The owner of two prominent Downtown residential towers is seeking relief on more than $33 million in loans it owes the city, less than a year after similar help expired.
The Vestcor Cos. is asking to pay only interest on loans for The Carling, and interest and half the principal of what it owes for 11E. Both adjustments would be for three years and are supported by Downtown Investment Authority CEO Aundra Wallace.
Vestcor CEO John Rood said Thursday morning the principal deferments would allow the company to build its reserves to invest back into the residential and commercial spaces.
The deferments coupled with the strengthening economy and an anticipated 3 percent rise in rental income would allow Vestcor to return to making normal payments.
Rood said the company has invested more than $5 million in the properties.
“We are not asking for money,” he said. “We are not asking for a handout.”
Meanwhile, the city has been subsidizing the loans with taxpayer dollars, including a combined $3.4 million in the current fiscal year.
The Downtown Investment Authority will weigh in on the issue Friday with a resolution that cites a “depressed real estate” market as a reason for the need. Wallace has been individually meeting with some board members the past couple of days to explain the situation.
Both buildings have occupancy rates above 90 percent, according to a memo Wallace sent to board members. But the lack of commercial tenants in the mixed-use buildings combined with the diminished price-per-square- foot rent doesn’t allow Vestcor to cover its obligation.
The city in 2003 made a $17.8 million loan with a 1.4 percent interest rate for the 11E purchase and renovation and in 2006 made a $15.5 million loan with a 1.525 percent interest rate for The Carling.
To cover them, the city borrowed from the Self Insurance Fund at a 6 percent rate and issued bonds with a 5.1 percent rate.
The difference between the interest rates was slated to be covered by the Northbank taxing district fund — only it has no money, meaning the general fund has to cover the deficit.
Wallace said he has studied six months of Vestcor’s financials to ensure this is the right decision. He said Wednesday the city “can ill afford to allow this to fail” after the city’s investment.
He said the principal owed on each would still be paid by the city and rolled into payments made by the company later. But deferring them now would allow Vestcor to have the capital it needs to renovate the commercial sites to attract tenants.
According to the memo, the company has required capital improvements of more than $1 million for both buildings, which includes chiller, security and roof repairs, which Rood said the 2010 modification helped cover.
The latest adjustment would help the commercial side, with Rood saying the spots have received interest from law firms and a local coffee shop, among others. According to the memo, one prospective tenant for 11E is Super Food Truck seeking restaurant space. Asking rent is $12 per square foot.
The latest request is not the first loan modification for the projects.
In 2010, City Council approved a deal to allow Vestcor to pay just interest on both loans for three years, expiring Feb. 1, 2013.
Afterward, the company paid the full amounts until September, when it approached the city saying it could no longer do so.
According to the memo, Vestcor told the city that 11E had to loan The Carling funds to make those full payments. Under the modified payment schedule, both buildings are current.
Authority board member Jim Bailey, publisher of the Daily Record, said he hopes what has been proposed solves the problem. “But it may not be enough,” he said.
Bailey said one idea he’d consider discussing is lowering the company’s loan principal to be more in line with the buildings’ actual value in return for equity for the city.
Authority board member Mike Saylor called the situation a “very important issue” for Downtown. He said generally the city or Vestcor could buy the other out, or the city could foreclose — but foreclosure is not a message that should be sent to investors at a time when housing is needed.
Wallace also doesn’t think it’s in the city’s best interest to foreclose. In the staff memo, he cited a lengthy process, the need to bring in a third-party to manage the sites until they were sold and the “bad message” to the market.
David DeCamp, Mayor Alvin Brown’s spokesman, said the administration will review the authority’s recommendation, then continue due diligence by the mayor’s Budget Review Committee.
“We will make sure we take careful review of the financial situation and taxpayers’ interest,” DeCamp said in a statement. “We also realize Downtown is an emerging market in Jacksonville. We want to ensure we take steps that continue the momentum and growth (of) Downtown, which benefits our entire city and residents.”
As in 2010, any loan modification would need to be approved by council.
Council President Bill Gulliford said the situation hurts as far as having money for Downtown development, but he had no answers. Only that the council was inheriting what “apparently was a bad deal in the beginning.”
“I don’t want to be in the residential housing business,” Gulliford said.
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