are Borough functions;

The revised realistic and market-based vision plan, as developed in February 2022, will be the master concept plan for the site, market demands will drive the ultimate redevelopment;

The Chambersburg Area Municipal Authority Board, with input from Town Council, will manage the resale of the land to the private sector;

Council will appoint a subcommittee of Council to work on day-to-day management and redevelopment issues of the facility during interim ownership;

GMS Funding Solutions and Salzmann Hughes will work cooperatively to facilitate the redevelopment process;

The Borough Manager and his staff shall manage the project.

In no way would the Borough of Chambersburg or CAMA be the long term owners nor the developers of this site. The proposal is to allow CAMA to buy the dilapidated shopping center, which still brings in significant rental income, and sell it to a new responsible third-party developer or developers to repurpose the land to generate additional tax and utility revenue for the Borough. Further, no local taxpayer funds should be needed. Also, most of the facility will remain taxable even during interim ownership.

Moving the Southgate Shopping Center from its current status to a more beneficial use for the community has been a multi-decade goal of the Borough of Chambersburg. Federal funding is providing Town Council with a choice to do this now with no local taxpayer funds. Staff is proud to have provided a business plan to allow Town Council and the CAMA Board to make informed decisions.

Included with this information are images from the new realistic and market based concept plan for Southgate.

A final decision of Town Council whether to proceed or not may come as soon as February 14th.