A Brief Look at the Laura Street Trio Incentive Package

[Ken_FSU]

Good grief. Did the DIA honestly expect Southeast to magically come back to the table with $50 million in additional equity? I think it’s myopic and stupid for the DIA to compare Trio restoration incentives to the pie-in-the-sky Related Tower (which may or may not ever get built), and use those discrepancies as justification to shut down talks with Southeast. The importance of the two projects are worlds apart. This needs to go in front of City Council. Let them make a strategic decision as elected representatives of the taxpayers, rather than having the DIA shut it down because the ROI doesn’t reach the required threshold for their phantom projects that never materialize.

Talked to a few people today about this, and I think I’ve swung back on the DIA’s side here. Lord knows I’m not a big fan of their inability to bring things across the finish line in recent years, but what Southeast proposed in their latest proposal was just downright stupid. Almost entirely front-loaded, with the city assuming responsibility for interest on the bonds, and Southeast seemingly having literally almost no equity into the deal aside from the land under the Trio and their historic tax credits.

Deeply pains me to say it, but even if the city puts in $90 million on the front end and early stages, I don’t think we can trust Southeast to actually finish this thing. City’s gonna be on the hook if something goes wrong and it turns into another Eyesore on I-4 or Berkman 2.

Agree with the above comment: gotta get this property out of Atkins’ hands. He’s wasted a decade of our time and resources. Even if the passion is there, the resources aren’t. Give him a couple of months to come forward with a development partner, and if not, levy a blight tax on the property if you have to until you squeeze him out. Or Toney Sleiman him. Even if it’s $15 million to buy him out, feels smarter than betting $90 million on Southeast.

[thelakelander]

Funny thing is someone like Sleiman could have probably pulled it off by now. Any idea why there's no desire from Southeast's side to add private equity into the mix?

[Jax_Developer]

Yeah, the rents & hotel rates are insane.

- NOI will be less than forecasted
- The valuation of the project is diminished because of DSCR
- The way you counteract that, is by bringing more equity to the construction stack
- But, now the equity's return is diminished because more equity is getting the same portion of free cash flow

In a free market, you would only willingly put up more equity in your construction stack, if you really really believe in the project. Need to remember that construction loans have constraints too, and one of those is equity relative to the funds distributed on the loan. Hence, this all explains why the grants are upfront & in the construction "phase." They either don't have enough money to "load" the construction equity stack or they don't believe in the project. One of the two.

[jaxlongtimer]

Is the city levying fines against these buildings for their current condition?  I'm starting to think the city needs to approach this like the Bostwick Building.

It seems like Southeast did a fine job on the Barnett building but this has been dragging on for too long for such a high profile property.

That, plus, do some cities declare a building historic and then have the authority to demand a minimal level of restoration, preservation, maintenance?  If done here, at some point, maybe the owner would feel the pain of carrying the property indefinitely and look for a buyer/the City to take it off his hands for some smaller profit.  It appears Atkins is either extorting the City or just can't admit he doesn't have what it takes to get this done due to pride.  Clearly, he isn't suffering enough economic pain dragging this out or he would be more motivated to fairly negotiate or move on.

[Jax_Developer]

To tie things together Jax, Atkins is asking for a cash grant to capitalize his sunk cost to date. He has millions sunk into this project, and that's why the asks are getting more ridiculous with time. Most sunk cost is not able to be capitalized into the capital stack, so he is trying to essentially do that.

[Jax_Developer]

Also, here are some more interesting points.

- the MF construction cap stack includes $2.75M in operating reserves right off the bat (that's a lot of loss rent)
- Atkins can capitalize any completion grant he doesn't use
- COJ contribution almost equals the senior debt position
- "Predevelopment Expenses" are his development costs to get the deal executed, which the taxpayer is also paying for

Really makes me wonder why this isn't just a COJ project? You have to have a lot of balls to ask for all of this in writing. Then again, this is Jacksonville.

[Ken_FSU]

Ron Salem, Reggie Gaffney, and Joe Carlucci all seem open to the option of demolition for the Trio.

https://www.bizjournals.com/jacksonville/news/2024/07/22/laura-street-trio-special-committee.html

Truly unbelievable.

[Tacachale]

^Not exactly. They’re asking, if the two towers are really so bad off that this level of city incentives is the only way to save them, are there any other routes to save the Marble Bank? It raises serious questions about the condition of the buildings and what’s really needed to save them. Either way it’s an academic question as demolition is a non-starter, as Atkins was not interested in that and more to the point, a demolition permit would not be awarded.

[Jax_Developer]

Why not remove the new construction component all-together & spend the extra $$ to save the historic structures. Let the new construction be "Phase 2." Corner Lot is doing the exact same thing with the Jones on Hogan. To let those skyscrapers go would be a tragedy... up there with the Ford Plant. These buildings have national or state level significance.

New Construction here doesn't make any more economic 'sense' than restoring them do. Also how can "we" trust the figures presented for new con? Does council realize that any BID now will be wildly inaccurate compared to actual costs w/o engineered plans?

It might be cheaper.

[tufsu1]

^ I think the argument has been that the footprint of the towers is too small to do anything meaningful - necessitating the adjoining new construction

[Jankelope]

I thought the initial construction idea was no adjoining new construction. I think the original 100 room autograph hotel was only existing structures?

[Jax_Developer]

^ I think the argument has been that the footprint of the towers is too small to do anything meaningful - necessitating the adjoining new construction

That's where I'm not following the owner's logic. If the property was single use, hotel especially, then the new construction component is (potentially) unnecessary.

Per DIA documents on 6/21/2023 & I understand #'s have changed but these documents break down the costs/scopes really well:

Hospitality

- Marble Building: 14,180 SF
- Bisbee Building: 50,539 SF
- New Hotel Building: 58,096 SF

Budget: $89,302,000 (total) | $30,332,600 or $469/SF (historic) | $58,969,400 or $1,015/SF (new)

MF

- Florida Life Building: 23,613 SF
- New MF Building: 161,877 SF

Budget: $85,795,700 (total) | $13,212,100 or $560/SF (historic) | $72,583,600 or $448/SF (new)

So, if you add the SF of only the historic structures, it's a difference of 88k vs. 122k SF. (Maybe you throw in incentives for a hotel addition.)
But, are we prepared to knock down these structures because the site isn't suitable for retail, hotel & MF use? We can't leave it at only retail & hotel use?

The idea that the historic structures are making this project not feasible, makes very little practical sense & seems like the same story we hear time & time again. If the combined structures are "too small" for a hotel, I think a lot of people would rather see a functional & smart new construction component added to the hotel - in lieu of demolition to force MF use on a site.

[jcjohnpaint]

Was thinking the same thing

[tufsu1]

^ I think the argument has been that the footprint of the towers is too small to do anything meaningful - necessitating the adjoining new construction

That's where I'm not following the owner's logic.

following the logic would be an exercise in futility

[thelakelander]

If COJ is going to be the bank, then we can throw market rate feasibility right out the window. May as well renovate both into a certain number of boutique hotel rooms and lease the thing out to an operator. If the operator isn't funding the adaptive reuse, their numbers will likely work just fine. Neither building is in danger of falling down, so demolition talk makes no sense.