Author Topic: A Brief Look at the Laura Street Trio Incentive Package  (Read 21249 times)

Ken_FSU

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A Brief Look at the Laura Street Trio Incentive Package
« on: November 17, 2023, 05:51:41 PM »
Pretty sure the Trio is being held hostage...the entire cluster of projects was once only $90M, per Atkins himself.

^Going to move this to a separate topic.

I too was wondering how, even when accounting for high interest rates and inflation, the $45 million Laura Street Trio project floated by Southeast in 2017 quadrupled in price to $175 million in 2023, with public incentives for the project increasing by 11x from $5.8 million to $64 million.

So I went ahead and read through the prior incentives packages at lunchtime over some pancakes at First Watch, and thought I'd share some notes early evening while still fresh in mind.

2017 Proposal & Incentives

To your point above, the original project was estimated to cost $90 million, but what I had forgotten was that sum also included the Barnett (now finished) and a planned 550-space garage (never built, VyStar took over, I believe Southeast lost their Barnett incentives as a result).

When the original 2017 incentives deal was given, only $44.6 million was scoped to transform the historic Laura Street Trio structures into a hotel, restaurant, bodega and rooftop bar. The project would be pure rehab, bringing these beautiful, historic structures back to life as they originally stood. And, to help that happen, the city would pay Southeast a $4 million grant upon completion of the Trio.

When the deal was signed, Southeast reported that construction on the Trio would begin in mid-2018, approximately six months after construction at the Barnett began.

Here are some details of the 2017 scope: https://www.jaxdailyrecord.com/news/2017/feb/01/time-finally-right-barnett-bank-building-and-laura-street-trio-projects-dia-approves/

2021 Proposal & Incentives

Three years after the Laura Street Trio was set to begin construction, Southeast went back to the DIA for a new incentives deal after the previous deal lapsed. In place of the $44.6 million project that was strictly historic rehab came a $70 million project that would also include the addition of a new 8-story hotel expansion adjacent to the Bisbee Building:



Of the $70 million in project costs, approximately $55 million were estimated to be in support of rehabbing the original Trio, and $14 million were estimated for new construction. The DIA signed off on a $26.7 million incentive deal, the largest in city history, that was almost exclusively cash (historic preservation grants, forgivable loans, etc.).

When the deal was signed, Southeast claimed that construction was imminent and would begin by early 2022.

Here are some details of the 2021 scope: https://www.firstcoastnews.com/article/news/local/laura-street-trio-restoration-gets-final-approval-for-267-million-incentive-deal/77-98ef3be3-9a5d-4c1b-afd3-ea9c9a295fe6

2022/2023 Proposal & Incentives

Over the years, Southeast had discussed wanting to add a Phase 2 to the Laura Street Trio project down the line, which would add multifamily housing adjacent to the Florida Life building. At one point, they discussed brokering a somewhat sketchy sounding deal with the Housing Authority, which fell through. And then, in 2022, for whatever reason - economies of scale, viability, etc - Southeast decided that it made more sense to fold Phase 1 and Phase 2 into a single private project.

So, in 2023, they were once again back in front of the DIA.

What was first a $44.6 million historic rehab of the Laura Street Trio buildings, and then a $70 million rehab with new construction of an 8-floor hotel building, has now become a $175 million rehab + 11-floor hotel + 169-unit multifamily project.

You can see the new addition here:



Here's the incentives package that went before the DIA earlier this year, inclusive of an eye-watering $63 million request for incentives.

https://dia.coj.net/getattachment/07ced934-1f88-476d-b54e-3e05797d587b/.aspx

As a quick reminder, the DIA ultimately "bunted" the decision to City Council. At the time, I was critical of the DIA not making a recommendation either way, but looking at the decision in more detail, I think it actually made sense. Southeast had asked the DIA to calculate its incentives based on $27.7 million in equity they planned to ask City Council for in cash. With no City Council approval for those completion grants in hand, the DIA's hands were tied in terms of the incentives they could offer. Further, the DIA (rightfully, in my opinion) worried that it would set a terrible precedent to allow developers to come first through the DIA for max benefits, and then move on next to City Council asking for more. So, they documented everything, and ultimately left it up to City Council.

Anyway, what stands out to me, over the years, is that the idea of "Saving the Laura Street Trio" seems to have become increasingly conflated with the idea of "Subsidizing Ancillary New Construction for Southeast."

Thus, when we look at our limited resources as a city and want to have a frank, earnest discussion about whether we should spend historic boatloads of city money to "save and restore the Laura Street Trio," we kind of need to understand what the ask is from a historic preservation perspective, what the ask is for components that are more or less new construction, and why the project cost keeps creeping.

