PORTSMOUTH – A consultant hired by the city to work on Portsmouth’s financial plan with Redgate/Kane touted the strength of the proposed redevelopment project for the McIntyre federal building Monday night.
David Eaton, a principal of Colliers International, stated in response to a question we “feel it’s a very strong project.”
He added he believes the redevelopment plan will be able to “sustain the ups and downs of the market.”
“Portsmouth is a unique little market here,” Eaton said during Monday’s meeting, where members of the public were allowed to ask him questions about the proposed financial plan between the city and Redgate/Kane.
He added that the market was “very, very strong” in terms of occupancy rates.
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 2.1 acre property in the heart of the downtown for free from the General Services Administration, which owns it.
But they must retain the federal building.
Redgate/Kane’s plan 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.
Bill Hamilton is one of the leaders of Revisit McIntyre, a group that opposes the proposed redevelopment and wants the City Council to begin the process again.
Hamilton was one of the people who peppered Eaton with questions about the proposed financial plan, which the consultant helped draft.
Hamilton pointed out that in the document “Mr. Eaton chose to use the work risk, risky, riskier and speculative 22 times.”
“Despite the assurances of Mr. Eaton tonight that the financial picture was very comfortable, I seriously question that,” Hamilton said during Monday’s meeting, which was attended by close to 100 people.
The draft financial agreement also points to “the extraordinary risks associated with this project that investors will be facing.”
Hamilton asked if the project struggled could developers come back to the city with a request to build a hotel there instead.
Deputy City Manager Nancy Colbert Puff, who is in charge of the redevelopment project on the city side, said developers, would have to “repetition the park service.”
City resident Steve Barndollar asked how the city came up with the $100,000 annual ground lease that Redgate/Kane will have to pay for using the property.
Eaton replied that it was “done based on residual ability to pay.”
“This is a very, very tight deal,” Eaton said, adding “there is not a lot of excess cash flow in this deal.”
When the city looked at increasing the ground rent, they decided “it’s a partnership,” Eaton said.
Barndollar then asked if residents should be concerned about the “thinness of cash flow” in the deal.
Eaton replied “there’s no downside risk to the city.”
“The city’s position in collection of revenue is prioritized, so debt service comes after (the) payment of ground rent,” Eaton said. “If it’s cash flow light, the ground rent gets (paid) before the debt service.”
In addition to the annual ground lease payment that starts in month 18 after the building permit is issued, the city will receive an estimated $500,000 in annual property taxes and 1 percent 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 percent of the net proceeds and 10 percent of all future refinancing events, Eaton said.
If developers share their leasehold interest during the 75-year term, the city will receive 20 percent of the net proceeds after the developers earn an 18 percent return on their investment.