Southeast asks for $64 million Incentive Package to complete Laura Street Trio

[Ken_FSU]

Last incentives package was ~$24 million in forgivable loans.

New package is $64.4 million, including $22 million in forgivable loans, a $15.3 million REV grant, and an eye-watering $25 MILLION completion grant. Completion grant is roughly the same as Iguana is asking for the completion of their Four Seasons riverfront development.

Oy.

From the JBJ:

It started as a $75 million hotel project half the size it is now, Atkins said. Covid prevented the project solely becoming a hotel, leading to the addition of multifamily. The total cost now stands at more than $178 million.

Atkins said the project material costs increased on a 30-40% basis, but city assistance is warranted because of its location, what the project represents and its potential transformational impact.

"Not only did the financial markets change, so did the cost associated with projects change in that one-year period from late 2021 to late 2022," Atkins said.

Atkins gave a breakdown where the developer would ask for public funds. The project will ask for $22.1 million in Downtown Preservation Revitalization Program funds, a Recapture Enhanced Value of $15.3 million and the $25 million completion grant. Each grant is divided for the multifamily and the hotel portions.

"We still have a gap. We have to fill the gap to make the numbers work not only for financing but returns on investment for the project as well, so we're respectively asking city council to consider a completion grant," Atkins said.

Full article: https://www.bizjournals.com/jacksonville/news/2023/04/19/1788m-price-tag-laura-street-trio-seeks-funds.html

[marcuscnelson]

Jeez. That's... wow.

I'm not gonna say absolutely not, but... I'd really want to see a close look at the books for this. Or some indication that this project is still feasible, by Southeast or someone else. Man.

[fsu813]

Completion grant is roughly the same as Iguana is asking for the completion of their Four Seasons riverfront development.

In terms of importance to Downtown Jax, The Trio > Four Seasons all day, every day, and twice on Sunday.

[jaxlongtimer]

^ Developers seem to be pros at giving the City moving targets.  And, the City is happy to take shots at them.  Where does it end? 

This is a great project but DIA/City has created a precedent and is now being asked to continuously follow it and up the ante for each round.

If the City took all the incentives given to Downtown developers and invested them, instead, in riverfront parks, urban mass transit (excluding the wasteful U2C), increasing security, fixing and improving streetscapes, adding more public art, staging more events, etc. maybe all these projects would be just as viable and everyday citizens could also enjoy some benefit from their tax dollars, not just the Mayor's friends.

As a side note, I have noticed Downtown streets not only are sporting ever more potholes but the City isn't even keeping up with striping them.  Paint is almost completely gone in areas.  That's the cheapest part of street maintenance and the City isn't even keeping up with that.  But, we have tens of millions for incentives to a billionaire.

[Jax_Developer]

^ Developers seem to be pros at giving the City moving targets.  And, the City is happy to take shots at them.  Where does it end? 

This is a great project but DIA/City has created a precedent and is now being asked to continuously follow it and up the ante for each round.

If the City took all the incentives given to Downtown developers and invested them, instead, in riverfront parks, urban mass transit (excluding the wasteful U2C), increasing security, fixing and improving streetscapes, adding more public art, staging more events, etc. maybe all these projects would be just as viable and everyday citizens could also enjoy some benefit from their tax dollars, not just the Mayor's friends.

As a side note, I have noticed Downtown streets not only are sporting ever more potholes but the City isn't even keeping up with striping them.  Paint is almost completely gone in areas.  That's the cheapest part of street maintenance and the City isn't even keeping up with that.  But, we have tens of millions for incentives to a billionaire.

Hopefully soon. The article about the Trio doesn't install any confidence that all of a sudden these numbers will make it work. It actually black & white states in the JBJ article that both Southeast & the DIA recognize theres still a gap? Even with this package? I hope I am reading that wrong but don't think I am. So even with this massive incentive package, and historic tax credits, theres still a gap? Might not be worth it, which is sad to say. I'd rather Vestcor come in with fixed-income housing.. at least we know it will get done and it won't cost an arm & leg to do it from the city. Or I guess Southeast could wait.. again.

[thelakelander]

Why would Atkins or anyone sell the building to Vestcor? Or why would Vestcor want to buy it for fixed-income housing? There are a lot of other sites where the proforma for that product works much better. Also, I can't really tell.......has the project mix changed again?

[Jax_Developer]

There's no reason they would. It is a pipe dream. Not sure Southeast can pull this off imo. I think this could be a case where the rehab costs do exceed replacement costs. Which those projects usually become some fixed-income housing if they are important enough to save.

To answer you question, yes. This is probably the third or fourth change to the overall end product.

$180M for a 143-room hotel, and 169 apartments. So lets be super generous and say the hotel unit cost is on par with apartments... that is a staggering cost of over $550k per unit. That doesn't pencil out in most markets, regardless of this being a depressed market relatively speaking here in JAX.

So my response is, either Southeast is doing some type of white collar theft, or there genuinely needs to be another developer in play.

[Jax_Developer]

And for context, market rate hotel's cost roughly $150-200k per door. Market rate apartments are roughly $150k-$300k per door.

Exceptions apply but hard to justify $550k based on any comp locally. Maybe I am missing something.

[Ken_FSU]

Completion grant is roughly the same as Iguana is asking for the completion of their Four Seasons riverfront development.

In terms of importance to Downtown Jax, The Trio > Four Seasons all day, every day, and twice on Sunday.