The knee-jerk reaction when we see the price climb from $45 million to $175 million in six years is to point to increased construction costs, inflation, high cost of borrowing, etc. But if you look at the actual project costs from the agreements and isolate just the historic rehabilitation elements, you see that really isn't the case. Estimates are up maybe 20% from 2021, but they certainly haven't doubled or tripled.



Instead, we've seen more and more other new construction being tacked on top of "saving the Trio."



Which leads to the obvious question:

I think we can all universally agree that the city should chip in to restore the Trio, whether that be through existing DIA programs or even a rare additional completion grant from City Council if that's what it takes given the importance of these structures, but should we also be subsidizing the $113 million in new construction above and beyond normal levels to "Save the Trio"? That's a tough call without knowing the viability of the project with or without the add-ons.

Anyway, if anyone's interested in specifics of the proposed incentive deal, and what we're actually subsidizing, I'll include some info below.

Hotel & Restaurant

Collectively known as the "hospitality" portion of the project, the Hotel and Restaurant component comprises three buildings:

1) The Marble Bank Building (to become a restaurant with basement cellar for the hotel)
2) The Bisbee Building (to become the hotel lobby and 56-62 guest rooms)
3) The new 11-story hotel add-on (to become 71-84 additional hotel rooms)

In the incentives agreement, the Marble Bank Building and Bisbee Building are treating collectively as historic building stock, while the 11-story hotel addition is treated as new construction.

For the Marble Bank Building and Bisbee Building, the stated project cost is $46 million. $24 million would come from Southeast, $16 million would come from the DIA in cash, and $6 million would asked of City Council in the form of a completion grant.

For the new 11-story hotel add-on, estimated to cost $43 million from Southeast, $5.7 million would be refunded in the form of a REV grant from the DIA, and $6 million would be asked of City Council in the form of a completion grant.



Multi-Family Component

The Multi-Family component of the project comprises two buildings:

1) The Florida Life Building (to become 18-20 housing units)
2) A new multi-family mid-rise (to become 140-149 housing units)

For the Florida Life building, estimated to cost $16.5 million to rehab, $6 million would come from DIA cash handouts, and an amount not-yet-specified would be asked of City City Council in the form of a completion grant. For whatever reason, Southeast didn't share what they'd ask the city for on the Florida Life building.

For new construction of the multi-family tower, estimated at $69 million (the largest single component of the project), Southeast is asking the DIA for $8.9 million in REV grant, and is asking the city for a staggering $15 million for a completion grant.



Across the full Trio project, here's how the private/public funding would be split for both the historic rehab and the new construction.



Not necessarily advocating for anything at the moment, just trying to better understand the numbers, but a couple of quick knee-jerk reactions:

1. Someone in a previous thread mentioned that it was apples and oranges to compare the Trio incentives package to the Gateway Jax incentives package. I agree with that sentiment for the historic aspects of the project, but I do think it is fair to compare incentives when it comes to the new construction portions. In that regard, I think it's pretty obvious that the proposed Southeast incentives package is pretty wild. Southeast is asking for the public to cover 32% of new construction, 19% with cash. Those percentages are 48% higher than Gateway Jax overall (22% for their project) and 111% higher than Gateway Jax on the cash front (9% of their project cost).

2. The single biggest ask of the entire project, a $15 million completion grant from City Council on top of nearly $9 million in DIA tax incentives, for the new construction of less than 150 housing units, might be the hardest component to justify on its own. This might be the Laura Street Trio equivalent of the Jags' breadbox loan that brought down Lot J. If anyone looks close enough.

3. If the requested incentives are too much for the City to swallow, I wonder if there's an opportunity to decouple the multifamily aspect and move it back to a later Phase 2. And just focus on the Bisbee and Marble Bank hotel and restaurant conversion first as Phase 1? It might be more palatable to go to City Council first for a $12 million completion grant on top of DIA incentives, do a bang-up job on Phase 1, and then go back later to try to get additional incentives for Phase 2?
« Last Edit: November 17, 2023, 05:59:24 PM by Ken_FSU »

Alex Sifakis

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #1 on: November 17, 2023, 08:20:01 PM »
Really great analysis, thanks for digging in on that.

jaxlongtimer

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #2 on: November 17, 2023, 10:37:08 PM »
Great analysis, Ken.  You should team with Nate Monroe on all the investigative stories you are researching/documenting.

I note that you show $69 million in new construction for 140 to 149 apartments.  Using a best case of 149, this comes out to about $463,000/unit.  This, too, seems way out of whack. 

You show new construction of $43 million for 71 to 84 rooms.  Using a best case of 84 rooms, this comes to about $512,000/unit.  Also seems out of whack.

