Thomas Hurst of Dasher Hurst Architects says the financial viability of the Laura Street Trio redevelopment was becoming a victim of rising construction costs.
Project developer SouthEast Development Group LLC said the project’s price increased 23.7% from the initial $70.4 million in March 2021 to more than $87 million.
“We had to do some soul-searching to look at what could we do to get this project back up on its feet,” Hurst told the Downtown Development Review Board on Jan. 13.
SouthEast and Dasher Hurst have been working since 2013 to restore the historic Florida Life Insurance, Bisbee and Marble Bank buildings that comprise the Trio at northeast Laura and Forsyth streets.
The developer branded the project The Laura Trio.
Hurst and SouthEast presented a new Trio proposal that adds 166 apartments to the hotel and restaurant concept, with the residential density seeking to improve the project’s bottom line.
The new design with multifamily added would bring the total project investment to about $165 million – a $94.6 million increase.
SouthEast Principal and Trio owner Steve Atkins said Jan. 13 the project’s financial partner, Piper Sandler Companies, secured independent financing for a proposed 141-room hotel and 14,527 square feet of retail and restaurant space.
Atkins said the previous plan for a 146-room hotel, restaurant and retail project – but no multifamily – was “way over budget.”
The financial fix
SouthEast is counting on bringing the Jacksonville Housing Authority in as an investor as part of the financial fix.
A draft term sheet shows the independent city authority is negotiating to contribute $10 million in exchange for making the project mixed-income housing.
The housing authority’s involvement would be a significant change to the financing structure of what many city and business leaders consider a centerpiece for Downtown revitalization.
After the DDRB meeting, Atkins said the financial issues were not enough for him to walk away.
“There are a number of ways to address that,” he said.
“I thought the best way was to add the multifamily component and grow the project so the strength of that market could help offset some of that.”
Atkins and housing authority President and CEO Dwayne Alexander signed the tentative term sheet Dec. 10 that, if approved, would bring in the entity as a partial owner.
“We’ve had great conversations with the housing authority to do something that would be a partnership — one that could address their mission which is significant and it matches a personal desire on my part to offer mixed-income housing for Downtown,” Atkins said.
SouthEast will have to set aside 20% of the apartments as workforce housing leased to people who make 80% or lower of the area median income.
The apartments would be in a new 12-story addition to the Florida Life Insurance Building.
SouthEast has the same income mix in the 107-unit The Residences at Barnett apartments at 112 W. Adams St., west of the Trio.
The tentative deal would make SouthEast or a subsidiary the property manager through a ground lease with an initial payment by the housing authority of $10.3 million.
The housing authority also would pay $3.5 million to entities in the SouthEast team in construction management fees.
Danis Construction is the general contractor.
The term sheet is not specific whether the tentative agreement would make the housing authority owner of the Florida Life Building, but the new design has a historic structure as part of the apartment component of the project.
Renegotiating the deal
Until the agreement is finalized, it is not clear if SouthEast would lose any of the $26.67 million in incentives that City Council approved in September.
Council approved almost $24.7 million in forgivable and deferred loans through the city’s Downtown Preservation and Revitalization Program after unanimous approval from the Downtown Investment Authority in March.
SouthEast also convinced Council members to support an additional $2 million forgivable loan to satisfy an outstanding financial lien on the property.
The draft term sheet with the authority shows the multifamily portion would be tax-exempt if the deal is executed.
DIA CEO Lori Boyer said approving the design changes will be easy, but the city loan and grant package likely will need to be renegotiated or amended.
The extent of the changes will depend on what is tax-exempt in the final agreement with the housing authority.
The DIA budgeted for increased property tax revenue from a redeveloped Trio.
Boyer said taking a portion of the property off the tax roll will affect the future fiscal year budgets of the DIA-controlled Downtown Northbank Community Redevelopment Area.
Atkins says SouthEast’s development team wants to break ground in the first quarter of 2022.
He said SouthEast approached the housing authority about a public-private partnership for the multifamily apartments in the last quarter of 2021.
He hopes to reach an agreement by the end of January.
Boyer said the authority’s leaders notified her that they were working with SouthEast by sending her the term sheet.
She said the DIA wants the increased residential density and mixed-income projects, but the authority will have to make up any lost property tax revenue with other development projects.
“I hope, in the future, if the housing authority is going to decide to become a property owner in Downtown, we’d like to coordinate with them,” Boyer said.
“Part of our goals regarding workforce housing (and) affordable housing … is to ensure that we have a diverse mix of available housing types in each neighborhood so that no one neighborhood has all of it.”
The Downtown Development Review Board voted unanimously Jan. 13 to award the latest Trio design conceptual approval.
There already were plans to bring in market-rate residential units in a second phase.
In late 2021, SouthEast showed renderings for a second-phase residential addition to civic groups.
The latest design moves the hotel’s new construction to the Forsyth Street side of the Trio and increases it to 11 stories.
The project will need to return for a final review before SouthEast can break ground.
The DIA staff and some DDRB members appeared to prefer the density of the previous design.
Board member Brenna Durden said she thought the height of the construction in the former design was a better fit with the historic buildings.
Hurst said the development team considered keeping the original plan through “value engineering” but determined using cheaper materials “wouldn’t cut it” for the Trio.
“If we were starting the project from today without the accretion of eight years of decision-making on this project, would we do it the same way?” Hurst said.
“I think we decided there were better ways to do it that could be more efficient and could yield a better project at the end of the day for both our client and the city.”
According to Atkins, Marriott International signed off with Winegardner & Hammons Hotel Group LLC to use its Autograph Collection flag.
On Jan. 4, the state Historic Preservation Office said there were no outstanding issues with the latest design plans, according to SouthEast’s application.
Atkins said the National Park Service has final approval.
The project will need federal approval to proceed since it is designated historic and is a contributing structure in Downtown Jacksonville’s recognition in the National Register of Historic Places.
A majority of the DDRB said the new design is attractive.
“Architecturally, they should be what stands out and I think that’s what this project does better in some ways than what you had before,” Craig Davisson said.
“I think it’s a sophisticated canvas allowing the Florida Life and Bisbee buildings to stand in front.”