WILMINGTON — An ongoing battle to redevelop an old bus depot on Castle Street has come to a close as developer Clark Hipp withdrew his proposal to invest $10 million to build affordable housing and create a commercial community project.
The city sought proposals to develop the 1.5-acre property, zoned for urban mixed-use, at 1110 Castle St. in April 2019; Hipp Architecture and Development was the only one to submit a plan. Over the last 16 months, Hipp said he and the city have been renegotiating what that proposal looks like, but he didn’t think a resolution could be reached.
The city expressed concerns over the number of residential units deemed affordable housing and about the ongoing timeline for this deal to come to fruition. There were also financial questions about the project, since the proposal had changed and construction prices had risen.
“We were a willing, private development entity ready to do something, and it was very much a one-sided effort,” Hipp said. “City staff wasn’t really willing to take some risks.”
The city had ongoing concerns over whether Hipp’s intended use of the property would break state law. A state general statute prevents a city from deeding land at no cost unless the land is being used for a public purpose.
Hipp’s original proposal was to transform the two 1940s dilapidated structures on site for commercial use and dedicate 18 to 20 units to workforce housing. The city was willing to allow Hipp to develop the property, at no purchase cost, as long as he provided a subsidy for affordable housing. The city also asked that the affordable housing be sustained for 15 years or the property would revert to the city.
Hipp’s goal was to construct residential units and then sell them at cost for another group to manage. The affordable housing project would subsidize the redevelopment of the commercial side, over which Hipp would retain control and lease or sell at market value.
However, if the third party who bought the residential housing were to renege on the deal, the commercial piece would also revert to the city.
“While we were willing to overlook that on the residential piece because of the need for affordable housing, the same reversion agreement applied to the commercial piece, which made it impossible to leverage that commercial piece for any type of return,” Hipp explained.
The city informed Hipp his planned commercial portion wouldn’t meet the definition of a public purpose, so he had to reevaluate.
“We were truly trying to develop a public-private partnership,” Hipp said. “[W]e spent four or five months trying to find a solution that would allow us to do the affordable housing but have a nonprofit take over the ‘commercial piece.’”
Hipp submitted an updated proposal in September 2021 and included a “last-ditch effort” to fold in local nonprofit Genesis Block to take over the commercial project by creating a food incubator and entrepreneurship center. A nonprofit that promotes minority and women-owned businesses, Genesis Block would take financial responsibility and Hipp Architecture and Development would be contracted to develop their buildings.
“We would redevelop in the same format we proposed but instead of us trying to lease those to the market, it will go to a nonprofit for someone who promotes exactly what the community needs and by an organization that is of the community, in the community,” Hipp said.
Since Genesis Block’s proposed facility would be considered for a public purpose, Hipp said the city should gift the land, appraised at $230,000.
At the Oct. 19, 2021 city council meeting, Hipp presented to the city his updated plan to include 23 residential units, 15 of which would be sold or leased to residents making less than 80% of the area median income (AMI). This rate would be guaranteed for 15 years, and the remaining eight units would be sold at market rates to create a mixed-income property.
Hipp told council he had a financial partner (Ken Dull, president of McKinley Building Corporation) committed to contribute the $5 or $6 million it would cost to build the residential units.
Council member Kevin Spears explained 80% AMI would equal a salary of roughly $56,000 based on the city’s current average income of $70,000.
“Are we aware or conscientious of how many people in the community don’t make anywhere near that 80, 70 or even 60%?” he asked during the meeting. “So, people will be displaced by this project; there’s no other way to say it.”
City council countered Hipp’s proposal, requesting 18 units with an average of 70% AMI.
Hipp said throughout the meeting he would be willing to have a conversation about adjusting the numbers, but he also had to consider his investment.
“It’s not my best offer, I’m willing to discuss how to modify it,” he said. “But 23 units is what we can build on the property. My investors are not going to invest in something to lose money.”
Hipp also noted, when he originally proposed the development, it was $170,000 to construct each unit. Two years later, material prices have jumped, increasing the cost to $219,000 per unit.
“No one could have predicted that,” he told council. “And it’s nobody’s fault. But it’s difficult to provide affordable housing. If it weren’t difficult, everyone would be doing it.”
Hipp suggested the city invest money in the project, allowing him to negotiate on the AMI percentage or number of units.
“I want to know what the number is to make it work,” Mayor Bill Saffo said at the meeting. “It’s a significant investment for the taxpayers and I want to know what that rate of return is.”
Mayor Pro Tem Margaret Haynes suggested council put out a new request for proposal (RFP) since the project changed so drastically over two years. She indicated the move would make the most sense for both the city and Hipp.
“We ought to all regroup and get a fresh look at this,” she said.
After lengthy and heated discussion, the council voted to revisit the proposal in January, since Hipp said 60 days would be a reasonable amount of time to evaluate how much of an investment might be needed from the city to reach a compromise.
READ MORE: City’s Castle Street developer barely hangs on to old bus yard project
However on Dec. 15, 2021, Hipp withdrew his proposal, citing his expectation to “absorb a greater level of risk and responsibility” than what he was comfortable with, greater than what was initially proposed and accepted by the city.
“[I]t’s a unique situation that has the ability to work if both parties are willing to step up and go down this path,” Hipp said. “There will be a lot of people out there who want to torpedo good efforts, but you have to be willing to put up with it.”
In response, the city sent Hipp a brief letter acknowledging his withdrawal and thanking him for his efforts.
“Basically, it was me trying to put together investors to make a significant positive impact in the community,” Hipp said. “I’m disappointed through the whole process that the city did not actively assist in finding a way to make this work. They kept putting it on us to come up with a solution.”
The city will present a resolution at its Jan. 18 council meeting to develop a new RFP for the Castle Street property. According to the Greater Wilmington Business Journal, Genesis Block plans to continue its own efforts to develop the area, if a new RFP is issued.
The meeting can be streamed on GTV8 or the city’s YouTube channel.
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