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City debates lease vs. sale of Eastland land

As the city of Charlotte considers whether to strike a deal with movie executive Bert Hesse to redevelop the Eastland Mall site, one of the first hurdles is deciding whether to lease or sell the land to Hesse’s Studio Development Charlotte Group.

Hesse has requested the city sell him the 80 acres at Eastland for a nominal fee of $1, in addition to providing $24.7 million in city and county property tax rebates.

The city’s economic development office is OK with the concept of providing Hesse the land for a nominal fee.

But it’s unsure about selling the property to Hesse, or whether it would prefer a long-term lease, which could give the city more leverage concerning how and when the site is developed.

The issue of selling the land versus leasing it to Hesse will be a key point of negotiations during the next two months.

The city hopes to redevelop Eastland into a mixed-use project that will spark an economic revival on the eastside.

At a City Council committee meeting last week, the city’s economic development director, Brad Richardson, told council members that Hesse would like to own the land to help him secure loans to finance the project. The land could be used as collateral, Richardson said.

“That’s driving the need for holding the land,” Richardson said in an interview.

But Richardson said the city must ensure that any sale would give the city the ability to re-take the property if the movie studio project didn’t move forward.

“We won’t sell it for a dollar and then allow the developer to realize a large upside (by selling the land),” Richardson said. “We couldn’t let them realize a windfall that the public doesn’t share in.”

Hesse said this week that his desire to own the land isn’t driven by a need for collateral to secure tens of millions of dollars of financing. He said he wants the city to show its commitment to the project.

“The (collateral) is not the key point,” Hesse said.

He added there is another upside to him owning the land: He would be paying city and county property taxes on the land.

The city bought the 80 acres at Eastland Mall for $13.2 million in summer 2012. It is spending nearly $1 million to demolish the mall.

When the city or county enters a public-private partnership to develop a site, local governments often offer a long-term lease for a nominal amount, Richardson said. That was the case when the city offered land to the Carolina Panthers in the early 1990s, and when Mecklenburg County provided land to the Charlotte Knights baseball team for a new stadium under construction uptown.

But Richardson said the city has done deals in which it parted with land. One was last year’s decision to sell the Carolina Theatre to the Foundation for the Carolinas for $1.

In that case, Richardson said the city has “performance criteria” that were written into the contract. If the foundation hasn’t begun renovations of the theater by 2018, Richardson said it would be in default and have to pay the city fair-market value for the property.

At last week’s committee meeting, outgoing District 1 council member Billy Maddalon asked whether the city could sell or lease Hesse a portion of the 80 acres for only the first phase of his project. After that phase is built, the city could provide Studio Development Charlotte with additional pieces of the Eastland site.

Hesse has indicated he would like the property in its entirety. He wants to do infrastructure work for the entire site, even if the development would be built in phases.

“We want to get the development up and running as fast as possible,” Hesse said. “We don’t want a 10-year build out.”

Another potential sticking point in negotiations with the city is Hesse’s request for city and county tax breaks.

The city and county often offer property tax rebates for new projects, but the deals are structured so that the project is finished – and taxes paid – before any money is given back.

Hesse told the city the first phase of his Eastland development would cost $89.6 million.

He said he and his partners – Pacifica Ventures of Santa Monica, Calif. – would bring $19.4 million in cash to the deal. They would take out $39.2 million in debt and seek tax credits worth $15.2 million for the first phase of their project. To finish the entire site, they would need $24.7 million.

The problem is that the first phase of the project isn’t expected to produce enough new property tax revenue within 10 years to cover the cost of the tax credits.

City staff estimated the first phase would create, at most, $8.5 million in new city and county taxes within 10 years.

That would leave the City Council having to give Hesse upfront money, something the city has been reluctant to do in the past.

Harrison: 704-358-5160
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