Friday, December 2, 2022

Roadblock for Project Grace won’t stop county officials from pursuing its plan

County officials still plan to construct a combined library and museum facility on the 3-acre downtown block comprising Chestnut, Grace, 2nd and 3rd streets. (Courtesy/New Hanover County)

NEW HANOVER COUNTY — County officials are regrouping on plans to redevelop a 3-acre block downtown, after the state entity overseeing local government financing denied its strategy that had been reworked over the last five years.

New Hanover officials engaged in a public-private partnership with Zimmer Development Company for Project Grace to construct a new combined library and museum on Grace, between 2nd and 3rd Streets. On another portion of the parcel, one block over on Chestnut Street, would be Zimmer’s private investment to feature apartments and mixed-use commercial space, including a hotel. 

READ MORE: Project Grace rejected: County to regroup on library-museum redevelopment plans following lack of LGC support

The county would have paid $84 million over 20 years for Zimmer to front the costs of the build, in effect earning a roughly 8% profit. The Local Government Commission’s biggest hang-up in the plan was the fact the county is in a financial position to borrow the money on its own at a much lower interest rate, around 3.25%. 

“And it should be for the benefit of the taxpayers, not a developer,” State Treasurer Dale Folwell, who chairs the commission, told Port City Daily on a call Friday.

During its Thursday meeting, the LGC board did not approve the contract as slated. Board member Vida Harvey — vice president and assistant general counsel for Novant Health — made the motion to approve. No one seconded, causing it to fail on a technicality. 

“I never speak for fellow board members, but when something fails for lack of a second, mathematically that tells you everything you need to know,” Folwell said, adding he was surprised there was even a motion in the first place.

County officials have said the setback will not deter them from forging ahead, though they remain frustrated with the outcome. 

“After a thorough review of the financing plans (the LGC’s realm of authority) Project Grace was fully recommended for approval by the LGC staff, who had the full facts and details of the project; had a complete understanding of all the positive aspects Project Grace would bring to our community,” commissioner vice chair Deb Hays wrote in a statement to Port City Daily. “So, yes, I am quite disappointed in the handling of this issue by the LGC and their decision.”

She added the board of commissioners is still “united in full support” of the project moving forward.

“We see the value that this project can bring to our entire community,” Hays wrote, “to give them a state-of-the-art education and civic center to learn from and relish our history and to envision our dynamic future.”

County manager Chris Coudriet confirmed the county will purchase the “full construction-ready plans” from Zimmer to continue with a combined New Hanover County Library and Cape Fear Museum as proposed.

Though “in what form, we’re not quite sure yet,” commissioner Rob Zapple said. He indicated the new building is necessary based on the age of the current structures and proposed modern concept of the improved design.

“Library, museum and facilities management staff have invested a lot of time into these plans, and they really capture the county’s needs and the community’s vision for this facility, so we want to ensure we can proceed with them,” Coudriet told PCD.

During Thursday’s LGC meeting, Wilmington advocate Diana Hill raised many concerns to the board, including the demolition of the library and historic Borst building, the latter a contributing structure in the city’s historic district.

“Every piece of property that gets demolished in a city impacts the handprint, so when someone wants to renovate a historic building, it impacts how much federal and state taxes they get,” Hill said. 

The library was formerly a Belk Beery Department store, built in 1952. It underwent $3 million in renovations in 1981 before opening as a library. The Borst building, located on Second Street, was constructed in 1926 as a Chrysler Corporation dealership and acted as the county’s previous Register of Deeds.

Chair Julia Olson-Bosman told the LGC Thursday the buildings are “a blight on the community.” She also added she heard from fellow residents that the Belk-Berry building “reminds them of segregation,” adding Black individuals were only allowed to shop in the basement level in the mid-20th century.

Coudriet chimed in that removing the Borst building would have “no risk on the historic preservation designation” of the downtown area.

Historic Wilmington Foundation executive director Travis Gilbert called into the LGC meeting and asked to speak, saying Coudriet’s statement wasn’t correct. He explained the National Register Historic District is a collection of recognized buildings.

“It takes a certain number of contributing resources within a geographic area to create a national register designation,” Gilbert explained. “The destruction of one source is like a domino. There are financial repercussions of a boundary decrease tied to the historic preservation tax credits.”

Coudriet added the removal of the Borst building “would have no bearing on the tapestry of decisions other property holders might take.”

Gilbert has previously taken a stand to save the Borst building, asking the county to place it in a historic preservation easement. But the county never agreed.

County spokesperson Jessica Loeper confirmed based on the design plans, placing the new library and museum on the Grace Street side of the block, the Borst building would still require removal. The fate of the current library is still undetermined at this time, she added.

The deal organized with Zimmer benefitted the county on construction costs, as its annual payments to the developer would not rise, despite material and labor prices spiking. Zimmer absorbed all costs for design plans up to this point and the county’s investment involved funding the initial market study, site analysis and due diligence prior to releasing the request for qualifications in 2018.

Coudriet added the library and museum will “likely” be constructed by issuing debt, which will still require LGC approval.

“Given today’s market, it will cost the county more to do the same project,” Zapple said. 

Since the county filed its application with the LGC, the federal government has raised interest rates three times, the current federal fund rate between 2.25% and 2.5%.

“When you’re talking about tens of millions of dollars, that’s millions of dollars more in interest to borrow money to make the project happen,” Zapple said. “I know the treasurer did his best, but it sure seemed like he made an emotional decision after he dug his heels in.”

“There’s nothing wrong with getting emotional when it comes to taxpayer’s money,” Folwell told PCD in response. 

He added other counties across the state have refurbished or rebuilt libraries in recent years, which he cited as “terrific examples.” 

“It’s not rocket science,” Folwell said. “I just think it seems every transaction in New Hanover County in the last four years has had a level of complexity that, in my opinion, is not necessary.”

Folwell was referring to the county’s new government center, which faced scrutiny as well. The county attempted to enter into a P3 with FD Stonewater in 2020 for the developer to buy the current government center property for mixed-use development.

“At the last minute, when it came to re-financing the government center, we gave them suggestions that ended up saving taxpayers in New Hanover County over $20 million in interest,” Folwell told PCD last month.

As a result, the county is now borrowing funds through a conventional loan instead of leasing from the developer, who is still managing the construction.

Pitching Project Grace as P3 was essential, the county said, as it allowed the government entity to negotiate with Zimmer what would be built and when. The developer agreed to invest $30 million, which would bring property tax and room occupancy tax to the county and city, and to construct the mixed-use component within three years. This also eased any concern of property being purchased and sitting empty without use.

“Someone else can buy the land and do whatever the Sam Hill they want,” Zapple said. “Maybe we don’t want to sell it. Once we do, we give up control and I would hate to see something inappropriate go in. It’s a highly visible area in downtown Wilmington. We were planning on putting something there that would really lift and showcase the area.”

The county is in discussions with Zimmer and its legal staff to determine what kind of partnership model or structure could be pursued for the private development of the block, Coudriet confirmed. 

Folwell’s stance is that if a developer is going to invest millions of dollars in a highly visible piece of property, he imagines it would be for a good use.

“This idea that you can’t put restrictions on what people bid after you sell it to them, as a lay person, seems nonsensical to me,” the state treasurer said.

He also iterated he’s never been opposed to the need for the county to construct a joint structure for the community’s use, only the complexity of the lease agreement.

“If they need a new library and museum, then build it,” he said, again noting the strong financial position the county is in. “Other counties would trade places with them in a heartbeat.”

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