ITEM R1

OFFICE OF THE CITY MANAGER (910) 341-7810 | FAX (910)341-5839

TDD (910)341-7873

7/16/2019 City Council City Hall Wilmington, North Carolina 28401 Dear Mayor and Councilmembers: Attached for your consideration is a resolution that will authorize the City Manager to reject the submitted proposal for the redevelopment of the property located at 1110 Castle Street and to resolicit the Request for Proposal (RFP). The City solicited for the development of the former WAVE transit maintenance facility and received one proposal from Hipp Architecture and Development, PC. The proposal included a redevelopment plan that would revitalize the existing two buildings into commercial spaces, construct three new buildings containing a mix of commercial and residential uses, and incorporate onsite parking. City staff reviewed the proposal with a focus on the financial viability, project development, and community impact. The proposal addressed the vision of the RFP. It included renovating the property, incorporating workforce housing, and commercial uses that target services to the community. However, the project lacked confirmed financial commitments. It included $196,910 of unbudgeted environmental remediation cost to the City, and did not include a specified public use. The property is located in an opportunity zone. There continues to be interest expressed in redeveloping the property by developers and the opportunity zone designation increases the viability for a desired project. Staff recommends to reject the proposal and resolicit the RFP with the goal of attracting additional proposals. Passage of the attached Resolution is recommended. Respectfully submitted, Sterling B. Cheatham, City Manager

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Resolution City Council City of Wilmington

North Carolina

Date: 7/16/2019 Introduced By: Sterling B. Cheatham, City Manager

Resolution Authorizing the City Manager to Reject the Submitted Proposal for the Redevelopment of City-Owned Property Located at 1110 Castle Street and to Resolicit the

Request for Proposal (RFP)

LEGISLATIVE INTENT/PURPOSE: The Wilmington City Council directed the City Manager to issue a RFP for the redevelopment of City-owned property at 1110 Castle Street. The City solicited proposals according to North Carolina law. The City received one proposal from Hipp Architecture and Development, PC. City staff reviewed the proposal. Upon review, City staff recommended rejecting the proposal and resoliciting the RFP based on the proposed project not including confirmed financial commitments and including a request that the City provide $196,910 in environmental remediation to the property prior to the conveyance of the property as a donation to the Cape Fear Community Land Trust. THEREFORE, BE IT RESOLVED: THAT, the City Council hereby rejects the submitted proposal; and THAT, the City Council hereby authorizes the City Manager to resolicit the RFP.

Bill Saffo, Mayor

APPROVED AS TO FORM: ATTEST:

Penelope Spicer-Sidbury, City Clerk City Attorney

Adopted at a ________________ meeting on ____________________ 2019

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Castle Street:

City Review Panel

Suzanne Rogers, Community Development Rachel LaCoe, Community Development

Dave Mayes, Public Services Jennifer Maready, Finance

Amy Schaefer, Legal Chance Dunbar, Parking

Christine Hughes, Planning Suzanne Gooding, Budget

Erris Dunston, City Manager’s Office

Project Development Team

J. Clark Hipp, Hipp Architecture and Development, PC Brian M. Fleer, Metis Development Services, LLC

Steve Spain, Cape Fear Habitat for Humanity Paul J. Stavovy, Cape Fear Land Trust

Jody Wainio, Keller William Realty

The City advertised the Castle Street RFP on April 2, 2019. We conducted a site visit for interested proposers on April 5, 2019, there were 13 attendees. The proposals were due for submission on May 15, 2019 where we receive one proposal from Hipp Architecture and Development, PC. A three member partnership including Hipp Architecture and Development, PC (HADPC), Cape Fear Community Land Trust (CFCLT), and Cape Fear Habitat for Humanity (CFHFH) comprise the core development team with J. Clark Hipp, the President of HADPC, acting as lead developer. The Developer defined the submitted proposal as a concept. Their intention is to seek City Council approval of the concept before confirming the funding commitments to build the project. The development team asked for 120 days to secure commitments from the funding sources and complete to the project pre-development phase. The City Review Panel reviewed the proposal, provided additional questions to the development team

and conducted a follow-up interview. The Panel’s objective was to obtain and analyze detailed

information relative to the project and provide a recommendation to City Council. The Panel focused on:

Project financial structure

Project request of the City

Project development

Community impacts

The Proposal

The proposal is to redevelop the property located at 1110 Castle Street into a mixed-use development.

It includes repurposing the existing buildings, constructing three new buildings, and onsite parking.

The existing buildings would undergo some substantial renovations including new roofing, exterior

weatherproofing, upgraded electrical, plumbing, and HVAC systems. The developer is proposing onsite

parking between the existing buildings and the new buildings.

Three new multi-story buildings would be constructed. The residential units in the proposal would

provide a housing opportunities for 18-20 individuals and families. CFHFH would partner with HADPC to

purchase the residential units.

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The total project cost is estimated to be $7.1Million. The project budget includes sources from

developer’s capital, opportunity funds, CDBG HOME fund grants, bank loans, and private capital. The

property is located in an opportunity zone. Opportunity zones are designated low-income areas that are

eligible to receive private investments through opportunity funds. Opportunity funds are deferred tax

investments established by Congress in the 2017 Tax Cuts and Jobs Act.