Don't disagree, but one is a $370 million project tied to additional park space, an extension of the Riverwalk, and a lot of bed tax dollars floating back to the city. The other is a $170 million project that, right now, has a negative ROI on paper.

$25 million is a big completion grant. It's half of what ultimately tanked Lot J.

I'm not above pinching our noses, paying the ransom, and getting this thing done because it truly is that important to downtown Jax, I'm just tired of the hostage crisis with these buildings and this developer. First the incentives package was like $12 million. Then $26 million. Then it was dependent on the housing committee. Now it's $64 million. When the talk gonna end and the construction going to begin?

[heights unknown]

When I first read this, I thought, "is someone putting money or extra money in their pockets?" And I believe this is what is happening in Jax relative to these Developers; I can't believe there is no way to hold them accountable, or, maybe economics has a play in all this? (i.e. supply and demand and costs).

[jaxoNOLE]

"I don't know whether the gap is exactly $25 million, we haven't vetted all the construction numbers to that level, but there's no doubt there's a gap," Boyer said.

She said the completion grant for new construction requires a return on investment of 1, which the DIA determined the project did not meet.

"We're now going below an ROI of 1 on new construction, it's making sure you give us guidance with how we distinguish every other new construction project going downtown that we don't go below 1, or what the basis is we do go below one because that's the criteria in our plan," Boyer told council members.

It sounds like the completion grant is meant to close the gap Atkins alluded to. I'll be interested to see how far below 1.00 this grades out to, and I wonder what level of completion grant (if any) would comply with the target of 1.00. At a minimum, I would hope the grant is conditioned on and pro-rated according to what is actually spent.

As ridiculous as this may seem, Lot J's hotel rooms implied a cost of something like $1 million per key and nearly passed. Atkins is no Shad Khan, but he is providing the pro forma for DIA review, so I doubt $550k/room alone raises too many eyebrows on Council.

[Zac T]

Here's a Daily Record article that clarifies further. The $25 million completion grant is meant to close the gap but the DIA refuses to back it since the ROI is less than 1. Councilman Carlucci and Boylan will introduce legislation that covers the $25 mil.

DIA CEO Lori Boyer said at the meeting her agency could support the historic loans and Recapture Enhanced Value Grant, a property tax refund, but cannot back the $25 million completion grant.

The DIA's Council-approved policy does not allow it to support a completion grant investment that has a return on investment to the city below $1 for every $1 invested. The final ROI calculation for the proposed Trio incentives is not yet complete but DIA officials said the $25 million grant would fall below that threshold. 

Boyer said after the meeting the project could qualify for a smaller completion grant.

"There are adopted rules and regulations of having the ROI at 1, and it doesn't get there. I doesn't meet the tiers analysis, so we can't recommend it. But we can acknowledge that there's a (financial) gap that exists," Boyer said.

For Atkins and Southeast to receive the additional $25 million, she said City Council will have to approve separate legislation, which Boylan and Carlucci said April 19 they intend to introduce.

https://www.jaxdailyrecord.com/news/2023/apr/20/atkins-wants-25-million-completion-grant-larger-city-incentive-deal-in-trio-renovation/

[Ken_FSU]

Would you guys vote yes on a $25 million completion grant and $15 million REV grant, contingent on stipulations that require Southeast to start major construction this year without further extensions?

I think I would, with quiet rage, just because it's such a vitally important project.

It's an obscenely large ask, but I think we're actively losing money and development opportunity by allowing it to sit in its existing state as well.

Damned if you pay the ransom, damned if you don't.

I just wonder how you prevent every developer moving forward from asking for a similar handout.

[landfall]

I'm sort of torn. I don't trust Atkins at all. His riverfront proposal is some of the biggest cowboy shit I've ever seen. However this project is so fundamentally important to Downtown Jax and we are now so deep in it with Atkins that I also want to see it finished by any means necessary.

Hopefully after this we can wash our hands of him. Sick of these developers with a shaky track record like him, Spandrel etc being given such premium real estate out of sheer desperation.

[Jax_Developer]

"I don't know whether the gap is exactly $25 million, we haven't vetted all the construction numbers to that level, but there's no doubt there's a gap," Boyer said.

She said the completion grant for new construction requires a return on investment of 1, which the DIA determined the project did not meet.

"We're now going below an ROI of 1 on new construction, it's making sure you give us guidance with how we distinguish every other new construction project going downtown that we don't go below 1, or what the basis is we do go below one because that's the criteria in our plan," Boyer told council members.

It sounds like the completion grant is meant to close the gap Atkins alluded to. I'll be interested to see how far below 1.00 this grades out to, and I wonder what level of completion grant (if any) would comply with the target of 1.00. At a minimum, I would hope the grant is conditioned on and pro-rated according to what is actually spent.

As ridiculous as this may seem, Lot J's hotel rooms implied a cost of something like $1 million per key and nearly passed. Atkins is no Shad Khan, but he is providing the pro forma for DIA review, so I doubt $550k/room alone raises too many eyebrows on Council.

With a price range like that, you can really only hope this project turns out to be a gem with super high-end finishes. In my mind, that's the only way the public can get a small win from this. I hear ya on the 4S project.. but the costs there are at least shared amongst several other uses. I guess because this project by Southeast is basically an infill project, the price range of it seems crazy. The Lions skyscraper (which many have doubts on its pricing anyway) claims to be "cheaper" per unit than the Trio now? How can a 40-story building be cheaper than the Trio? lol

So hopefully this thing turns out to be an absolute gem, to make it somewhat worth the tag?? I unfortunately feel like this is a scenario where the city has already shown its full hand.