Mix of Tax Credits Brings Back Legendary Buildings in Jacksonville, Fla.

Published by Brad Stanhope on Tuesday, May 8, 2018
Journal cover thumb May 2018

Barnett Tower is a symbol of both the old days and the future for Jacksonville, Fla.
The former headquarters of the largest bank in Florida sat vacant for decades, but now is part of a renovation funded partly by equity from new markets tax credits (NMTCs) and historic tax credits (HTCs). The mixed-use property–with residential, commercial and educational space–will host its first tenants by the end of the year.

Once finished, Barnett Tower will have 46,166 square feet of commercial and office space on the first seven floors and 108 multifamily apartments–22 designated as affordable–on floors 8-18.

“I feel personally privileged to do work on these buildings,” said Steve Atkins, principal and managing director of SouthEast Group, which is partnering with The Molasky Group of Companies as developer. “When these get done, they will really be trophy projects.”

While Barnett Tower is under construction, SouthEast Group is also renovating the across-the-street Laura Street Trio buildings into a boutique hotel with retail space–also using NMTCs and HTCs.

Journal May 2018 HTC Barnett Tower photo

Image: Courtesy of SouthEast Development Group LLC
This artist’s rendering shows how Barnett Tower will look after its renovation into a mixed-use property funded by equity from new markets tax credits and historic tax credits.

History

The Barnett National Bank Building, built in 1926 as the bank’s headquarters, was the tallest building in Jacksonville until 1954.

“[Barnett National] was the biggest bank in Florida for years,” Atkins said. “There are so many people who worked in the building and are still in the community. They have such great memories of it.”

In 1993, the bank moved into a new building and Barnett Tower became home to a decreasing number of tenants before it fell into disrepair and was largely abandoned, similar to the Laura Street Trio (built in 1902, 1908 and 1911). Those buildings were formerly known as the Marble Bank Building, Bisbee Building and Florida Life Building.

“My interest began about 13 years ago,” Atkins said. “I was a developer in Jacksonville and our portfolio was in the southeastern United States. I am interested in historic properties and adaptive reuse. I’m from Jacksonville, so I wanted to see what kind of role I could play.”

Eight years ago, Atkins looked at the bank-owned properties. A previous owner planned to make them high-end condominiums, but that deal fell apart during the Great Recession. There was then interest in converting the buildings to offices, but nothing happened.

“What was obvious was that mixed-use was the best use,” Atkins said. “But doing adaptive reuse and mixed-use is complicated.”

The deal came together–with tax credits playing a significant role.

Details of the Property

Once completed, Barnett Tower will have a mix of tenants. The regional headquarters of JPMorgan Chase will be on the first floor, one level below a health and wellness firm. Above that will be the Coggin College of Business from the University of North Florida, with several hundred students and entrepreneurial space. Above that will be 108 apartments, ranging from 600 square feet to 1,200 square feet. 

“We put a bit of a priority on projects that offer co-working space,” said Brittany Major, vice president at Enhanced Capital, a community development entity (CDE) that allocated $10 million to the development. “This has a very critical business incubator project that will produce a strong community impact in other ways as well.

The housing space is needed. “For the small amount of housing in downtown Jacksonville, units are 100 percent leased up,” said Chuck Shealy, real estate and lending program officer at Local Initiatives Support Corporation (LISC) Jacksonville, another CDE. “This is 20 percent affordable [apartments] at 80 percent of the AMI.”

“Residential multifamily is still one of the hottest markets,” Atkins said.

“We look at this as a solid revitalization project with a small business entrepreneurship element that put it over the top,” said Bob Poznanski, senior vice president, LISC New Markets. “This boosts downtown Jacksonville, which is what we and the other CDEs are looking for.”

Turning Around Downtown

The development of Barnett Tower and the Laura Trio will be significant for Jacksonville’s downtown.

“One of the things that was incredibly attractive was that it was evident that the reactivation of these buildings would be key to revitalizing downtown Jacksonville,” Major said. “The downtown area has tremendous potential and provides the necessary energy for its revitalization while also serving as a draw for younger generations, who want to be close to a vibrant downtown.”

Atkins stresses the connection of Barnett Tower and the Laura Trio. “They’re literally located across the street, so we saw the value of doing them together,” Atkins said. “From a developer’s perspective, if you’re spending a lot of money on one side of the street, it doesn’t make sense to let the other side stay the same if you can help it.”

The area is in need of a significant upgrade. “Jacksonville will really benefit from this development,” said Gregory Clements, a partner in the Dover, Ohio, office of Novogradac & Company who compiled a financial forecast for the transaction. “This is not only a great historic tax credit deal; this is really the definition of a catalytic new markets tax credit transaction. It will make a huge difference.”

Shealy works there.

“If I walk out of my office tonight at 7, there will be kids skateboarding down the streets of downtown Jacksonville, because there’s no traffic,” Shealy said. “In two years, you could see 300 people on the street at 7 p.m.”

Twinning Tax Credits

NMTC equity will be used on the lower levels of Barnett Tower and HTC equity will be applied to the entire building, while the Laura Trio will use both tax credits.

“There’s certainly added effort in the historic preservation process and keeping in the guidelines,” Atkins said. “One advantage is the demo[lition] work had already been done, so all the interiors were gone. There are certain historic components we’d like to have kept, but we’re not as restricted now. We’re going through the full preservation of the historic banking lobby, but on the upper levels, there’s not much left. Just the exterior.”

Ty Scheske, project manager at lone tax credit investor U.S. Bancorp Community Development Corporation (USBCDC), admitted the deal was complex.

“It’s difficult anytime you do a twinning transaction,” Scheske said. “There are myriad tax issues with either tax credit and when you meld them together, they are much more difficult to solve. That’s one of the downsides, but the benefits outweigh it.”

Tax credits were included because they were necessary. “There’s no way this gets done without the contribution of the new markets tax credits and historic tax credits,” Shealy said. “They had to come into play.”

Financing

Enhanced Community Development and Urban Action Community Development allocated $10 million each in NMTCs, while LISC allocated about $8 million. USBCDC provided $9.4 million in NMTC equity, $7 million in HTC equity.

In addition, the developers contributed $9.3 million in private equity, the city contributed a $4 million grant and there was a deferred developer fee and prepaid tenant improvements.

“We had seen [the property] bouncing around,” said Joseph Summers, director of investment services for Urban Action Community Development. “We knew they had made several efforts to get it off the ground. … We have a 50 percent underserved state requirement and Florida is underserved. The fact that it’s a distressed area appeals to us and the support from the city weighs on our interest in a project.”

Next Steps

Atkins said work on the interior of the Barnett Tower will begin this year, with the University of North Florida moving in December. The apartments should be available beginning in spring 2019. Meanwhile, construction on the Laura Trio could start this summer.

“We’re finalizing plans for those buildings and will present them to the National Park Service for review in the next three or four months,” Atkins said. “Once they give us approvals, we’ll look to mobilize on that site this summer. We’re looking at 12 months to put back together and then start new construction. We could be open in 2020.”

For Atkins, the thrill of this development is being able to renovate and restore an iconic building in the city where he lives. “I can’t express enough how proud we are of not only this project, but how the community embraced it,” Atkins said. “People call us, email us and contact us on social media about how excited they are. … It’s overwhelmingly positive.” 

Journal May 2018 HTC Barnett Tower Financing