Monday, December 4, 2023

City council opposes $4.5M grant consideration for Gateway’s affordable housing

East West Partners and the city have been negotiating on a public-private partnership, The Gateway, to include up to 20% of residential units as affordable. Council opposed staff’s recommendation to apply for an endowment grant to offset the cost. (Courtesy East West)

WILMINGTON — A proposed mixed-use development is negotiating with the city to incorporate affordable housing but needs financial support to make it happen.

READ MORE: Gateway Project to exceed $110M, plans altered after city’s Thermo Fisher purchase

East West Partners, the developers behind the Gateway project in downtown Wilmington, has been working with the city on a purchase development agreement for a public-private partnership. Construction would consist of housing, retail and limited office space at the corner of Third and Harnett streets, and a hotel just north of the city’s newly purchased Thermo Fisher building.

Part of the deal-making involved the city urging East West to add affordable units to its residential component. City manager Tony Caudle told council it’s estimated to cost the developers $8 million to subsidize 20% of its 300 residential units for tenants earning 60% of the average median income.

To make it sustainable, staff recommended the city apply for a $4.5-million Cape Fear Opportunities and Needs grant from the New Hanover County Community Endowment to offset the expense to East West.

The endowment only funds proposals from nonprofits and public entities, not private companies, so East West could not submit an application on its own.

When the Gateway was first proposed in 2019, East West only had 5% affordable housing units planned, but the city recently asked developers to up the percentage. East West partner McKay Siegel said his team is working to check all the boxes, “but it’s not easy.”

“Affordable housing is a big component,” he said. “To do that — and make spectacular looking buildings and 35,000 square feet of retail — there’s an economic benefit to the city for doing stuff like that.”

When the recommendation was brought forth to city council Tuesday, many members were not on board with using a grant to fund development and said it set a bad precedent.

“Are we OK with this?” council member Kevin Spears asked staff at the meeting. 

He was clear he didn’t support applying for a grant on behalf of a developer.

“I don’t really feel like this is about affordable housing; it’s more about the Gateway than affordable housing,” he said, referring to the mixed-use development. “Affordable housing is just what sells it to us and allows us to sell it to the people.”

Council member Luke Waddell agreed and voiced additional issues.

“We see private developers come before us, who have worked diligently to include workforce housing into their plan without us giving them $4.5 million in cash we can get from a grant,” he said. “It’s sending a damaging message to all folks out there trying and working hard to make a project pencil and work on their own.”

East West is proposing 900-square-foot units, ensuring 60 of them remain affordable for 20 years.

City attorney Meredith Everhart explained how she calculated the financial benefit to the city.

“The way a public private partnership works, legally, is whatever we give them as far as the city to the developer, we have to get back at least that much in return,” she said.

Based on the number of affordable units being proposed, the benefit to the city over 20 years would be between $13.5 million and $16 million, Everhart said.

The city would also gift the developers roughly 5 acres of land at 901 N. Third, 922 N. Front, 908 N. Front and 1021 N. Front streets, last valued at $8.5 million. Caudle said Tuesday the properties are currently undergoing an updated appraisal that could be closer to $10 million.

“This is one hell of a deal for East West,” Spears said.

Mayor pro tem Margaret Haynes pointed out East West incorporated 10% workforce housing into one of its recent developments on Oleander Drive, The Range, and did not ask for any financial assistance from the city.

“Municipal government does not build workforce or affordable housing,” she said. “The city has made a commitment over the past few years to chip away at it by doing this type of thing — encouraging developers to provide that housing by being incentivized. It’s not terribly unusual.”

Council member Clifford Barnett, a proponent for affordable housing, thought $4.5 million is “giving them too much.”

Spears quipped he was in the wrong business: “I need to get off council and be a developer. That’s where the money is.”

Caudle confirmed this would be the only money the city is applying for during the endowment’s current grant cycle. He also said it would be in the form of a reimbursement, meaning the endowment would not give out the funds until the work was done.

“If there’s nothing to reimburse, they hold onto the funds,” he said in response to Waddell’s inquiry about what happens if the deal with East West falls through.

Council member Neil Anderson said the reimbursement provision made him “more comfortable” with applying for the grant.

“I’d hate to apply and not use it, but it’s not coming into our account,” he said. “It’s staying in theirs until we spend it.”

Anderson also noted it was worth at least submitting the application; the endowment still has to vote on whether to approve it.

Council ultimately voted against applying for the grant 4-2, with Haynes and Anderson the sole supporters.

“There’s a disconnect between using the land as economic development or selling it for the most money you can get,” Siegel said. “That’s what [the city]’s got to choose.”

Negotiations are still underway between East West and the city, as an alternate funding source is examined.

“We’re just going to retool and rethink about it,” Siegel said, “and come back with some fresh ideas.”

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