I-29 interchange plan could be ‘game-changing’ for 85th Street development

By Jodi Schwan, jschwan@sfbusinessjournal.com
Argus Leader

An effort to develop an Interstate 29 interchange at 85th Street is gaining new life thanks to an unprecedented joint effort between public and private sectors.

State and local officials started studying the area in the late-2000s as developers touted the potential business a new interchange could bring.

A federal study in 2009 concluded it was possible to build an interchange at 85th Street, but the estimated $15 million project also would require millions more in surrounding road improvements.

That study sat on the proverbial shelf as sales tax revenue declined and uncertainty surrounded federal funding for roads.

About a year ago, landowners in the area began meeting to formulate a plan. They agreed to work with the public sector to fund necessary studies and assist in some road construction needed to make the interchange a reality.

“At first, it seemed like a pretty slim deal,” said Dan Lemme, who leads an investment group that owns 340 acres in the area. “And as we got more people involved, it became more of a possibility, and now it seems like it might get done.”

To give a sense of what’s at stake, developers point to Meadows on the River near The Empire Mall. The 160-acre retail area generated $330 million in growth in 10 years.

The area surrounding a future interchange at 85th Street is more than 2,000 acres.

“Everybody realizes the potential of this,” Lemme said. “This thing is going to be a huge, huge deal.”

Reaching this point has required cooperation and creativity from state and local governments as well as developers who typically square off as competitors.

And many involved say the strategy could be a model for funding major infrastructure projects across the U.S.

“I think everyone understands and sees this is a new, innovative way of doing these types of projects,” said Erica Beck, vice president of development for Lloyd Cos., which owns about 50 acres in the area. “It’s a great opportunity for South Dakota to lead … and we’ve got a lot of momentum going for us.”

Governments cooperate

The effort took a big step forward Tuesday when the Lincoln County Commission approved a memorandum of understanding with the South Dakota Department of Transportation.

Under the agreement, the state will help Lincoln County borrow the money needed to construct an interchange.

The state could provide existing federal highway money that Lincoln County would repay or either the state or county could borrow from the state infrastructure bank, or SIB.

The SIB was created in the 1990s in a one-time deal with the federal government, Transportation Secretary Darin Bergquist said. It sat for a number of years, but it contains more than $20 million and is available to government entities to use for highway improvements.

The state has been promoting it to counties for several years, he said.

“The stereotypical use of it is if you’ve got a bridge that needs to be repaired today and you can’t wait to save up the money, you borrow from the SIB.”

Under the Lincoln County agreement, any money borrowed would be repaid over a number of years once construction of an interchange starts.

“County governments can do more for economic development,” Lincoln County Commissioner Jim Schmidt said. “They can be the catalyst. You can’t always go to the same sources, so counties have to step up. If counties want to see development, if they want to see growth, you become an active partner in that.”

The development sparked by an interchange in Lincoln County also would help generate property tax revenue and ease the burden on residents, he said.

“Think seven to 10 years from now,” Schmidt said. “The Lincoln County taxpayers will have gotten so much development, which, in my mind, will prevent future tax increases. We may even be able to roll some back.”

The state plans to construct one needed project in the area – the 85th Street overpass – in 2016 and plans to buy needed right-of-way for the interchange at the same time, Bergquist said.

The Federal Highway Administration also has been involved in the effort. Federal officials will need to sign off before the project can move forward.

“There’s some big hurdles that have to be overcome before we get to the point of moving dirt,” Bergquist said. “But these public-private partnerships are something Federal Highway has been touting for a number of years to help with highway needs. The opportunity to get one done in South Dakota, they’re excited about that.”

Private funding available

With Lincoln County committed to paying for the interchange, the landowners in the area now will fund studies that are needed to prove the project should move forward.

A federal interchange justification report that was completed five years ago has expired and will need to be updated.

It will look at the needed capacity of future roads, what environmental factors exist and what surrounding streets will need to be constructed to support the interchange.

“We still have to go through all the studies associated with interchange projects. We can’t just skip to build because we have an identified funding source,” Beck said. “But the beauty of it is that most of it is agricultural land, so the opportunities for development are incredible and there are less obstacles to deal with.”

The 144 acres to the southeast of the future interchange have been owned for more than a decade by an investment group that includes Hegg Cos. and the Benson and Cutler families.

