PORTSMOUTH – The city’s financial consultant told the City Council the proposed redevelopment plan for the McIntyre Federal building is economically feasible.

The City Council held a work session Monday night to hear David Eaton’s review of the proposed redevelopment by Redgate/Kane, the city’s development partners.

Eaton, of Colliers International, was hired by the city to evaluate the plan and also to help draft a financial agreement between the two.

“The McIntyre redevelopment project is economically feasible and the projected revenue can be achieved as proposed,” Eaton said.

He described the proposed redevelopment of the 2.1 acre federal building property as a “very complicated complex project with a lot of moving parts.”

The city is working to redevelop the property through the Historic Monument Program.

If their application is approved by the National Park Service, which administers the program, Portsmouth can get the property for free from the General Services Administration, which owns it.

But they must retain the existing federal building.

Redgate/Kane’s plan calls using the McIntyre for office space. They also plan to build two new mixed-use buildings with commercial and retail on the first floor, and 76 high-end apartments above.

Eaton told the council Monday that 58 of the apartments will be one bedroom and 18 will be two-bedroom and they will include a total of 92 covered parking spaces.

The average rent for the apartments, Eaton said, will be $2,975 a month.

“The apartment market in Portsmouth is extremely strong,” Eaton said, with “very, very little vacancy.”

“That rent is achievable,” he added.

 In terms of the financial benefits the city will receive from the redevelopment, Eaton said the “largest revenue” will come from real estate taxes.

“The developers projected approximately $500,000 in real estate taxes annually,” Eaton said.

In terms of a ground lease, what developers will pay each year to lease the entire property from the city, the rent will start at $100,000 a year, Eaton said.

“It would be paid on a monthly basis commencing 18 months after (receiving) a building permit,” Eaton said. “It will increase 2.5 percent annually consistent with our projections of inflation.”

The lease is set to run 75 years, he said.

Redgate/Kane has also agreed to provide 3,311 square feet on indoor community space “that they will build and they will operate at no rent and no reimbursement of operating expenses,” Eaton said.

The value of that is about $123,000 annually, Eaton said.

The proposed financial agreement also includes revenue sharing which the city will begin collecting in year 11 of the project.

The city will receive 1 percent of collected revenue, Eaton said.

“This is kind of an unusual participation, often times you participate in the profit or the cash flow, but as we negotiated with the developer it became clear the easiest way to do this is let’s take 1 percent right off the top,” Eaton said.

The projected revenues from the project in year 11 is $7.5 million, which means the city would receive $75,000 “in revenue sharing,” Eaton said.

That calculation will also go up 2.5 percent a year, he added.

Eaton also referred to the city sharing in the proceeds from refinancing events.

“In the commercial world periodically you need to replace the debt,” he said.

Often the debt is increased and there’s “net proceeds” that come out, he said.

“We wanted to make sure the city received any benefits at that point if that was to happen,” Eaton said.

Under the first refinancing event, the city will receive 7.5 percent of the net proceeds and 10 percent of all future refinancing events, Eaton said.

He also acknowledged “the developer will probably sell his leasehold interest (in the property) at some point during the 75 year term.”

If that happens under the proposed financial agreement, the city will receive 20 percent of the net proceeds after the developers earn an 18 percent return on their investment, Eaton said.