I also note that the Marble Bank building was completely renovated and modernized by Jacksonville National Bank in the early 1980's so any rehab there should not be anywhere close to rehabbing the much older, never renovated buildings adjacent.

What we don't have is a detailed breakdown of the developers construction costs and rate of return they are promoting with their financial partners.  DIA and the City should require this information given they are likely putting up at least as much as any leading investor would.  Not sure what the going rate of return is for developers nowadays, but the City should benchmark their promoted ROI against industry averages.

I agree with your conclusion, incentivize the historic buildings and worry about the rest separately or later. 

Jax_Developer

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #3 on: November 18, 2023, 01:58:05 PM »
Really great analysis! They need to find a way to restore the historic structures, without the new construction component. I'm all for phasing it, but agree with jax in that they really need to be sharing costs & returns for certain projects.

I feel like if projects are requesting a certain % of incentives or cash grants, they can't just be giving us "their" numbers and there needs to be transparency.

heights unknown

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #4 on: November 18, 2023, 04:07:58 PM »
Not as well versed as you guys as this is not my field of expertise, but it does appear something is being hid, and there's no transparency. You never know nowadays whether people are pocketing money, especially when it comes to cash and it appears no one (they, them whoever) are basically not really being held accountable. Don't know (or understand) the legalities of all of this, but IMO legally you should be able to hold developers, (or anyone in this type business) etc. accountable for building and completing and if there's a problem, i.e., construction cost increases, inflation, high cost of borrowing, etc., THEN and only THEN come back to Momma (DIA), lay out the problem, bring viable solutions to the table to solve the problem, and if asking for more money, in that regard and instance is the only viable solution, then if City/DIA feels that that is the solution, and the money is there, then give it, loan it, grant it, etc. BTW, how does Mayor Deegan feel about the Laura Trio debacle? How does she feel about all of this? Anyone heard anything from her about this huge problem?
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Jax_Developer

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #5 on: December 12, 2023, 10:37:10 AM »
https://www.jaxdailyrecord.com/news/2023/dec/12/new-laura-street-trio-incentives-deal-includes-22-million-city-loan/


Gut reaction, I like the city loan idea more, given that the city has recourse if promises aren't fulfilled. The return in theory sounds nice. Can we get a part 2 Ken? haha..

Ken_FSU

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #6 on: December 12, 2023, 01:48:48 PM »
https://www.jaxdailyrecord.com/news/2023/dec/12/new-laura-street-trio-incentives-deal-includes-22-million-city-loan/


Gut reaction, I like the city loan idea more, given that the city has recourse if promises aren't fulfilled. The return in theory sounds nice. Can we get a part 2 Ken? haha..

My immediate knee-jerk reaction is that a $22 million loan repaid over 25 years is better than the $27 million cash completion grant originally proposed. But, like anything else, the devil will be in the details once the ordinance is published. I joked above about the cash grant potentially being the Lot J "Bread Box Loan" equivalent for the Trio incentives package, in reference to the proposed loan that brought down the Lot J project. First blush, this might not be that much different in practice. A wonky zero-interest lump sum, disguised as a "loan" to shield Southeast from having to pay income tax on a grant, paid back over decades through odd mechanisms. "Net cash flows" feels pretty broad/easy to manipulate too.

Interested to learn more, but what I do like - depending on the language - is that, at least with how the arrangement is described in the article, if Southeast fails to deliver on the project and defaults on the $22 million from the city, at least we get the Trio back under our control. Still don't love essentially paying ~$60 million in subsidies for a ~$60 million historic rehabilitation with $113 million in new construction tacked on, but something's gotta be done with the property, as it's holding the rest of the CBD back.

Looking forward to seeing the full agreement.

marcuscnelson

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #7 on: December 16, 2023, 09:16:03 PM »
I wonder what Capital One sees in this.

With this now moving to hearings, it'll be interesting to see if Council is ultimately going to bite on the deal.

https://www.jaxdailyrecord.com/news/2023/dec/12/hearings-planned-for-new-laura-street-trio-funding-package/
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Ken_FSU

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #8 on: December 20, 2023, 01:00:03 AM »
I wonder what Capital One sees in this.

With this now moving to hearings, it'll be interesting to see if Council is ultimately going to bite on the deal.

https://www.jaxdailyrecord.com/news/2023/dec/12/hearings-planned-for-new-laura-street-trio-funding-package/

Particularly interesting because, as recently as like two months ago, Capital One seemed to be aggressively trying to dump risky commercial loans.

Still want to see what the actual ordinance looks like on this one.

