Khan's Jacksonville Shipyards Plans Revealed

[ProjectMaximus]

I also don't understand this line:

So if the cost to the city to decontaminate exceeds the agreed upon amount, the developers can decide not to build anymore?

[Tacachale]

So he wants us the city to give him our land for free, pay to clean up that land, and give him all the taxes it generates, and still be on the hook for any future issues. Okay, y'all.

Better than let it sit empty for who knows how long...no wonder this city is not moving forward, with thinking like this..

Our tendency to wait around for big sexy projects to turn things around is a much bigger problem for us, methinks.

^^at least we may have something to show for it Unlike the mayor that failed miserably with the TriLegacy debacle.

Fortunately, the deal with Trilegacy ensured that the City got the Shipyards after the development failed (meaning, when Trilegacy defrauded the city). If this one fails, we still get an empty lot... that we don't own anymore, but that can still send us the bill for future environmental issues.

I also don't understand this line:

So if the cost to the city to decontaminate exceeds the agreed upon amount, the developers can decide not to build anymore?

All the articles so far are full of red flags like that. Perhaps tomorrow's news cycle will be clearer.

[edjax]

Wow. Tryimg to put a positive spin on the TriLegacy. Poor mayoral oversight.  Millions and millions lost. Nice try.

[simms3]

Wow. Tryimg to put a positive spin on the TriLegacy. Poor mayoral oversight.  Millions and millions lost. Nice try.

There have been far worse things to occur in many cities across the country.  Trilegacy was a classic example of a cold storage business owner trying to do real estate on a grand scale as many a doctor/lawyer/dentist attempts to do on a smaller scale and getting in over his skis.  Keep in mind that Trilegacy did line up a decent hedge fund as a partner (if I recall) and in 2000 that project was assumed to be a 10 year $860M project.  Amplify those figures for what Khan is proposing now.

[Steve]

Wow. Tryimg to put a positive spin on the TriLegacy. Poor mayoral oversight.  Millions and millions lost. Nice try.

I don't think it's spin - it's what happened. The city didn't own the land before the deal, TriLegacy did. They gave TriLegacy $38 million that went somewhere (who really knows). However, after that happened, the city got the land.

Effectively, the city paid $38 million for some land.

[Steve]

In terms of the environmental cleanup, that's a nut that we're going to have to eat if we ever want that developed. I'm not sure any developer is going to take contaminated land.

[iMarvin]

48 acres and only 662 residential units?

[edjax]

Wow. Tryimg to put a positive spin on the TriLegacy. Poor mayoral oversight.  Millions and millions lost. Nice try.

I don't think it's spin - it's what happened. The city didn't own the land before the deal, TriLegacy did. They gave TriLegacy $38 million that went somewhere (who really knows). However, after that happened, the city got the land.

Effectively, the city paid $38 million for some land.

And the 35 million to clean it up. Anywy you look at it the city did not handle it properly.

[simms3]

In red

Interesting points after reading the full term sheet available on the TU.
-City to pay for environmental cleanup up to 35mil, Up to is key - I think that's a low number and leaves a lot of public risk on the table - this will be negotiated down
-bulkhead improvements and maintenance,
-infastructure pertaining to bay street,
-the Riverwalk improvement and extension,
-public park portions and
-Hogans Creek improvements up to Liberty St.
Also:
-City 20%/Iguana 80% land sale profits Just as I thought - Khan's going to parcel off the Shipyards to developers.  Presumably developers.  It'll be interesting to hear about all the other limitations here, and honestly, I'm not comfortable with an 80-20 split here.  I don't believe that Khan is taking on nearly 80% of the risk here, especially if he's not actually the one developing the whole thing.  If he wants to negotiate other deals for himself in separate JVs with other partners for the land he sells off, then fine, but the city should negotiate a 50-50 split on land profits.  To Khan it's essentially free money - he's not putting anything into the land, yet, before sale, like the city is doing.  At the end of the day, though, this is basically worthless land.  We aren't talking much money here compared to everything else related to this deal.  I foresee Khan getting land for free, having the city essentially prep it to be developed at city cost, Khan flipping it into a New Co with some other partner(s) and contributing the land as part of his basis, maybe requiring other partners to fund go forward, and this is Khan's way of staying in a deal and making some money.  It's free equity for Khan and if it pans out, what that looks like is $0 spent, $10M earned, almost like what is called a promote, except via technicality Khan contributes something - land - that he got for free.
-Shipyards to be rezoned, free of mobility fees forever.  Never make anything forever.  Duh
-Shipyards keeps all TIF futures generated.  Ok - so back to my other question - are there more than 1 TIF district?  or are they saying that they will package a bond for the Shipyards based on future tax revenues across all of downtown and nobody else, even future developers of other sites, get a penny?  Needs more color here
-City required to fill 5+ acres of land according to an existing agreement?? DEP Pemit #16-192176-003-EI  Ha! I knew it...those renderings were too robust to be true, lol.  5 acres is not small.
I still feel this may be the best deal the city may get, but I must admit it's hard to see the city commit funds to the extent of Hogans Creek redo and filling in 5 acres of waterfront on top of only seeing profits in the way of net land sale profit. I believe the long term benefits will make up for cost at some point but it is a steep price the city must agree to. Its time to put up or shut up. Someone correct me if I missed anything, but do you guys feel the city can fund said obligations?
If so, without a raise in taxes, how are they funded?

