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Clearwater Financial I www.clearwaterfinancial.biz Highest & Best Use Analysis I April 2025 Jerome Urban Renewal Agency Highest & Best Use Analysis PREPARED FOR JEROME URA APRIL 2025 2025 CLEARWATER FINANCIAL I WWW.CLEARWATERFINANCIAL.BIZ ---PAGE BREAK--- 1. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Contents Executive Summary 2 Location & Background 3 Possible Future Site Uses 3 Legal Permissibility and Comprehensive Plan Alignment 3 Physical Possibilities 5 Financial Considerations 6 Economic Development Potential 7 Tax Revenue 9 Maximum Productivity & Recommended 10 Conclusion 10 ---PAGE BREAK--- 2. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Executive Summary The Jerome Urban Renewal Agency (URA) has acquired a key 1.46-acre property located at the intersection of West Main Street and South Lincoln Avenue, a central point in Jerome’s historic downtown. The property consists of eight parcels and has been historically utilized for commercial purposes, including an inn, restaurant, and multi-use building. Following a fire in 2013, much of the site has remained undeveloped. With the College of Southern Idaho (CSI) relocating to a new facility, the existing CSI building and its property will soon become available for full redevelopment. This Highest and Best Use Analysis examines redevelopment options for the site by assessing legal permissibility, physical possibility, financial feasibility, and maximum productivity. This study identifies the most advantageous use of the property in alignment with Jerome’s economic development goals and downtown revitalization strategy found in the City’s Comprehensive Plan. This analysis was conducted to identify the use that maximizes the property’s value by applying the following criteria: 1. Legal Permissibility: Analysis of zoning, land use regulations, and legal restrictions to determine what uses are allowed. 2. Physical Possibilities: Evaluation of the physical possibilities of the property to identify feasible options. 3. Financial Feasibility: Assessment of whether the potential uses can generate a return that justifies the investment. Key Findings and Recommendations: • Two Scenarios: The site currently houses the CSI building. Two main scenarios were evaluated—the first retains the CSI building and the second clears the CSI building, offering the full site for new development. With advantages and disadvantages for each, both scenarios should be carefully considered. • Future Highest and Best Use: A mixed-use development with retail, dining, and entertainment and catering to walkability and public spaces is recommended, with the site's potential value ranging from $4.5 to $9 million depending on scenario. • Economic Development Potential: The redevelopment of the property has significant potential to generate new tax revenues through various forms of economic development. The sale of the property could generate approximately $456,000 to $1,018,000 total tax increment revenue over a period of 10 years for the URA and $120,600 to $234,500 total tax revenue over the same period for non URA increment levies. ---PAGE BREAK--- 3. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Location & Background The site, located at the corner of West Main Street and South Lincoln Avenue in Jerome, Idaho 83338, covers 1.46 acres and contains eight parcels. With Main and Lincoln serving as the two main corridors in the area, the property is a central point of Jerome’s downtown. In 2013, a fire destroyed a large portion of the site. Much of it has not been redeveloped, leaving vacant parcels and a parking lot. In past years, the land has housed an inn, a restaurant, and a multi-use building. The Jerome URA purchased the parcels, hoping to develop the land and help with downtown revitalization efforts. Currently, a portion of the site hosts a building formerly used as a bank and now occupied by the College of Southern Idaho (CSI). CSI and the City of Jerome along with Jerome URA have entered into an agreement where the City and URA will acquire the CSI building and property on Main and Lincoln in exchange for a 3-acre piece of land a block north where CSI is preparing to build a new, 20,000 sq ft facility. The CSI exchange will result in the entire site being available for redevelopment. A brief video offers additional information about the City of Jerome and history of the site Possible Future Site Uses Legal Permissibility and Comprehensive Plan Alignment The property is zoned for commercial use and is located within Jerome’s Central Business District (CBD). The zoning allows for a mix of business, retail, public, and quasi-public uses. If more intense uses or residential incorporation is desired, special permits, such as Planned Unit Developments (PUDs), may be considered. ---PAGE BREAK--- 4. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Additionally, based on the proposed Downtown Overlay Districts, land uses should “encourage preservation and adaptive use of [historic buildings] and ensure that any infill of new development would be compatible with the historic buildings.” Source: Welcome 2040: City of Jerome Comprehensive Plan (2023) The Comprehensive Plan also notes feedback received from community members regarding land use. Regarding general land use, not specifically the downtown area, citizens hoped for “a mix of more dine in restaurants and cafes, entertainment and musical venues, boutiques for clothes, books, and stationery.” Residents consistently indicated downtown improvement as important in the public survey results, and their priorities included walkability, streetscapes, and a mix of restaurants and retail space. The Plan also states that “the lack of maintenance and upkeep of private and public properties was cited as a reason for not frequenting the downtown area.” This community feedback was an important consideration during the Highest-and-Best Use analysis. (See Welcome 2040: City of Jerome Comprehensive Plan, pg. 23, 27). Based on Jerome’s Design Review Guidelines and the desires of the community as outlined in the Comprehensive Plan, developments within the CBD should prioritize: • Mixed-Use Development: Projects should support mixed-use development, combining commercial and residential uses where appropriate. • Preservation of Historic Character: New construction and renovations must prioritize preserving the historic character of the downtown area. • Pedestrian-Oriented Design: Developments should cater to pedestrians with features like safe walkways, storefronts, and open spaces. ---PAGE BREAK--- 5. