‘Frozen’ capital market pushes DIA board to OK 6-month extension for The Hardwick

Atlanta-based Carter’s evolving plans for a 358-unit residential, mixed-use Bay Street riverfront project Downtown highlights financial issues for developers.


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  • | 8:05 p.m. July 24, 2023
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The Hardwick is a 358-apartment, 22-story mixed-use project on the Bay Street riverfront in Downtown Jacksonville.
The Hardwick is a 358-apartment, 22-story mixed-use project on the Bay Street riverfront in Downtown Jacksonville.
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Atlanta-based developer Carter says “frozen” capital markets for real estate development and high construction costs have created a larger-than-expected financial gap in its plan to build a 358-apartment, 22-story mixed-use project on the Bay Street riverfront in Downtown Jacksonville.

The city Downtown Investment Authority voted 6-0 on July 24 to grant Carter a six-month extension on the company’s 14-month-old term sheet to finalize the design and costs to redevelop the former Duval County Courthouse site at 330 E. Bay Street.

DIA board Chair Jim Citrano Jr. said Carter’s financial delays are an example of a broader economic issue that Downtown Jacksonville, as well as the nation, are facing. 

“The reality of it is, we have lenders that have completely exited the market right now. It’s not like you need to bring more equity in to get a loan. There are a lot of cases where there isn’t money available from the traditional development and construction lenders,” Citrano said.

The deal

The DIA board approved a development term sheet and $41 million incentives package for Carter in May 2022 to redevelop the vacant parcel, part of what the city calls The Ford on Bay.

Carter’s proposal, The Hardwick, was selected from among six firms responding to a request for proposals. It was the second RFP for the 2.4-acre property since 2020. 

The possible incentives include: 

• A 75%, 20-year Recapture Enhanced Value Grant property tax refund capped at $26.77 million. 

• A $9.6 million lump sum completion grant paid when the project is done.

• A $4.61 million discount on the 2.4-acre property appraised by the city at $9.54 million.

That deal has not reached City Council.

The developer altered its initial design. Carter President and CEO Scott Taylor told the DIA board July 24 it is working on more changes to help meet the city’s required 1:1 return on investment to receive the completion grant. 

Carter’s vision for The Hardwick features an exterior elevated plaza/green space; a ground-floor open-air plaza; and a 1,500-square-foot restaurant on the second and third floors with rooftop patio space.

Taylor said as of July 24, the 358 residential units would be complemented by 25,000 square feet of retail space and Carter is trying to bring in a hotel operator to add more hospitality uses to the project. 

According to Taylor, the construction costs in Carter’s project portfolio rose by 30% in 2022 due to inflation. In May 2022, Carter had estimated The Hardwick would be a $150 million project.

Taylor said Carter has eight development projects under construction in the Southeast U.S. and $600 million in development activity. 

He said his company expected to break ground on five or six projects in 2023 and has only started one.

“The capital markets, basically, in our industry are frozen right now,” Taylor said. 

“None of our lenders are contemplating, right now, any sort of new vertical development activity, nor are our equity partners,” he said.

“We are constantly in those markets talking to those close relationships.”

Carter is working locally with Arcus Capital Partners Managing Partner W. Ross Singletary II to try to find lenders from other regions of the U.S. 

Singletary said possible TIAA Bank Field stadium renovations by the Jacksonville Jaguars and the city and the proposed University of Florida graduate campus Downtown have drawn interest from potential investors in the Ford on Bay location. 

Carter’s vision for The Hardwick features an exterior elevated plaza/green space; a ground-floor open-air plaza; and a 1,500-square-foot restaurant on the second and third floors with rooftop patio space.

Taylor said Carter is working with Birmingham, Alabama-based contractor Brasfield & Gorrie on pricing and has engaged real estate broker Colliers to fill the retail spaces. 

Without finalized plans, Taylor said  Carter cannot make commitments to prospective tenants.

Citrano, a senior vice president and commercial real estate banker for Seacoast Bank’s Northeast Florida region, said rising development costs and the squeeze on capital markets is a national issue and impacts Downtown progress. 

It is a policy issue that Citrano said the DIA, Council and Mayor Donna Deegan’s administration will need to address. 

New deadline in 2024

The DIA resolution would give Carter until Jan. 17, 2024, to finalize its development budget and make modifications to the project scope and design. 

DIA will then have to approve a new term sheet for Council to approve.

A development agreement with the city would have to be signed by June 30, 2024. 

The deal approved in May 2022 held an April 30, 2024, deadline for groundbreaking and a completion date of Dec. 31, 2026.

The Hardwick is planned on a riverfront parcel that previously was the Duval County Courthouse site.

But it expected Carter to have its construction permitting in-hand from by Sept. 30, 2023. 

DIA Director of Downtown Real Estate and Development Steve Kelley told the board July 24 that DIA staff, not Carter, asked for the extension. 

He said the DIA and developer are hoping the extra six months will allow economic conditions and capital markets to improve or, at least, have more certainty.

Kelley said most projects similar to The Hardwick in size and scope have “been negatively affected by the impact brought about by poor economic conditions, leaving it with a larger financial gap than was originally experienced when this award was initially made.”

He added there is still broad development interest in Downtown and Jacksonville is positioned well as the economy strengthens. 

The capital stack

Board member George Saoud asked Kelley whether the Carter planned to ask for additional incentives to close the financial gap.

“We’ve contemplated different ways to satisfy those funding gaps, be it through loans from the city or completion grants from the city both with the previous (Mayor Lenny Curry) administration and the current (Deegan) administration,” Kelley said.

“And, we don’t have any hard-fast answers as to the best way to remedy those, at least in the capital stack.”

Kelley said it is difficult to predict what will happen with the capital market by January 2024. 

He referred to June reports about a slower rate of inflationary growth in the U.S. than expected. According to a July 12 report by CNBC.com, the consumer price index rose 0.2% in June and was up 3% from the year before, the lowest level since March 2021.

Kelley said it was unclear whether the Federal Reserve Board will increase, lower or maintain the benchmark interest rate that affects borrowing costs at its next meeting.

According to Kelley, the DIA does not have a strategy to assist Carter with the gap in its capital stack. 

“That’s why I’m asking if we’ve got some strategies that we can look at other than just hoping things get better. Because that’s all it is, hope, at this point,” board member Joe Hassan said. 

The DIA is working with other developers on projects similar in scope to Carter’s Hardwick that have not broken ground and are also trying to work through capital issues: Southeast Development Group’s Laura Street Trio historic renovation; the 44-story residential and mixed-use tower by American Lions of New York City at the former Jacksonville Landing site; and Corner Lot Development Group’s mixed-use residential Jones Bros. Furniture Co. historic rehab and addition. 

Board member Oliver Barakat is a senior vice president for CBRE Inc.’s Jacksonville office, the real estate firm that solicited the RFP for the Ford on Bay on behalf of the city. 

Barakat acknowledged and documented his conflict of interest with the city and did not work on the RFP for CBRE.

He said July 24 he doesn’t expect another six months to be “the magic bullet.” 

“I think our dilemma is if we do not grant the extension, then the developer will not perform, and then what?” Barakat said.

“We would still own this property and I think doing another solicitation in the current environment would not result in much success.” 

 

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