Laura Street Trio owner says demolition might be only option without restoration deal

A buzzsaw of legal and financial questions caused City Council to send a proposed Laura Street Trio redevelopment deal over to the Downtown Investment Authority for more review and left the Trio's owner saying it's become increasingly difficult to put together a deal that would save those buildings

Steve Atkins of SouthEast Development Group said the only way to bring development to the property in the heart of downtown might end up being to demolish the three buildings that make up the Trio.

"Unfortunately, that may be where we're headed," he said after the City Council meeting on Thursday. "That certainly isn't what we'd want to do."

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He said the historic value of the Trio makes them very important and he's done everything he can to improve and save the properties, but the condition of them is "not great."

"And unfortunately, there comes a point where if it's not developable or financeable, then you have to look at alternatives," Atkins said. "We have a lot of investment in the site and we certainly want to realize some level of return."

Downtown Investment Authority CEO Lori Boyer said she thinks the city can reach a development deal with Atkins.

"I'm still optimistic that there are other opportunities and ways to do this," Boyer said.

She said the terms of the deal would be different from the current proposal that contains a guarantee of a private construction loan for the project. The city's Office of General Counsel said the loan guarantee appears to violate the state Constitution.

"We're going to figure out a structure that we can take to the DIA board and that we can bring back to council that OGC says passes constitutional muster," Boyer said. "That is one of my non-negotiables."

Laura Street Trio at crossroads of Jacksonville history

The $175 million project would rejuvenate the Laura Street Trio, which dates back to the city's rebirth after the Great Fire of 1901, and add two new 11-story buildings for a boutique hotel, apartments, stores and restaurants.

The DIA was not involved in creating the current proposal. During the council meeting, Boyer joined city financial officials and the City Council Auditor's Office in providing a long list of questions and concerns about the financial risk of guaranteeing a private loan in a development deal, which the city has never before done.

Chief Financial Officer Anna Brosche said "we all support rebirth of the Trio" but how that's done will have ramifications for the city's finances. She urged council to not take up the legislation on an expedited emergency basis, saying credit-rating organizations based in New York City would be stunned by Jacksonville agreeing to guarantee a loan by Capitol One to the developer.

"The emergency approval of an unprecedented and complex transaction, along with broad terms highly favoring Capitol One at the expense of protections for the city of Jacksonville, will send shock waves to New York City," Brosche told City Council. "For all these reasons, I believe this deal is not in the best interests of the city."

Mike Weinstein, special counsel to the mayor, said if the city approved the loan guarantee, it would draw questions from firms that assign credit ratings when the city potentially seeks to borrow several hundred million dollars for project such as a renovated football stadium and a new jail.

"If we go to New York with what's in front of you, it won't be well-received," Weinstein said.

Representatives of the development team said they have responded to questions raised by council members and other city officials by making changes to how the deal would work and stood ready to keep looking for ways to resolve concerns.

City Council could have put the legislation on track for a vote next Tuesday, but council member Matt Carlucci, who was an introducer of the bill, withdrew a request for it to come up on an emergency basis. He said he understood the concerns raised by council about its fiduciary duty but added the Laura Street Trio is crucial to the city.

"I've also got a visionary duty as a council member," he said. "This is no ordinary development so things might not be done the way they've always been done."

City Council member Ken Amaro, who also was a co-introducer of the bill, said he commends Atkins for "seeking to accomplish the impossible" in light of all the challenges involved in restoring the three Trio buildings. But Amaro said the proposed deal puts too much of the financial cost and risk on the city.

"It's almost as if we're being asked to write a blank check, and if we started here, we might as well do it for every other developer that comes along," he said. "There are holes in the terms and conditions that need to be addressed, and until those questions have been answered, this legislation right now is dead on arrival."

Other council members agreed the deal wasn't ready for a vote.

"Our history is indeed tied to our destiny, and that's why I believe this is a worthwhile project," council member Rahman Johnson said. "However, this is, for lack of a better word, half-baked."

"We're heard a lot of 'uns' in the discussion: uncapped, unknown, unfinished, unseen," City Council member Nick Howland said. "I think it's imprudent for us as city leaders to take action on anything without certainty and clarity and consensus."

Florida Constitution limits government assistance

Howland's list didn't include "unconstitutional," but General Counsel Michael Fackler said that also is a concern for the city guaranteeing repayment of a private loan. He said the Florida Constitutions prohibits a city from lending its credit for a private purpose, and case law makes clear that only can be done if there is a "paramount public purpose."

He said examples of paramount public purpose are projects such as a stadium, race track or bringing a large job-boosting industry to town. Fackler said his office and Greenberg Traurig, the firm that is the city's bond counsel, determined that restoring the Laura Street Trio does not rise to the "heightened standard of a paramount public purpose."

He said any Duval County taxpayer would have standing to file a lawsuit challenging the deal on those grounds.

"We can't tell you with certainty because it's a constitutional issue, but we believe it's more likely than not that a court would find that it is unconstitutional," Fackler told the council.

The DIA has approved redevelopment deals in the past with Atkins for the Trio that didn't result in construction. Last summer, Atkins proposed a deal that contained about $63 million in taxpayer incentives. The board took no position on that incentive package because it was far more than what city guidelines would allow the DIA board to approve.

The deal moved then to City Council. The developer eliminated a $25 million completion grant from the proposal and replaced it with a $22 million fund that Capital One could draw from in the event SouthEast Group was not making its repayments on a $150 million loan for the project.

That loan fund would be replenished whenever money was drawn from it, so the amount of potential financial exposure would have been far greater than $22 million over the course of 25-year period.

That ramifications of that loan guarantee sparked the debate Thursday that shifted toward City Council members directing the Downtown Investment Authority staff to take the lead in negotiations with Atkins for a deal that would go before the DIA board for a recommendation to City Council.

Developer: Working with city has been 'revolving door'

Atkins said after the meeting it's been a "revolving door process" to work with the city over the past year. "DIA punted it to City Council and today, City Council punted it back to DIA," he said.

He said he and his development team have explored "every financial opportunity" available for redevelopment of the Trio.

"These properties are really difficult to develop," he said. "It's very inefficient because of the size and condition of these properties, so to look at them from a traditional financing standpoint makes it very difficult."

He said he hopes what happens next is some refinements and clarifications to the current deal so it can move forward.

Boyer she wants to look at what kinds of standard incentives could be assembled for the Trio. The council gave DIA the ability to recommend a deal that is more generous than what its usual guidelines would allow.

Boyer said having that leeway will let DIA "try to craft the best proposal" that the Office of General Counsel says is legal and constitutional. She said from the standpoint of the DIA board and City Council, she thinks the "more traditional it looks, the better."

Boyer said the Trio buildings are historically designated so there are protections against them being demolished. She said she does not see Atkins taking that step.

"I would be surprised because he is passionate about the buildings, too," she said.

This article originally appeared on Florida Times-Union: Jacksonville City Council defers on historic downtown buildings