Chattanooga’s Innovation District Beckons to Young Entrepreneurs

CHATTANOOGA, Tenn. — From Boston to Seattle, cities across the country are vying to create technology hubs, spurring real estate developments to attract start-ups and young entrepreneurs.

To the south, this smaller but thriving city is seeing returns on its effort to do the same. Chattanooga has leveraged its lightning-fast broadband connections to develop a tech scene in its recently designed innovation district, a 140-acre section of its compact central business district.

At the district’s core, the Edney Innovation Center draws young entrepreneurs who pace across the polished concrete floors and talk business from couches and beanbag chairs that give the 90,000-square-foot office building the feel of a college study hall.

The Edney Center is a crucible for advancing their ideas. Purchased and renovated for $4.4 million by Talon Partners, a group of local developers, the 10-story building opened in October at Market and 11th Streets. It is seen by Chattanooga’s civic leaders as the gateway to the city’s commanding new business enterprise — using the six-year-old ultra-high-speed broadband network to attract and assist high-tech start-ups in becoming mature, homegrown companies.

Tenants in the Edney Center include a nonprofit start-up incubator, a business developer for the technology sector and over a dozen entrepreneurial internet, information technology, design and app development companies that are owned and managed by young entrepreneurs.

“What we’re generating here is an ecosystem for business development,” said Andy Berke, the city’s first-term Democratic mayor. “We are promoting access to state-of-the-art broadband and recruiting entrepreneurs with the skills to use it.”

Chattanooga’s development strategy, focused in the innovation district and its internet, which is as fast as 10 gigabits per second, is creating results. More than $700 million in new retail, office and residential space is under construction or about to start in the district, according to the River City Company, an economic development nonprofit organization.

Several of the innovation district projects are directed at young entrepreneurs. The Lamp Post Group, a private investment firm that provides business development and venture capital to high-tech start-ups, also owns and manages Lamp Post Properties, a real estate development division that started in January. The division focuses on developing historic properties for entrepreneurs that the parent company incubates in its downtown office.

The real estate division is moving quickly. It is close to finishing the $8 million renovation of the 35,000-square-foot, 128-year-old Ross Hotel into 39 residential units, and three ground-floor retail spaces in the Tomorrow Building. The fully furnished apartments range from 280 to 500 square feet and are priced at about $950 to $1,200 a month. They are aligned around communal kitchens and dining areas on the two upper floors, and a second-floor common area fitted with high-speed broadband.

Tiffanie Robinson, 31, the president of Lamp Post Properties, said the market for the co-living project is young entrepreneurs who can spend time in Chattanooga to see if it suits them.

“There is a really big need for smart real estate investment within the innovation district,” Ms. Robinson said. “The point is to create density for start-ups and technology companies in our community. We want to show how real estate can mold a city and mold next-generation companies.”

A few blocks away, Lamp Post is renovating the Mayfield Annex, a 28,000-square-foot, 109-year-old building that was once an Elks lodge and offices for Hamilton County. It is being turned into a $3.2 million office building for new-media companies and is scheduled to open next spring.

Another of Lamp Post’s downtown projects is converting the 45,000-square-foot Newton Chevrolet dealership, which operated for 68 years before closing in 2007. It will become a distillery for Tennessee Stillhouse, the maker of Chattanooga Whiskey. The $6 million project is scheduled to open in March.

Almost a dozen other residential, retail and office projects are under construction, many of them designed for the high-tech business market or to coax young tech entrepreneurs to live and work downtown.

AMCA, a Virginia developer, is spending $31 million to renovate the 10-story Chattanooga Bank and Trust building on Broad Street. The 89-year-old building will be turned into a 162-room Aloft Hotel with two ground-floor restaurants.

On the other side of Broad Street, Heritage Land and Development, a Memphis company, is renovating the 92-year-old Maclellan Building. The 100,000-square-foot space once housed an insurer and has been empty for 11 years. It will be converted into 90 apartment units for $13.5 million.

The district’s newest large development project, announced in July by DeFoor Brothers Development, a local builder, is an $88 million plan to convert the landmark Gold Building into a Westin Hotel with about 260 rooms. The plan also calls for transforming smaller buildings in a three-block section nearby into a pedestrian-friendly neighborhood of restaurants, residences and offices.

Many of Chattanooga’s city leaders and business development executives anticipated the growing popularity of the downtown area. In the late 1960s, the newly formed Environmental Protection Agency declared Chattanooga the most polluted city in the nation. Three decades of investment cleared pollutants from the Tennessee River and the air, replaced old riverfront plants with parks and trails, strengthened the 11,000-student University of Tennessee at Chattanooga campus and constructed attractions, like a freshwater aquarium that opened in 1992.

In 2009, Chattanooga and EPB, the city-owned utility, installed a $330 million fiber electric metering network that provided some of the fastest internet speeds in the world. At the time, it was unmatched globally among small cities.

Chattanooga started to market itself to young entrepreneurs and attracted some well-known brands. For instance, the online reservation service OpenTable bought Quickcue, a local workflow app developer, for $11.5 million in 2013. OpenTable, based in San Francisco, also opened a Chattanooga office in a newly renovated innovation district building at Cherry and Seventh Streets.

“I can’t think of another place that has made this kind of infrastructure investment to promote job growth and real estate development,” said R. Byron Carlock Jr., the national real estate practice leader for PricewaterhouseCoopers. “Typically, it’s creating venture capital or grant funds.”

Last year, Bento J. Lobo, a finance professor at the University of Tennessee at Chattanooga, completed a study that found the value of the fiber infrastructure to the local economy from 2011 to 2015 amounted to roughly $1 billion above the cost of installation, generating 2,800 to 5,200 new jobs.

“Both the broadband and the smart grid infrastructure were built out ahead of schedule,” Mr. Lobo said in an email. “The fiber investment in Hamilton County appears to deliver benefits at a faster pace than previously predicted.”

Just as rail links galvanized 19th-century communities and interstate highways spurred 20th-century development, Chattanooga’s fast broadband network changed the city’s view of itself and encouraged new development.

Fletcher Bright, who has developed property in Chattanooga since 1953, said the city was experiencing a stronger surge in downtown construction than at any other time in his career.

“All of a sudden, people want to be downtown,” said Mr. Bright, the chairman of the Fletcher Bright Company. “That was unheard-of just a few years ago.”