Two of the city’s most valuable surface parking lots have been shut down to make way for downtown’s newest office tower.
Chicago-based developer Clayco is under contract to purchase the lots for the planned $110 million Gateway Plaza building at Eighth and Cary streets.
The two triangular lots between Eight, Ninth, Cary and Canal streets are owned by Dominion Resources and were closed last week in preparation for the sale. It’s the latest and most visible step toward the development of the proposed 16-story, 275,000-square-foot tower.
“We’re hoping that we can start actually doing construction in the early part of July,” said Larry Chapman, a partner at Clayco. It’s aiming to have anchor tenant McGuireWoods in the new building by the second quarter of 2015.
Clayco isn’t going it alone. The Richmond City Council voted unanimously Monday to put up a $14 million to pay for a portion of the parking garage that will be part of the development and for an incentive grant for the developer.
When Clayco announced its plans for the tower in January, the developer did not publicly indicate a need for city involvement.
It has since said the project couldn’t happen without the city stepping in.
“That’s a critical part of the development. It was always part of the plan,” Chapman said. “We always talked about the need to structure some financing for the public portion of the parking garage.”
The $14 million includes $11.25 million in city bonds that will pay for 326 spots in the project’s 506-space parking garage.
Chapman said the numbers wouldn’t work otherwise.
“The rents in downtown aren’t adequate to pay for a new parking garage,” he said. “Unless you’re in a big market like Chicago, New York, Boston … this is just not possible right now.”
Part of the city-owned Eighth Street connector, which cuts between the two lots and is valued at $1.6 million, will be transferred to Clayco pending city council approval expected to be granted July 8, said Lee Downey, director of Richmond’s office economic and community development. Consideration for the $1.6 million will come back to the city in the form of infrastructure and traffic flow improvements that Clayco has agreed to. It will pay cash to make up any difference, Downey said.
McGuireWoods is taking about 205,000 square feet of the building. The remaining space is being offered at $28.50 per square foot per year.
Having the city on board also allows Clayco to finalize its deal with its construction lender, Chapman said. He would not name the lender, citing a confidentiality agreement.
Downey said the city’s involvement in a private development is part of business retention.
McGuireWoods, which employs about 220 lawyers plus staff, considered leaving its current office at One James Center when its lease ran out next year, Downey said.
“A major employer downtown was considering moving outside the city limits. We said, ‘what can we do for a project to help it stay in the city?’” Downey said.
To protect much of its investment, the city and Clayco agreed Monday night to a minimum assessment on the tower of $95 million. That would ensure enough real estate tax revenue from the property to cover the debt service on the parking garage bonds.
The $3 million in incentives will be paid out over time as Clayco meets certain criteria.
“We’re able to retain a strong business downtown,” Downey said. “And we’re able to do it by using new taxes for the city and working with the developer.”
McGuireWoods is the only tenant that has signed on to occupy Gateway Plaza. Its move will vacate 244,000 square feet at One James Center, more than half of the that building’s 420,000 square feet.
City Councilman Charles Samuels said the council looked favorably on the Clayco deal in part because of the minimum assessment.
“The debt service is guaranteed to be paid,” he said. “Of course, with anything above the minimum assessment, all of a sudden the thing gets paid off faster.”
Samuels led a push this year to change a law on a city tax that could help attract companies to downtown.
The Richmond City Council in February approved a measure to exempt new companies and businesses that relocate to the city from paying gross receipts taxes, also known as the BPOL tax, for their first two years of operation.
“We need to continue pushing for new businesses to come downtown,” Samuels said.
Clayco might tweak its plans and add a few floors if it can find another large tenant, Chapman said.
Neither Clayco nor Dominion would disclose the pending purchase price for the two parking lots. The lots total 1.1 acres and were most recently assessed at a combined $4.83 million, according to city records.
Chapman said Clayco would close on the property as soon as it has approval to take over the piece of 8th Street.