Paul Hegg said honing a development strategy for the area has been a collaborative process that brought together several of the area’s most well-known real estate firms.

“We are creating something that is truly unique,” he said. “Initially, we’re taking risk by funding some of the studies that are being done, and those aren’t insignificant dollars.”

Landowners also likely would participate in helping pay for road construction in the area, Lemme said. The interchange now is expected to cost closer to $25 million, including the state’s overpass.

“We’re willing to chip in at a substantial amount to get this done. We’re willing to put our money where our mouth is,” he said. “Normally, it’s competition, trying to get in front of the other guy. Now, we all realize we need each other. If you put a team like that together, the potential is tremendous.”

The funding structure has never been done before in South Dakota but could become the new model, said Joel Dykstra of RMB Associates, which owns land on the east side of Tallgrass Avenue south of 85th Street.

“I think you’re going to have to do that,” he said, adding that it helps that the owners in the area control large parcels and understand what it takes to create development on this scale.

“But none of this is for certain,” he said. “I think everybody sitting around that table is seeing an element of public service. You don’t know what’s going to happen. We’re going to all spend money before there’s any promise anything good is going to happen.”

While the partnership might be the first of its kind in the nation, “it probably can only happen in the state of South Dakota because we all know each other, and it’s the type of place where you can call up and have a meeting and sit down with the powers that be that make these decisions,” Hegg said. “That’s the neat thing about living here. And the fact that we follow through with our promises and we deliver.”

Big potential payoff

The possibilities for development in the area are broad.

The area closest to the interchange likely would become heavily commercial, Beck said.

It would include “hotels, big boxes, things (retailers) we haven’t necessarily seen yet,” she said. “Most would tell you they’ve already received calls from companies looking at this area but really want a presence on I-29 where they can have visibility and great access and that would be a perfect intersection for them in that respect.”

Lemme said he already has received interest from regional and national retailers.

“We’ve got three serious people waiting to see what happens,” he said. “They said, ‘You get the interchange in, we’re there. You don’t get the interchange in, we’re going somewhere else.”

Hegg Cos. flew a representative from a “major big-box retailer” to Sioux Falls seven or eight years ago, and the only site that sparked interest was in the area of 85th Street and a future interchange.

“And they said, ‘If there were an interchange here, we’d be there,’ ” Hegg said. “This is game-changing development. It’s not your standard strip mall with small individual retailers. This thing is going to have implications for years to come.”

Beck said other property in the area also is a fit for corporate centers, “groups and organizations looking for having access and visibility as well – a little different scope than you would see on 41 Street and Interstate 29, but things that will drive economic development in this area.”

A project from Sanford Health remains a possibility. Heart Partners at Sanford owns 110 acres that had been envisioned as a research park.

Sanford supports the access and infrastructure development an interchange would bring, said Kurt Brost, director of real estate services for the health system. It has no plans to sell its property at this time, he said.

“We have no immediate plans for development of our site in the area, but we always consider land we already own when exploring options for future growth and expansion of services in the Sioux Falls area,” he said.

For the community of Tea, the interchange represents a chance not only to grow revenue but also to create an entrance into the city.

“I think it’s going to be kind of monumental when you look at basically two cities growing together. The city of Tea on the south side of 85th Street and Sioux Falls on the north side,” Mayor John Lawler said.

The interchange would help alleviate congestion on County Road 106 coming into Tea and allow the town to create a less industrial gateway, he said.

“It’s going to be more aesthetically pleasing,” Lawler said. “We’ll be able to have a little more say into that. And ultimately to me … this is great for the cities and counties, but what it will do for school districts is the most important thing. Once you get that commercial tax revenue base to support the school districts, it’s going to help them.”

The review needed to justify an interchange likely will take a year, and a required environmental study might take another year. Then, state and federal officials would design and bid the project, making 2018 the soonest construction likely could start.

But while there’s a long road ahead, those involved are unanimously positive in their reaction to the progress so far.

“This has been a fun process,” said Bergquist, the transportation secretary. “In my time here, I’ve never had a situation where we’ve had the state, multiple local government entities and the private side all come together bringing something to the table in an effort to get a big project like this done. And it’s probably the wave of the future.”

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