Eight months after it was supposed to have opened, a $10.1 million, newly-renovated commercial space in Ship Creek sits vacant.
The renovation of the 1940s-era former freight shed was undertaken by the Alaska Railroad Corp. as part of an effort to revitalize Ship Creek. In 2008, the state-owned corporation announced that three tenants were committed to leasing space in the 36,000-square-foot building, which was scheduled to open in July 2009. Since then, however, those tenants have backed off, and the railroad still doesn't have any signed leases. Railroad officials blame the building's slow start on construction delays and the recession, but say they remain confident in the building's future.
Kaladi Brothers Coffee is among the businesses the railroad listed as committed tenants for the freight shed. But Dale Tran, Kaladi's chief operations officer, said while the local roaster had been interested in the space, it never signed a lease.
"We haven't heard from them since 2008, when they dropped off a proposed lease," Tran said.
Another of the tenants identified by the railroad in 2008 is ECI/Hyer Inc., the Anchorage-based architectural firm that redesigned the building. The company decided not to move in when the economic climate chilled, according to Brian Meissner, a principal at ECI/Hyer.
Leonard Hyde, president of Anchorage-based developer JL Properties, said it's tough to attract business tenants to an unproven location like Ship Creek, where the railroad has long struggled to spur development.
"There's a lot of tenants that wouldn't go there because of the location," Hyde said.
The Ship Creek area has for some time been known as a place where big dreams spawn and die like the salmon that flood the eponymous waterway every summer. The Alaska Railroad owns the land, a total of 963 acres, with 650 available to lease. The railroad's charter mandates that land ownership remain with the railroad, a requirement that makes projects like condos and office buildings unattractive to some developers, according to David Irwin, a Washington state real estate consultant the railroad hired last summer to give a report on the area's economic and development prospects.
Among memorable Ship Creek proposals was a plan to turn 8.5 acres into a fisheries complex of businesses and government buildings, including a $20 million aquarium. It fell apart in 2001. The Bridge, a restaurant built on a restored bridge over the creek where summer diners could watch salmon, opened in 2005 and closed unexpectedly in 2008. Success stories include the Comfort Inn, which opened in 2002, and Aramark, a national service company with operations in Denali and Glacier Bay National Parks, which leases the railroad's former carpentry building.
For the freight shed, the railroad spent $10.1 million on speculative renovation and development. Faded graffiti spelling out "Honolulu" and "Missouri" is still visible on the building's original wood walls. Thick timber beams and dark orange steel gussets hold up the peaked roof. On the outside, the new wood siding perfectly matches the original (but without the lead paint). A heated sidewalk running the long south side is wide enough to accommodate outdoor seating. The corporation expects to spend about $300,000 a year on the building's operating costs and is projecting a 9 percent return on its investment.
Railroad officials see the shed as kick starting revitalization across Ship Creek, creating a lively neighborhood of offices and restaurants, like Seattle's Pike Place or Vancouver's Granville Island. And although nobody has signed up for space, Alaska Railroad officials are confident they will fill the building with tenants eventually, according to Jim Kubitz, the railroad's vice president of real estate.
The Forest Service is considering leasing 25,000 square feet, Kubitz said, and there are a number of other interested tenants. Railroad director of facilities Paul Farnsworth said the space would be perfect for government or professional offices, and a small restaurant or café would be a good fit as well.
Commercial real estate is categorized as either Class A or Class B, and the freight shed falls somewhere between the two, with lease rates starting at $1.95 per square foot. In Anchorage, Class A leases for $2.60 to $3 per square foot, and Class B goes for $1.25 to $2.25. Although there are no tenants yet, the railroad's financial projections call for lease revenue of $324,750 this year while the space fills up and $724,103 in 2011.
"The return on this might take a little longer, but it's going to raise the value of all the buildings down there," Kubitz said. "Do I wish (it was) all leased? Of course. But I've been in this many years, and these dips come up and down. It's timing, and I think the timing is going to be good this summer and we'll get good commitments."
Contact Joshua Saul at jsaul(at)alaskadispatch.com.