Challenging a staff conclusion, a Downtown Investment Authority board member issued an alert to Jacksonville City Council members that a miscalculation related to an incentive for a Publix-anchored development in Downtown could require more public assistance to make the project financially feasible.
Board member Cameron Hooper said the errors in the DIA’s underwriting of a $49.66 million incentive package for Gateway Jax’s proposed Block N7 mixed-use tower threw off the projected revenue the project will generate. Based on his calculations, he questioned whether Gateway Jax could find financing for the project without more incentives.
“I think it’s going to need more than the $50 million,” he said during the Feb. 18 DIA board meeting, using a rounded-up figure for the incentive.
Hooper said he discovered and reported the errors after the board approved the incentive in December. The senior vice president of development for Rise: A Real Estate Co., his background includes institutional money management at Morgan Stanley and other firms.
DIA CEO Colin Tarbert acknowledged the errors but said they would not affect the incentive package, which comprises two grants that would not be paid unless the project is completed.
Tarbert said staff was not recommending any changes to the incentives.
“They’ll either do the project or won’t do the project. That’s on the developer’s side, not the DIA’s side to determine (if a project is feasible).”
Gateway Jax: No changes needed
Cyndy Trimmer, attorney representing Gateway Jax, said the development partnership was confident it could finance and complete the project with the existing incentives.
“It doesn’t change the deal that was approved, or any of their commitment to perform on any of the terms,” she said of Gateway Jax.
Trimmer, of the Driver, McAfee, Hawthorne & Diebenow law firm, said the developers believed the project would attract investors on the strength of their 20-year lease commitment from Publix, their track record and their progress in developing the $750 million-plus Pearl Square district Downtown, where several projects are under construction.
“All the things you have concerns about, the market is going to vet,” she told Hooper.
Asked by board member Micah Heavener if the developers felt assured about the project despite the errors, Trimmer said, “Unequivocally, yes.”
At issue was a calculation of revenue from commercial and residential space in the proposed 14-story tower.
As Hooper discovered, the DIA based its calculation on gross square footage instead of net rentable square footage. Gross square footage includes common areas such as hallways and stairways, areas for ductwork and electrical conduits, mechanical rooms and other spaces that do not generate revenue.
Hooper, who said he was not alleging wrongdoing, also said the projected rent amounts for the residential units are above market rate, with a per-square-foot cost higher than larger units that have gone online at the riverfront One Riverside mixed-use development in Brooklyn.
Hooper urged the board to reconsider the incentives based on the errors.
Incentives upheld
The board, on an 8-1 split, instead voted to acknowledge the errors but uphold its action on the incentive package. Hooper cast the lone no vote.
Board member Scott Wohlers said he wished the board would have known about the issue before taking the December vote, but didn’t feel the discovery warranted a change.
“I understand the risk involved, but if you look at other deals we’ve approved they don’t always pencil either,” he said, adding that the board’s job was to responsibly steward tax dollars and “not for us to determine what’s going to work and what won’t work.”
Hooper closed the discussion by stating a number of questions about the deal into the record and asking Council to be aware of the issue when it votes on the incentive package.
Plans for the $147.95 million Block N7 project at 119 W. Beaver St. include residential units, a parking garage and ground-floor commercial space.
Proposed site improvements include demolition of existing structures, construction of new buildings and the redesign of the surrounding sidewalk.
Gateway Jax plans to demolish the former First Baptist Church auditorium to make way for the tower.
Under a term sheet for the proposed redevelopment agreement between the city and Gateway, the tower would include 21 studio units, 207 one-bedroom units and 31 two-bedroom units. A minimum of 37,000 square feet of retail space would be required.
A Council vote on the incentives has not been scheduled.