PORTSMOUTH — A draft of the financial plan between the city and its development partners describes the proposed redevelopment of the McIntyre Federal Building property as “speculative.”

The agreement between the city and Redgate/Kane notes “unlike many projects built in today’s real estate market, the McIntyre plan does not yet have any contractually signed retail or commercial partners.”

The draft agreement does state Redgate/Kane has a non-binding commitment from tech company HubSpot to fill two-thirds of the office space in a renovated McIntyre.

“Once the project successfully completes the City Council, National Park Service and permitting processes, HubSpot will occupy the majority of the office space and become the anchor tenant at the McIntyre site,” Redgate/Kane has stated.

But the financial agreement states “there is no guarantee that the units, both residential and commercial, created within the current redevelopment plan will be filled when the project opens its doors.”

“Additionally, many of the units will need to achieve market setting rents for the project to be financially feasible, introducing a further measure of risk into the project.”

It is because of the project’s risk, the financial agreement states the city and Redgate/Kane came to the financial agreement they did.

Deputy City Manager Nancy Colbert Puff stated the draft agreement is “the result of a team effort, the city and its consultants, and Redgate/Kane and its consultants.”

The draft agreement does note “that as the project matures this risk will decline, spelling out increased revenue for the project and the city in the future.”

The city is working to redevelop the property through the Historic Monument Program. If its 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 federal building.

Redgate/Kane’s plan also calls for building two new mixed-use buildings with commercial and retail on the first floor, and 76 high-end apartments above. Fifty-eight 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 will be $2,975 a month.

Despite the project's risks, the city “strongly believes in the viability of this project, and the benefits of a redeveloped McIntyre site for the community of Portsmouth,” according to the draft financial agreement.

“We are confident that potential investors will look at this financial plan and decide the McIntyre site is an attractive investment in today’s competitive capital markets,” the draft financial agreement states. “We have worked with the developer to structure the profit sharing and excess income provisions in order to make the project appealing to both debt and equity capital investors and the city of Portsmouth, creating an equitable structure that will allow the project to be profitable while at the same time providing Portsmouth with the annual revenue it expects.”

“We are confident in the future of the McIntyre and believe that this project will be a vital asset to the community of Portsmouth for generations to come,” the draft agreement adds.

Michael Kane, president and chief executive officer of The Kane Company, acknowledged the risk involved with the project but added “that’s the nature of our business.”

“We take on a lot of risks and we try to be smart about it,” he said Tuesday.

He called the McIntyre redevelopment “an amazing project that we want to be involved in despite the risk.”

The 18-page draft agreement was distributed at Monday night’s City Council workshop.

The draft also states any project’s “financial feasibility hinges on its ability to attract capital investors.” The draft financial agreement then points to “the extraordinary risks associated with this project that investors will be facing.” Those risks, according to the agreement, include:

The development being described as falling into “the riskier, opportunistic spectrum of investment;

Portsmouth is a “relatively risky geographic location” for investors when compared to Boston or New York. That sometimes results in “greater variations in value over time;”

The project is a mix of commercial and residential, while many investors want to see one or the other; and

The developers will not own the land but rather enter into a ground lease with the city for 75 years. “Investors often expect to see a term of 99 years,” the financial agreement states.

“Based on these risks, we have identified that the projected returns for this project are at the low end of what institutional equity would traditionally require for such a risky project in today’s capital markets. In order to attract equity capital, the project must be able to demonstrate the possibility that returns could exceed projections and that equity capital would be allowed to receive those higher returns if achieved,” the draft financial agreement states. “For those reasons, we have identified that a proposed overall limitation of 21% return on equity will be challenging, and any limitation lower than that would not be adequate to attract institutional equity interest in a project with these development risks and constraints.”

That 21% return on equity references a financial benefit the city will get when the developers make “excess profit” under Historic Monument Program provisions.

The draft financial agreement also outlines, as did the city’s consultant David Eaton, the financial benefits the city will receive under the proposed public/private partnership with Redgate/Kane. The benefits include an estimated $500,000 in annual property taxes, a ground lease that starts in month 18 at $100,000 a year and increases by 2.5% for inflation each year and 1% of annual revenue that starts in year 11 of the project, according to the agreement.

The city will also share in proceeds from refinancing events. Under the first refinancing event, the city will receive 7.5% of the net proceeds and 10% of all future refinancing events, Eaton said.

If developers share their leasehold interest during the 75-year term, the city will receive 20% of the net proceeds after the developers earn an 18% return on their investment.

Redgate/Kane also agreed to provide 3,311 square feet of indoor community space “they will build and they will operate at no rent and no reimbursement of operating expenses,” Eaton said at Monday’s council workshop. The value of that is about $123,000 annually, he said.

Development costs for the entire project are estimated at $61,085,869, according to the financial agreement. Construction is expected to take 18 months.