Vestcor's loan modifications for 11E and The Carling clear first hurdle

News

Staff Writer

The Jacksonville Economic Development Commission unanimously approved loan modifications on Wednesday for two Downtown apartment buildings developed by Vestcor Inc.

The modifications, which next need City Council approval, suspend monthly principal payments on loans for The Carling and 11E for three years and allow monthly interest only payments.

Commissioner Randle Shoemaker, senior vice president and major claims counsel for Fidelity National Title Group, said she had spoken with Jacksonville-based Vestcor and “asked difficult questions.”

“This is just a difficult time and we need The Carling and 11E to make Downtown robust,” she said.

In 2000, the City entered into a redevelopment agreement with Vestcor to convert the former Lynch Building on Forsyth Street into 127 market-rate apartments, which became known as 11E.

Three years later, the City and Vestcor signed another agreement to develop 100 market-rate rental units at the former Roosevelt Hotel, which became The Carling. The City provided incentives in the form of low interest loans, $17.8 million for 11E and $16.5 million for the Carling. The private capital investment for the two projects was more than $59 million.

Business was good, said Vestcor Chief Financial Officer Steve Moore, until 2008 when the rental market started to decline along with revenues. In 2009, the two projects experienced the same economic impact as many other residential properties, leading to a $50,000 per month cash-flow deficit based on low occupancy and depressed monthly rental rates.

That led Vestcor to request a loan modification from the City to allow time for the market to recover and cash flow to return.

“We’re very proud of these projects. We did not come here lightly,” said Moore. He also said monthly interest payments would not be suspended by the modification and “Vestcor is not taking any money out of these deals as long as there is principal outstanding.”

JEDC Executive Director Ron Barton told commissioners that his staff “made sure the request is not driven by anomalies in management. Until the recession the numbers on the buildings were sound.”

Barton explained that Jacksonville “is one of the most stressed apartment markets in the country” and that urban core rental properties are even harder hit.

“Occupancy and lease rate stress is not unique to these properties,” he said.

“Downtown apartments appeal to younger people and they are the part of the demographic that has been most affected by job losses and the economy,” he added.

Barton reminded the commissioners that Vestcor’s agreements are the predominant loans where the City is in the lender position. “They are secured by the buildings,” he said.

“We’re not writing anything off. We want them to succeed. We are together with them on this deal,” he said.

In other actions, JEDC:

• Approved a Qualified Targeted Industry Tax Refund for Digital Risk LLC. The Orlando-based financial services company wants to open an operations center in Jacksonville and create 175 full-time jobs at an annual average salary of almost $46,000. The City would pay $105,000, or 20 percent of the $525,000 rebate, and the state would pay the remaining $420,000.

• Approved a QTI tax rebate for Lender Processing Services Inc., a Jacksonville-based technology provider. LPS wants to create 350 new jobs at an average annual salary of almost $45,000 and requests a rebate of almost $3 million. The City would refund $595,000 and the state would refund the remaining $2.38 million.

• Approved issuance of $3.9 million in tax-free Recovery Zone Facility Bonds to allow North Florida Shipyards to purchase and install a 600 metric-ton vessel hoist for its operation at Commodores Point. The increased maintenance capacity will result in the creation of 246 new jobs.

All recommendations made by JEDC are subject to review by the City Council before they are enacted.