Negotiations between a Jackson developer who wants to build a 640,000-square-foot mixed-use development on the site of the old Blind School and the state have stalled over timelines and the overall cost of the project.
Ted Duckworth, president and CEO of Duckworth Realty, would lease the land from the state and build the District at Eastover, a development similar to Renaissance at Colony Park in Ridgeland. Legislation passed in 2007 spells out the terms of the ground lease and stipulates that a minimum of $100 million be invested into the project. It also gives the Mississippi Development Authority the power to negotiate on behalf of the Department of Education, which owns the land.
Under the law, Duckworth would pay the state annual rent equal to 10 percent of the land value and agree to pump at least $100 million into the District.
The terms beyond that have been at the center of the disagreement between Duckworth and Secretary of Delbert Hosemann, who has to approve the lease.
Specifically, Duckworth maintains that when the law was written and passed in 2007, financing a project the size of the District was easier than it is now, with the recession having tightened credit markets.
The terms Hosemann is currently proposing, Duckworth said, would have persuaded a lender two years ago, but they won’t now.
“Times have changed,” Duckworth said.
Duckworth said he and his team received a term sheet from Hosemann’s office about a month ago that required a minimum of $50 million in investment the first seven years, with the mandate that the $100-million minimum be reached three years after that. If those milestones were not met within the time frame, the state could void the lease.
“What lender would loan money under those conditions?” Duckworth said. “What developer would sign off on a provision that requires you to have a minimum investment within a defined period of time, given this economy we’re in?”
The two sides were scheduled to exchange proposals late last week in an effort to get the terms finalized.
Duckworth’s proposal was likely to include a request that the $100-million stipulation written into the legislation be waived, or language inserted that would reduce the minimum under certain conditions or extend the timeline to reach it. Duckworth also said that Hosemann’s proposal that 1 percent of the gross profits of the District be paid to the state would double the rent. Having lawmakers re-visit the legislation once they return for the 2010 session is an option, Duckworth said. Reducing the percentage of the rent based on land value is something Duckworth said he would pursue, too. He pointed to similar arrangements between a private developer and the State of Arizona in which the developer’s rent is between 7 and 8 percent of the land value.
“Maybe 10 (percent) is too much,” Duckworth said.
Hosemann said last week that he hopes the latest round of negotiations would prove “fruitful for everyone. The viability of commercial leases has declined significantly in two years. Really, you have to now look at what’s a viable project and how (the developer) is going to go about the process. I think some of it is changing market conditions and some of it is, we’ve received two different proposals on the master plan from the developer.”
To go with the removal of the $100-million stipulation, Duckworth would like what he called “leeway” in the set-up of the District. For example, the decision to move the site of the hotel from the north end of the site to the south end should lie with the developer and not be set by the lease.
Hosemann and Duckworth agree that turning the land into a revenue-generator is in the best interest of the state and Jackson.
But the convergence of frozen credit markets and the memory of the beef plant scandal that put the state on the hook for $55 million in loans for a project that never materialized has made it difficult for Duckworth and Hosemann to come to an agreement.
The difference in the beef plant and the District, Duckworth said, is that he’s not asking for any state money; rather he’s “asking for the privilege to pay them rent. There’s a big disconnect. It’s frustrating because it feels like they don’t want the project to happen.”
Hosemann disputed that.
“I want revenue for the state and the City of Jackson that desperately needs it. The school kids need it. I don’t know of anybody that wants it more than I do. “
District of Eastover breakdown of numbers (PDF format)
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