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 • Architectural Cohesion: Building designs should align with Jerome’s desired architectural character, including human-scale proportions, compatible materials, and storefront designs that maintain the "small-town feel." • Parking and Circulation: Parking should be minimized in visual impact, with shared parking and pedestrian-friendly circulation patterns encouraged. • Landscaping and Screening: Landscaping should enhance the site, screen service areas, and integrate with the surrounding environment Physical Possibilities The site’s combined acreage is 1.46 acres on the corner of West Main Street and South Lincoln Avenue. With fantastic frontage and drive by visibility, the property offers the investment community a premier place in the heart of Jerome’s Historic Downtown. On the Southeast corner of the site, the existing CSI Building footprint covers approximately 25% of the developable land. In order to fulfill the design guidelines of architectural cohesion and meet parking requirements, developers will likely keep the north half of the parcel available for surface parking, similar to the adjacent usage, which leaves approximately 25% of the parcel available for development if the CSI Building is retained. Given this assumption of maintaining the parking area, there are two primary redevelopment scenarios to consider: 1. Partial Redevelopment: Retain the CSI Building and develop the surrounding parcels with complementary uses. 2. Full Redevelopment: Clear the existing structure to allow for a cohesive mixed-use development. The latter option offers greater design flexibility and maximizes development potential. However, careful evaluation of demolition costs versus adaptive reuse must be undertaken. Though not exhaustive, a list of considerations and potential results for each scenario can be found below. Scenario 1: Retain CSI Building • Financial o No demolition costs, less expense associated with clearing the site o Potential new tenant can offset the development carry cost • Preservation & Design o While blending old and new can create a unique aesthetic, developing around the building could create design and logistical challenges o Does the building have historical, architectural, or cultural value that should be preserved? o Is the building in good enough condition to justify preservation? • Development o Less available area to develop o Does not fit the goals and intention of activating the corner with public retail/amenities ---PAGE BREAK--- 6. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 o Phased development may minimize disruption and maintain revenue o Reducing waste and aligning with sustainability goals o Reduced cohesion of redevelopment • Miscellaneous o Community support—is the building a beloved or iconic structure? Will retaining the building foster goodwill and avoid pushback from the community? Scenario 2: Clear CSI Building & Redevelop Entire Site • Financial o Unlock full development potential and maximize land value that aligns with current market demand o Clearing the site may be less cost-effective than renovating the existing structure • Preservation & Design o Flexibility for modern design and providing a blank slate for a new structure that meets modern design standards, building codes, and community needs o Revitalize the streetscape and area aesthetics o Is the structure historically significant? o Eliminates the possibility of adaptive reuse or preservation o Older buildings have outdated layouts and inefficient systems; clearing the building would address this functional obsolescence • Development o Increased market appeal tailored to the area’s growth and demographics o Support economic growth, create jobs, increase property values and generate higher tax revenues • Miscellaneous o Boost foot traffic with additional visitors, residents, and business In our assessment, clearing an old building can be a strategic move to unlock the full potential of the high-traffic, high-visibility location. Financial Considerations A financial feasibility analysis evaluates whether a proposed project or investment is financially viable by analyzing costs, potential revenues, and possible returns. Market conditions indicate strong demand for mixed-use spaces in downtown Jerome. Key financial considerations include: • Construction Costs vs. Revenue Potential: The ability to support lease rates for retail, office, and residential spaces. • Public-Private Partnership Opportunities: Attracting investment through incentives, grants, or tax increment financing (TIF). • Economic Impact: Generating long-term benefits such as job creation, increased property values, and enhanced downtown vibrancy. ---PAGE BREAK--- 7. