Hillwood Investment Properties' deal with the city to be the master developer of Cecil Commerce Center in West Jacksonville is considered a sweet deal.
The city says Dallas-based Hillwood, a Perot company, will take the publicly owned land, a former Naval Air Station, and develop it with tax-paying enterprises that create jobs.
In the process, Hillwood will invest $1.3 billion in public infrastructure, land development and permanent development over its 25-year agreement.
That's sweet from the standpoint of the city.
But some real-estate developers say Hillwood's deal isn't fair to taxpayers because the city has agreed to sell the land to Hillwood at lower-than-market prices.
They say that gives Hillwood a competitive advantage over private landowners and developers.
They also say the lower costs could result in lower property values for area landowners who might have to drop their prices.
Developers say taxpayers aren't receiving the best return on the city-owned property, either.
That's a sweet deal from the standpoint of opponents to the deal, but one that leaves a sour taste.
Fresh deals rekindle debate
In June 2010, City Council approved a 25-year agreement with Hillwood to serve as the master developer of about 4,475 acres owned by the city at Cecil.
It is branding it AllianceFlorida at Cecil Commerce Center.
The debate about prices and competition has been taking place since before the deal was struck, so the arguments aren't new.
What is fresh are this week's land sales — the first exchange in which the city sold land to Hillwood that it immediately resold to a developer.
In this case, the city sold 46.19 acres to Hillwood that Hillwood sold the same day to a developer at a $3.2 million gain.
That's a profit of $70,000 an acre.
Hillwood sold the property to SunCap Jacksonville LLC, which will develop the FedEx Ground Package System distribution center at Cecil.
Are appearances deceiving?
The city contends there's more to it.
"It's not apples to apples," said David DeCamp, communications director for Mayor Alvin Brown.
DeCamp says the price at which the city sold the land to Hillwood — $8,819 an acre "as is" — and the price at which Hillwood sold to SunCap — $78,345 an acre — doesn't reflect the costs Hillwood is building into the price.
In fact, the city agreement states Hillwood may build those costs into its prices.
The agreement says it costs an average of almost $83,000 an acre (and almost $63,000 for the property for the FedEx project) to make Cecil's property ready for development, given the need to work with wetlands and to build infrastructure.
"This number must be taken into account when determining what price a willing buyer is willing to offer for the property under a long-term development view," it says.
In this case, Hillwood owned the property for about a day, meaning SunCap, as the owner, is developing the site.
DeCamp said he doesn't think the city agreement outlines who actually makes the infrastructure improvements.
While Hillwood is obligated for the public infrastructure, "I don't think the agreement speaks to who they designate to meet the responsibility, or how it is financed."
Hillwood already owns property at Cecil that needs improvements. It paid $8,819 an acre in July for 33.4 acres to develop a 400,000-square-foot speculative building,
That project was required as part of the master development agreement, in which Hillwood had to build a structure that size by the third year.
City planners and the St. Johns River Water Management District have been reviewing construction plans for that project.
The 2010 project summary says Hillwood will invest $1.3 billion in infrastructure, land development and vertical development costs as part of the master development plan, including $42 million in public infrastructure costs.
That is expected to result in a tax-revenue increase at least $50 million, and possibly as much as $89 million, over the term of the contract.
Hillwood also will pay the city a percentage of proceeds from lease agreements.
'Hillwood's huge advantage'
Those prices aren't sitting well with some developers who compete with Cecil.
"Hillwood's huge land-cost advantage on more than 3,000 acres is discouraging investment in Jacksonville by other investors," said Peter Anderson, vice president of Pattillo Industrial Real Estate, which is developing the Westside Industrial Park.
Anderson said Cecil Field was given by the federal government to the city of Jacksonville and the administration of Mayor John Peyton "gave Hillwood the exclusive purchase option to buy land at an unreasonably low price."
Anderson said the deal isn't good for taxpayers because the city isn't being paid market value for the land and the prices also depress the value of other competitive land, which could lower the tax base.
"Jacksonville's taxpayer loses twice. Potential investors in the Jacksonville industrial real estate market must now consider the consequences of competing with Cecil Commerce Park," he said.
Bill Spinner with Spinner Construction said Wednesday the city and the defunct Jacksonville Economic Development Commission were aware of community opposition to the deal with Hillwood.
"We packed the JEDC meeting and voiced our concerns. The JEDC and City Council ignored dozens of concerned citizens," he said.
Spinner summarized the terms, adding "worst of all, land prices set at such a low rate" that they reduce values on other industrial properties.
"This deal makes it harder to keep a stable COJ (City of Jacksonville) tax base and at the same time created immediate low values for other taxpaying land owners," Spinner said by email.
Spinner said developers and sales agents spent a lot of time telling the city that the price tag on the property was too low and the timing was wrong. The Great Recession lasted from December 2007 to June 2009, although the effects lingered.
"Hillwood reaped the benefits while the City gave away a strong community asset that should have been protected and not given away in the worst possible market," he said.
"Hopefully we can learn from this," Spinner said.
FedEx expects to start construction soon
Meanwhile, FedEx expects construction to start soon on an almost 300,000-square-foot distribution center at 13509 Waterworks St. toward a completion in the summer of 2015.
Permit applications show an $18.7 million construction project, while the developer who bought the land from Hillwood, SunCap Jacksonville, was issued a $21.5 million construction mortgage and security agreement for the project.
"The plan is to begin work on the site in early November," said spokesman Jesse Bull with FedEx Group public relations in an email Wednesday.
FedEx will transfer 180 employees from its 2480 Lane Ave. N. facility to the larger hub.
The city issued a news release Wednesday that it facilitated the property deal between Hillwood and the developer.
"This expansion of operations shows the confidence FedEx Ground has in Jacksonville as a strategic hub for transportation and logistics," Brown said in the release.
Hillwood also commented.
"We are pleased to welcome a world-renowned company like FedEx Ground to Cecil Commerce Center," said Dan Tatsch, senior vice president of Hillwood Investment Properties, in the release.
"This represents the first land deal at AllianceFlorida between the City of Jacksonville and Hillwood, and we look forward to continuing this partnership," he said.
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