And, even though we collectively know these buildings as the "Laura Street Trio," I still think it makes more sense to split this into two separate phased projects, each having their own incentive structure:

1) The Bisbee + Marble Bank Hotel & Restaurant (52% historic rehab/48% new construction)
2) The Florida Life Multifamily (19% historic rehab/81% new construction)

It's such a strawman argument that, as a city, we need to subsidize $113 million in new construction to make a $63 million rehab feasible.

With so many big asks coming from the general fund in the coming years, I think there's a slam-dunk case for putting significant public dollars behind converting the Bisbee & Marble Bank building into a hotel, restaurant, and rooftop bar right in the heart of the CBD. I'm a little more skeptical that, in order to "save" the Florida Life building by converting it into 20 housing units, we should also be on the hook for Southeast wanting to build 150 apartments beside it. That ain't "saving the Trio," it's "building shit beside it." Not saying that's not a not good thing, but we shouldn't conflate the two in terms of desperately tossing incentives at them in the name of historic preservation.

If you isolate the multifamily component, the multifamily plan with the Florida Life building really isn't that much different than what Vestcor is doing with Lofts at Cathedral in terms of rehab/new construction, and we sure as hell aren't throwing $20+ million in cash at Vestcor.

RE: Broken Window Theory, I'd almost rather finish the hotel and restaurant, give Southeast a grant to restore the Florida Life facade, and then wait to see what happens with the private market once some of the other nearby projects come online. I don't think having the Florida Life building unoccupied for another few years is a terrible thing for Downtown Jax. It's just bad that it looks like a Ukrainian outpost.
« Last Edit: December 20, 2023, 01:01:57 AM by Ken_FSU »

thelakelander

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #9 on: December 20, 2023, 08:33:39 AM »
^Has the plan changed from the previous renderings? Its hard to keep track these days. What's the latest for new construction multifamily/hotel verses adaptive reuse? Are the Bisbee and Florida Life going to be hotel, apartments or both? Can construction be phased or is the new construction needed to make those narrow structures usable for modern standards?
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Jax_Developer

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #10 on: December 21, 2023, 10:44:31 AM »
Not a whole lot out on it now, but from some surface level info it appears to be the same product proposed in the latest incentives proposal, earlier this year. Only reason I say that is because they mentioned something about the time window on their construction debt expiring soon.. making me think that they are trying to push what they previously got a deferral on from the DIA. This seems to be a city council-led act to push it through.

Captain Zissou

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #11 on: December 21, 2023, 12:28:25 PM »
Quote
Council member Matt Carlucci, the ordinance’s lead sponsor, said the $22 million loan guarantee was designed to be used if SouthEast failed to make its principal and interest payments on the construction loan over its first two years.

This is just mind boggling to me.  If the developer can't make their payments on a construction loan, they have no business taking on the project.  It's one thing if operating assumptions turn out not to materialize and 5 years down the road they default on the perm financing, but to not even have the funds to build it is just absurd.  This is a boondoggle.  I only blame the city for continuing to believe a grifter.  Atkins should be forced to sell.

thelakelander

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #12 on: December 21, 2023, 03:51:09 PM »
Quote
DIA wants to review Laura Street Trio incentives deal before Council vote

The DIA wants to review and offer an opinion on the terms before a Council vote. The resolution states that:

 “The DIA expresses its position that the action taken in Resolution 2023-06-02 should not be construed as applicable to the pending legislation before Council which differs materially from the Proposal reviewed by DIA in June.”

The resolution also suggests that “City Council consider referral of this new proposal to the DIA board for review and recommendation.”

After the meeting, DIA board member Braxton Gillam said the loan guarantee would be like writing Atkins a blank check.

“Every time they come to us and we approved this project, like three or four times, they’re going to come back with requests for more money,” Gillam said.

Board member Craig Gibbs voiced concerns that it might be time for a new developer.


Full article: https://www.jaxdailyrecord.com/news/2023/dec/21/dia-wants-to-review-laura-street-trio-incentives-deal-before-council-vote/
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Jax_Developer

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #13 on: December 21, 2023, 04:00:12 PM »
Funny timing Captain. Seems Gibbs in the DIA agrees with you - as do I.

marcuscnelson

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Re: A Brief Look at the Laura Street Trio Incentive Package
« Reply #14 on: December 21, 2023, 04:09:50 PM »
A $2 million loan is the difference between "we're sending this but don't want to make a recommendation" and "actually the developer should give up?" Strange.

That aside, it does seem like the financial capability on the developer's part isn't actually there. Not even sure you can chalk this up to interest rates like the Hardwick, Related, or Riverfront Plaza projects.

I'd hate to put the Trio on a back burner waiting for a new developer, but at some point this is just a public project with a private manager for no good reason. The Pearl Street District actually has private skin in the game while still including some adaptive reuse, so clearly the market isn't completely dead.
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