Downtown Investment Authority staff released its analysis of Jacksonville Jaguars owner Shad Khan’s $450 million Lot J development Dec. 1 that recommends changes to the project’s city-backed development agreement.
Lot J is the proposed residential, entertainment and retail development west of TIAA Bank Field. The project is a partnership of the city, Khan development company Gecko Investments LLC and The Cordish Companies.
DIA staff, led by CEO Lori Boyer, recommends its board approve the Lot J deal with conditions when it meets Dec. 2.
The report states the city’s $77.7 million infrastructure investment and $50 million toward the Live! Arena, coupled with development-ready pads and incentives for Lot J’s hotel and residential components, fills the development’s financial viability gaps.
But the DIA analysis questions why a $65.5 million, 50-year interest-free “breadbox” loan is part of the incentives deal negotiated by Mayor Lenny Curry’s administration.
“Our analysis of financial feasibility and construction costs, based on the information provided, does not reveal a need for this additional incentive as currently structured,” the report states. “Nevertheless, we understand that this may be non-negotiable from the Developer’s perspective, and actual construction and operating numbers might justify this incentive.”
The DIA analysis finds the Lot J incentives package totals $245.3 million — $12 million more than the $233.3 million reported by the Curry administration.
The DIA added the $12 million to account for quitclaim deeds that would give the city-owned parcels for the hotel and mixed-use residential to the developers.
Property appraiser Ron Moody, DIA board chair, provided the land’s estimated value for the report.
“It is our understanding that the level of incentives in the aggregate is what the Developer requires to make this proposal and any change may be unacceptable,” the report states.
A smaller project?
The DIA’s review was based on the size and description of Lot J in the developer’s master plan initially filed with Ordinance 2020-0648.
The report shows changes to the development agreement that allow the Jaguars and Cordish to reduce the size of some of the development’s components.
The 40,000 square feet of Class A office space, part of the city-owned Live! District in the initial term sheet and legislation, is reduced to a minimum of 35,000 square feet in the revised agreement.
The total minimum number of units in the two luxury, mid-rise apartment buildings was reduced from 400 to 350, according to the DIA report.
Parking in the city-owned garage attached to the apartment buildings and surface parking lot at the site were both reduced from 700 to 600 spaces.
Lot J’s luxury boutique hotel now has a 120-room minimum, revised from the previous 150-200 room plan.
There are no changes to the proposed 100,000-square-foot Live! Arena or the 75,000 square feet of restaurant and retail space at the Live! District proposed for the ground floor of the apartments and hotel.
DIA staff said many of its recommended changes were raised by Curry administration negotiators and the city Office of General Counsel but rejected by the Jaguars and Cordish.
Hotel
The analysis calls Lot J’s proposed hotel a riskier investment than its residential component.
The report said the development’s entertainment attraction will generate more hotel demand, but the report finds the hotel will pull occupancy from existing hotels Downtown.
“With the Downtown hospitality market currently at 36.3% occupancy as of the end of September and pre-COVID occupancy of slightly over 70%, occupancy and room rates are both viewed as too low to support additional inventory in the Downtown market at this time,” the report states.
Other DIA recommendations include minimum bar and restaurant venue sizes in the Live! lease and change the corporate office space to taxable condominium interest instead of city-owned infrastructure.
Return on investment
The DIA estimates the city will receive 74 cents for every $1 of taxpayer investment the first 35 years Lot J is in full operation.
The Downtown agency’s 20-year assessment of the deal shows even less return with the city’s estimate, netting 40 cents for every $1 investment.
The report noted the financial outlook comes in under the City Council Auditor’s Nov. 5 projection that estimated Lot J would bring the city 44 cents for every $1 invested in the project.
Although the city will receive sales, payroll and other taxes from consumer activity at the Live! development, the city will not receive property taxes from any part of Live! since it would be owned by the public.
The DIA recommended renegotiating portions of the deal, including what happens with remaining city money if Lot J’s public infrastructure comes in under budget.
Previous versions of the development agreement returned what is left of the $77 million back to the general fund while the latest agreement puts it in a maintenance fund.
The DIA also does not want the $12.5 million Recapture Enhanced Value Grant to be used as a credit toward the developer’s minimum $229 million private capital investment in Lot J.
The Jaguars and Cordish can consider the breadbox loan as developer capital on Lot J’s residential and hotel products, the report states.
The DIA does not support the Jaguars and Cordish’s 50-year initial lease term for the Live! Arena and district. The DIA recommended the Curry administration return to the 35-year term in the original agreement.
Not a holistic look
The DIA conducted the review and return-on-investment assessment as a singular project as it does for all Downtown development proposals, the report states.
“We must acknowledge the tremendous positive impact this project could have on the immediate vicinity, and all of Downtown,” DIA staff wrote. “We fully recognize that the analysis we performed, using local market data and the procedures applicable to smaller Downtown projects, fails to recognize the larger economic impact of a project of this magnitude.”
The report also did not factor in more broad and long-term implications Lot J could have on negotiations for a Jaguars stadium lease extension or future improvements to TIAA Bank Field.
The administration’s latest changes to the development agreement link the team’s longevity in Jacksonville to Lot J.
“The Project has been represented as integral to the retention of the Jaguars as an NFL franchise in Jacksonville (a finding in the revised Development Agreement), and to the creation of (a) new Downtown neighborhood in an indisputably under-developed and underutilized part of Downtown whose impact will extend far beyond its borders,” the report said.
This echoes a shift in Curry’s characterization of Lot J in a Nov. 30 Twitter thread where he said approving the project “will send a big message to the team & NFL,” he wrote.
“If you want to remain an @NFL city it’s time for your voice to be heard,” Curry tweeted. “Speak up.”
Final draft
The final report was released with some language changes about three hours after an initial report was distributed to the media.
“Please note the staff report sent out earlier this morning with the agenda packet was a draft version distributed as a result of various public records request(s) we received for the draft document,” a DIA spokeswoman said.
City Council will have DIA’s report and board recommendation when it meets again to debate Lot J at its 10 a.m. Committee of the Whole meeting Dec. 3.
It’s up to the 19-member body whether or not to accept the DIA’s recommendations.
A favorable procedural vote would set up Lot J for a final Council vote at its regular meeting Dec. 8.
