MISSOULA — Citing rising costs and a diminishing demand for commercial space, a mixed-use development planned on Third Street has reduced its scope, cutting the overall square feet and eliminating several housing units.
The Missoula Redevelopment Agency's Board of Commissioners on Thursday approved the changes, acknowledging that inflationary costs over the past few years have taken a toll and could influence a number of similar projects in the pipeline across the city.
“MRA is that place where we work with developers to make things come out of the ground,” said MRA board member Melanie Brock. “The projects that are still simmering that have already been approved — there's always changes in scope. Absolutely bring them back because this has been such a challenging development environment.”
Bissinger Place on Thursday became the first project previously approved for tax increment financing to come back with a change in scope.
MRA approved grants for the Third Street project in 2002, including $50,000 to restore the facade of a historic warehouse and $269,000 to assist with asbestos removal, relocating overhead utility lines and improving the public right-of-way.
Annie Gorski, deputy director at MRA, said the development team has been working ever since to put the project together. It has already begun site improvements but has yet to break ground and is now looking to reduce the project's cost from $13 million to $8 million.
“Construction costs have increased,” said Gorski. “The other thing that changed since 2022 was that they're finding reduced demand for commercial space.”
The initial project included 61,000 square feet of total building space, the restoration of the historic warehouse and building residential units above it.
The project also included a four-story mixed-use building. Overall, the project aimed to deliver 42 apartments in a blend of market-rate and luxury units.
The development team also anticipated a mix of manufacturing, commercial space and a restaurant.
“The site improvements aren't changing,” said Gorski. “The only thing that's changing is the development scope.”
As approved on Thursday, the project will reduce the overall square feet from 61,000 to 37,000, which includes removing the residential units planned above the warehouse. It also will remove the basement from the new building and reduce the overall height from four stories to three.
Gorski said the number of housing units will go from 42 to 39, and all of them will go for market rate.
“Commercial uses will likely include office spaces and possibly a coffee shop and restaurant. They're still working to put those pieces together,” said Gorski. “For financing purposes, they're proposing to construct the development in two phases.”
MRA has given preliminary approval to a number of projects seeking tax increment over the past few years, and some of them have yet to move forward. This week, development officials, housing leaders and the economic sector have all said that inflation and rising material costs have put a damper on local construction.
While Bissinger Place has reduced its scope in order to make the project pencil, a second anticipated project may do the same.
Casa Loma was first proposedin 2002 and carried an estimated cost of $30 million. At the time, the developers proposed 132 housing units on South Avenue. The City Council agreed to vacate a portion of Sussex Avenue to accommodate the project and create a walkable community.
“Casa Loma is likely to come back with a significant reduction in scope, more so than this (Bissinger Place),” said Buchanan. “It's a significant change. It's a question of do we want housing or don't we? I believe the answer is yes, but there has to be a balance of proportionality.”
