Residential use invades commercial zone

Fenwick Island businessman Tim Collins built Southern Exposure Seaside eight years ago, on Dagsboro Street. Before the true residential housing boom set in, he made a decision to build a second Southern Exposure — a move he might make with hesitation, or not make at all, today.

“Had I not made that decision eight years ago and had waited three years,” Collins said, “I would have really been scratching my head and saying, ‘Does it really make sense to put a commercial store when the return is so much more residentially?’ It would have been a much tougher decision to make.”

Collins’ question is likely a familiar one to most local business owners and property investors.

Use (1) under Commercial Zone in Fenwick Island’s zoning code allows “any use permitted in the residential zone.” At least in the last four years, investors have frequently taken advantage of that code to build homes on commercial property – a move that by all accounts maximizes profit and is common across the coastal area, where building residential in commercial generally is not considered “down zoning.”

Nearby towns have taken, or are taking, steps to reverse the trend and retain commercial properties to support residents and visitors.

Fenwick town officials themselves have not yet taken any measures to prevent a problem that has the possibility of becoming more prevalent in the town, which currently boasts what some consider business-unfriendly ordinances.

Town Mayor Audrey Serio — herself a Realtor — said changes have been discussed, but only preliminarily. They including potential setback and parking changes or establishing a more restrictive commercial area that would disallow or partially disallow residential development there.

Investors maximize their profits along Route 1

A Fenwick Island Realtor acknowledged residential development on Route 1 within town limits and called it a detriment to the future of the town — an opinion also expressed by residents at recent town meetings.

“It’s happening, and frankly I think it’s a horrible thing for the town,” said Realtor John Kleinstuber. “If there’s nothing to do here, no reason to come here, that’s going to hurt our town.”

In 2003, six beach-block commercial lots between Georgetown and Houston streets were purchased for $2.7 million, transfer tax records show. After subdivision, homes were built on two of the lots; one sold for $1.5 million in January 2005; the other sold after the market took a downturn, for $1.4 million in March 2006. The remaining four lots were sold in the period between the two house sales, for $3.25 million in March 2005.

In a comparable situation, two lots were purchased between Bayard and Cannon streets on the beach block for $600,000 in August of 2003. A house built on one of the lots sold in October 2005 for $1.45 million. Such profit potential, along with increases in property value, make it difficult, if not impossible, to open a business and turn a profit on that same land — or even pay necessary rents — under the current zoning structure, business owners have said.

“There’s no way you can make a shopping center like ours work given the price of land (now),” said Tony Balea, owner of Ocean View Plaza, which his family has owned since the early 1970s. “I’m in it simply because our family has owned it for a long time. I’ve been approached (to sell) several times.”

Balea said that if town council does not become more “pro-business” it will continue to lose commercial land to residential development.

Business owners question ordinances

In contrast to Dewey Beach’s commercial zone along Route 1, which allows businesses to front the highway, Fenwick Island’s zone requires a setback of 25 feet. Fenwick’s commercial zone also requires off-street parking of one spot per 200 square feet of retail inside — or double that in a store with more than 4,000 square feet of floor area — which compounds the problem, Collins said.

His newest store sits at least 65 feet off the roadway, and could potentially, in the future, be blocked from view from the road by a house that does not have to comply with stringent parking requirements and could maximize its underlying land. Dewey’s ordinance only requires off-street parking on retail stores with more than 2,000 square feet dedicated to sales.

“If …we have the deal with the existing ordinances, the value of commercial property is greater as a residential use — particularly if it’s on the ocean side (of the highway),” Collins said.

“They’re going to have to take a hard look to do something more for the commercial properties.”

Serio and Town Councilman Chris Clark said they are willing to work with business owners to find a solution.

In a move directly related to recent proposals to redevelop some Dewey Beach commercial properties as residential, an ordinance approved by Bethany Beach late last year only allowed residential use on the upper floors in the town’s downtown commercial zone. It did not attract much opposition.

“There have got to be changes,” said Clark, also a member of the town’s Commercial Liaison Committee, along with Collins. The committee works to address issues between the commercial entities and the town government, thus far unsuccessfully on a number of those issues. “I don’t see any issue with (change) at all,” Clark said.

Land-use consultants for the town, along with town officials, planned to meet with town business owners this week to address concerns.

Dewey Beach finds controversial solution

Dewey Beach had seen multiple conversions from motels to condominiums before taking action to reverse the trend. Officials from the similar Route 1-based town placed a controversial moratorium on building-plan submissions late last year while officials considered potential changes through a growth-planning process.

According to Elliott, town officials hope to keep their Route 1-based commercial district entirely commercial while allowing mixed-use elsewhere. (That town’s commercial area extends beyond Route 1, unlike in Fenwick.)

“The same thing is going to happen in Fenwick Island,” predicted Elliott, whose town is facing conversion site plans to tear down historic commercial properties at Ruddertowne that were slipped in before the moratorium. “What’s going to happen when the whole town goes residential? That’s going to hurt economics.”

Besides discussing the possibility of easing the setback or parking requirements, Serio said Fenwick Island has also held discussions on the possibility of limiting, or prohibiting, residential development in the commercial zone. She said, though, those talks were only preliminary.

“It’s obviously a problem everywhere,” Serio said. “It comes to a point where you have to go to Rehoboth Beach to eat dinner. You can always down-zone,” she added. “It’s just a given. But you can, of course, not permit it. It has been talked about.”

Collins said it would be hard to support an ordinance that could devalue his property by prohibiting residential development.

“I would have to oppose it, because ultimately I want to get the best value for my property at some point,” said Collins, a business owner in town since 1976, adding that he might support a prohibition ordinance with ordinances attached that would ease parking and setback requirements.

“I’m not interested in developing residential. But I can’t afford to be put into a situation where I would lose the value of the property.”