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Economic Development Potential As a prime, highly visible location in downtown Jerome with adequate parking area, the current site has high redevelopment potential. The site was analyzed to estimate its terminal value based on the two scenarios. Both scenarios assume the north half of the site remains as surface parking and development is constrained to the Main Street frontage given sewer and fiber lines. Scenario 1: Retain CSI Building The property was analyzed with a 9% to 10% Cap Rate Range for the CSI building, a 7.5% to 8.5% Cap Rate Range of the remaining available space if used for retail, and a 5.5% to 6.5% Cap Rate Range of the remaining available space if used for multi-family residential units, resulting in a terminal value of $4.5 to $4.75 million. Scenario 2: Clear CSI Building & Redevelop Entire Site The property was analyzed with a 7.5% to 8.5% Cap Rate Range for the site if used for retail space and a 5.5% to 6.5% Cap Rate Range for the site if used for multi-family residential units, resulting in a terminal value of $8.75 to $9 million. ---PAGE BREAK--- 8. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Source: Clearwater Financial ---PAGE BREAK--- 9. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Tax Revenue The property is currently government-owned and tax-exempt and therefore generates no tax revenues for the URA or other municipal entities. Selling the property will generate tax revenue for the URA and City. The current market value of the site is estimated to be $1.2 million. If the site was sold and became taxable, the site, without any new development, would generate annual tax revenue for various levies, as shown in the chart below. Assuming 3% inflation, tax revenue for the Jerome URA is estimated to be as follows: • Scenario 1: Retain CSI Building o Value post-development: $4,500,000 Tax Revenue Total Over 10 Years: $456,534.11 • Scenario 2: Clear CSI Building & Redevelop Entire Site o Value post-development: $8,750,000 Tax Revenue Total Over 10 Years: $1,018,404.53 In addition to the URA, the tax impact of the project is estimated to generate $120,599.09 - $234,498.24 over 10 years toward the School District and Bond levies not included in the URA tax increment, depending on which scenario is pursued. ---PAGE BREAK--- 10. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 Maximum Productivity & Recommended Use Considering legal, community, and financial factors, the highest and best use for the site aligns with a vibrant mixed-use development featuring: • Ground-floor retail and dining establishments that activate the streetscape and cater to both residents and visitors. • Office space or community facilities that contribute to economic activity and downtown services. • Pedestrian-friendly design elements such as public seating, monument, art, plazas, gathering space, greenery, and City placemaking opportunity to enhance the area’s appeal. Given the increasing population and economic growth in Jerome, mixed-use developments have strong viability in the downtown core. The property’s central location makes it attractive to developers seeking high foot traffic and connectivity. A mixed-use development incorporating retail, dining, and entertainment on the ground floor with office space on upper floors would: • Support Downtown Revitalization and Placemaking: Align with the goal of revitalizing the historic downtown by attracting businesses and visitors and encourage adaptive reuse of historic structures or compatible infill development. • Enhance Walkability and Streetscape: Contribute to a pedestrian-friendly environment with storefronts, outdoor seating, and enhanced streetscapes and activate the corner as a key node for foot traffic and community engagement. • Attract Local and Regional Visitors: Provide space for local shopping, dining, and entertainment venues, which are priorities for the community and serve as a destination for both residents and visitors, leveraging the Central Business District’s historic charm. • Leverage Incentives and Overlay Districts: Take advantage of potential façade improvement grants, urban renewal funds, or incentives for mixed-use projects in the Central Business District overlay. Development could also include residential units on the upper floors. This could help address housing needs by diversifying housing options, which align with the City’s goals for higher-density housing near commercial areas. However, as a couple of years have passed since those goals were outlined, recent residential projects and current needs should be considered. Conclusion The redevelopment of the West Main Street and South Lincoln Avenue site represents a rare and strategic opportunity for the City of Jerome to catalyze downtown revitalization, promote long-term economic growth and establish a City sense of place. Based on the analysis of legal, physical, financial, and economic factors, a mixed-use development—with a combination of retail, dining, entertainment, and potential office or residential uses—emerges as the highest and best use for the property. If the CSI building is retained, the development opportunity will be impacted. The entire site should be cleared to achieve a comprehensive redevelopment project, maximize the property’s strong potential to increase tax revenues, attract private investment, and serve as a cornerstone of community activity. The ---PAGE BREAK--- 11. Clearwater Financial I www.clearwaterfinancial.biz Highest and Best Use Analysis I April 2025 recommended approach prioritizes flexibility, market responsiveness, and alignment with community goals as outlined in the City’s Comprehensive Plan and Downtown Overlay objectives. As the URA considers next steps, collaboration with stakeholders, thoughtful design, and strategic planning will be essential to unlocking the site’s full potential and ensuring its long-term contribution to Jerome’s economic vitality and quality of life.