We’ve been discussing the Covington, Kentucky market for many months at this point, but are especially excited about the recently announced redevelopment of the former IRS Headquarters within the city.
The site was previously home to a sprawling IRS tax-processing facility that operated for over five decades and was located on 23 acres just south of the Ohio River.
The facility was decommissioned in 2019, and the city purchased the site in 2020 for $20.5 million.
Currently, it's being transformed into a vibrant mixed-use neighborhood, with several key components that are detailed below:
A.) Educational Complex:
A $150 million state allocation has been proposed as part of the 2024-26 state budget to establish a new home for The Salmon P. Chase College of Law and The Northern Kentucky campus of the University of Kentucky's four-year School of Medicine.
This complex will be located on Block G of the Central Riverfront subdivided map and will bring nearly 600 graduate students, faculty, and staff to the area.
B.) Residential Development:
16 townhouses are planned for Block B, fronting Fourth Street and will provide both rental/ownership opportunities to residents within the community.
A proposal on behalf of a local developer was already accepted by the city for this project.
C.) Commercial Development:
Block O, the largest at over 2.5 acres, is earmarked for a commercial user, will likely be developed into market rate apartments with mixed-use components.
To note, the city allocated parcels to several local developers instead of providing the site to a single, institutional player.
Through splicing parcels, we'll receive differentiated (nobody wants a concrete building with 400 sardine can apartments to consume this space) product that conforms to the surrounding area while serving the residents within it.
D.) Public Infrastructure:
Phase 1 includes approximately $15 million in streets, sidewalks, sewer lines, and utilities.
Future phases will include additional utilities, a parking garage, a public park, and connections to the Riverfront Commons walk/bike trail.
Impact on the Surrounding Area:
A.) Economic Development:
The project is expected to be a catalyst for further growth, attracting more offices, commercial ventures, and housing.
The development also complements Covington's emerging life sciences cluster and will contribute to the wet lab that is currently being constructed in the city.
Covington based companies like CTI Clinical Trial and Consulting Services, Gravity Diagnostics, and Bexion Pharmaceuticals will benefit from these capital allocations.
B.) Urban Integration:
The development aims to replace the former "fenced-off concrete island" with a connected neighborhood that provides walkability throughout the urban core of the city.
It will restore the street grid between Third and Fourth streets and create a new Russell Street promenade- furthering this mission.
C.) Community Amenities
The project includes plans for a public park with views from the top of the levee and will connect to the multi-mile Riverfront Commons Walk/bike trail, improving accessibility and recreational opportunities.
D.) Real Estate Impact:
Normally, we’d be wary of the construction of new apartments around our assets but view this as a positive given these apartments will likely be priced 20-30% higher than other Class A rentals (which don’t have amenities).
Given we’re not competing in the higher end of this market- we believe these developments will bring in more young professionals and higher-earners, which should positively surrounding establishments.
We may be a refuge for individuals seeking out quality rentals in walkable areas but aren’t able to afford the buildings littered with door men, pools, and gyms.
In essence, a middle ground for quality that doesn’t reach the point of luxury.
IE.) A couple is looking for a quality 2 bed/1 bath in a walkable location in Mainstrasse Village or Mutter Gottes (neighborhoods within the city). A brand-new building with amenities will have rents starting at ~$2,200-$2,500. The same unit in our building is $1,700-$1,850k (granted without a lot of bells and whistles). Same location, same quality of apartment, just a decreased rental rate that should provide more wiggle room for these residents.
We have no way of projecting the future but believe that the developer interest in this market ($5B+ in planned projects), the city’s willingness to grow, and the concerted effort to maintain historic features/walkability will contribute to progress over time.