Deal between restaurants, Gainesville called 'revenue-neutral,' but what if eateries fail?

Aug. 2—Update, Aug. 2: The City Council unanimously approved the restaurants Tuesday, though not without objection from a handful of downtown restaurant owners.

Scott Dixon, owner of Scott's Downtown, a fine-dining restaurant adjacent to the parking deck, said the restaurants amount to "city-sponsored" competition. He also argued that the city broke its promise to build greenspace in the area and that the proposal was kept hush-hush by the city. Likewise, Chris Richardson, owner of Recess Southern Gastro-pub and YellowFin restaurants, said the deal caught him by surprise.

Mayor Sam Couvillon said greenspace was never part of the deal, and added that retail space has been part of the plan from the beginning and was announced in September of last year.

Dixon and Richardson were also upset that downtown will be marred again by construction. Dixon said construction on the square hurt his business during the pandemic.

Claude Tatro, who owns the buildings that house Scott's and Mainstreet Market, said it's risky for the city to get into the restaurant business.

"What are the businesses that fail most frequently?" he asked the board. "Restaurants."

Despite these objections, each council member spoke in favor of the project.

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Original story: The Gainesville City Council will vote Tuesday, Aug. 2, on a proposal to build two new restaurants adjoining the new downtown parking deck.

If approved, the city will build the shell of the restaurants, and the developer, Healey Weatherholtz Properties, will spend about $2 million building out the interior, Mayor Sam Couvillon said.

The city would issue a 20-year bond for about $3 million, enter into a leasing agreement with the developer for the same amount of time and the developer would then make monthly payments — up to $30,000 — equal to the bond debt until it is paid off.

City officials have called it a "revenue-neutral" deal.

But what are the city's financial obligations if the restaurants fail and Healey can no longer make the payments?

"There certainly is risk," Couvillon said. "The bond does not go away. We have the responsibility of paying the bond."

But, he said, the city would then own that asset, $2 million which would have been funded by the developer. Of course, the value of the property could depreciate, but Couvillon said he is less worried about the value of the property declining and more focused on making sure the restaurants are successful.

"My concern is not so much about the property losing the value. I mean, the real danger for us is if the restaurant is not a success," he said. "I'm not worried about value so much as I am worried about, would we be able to find another tenant that could come in and make that bond payment?"

Despite that risk, Couvillon said it's "about as good a deal as the city can expect," adding that Healey would be paying some of the highest rates on the square.

The developer has the option of purchasing the property between years 10 and 15, at which point they would pay off the remainder of the bond.

If the developer decides not to purchase the property, "then they just continue to pay the bond, it pays off in 20 (years) and then we have an asset that the city owns," Couvillon said. "Then at that point, we'll just negotiate a lease rate."

He also said that this kind of deal is not unusual. Cities such as Athens, Suwanee, Alpharetta and Decatur have struck similar deals with developers, he said.

"Our job is to prepare for the future, and I think it's a worthwhile venture," he said. "Anyway you look at it, it's a good deal for the city."

Some have criticized the proposal, though, arguing that it will increase competition among current restaurants, take up parking spaces and contribute to an even tighter labor crunch at a time when restaurants are already shorthanded.

"We don't need any more restaurants," Scott Dixon, owner of Scott's Downtown, a fine-dining restaurant across the walkway, previously told The Times.

But Couvillon said the need for more restaurants will grow massively in the next couple of years, with the opening of apartments like The National, phase 2 of Solis Gainesville, and Midland Gainesville, which broke ground July 28.

"You're going to have 1,000 new residents on the downtown square," he previously told The Times. "Where are they going to go eat?"

Couvillon said Monday that he's spoken with some downtown restaurant owners who welcome more restaurants downtown.

"I've been here 26 years, and I see the growth and I love it," said Juan Luna, owner of Luna's Restaurant on Main Street. "Prosperity is a beautiful thing. I embrace growth."

"The more the better, because it gives people opportunities to go elseplace," said Bud Whelchel, manager at Avocados Restaurant on Bradford Street. "We can't hog the whole square. We have to share the wealth."

Couvillon also addressed concerns the property was originally to be used for green space.

The plan from the beginning, he said, was to use the space for retail, and it just happened that the bids came from restaurateurs.

The space was initially a "blank canvas," he said. "It could have been a dress shop, an ice cream or whatever. But when we did the (request for proposal), that's not what came back to us. What came back to us was these two ideas, and quite frankly we thought, 'Man, that's a cool concept.'"

"There's a narrative out there that we promised them green space," he said. "I'd never even referred to it as green space. From the first time it was presented to me, it was a plaza. ... I don't want to get into semantics about a word, but ... if we could get (the restaurants), then that was going to do away with your green space or your plaza, whatever you want to call it. So there was never anything that was promised in that regard."

There will still be a public plaza of some sort, but it will be built between the two restaurants.

"The public plaza will contain a water feature, extensive landscaping, Highlands to Islands Trail connection and space for the public to gather," Angela Sheppard, assistant city manager, wrote in an email. "There will not be a lawn (i.e. large greenspace/plaza) as the restaurants are now located there."

Tex-Mex Hondo Cantina and Phil's Pizza Tavern are planned for the space, and each will be two stories with rooftop patios.

They would connect to the new parking deck at the corner of Brenau Avenue and Bradford Street and are planned to open in late 2024.

Phil's Pizza Tavern would serve gourmet pizza, salads, burgers and sandwiches and a wide selection of beer, wine and spirits.

Tex-Mex Hondo Cantina would serve tacos, enchiladas, fajitas, margaritas and local beer.