This is not the final iteration, by any means.  I wouldn't be surprised if we're looking at 15+ years of project, 3 of those being working out some of these preliminary details.  And I REALLY hope the city's foot forward now is to spend $$$ on a great legal team from another city (NOT Jax, no offense).  $$$ for a big city firm/team will pay off in a better deal for the city without ruining the deal.  Khan will certainly be doing the same.

[simms3]

Wow. Tryimg to put a positive spin on the TriLegacy. Poor mayoral oversight.  Millions and millions lost. Nice try.

I don't think it's spin - it's what happened. The city didn't own the land before the deal, TriLegacy did. They gave TriLegacy $38 million that went somewhere (who really knows). However, after that happened, the city got the land.

Effectively, the city paid $38 million for some land.

That works out to less than $1M an acre, low even for DT Jax standards. 

[simms3]

48 acres and only 662 residential units?

A huge portion of this is set aside for public space.  Plus there is 1 million sf office (equivalent to 1.5 BofA buildings).  This is 1 million sf of residential, with garage (equivalent to Strand + Peninsula, or 3 Berkman Plazas).  That hotel is easily another 400-500k sf or more with meeting space, significant food/beverage and entertainment area (another Omni + more meeting space).

Let's call it 3 million sf in low to mid-rise buildings including garages.  That's significant.  That's basically 10-15+% of all of what's existing downtown now across all uses excl hospital/government.  No downtown is presently doing that in any time frame less than 5 years.  Really really large cities that are booming do that in 15-30 years time.  I'm of course talking about the time of construction, not the all-in.  I don't think we can expect any other projects on the horizon, so if we're talking 5 years to plan/formation and 5 years of buildout, then consider it 5 years to increase downtown by a very significant portion.

For perspective, adding rental apartment units to a growing sunbelt city is tracked whereby 3-5% of existing inventory UC at any given time is booming (Houston/Dallas for instance).  That might translate to 7-16% over a 5 year period.  But that's rentals.  Much less risky from a development perspective because you can finance them and hold onto them for a long time.  You can sacrifice yields in some years to ride out a cycle and make return on exit.

Condos/office/hotels have far more inherent risks, in my opinion.  Nobody's adding 10% of their existing office stock in a single development/<5 year timeframe at this point.

[simms3]

In terms of the environmental cleanup, that's a nut that we're going to have to eat if we ever want that developed. I'm not sure any developer is going to take contaminated land.

They won't.  Especially not in Jacksonville.  That's City land that requires a City cleanup.

Also, one thing to consider is that if you parlay predev/preparation costs to developers and require them to build the riverwalk, pay for remediation and cleanup, etc etc, they'll never be able to pencil their developments.

To get office in downtown Jax, WITH free land and average to below average construction costs, and attractive financing which won't happen in a market like Jax, they'll need to charge $25-27+psf rents, which is already higher than anything in town.

Also note that the Strand sold to Crescent Heights for $181k/door, a record for Jax with a huge gap to 2nd place, and a price based on in-place rents and of course market risks (likely a higher cap rate).  Even at a lower cap rate (and I know the occupancy was very high, and Crescent received very favorable financing), I can piece together the math in my head that Jax rents for luxe high rise apartments aren't truly where they need to be for new construction these days.  So that's an obstacle.

Condos - I think we all know there.  Jax is not a condo market.  Certainly not a luxe/waterfront condo market.  I believe many of the Jax residents who have money and hometown pride already bought condos in the Peninsula.  That really saved that building, but the market's certainly not deep beyond that.

Hotels?  News article after news article on local hotel defaults, management issues, ownership changes after poor performance, articles putting Jax in last place for hotel markets, etc etc.  And we still haven't seen movement on any other proposals.  This will be the last thing to go up if I had to guess.  Jax downtown hotel market is hardly deep at all and everything is at a low basis since everything has already been foreclosed on, and yet still new owners can't get the rates they need or the occupancy they need.  That's a serious issue caused by other fundamental issues that plague Jax/downtown - a sign that there's not a lot of business, no tourism, not enough things going on, etc.


So at the end of the day, I think Khan wants to ensure that he CAN sell the land to developers - I actually think exactly as I said before, Khan wants to give land away as his version of an equity stake/contribution so that there's no basis in the land and the City has already prepped the whole site for development.  THAT might be the only way any of this gets done.

[InnerCityPressure]

Can't wait to hear the responses to this proposal...

[Marle Brando]

Simms, that breakdown was everything bro. It makes sense that Khan's partnership with other outside developers will involve free land. Can't say I blame him, it's business afterall.  And I too am a little uneasy with the 80/20 split in net land sell profits. Hopefully the city can get that number closer to 65/35.

[Tacachale]

Wow. Tryimg to put a positive spin on the TriLegacy. Poor mayoral oversight.  Millions and millions lost. Nice try.

I don't think it's spin - it's what happened. The city didn't own the land before the deal, TriLegacy did. They gave TriLegacy $38 million that went somewhere (who really knows). However, after that happened, the city got the land.

Effectively, the city paid $38 million for some land.

And the 35 million to clean it up. Anywy you look at it the city did not handle it properly.

There's no spin: the developer defrauded the city, but even still the city got the land after it happened. But more to the point, we still don't know would happen if this deal were to go through and then, somehow, didn't pan out. It's totally possible that we'd still have an empty lot we'd be on the hook for, but we wouldn't own it or have any say what happened next.