How key are city funds to private projects?

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Work on the site of The Shipyards development project has been idle since April due to a dispute between the city and project developers. RICK WILSON/The Times-Union

By CHRISTOPHER CALNAN

The Times-Union

Local real estate developers say the dispute between the developers of The Shipyards project and the city over the spending of public incentive money won't change their views about the role of incentives in financing such projects.

The $860 million Shipyards redevelopment, the largest private investment project in Jacksonville history, is undergoing scrutiny after officials objected to how the TriLegacy Group LLC spent $36.5 million in public grant money on the project.

The city says TriLegacy was supposed to spend the money on public infrastructure improvements at the Bay Street site, not for mortgage payments and other general work, which the city contends. TriLegacy said the city was aware of all its expenditures.

The two sides have since been trying to resolve the dispute in private negotiations. But the disagreement raises the question: How important is public money for the success of such private projects?

Developer Toney Sleiman, who went through his own battle with the city earlier this year while unsuccessfully vying for incentives for improvements to his popular Jacksonville Landing, said banks won't take chances on projects as innovative as The Shipyards.

Without bank backing, city dollars become crucial, Sleiman said.

"You've got to have public funds because you're a pioneer in an area you know will be successful, but you're not going to get a lender to help," he said. "They're doing it all over the country and they've got to do it here."

Kirk Wendland, executive director of the city agency charged with distributing incentive packages, the Jacksonville Economic Development Commission, declined to comment on the issue.

Last week, Mayor John Peyton instructed the JEDC to put a 60-day hold on incentive packages until new guidelines can be established.

Peyton said he wants the JEDC to: establish clear guidelines for granting tax dollars, address areas of need in the city, streamline its 40-member staff, expand international trade opportunities and establish measurements of success to evaluate JEDC-funded projects.

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About the Shipyards

The Shipyards, a 45-acre former industrial site on East Bay Street, is expected to include condominiums, retail space, boat slips, office space, a hotel and a park.

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Developer Charles "Bucky" Clarkson said the Shipyards controversy will make project developers more wary of accepting city dollars.

"The [shipyards] project may be another indication of problems with economic development judgment and policy that has taken place in recent years, he said.

Mike Langton, president of LB Jax Development LLC, who is redeveloping the old Barnett Bank building downtown into apartments, said projects that entail dramatic changes in use generally need city assistance.

Developing in urban areas is also expensive until a critical mass is reached, making the investment worth the risk, he said.

Until the demand increases, rent prices would be too high to make such projects affordable for the people the city wants to attract. Incentives allow developers to keep their rents affordable, Langton said.

The redevelopment of downtown Jacksonville is still in its early stages, making it premature for the city to ask developers to take on the entire load, he said.

"We're a long way from that," Langton said. "It's a factor of time and market development."

Bill Evans, chief operating officer of Capital Partners Inc., which recently bought the Humana Centre, said he's never gotten a public incentive package. But he favors them when they benefit the public.

However, he questioned the generous incentives given the Adam's Mark hotel, Berkman Plaza and The Shipyards.

The Adam's Mark, which Marriott International Inc. agreed to buy last month, opened in 2001 with more than $21 million in public incentives.

The developer of Berkman Plaza, Atlanta-based Harbor Cos., used $9.3 million in city incentives to build the $36 million building that was completed in September 2002. Harbor sold the property in July 2003 to a company that began converting the units into condominiums two months later.

"Those are three examples of the city putting money into projects and it didn't help anybody," Evans said. "The developer at Berkman made a lot of money and is gone."

Evans said incentive packages should be reserved for attracting new businesses like Fidelity National Financial Inc.

"If I had a No. 1 preference, it would be to incentivize out-of-town businesses," he said. "That's where I think our money should be spent."

Michael Balanky, developer of San Marco Place on the Southbank, said incentive packages are needed in high-risk ventures.

Balanky and partner Jay Southerland originally conceived the mixed-use San Marco Place as an office building. However, city officials used an incentives package to convince them to include market-rate condominiums with the project.

"We would not have taken the risk without the city's assistance," Balanky said. "It just would have been too risky."

That risk will decrease for other developers as more and more people move downtown and the chances of losing investments diminishes, he said.

Balanky said the Shipyards controversy is a misunderstanding that's understandable given the size of the project. But it won't discourage developers from seeking city incentives in the future, he said.

"I don't think it would block the city or developers from working together on other projects that are good for Jacksonville."