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Multimillion Dollar Renovation Revives State Capital

Published by Jennifer Dockery on Sunday, August 1, 2010

Journal cover August 2010   Download PDF

When HRI Properties, local developer David Watkins and former NFL running back Deuce McAllister began renovating the historic King Edward, Standard Life and Hines Motor Company buildings in downtown Jackson, Miss., the area had been losing residents and businesses for decades. Visitors to the King Edward’s upper floors in 2008 could gaze into the surrounding buildings through the gaping holes in their roofs. The Jackson Redevelopment Authority (JRA), which owned the three iconic buildings, believed that renovating the structures could bring businesses back into downtown. Now, as HRI completes the last phase of development, JRA can celebrate the smaller redevelopment projects that the project has spurred in the state capital.

“King Edward was and is one of the most important buildings in the city. It really has provided an immediate boost for small scale reinvestment in the area,” said Josh Collen, HRI’s vice president of development.

Serving as a catalyst for downtown Jackson has not been easy for the development team. The developers combined state and federal historic tax credits (HTCs), state and federal new markets tax credits (NMTCs), Gulf Opportunity (GO) Zone bonds and Katrina Community Development Block Grant (KCDBG) loans, and city and county tax increment financing (TIF) to fund the renovations. The complex financial structure utilized a master lease and required private letter rulings (PLRs) from the Internal Revenue Service (IRS) and the Mississippi State Tax Commission. Throughout the project, HRI worked with nearly 30 public and private entities. The result of the $123 million transaction will be 140 apartments, 186 hotel rooms, more than 2,600 square feet of retail space, a 158-space parking garage, 77 surface parking spaces, and a Seattle’s Best coffee shop.

HRI worked closely with the National Park Service (NPS) and Mississippi Department of Archives and History (MDAH) throughout the project to ensure that the renovations complied with federal and state HTC regulations. HRI and its consultant, Heritage Consulting Group, met early and often with the NPS and MDAH reviewers to identify and address potential issues.

“The King Edward was a legendary hotel in Jackson, the site of many important social and political events. The Standard Life Building is significant as an example of art deco skyscraper construction. The people of the city value the architecture of that building,” said Heritage’s Cindy Hamilton. Heritage assists property owners seeking historic rehabilitation related tax incentives.

Built in 1923, the King Edward once served as the capital’s premiere hotel. In 1955, the owner renovated the building, covering many of the building’s Neo-Classical features and replacing its grand marble staircase with an escalator. By 1970, the National Register of Historic Places-listed building was vacant. During the next 40 years, the building’s condition deteriorated; the damage limited the potential for using the original building materials, Hamilton said. HRI salvaged what it could and then used modern materials to reconstruct the historic features.

The developers restored the lobby, ballroom and its rooftop sign to their original appearances and worked with the Hilton hotel chain to incorporate modern hotel amenities within the historic floorplate. They put a pool and fitness center in the basement and created a residential amenity deck on the roof. The building now contains the Hilton Garden Inn Downtown Jackson, 64 luxury apartments and a Seattle’s Best Coffee Shop. The Hines Motor Company building serves as a parking garage for the project.

The Standard Life building, a 1929 art deco building, housed only a few city offices when the building was purchased from JRA. When the renovations are complete later this year, the building will contain 76 luxury apartments and 2,600 square feet of retail space.

Redevelopment costs for the King Edward and Standard Life Mixed-Use Project were approximately $123 million. The project utilized proceeds from two GO Zone tax-exempt bond issuances – one at the original King Edward closing in 2008 and a second at the time that the Standard Life building was acquired in 2009 – that totaled nearly $50 million. All of the GO Zone bonds proceeds were direct traced to ensure they were utilized on the hotel component of the project. Capital One and Whitney National Bank provided $20 million and $1.5 million, respectively, in NMTC equity investments and Chevron invested more than $33 million for the HTCs and NMTCs. The Mississippi Development Authority provided a $2 million grant/loan; Hinds County provided a nearly $2.3 million KCDBG loan; and JRA provided a $900,000 acquisition loan. The project also carried $1.3 million in bank debt, received $2 million TIF from the city of Jackson and Hinds County, and accrued approximately $10 million in deferred developer fees.

“This project is a bull’s-eye in terms of what the new markets tax credit program was created to do. The success of this incredibly challenging project has become a major economic development catalyst by shattering perceptions of what is possible in Jackson, Mississippi” said Deborah La Franchi, president and chief executive officer of Strategic Development Solutions, which operates the National New Markets Fund, which provided $15 million in federal NMTC allocation to the project.

To qualify for NMTC financing, the entire project had to be treated as “nonresidential real property” for tax purposes, which requires that the residential portion of a mixed-use building generate less than 80 percent of its revenue. The project met this requirement by treating the entire development as a single integrated building.

“The hotel component’s revenue is such a large percentage of the overall project’s revenue. But for the hotel component in the King Edward, Standard Life would not qualify for new markets tax credits,” Collen said.

The project requested a PLR from the IRS to ensure that the buildings met the program requirements. The IRS issued a PLR about the integrated building test that confirmed that the entire project would be treated as nonresidential real property. HRI used the PLR to help assure investors that they could claim the NMTC. “The IRS really understands the power of these programs to transform communities … and can work with owners through the private letter ruling process to provide that comfort to lenders and investors,” Collen said.  

HRI completed the King Edward renovations in October of 2009 and the Hilton Garden Inn opened in December of the same year. Hilton Hotels honored it as the best conversion and the Jackson Free Press declared it the best change to the city in 2010. At press time, the Standard Life building was 89 percent complete and the Free Press called it 2010’s best project under construction. The construction phase provided 411 jobs and 115 permanent full-time equivalent jobs have already been created.

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