Project Financial Structure

The project is estimated to cost $7.1million. The proposal includes anticipated funding from multiple

sources. The primary funding sources are opportunity zone funds and bank loans; these sources make

up 88% of the proposed project budget. The plan is for the development team to obtain investors

through opportunity funds as the initial project funding source and to use bank loans to cover the

budget between the capacity of the opportunity funds and the private capital. The project budget

includes 12% of the funding sources from the developer and private capital.

The proposal budget is reliant upon a $450,000 award of CDBG HOME funds from the city to offset the

cost of the residential units. The use of these funds would be requested by CFHFH. The development

team would seek commitment of these funds in the initial phase of the project development.

Requests of the City

The proposal includes some investments from the city:

Request of the City Estimate

Property (Conveyance to CFLT) $390,000 (appraised value)

HOME Funds $450,000* (grant funds)

Phase I environmental assessment renewal $5,000

Phase II environmental assessment $40,000

Environmental remediation $21,910

Asbestos remediation $100,000

Brownfield agreement $30,000**

Total City Investment $1,036,910

The City has not budgeted $196,910 for the expenditures being requested. *HOME Funds would be awarded based on the availability of funds at the time of the request to the cityand subject to competitive process

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**The city could not enter into the agreement; however, the developer’s request is for the city to pay for agreement.

Project Development Model

The proposal assumes the city will convey the property to the Cape Fear Land Trust in accordance with NC G. S. 160A-514 and 160 A-279. The land trust would enter into a 99-year ground lease and development contract with HADPC to complete the proposed development. HADPC would enter into a development contract with CFHFH to construct the residential units. This would leave the entirety of the commercial development off the property tax rolls.

The project would provide 25,000 square feet of nonresidential space to be developed into commercial uses with the goal of providing services to the community. These spaces would be leased for $12-$14 a square foot.

The plan includes 18-20 affordable condominium-style dwelling units. CFHFH would purchase these residential units from HADPC and would add them to their inventory of workforce housing. These units

Pre-Development

•Approved concept plan

•Secure project funding

•Developement and design plans

•Develop a PDA

Property Conveyance

•Conveyance of the property to the CFCLT

•The land trust would remain the owner of property.

99-yearGround Lease

•CFCLT would enter into a 99-year ground lease and development contract with HADPC tocomplete the proposed development

Contract to Construct

•HADPC will enter into a development contract with CFHFH to build the residential units.

Complete Construction

•CFHFH will incorporate these residential units into their housing program to add housingunits to the market that serve the population that meet the market of 60%-80% AMI.

•The proposal provides 25,000 square feet of nonresidential space for the developmentcommercial use that would provide service to the surrounding community.

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would provide for-sale product to the market at or rates affordable to those at or below 80% of the area median income (AMI) as established by the Department of Housing and Urban Development (HUD).

Community Impacts

The proposal meets the objectives of: removing blight, providing workforce housing, and redeveloping a

deteriorating property into a mixed-use development. The development team is specifically targeting

tenants for the commercial space that would provide services to the community. The proposal includes

a letter of support from Coworx Enterprises, LLC, and a potential commercial partner, with interest in

providing a “makers space,” where people with common interest in the areas of machining, technology,

science, and digital art can meet, socialize, and collaborate.

The proposal indicates the idea of providing neighborhood residents access to high-speed internet.

Castle Street is an eclectic corridor with residential, commercial, and entertainment uses. One of the

proposal objectives is for the project to serve as a bridge between the arts district on the west end of

Castle Street and the cargo development area farther east.

The development team incorporated ideas from previous community engagements in the concept. Staff

encouraged the developer to consider planning a community engagement effort due to the time lapse

and change in dynamics of the project to assess current community needs.

Summary

The proposal meets the vision of the RFP. It addresses a need for additional workforce housing,

provides much needed improvements to the property, and creates a significant investment in the

community. The proposal meets City Council’s strategic focus areas: create a safe place and foster a

prosperous thriving economy and providing sustainability.

The property is located in the heart of a designated Opportunity Zone. This designation creates a

potential to attract additional developers.

The proposal is conceptual and lacks commitments of funding sources, commercial tenants, and

community engagement. There are additional request of the City including transfer of property

(appraised value $390,000) and the cost of remediating environmental concerns that do not have a

funding appropriation (est. $196,910).

Option 1

Consider the submitted proposal, grant the Development Team a 120 days to confirm the necessary commitments to the project and to complete the pre-development phase. This option would be a commitment of transferring the property and to remediate the environmental concerns which could be a potential loss to the City of land value at $390,000 and estimated out-of-pocket costs of $196,910.

Option 2

Reject the submitted proposal and resolicit a revise the RFP to include the benefits of being located in

the opportunity zone. The revised RFP would define the City’s expectations for the property to include

but not limited to the developer assuming the property in an “AS IS” condition and the compensatory

objective for the property.

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Option 3

Sell the property out right “AS IS” in accordance with NC G.S.

Staff Recommendation

Staff recommends option #2. There continues to be development interest in the property. The

increasing interest in opportunity zone investments in the community potentially adds to the

attractiveness of the project. The major concerns of staff with the submitted proposal are:

Proposal lacks confirmed funding

There is an estimated $196,910 financial request of the City to remediate environmental

concerns

The project does not included a specified public purpose

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