A rendering of the 20-story project that would have replaced the Public Safety Building. (BizSense file)
Following previous negotiations that failed to resolve the issue, VCU Health has agreed to the City of Richmond’s request to enter into mediation over disputed tax payments stemming from a aborted development project.
In a letter submitted to the city Friday, CEO Marlon Levy said the health system “is amenable to working with a mutually agreeable mediator” to “resolve your contentions” about annual real estate taxes that the city says it is owed from the failed Public Safety Building redevelopment, which was to include an office tower for VCU Health.
The letter was addressed to Mayor Levar Stoney and City Council President Kristen Nye, who proposed the mediation two weeks earlier and had requested a response by Friday.
Levy added in the letter that VCU Health would be required to obtain approval from the Virginia General Assembly and Gov. Glenn Youngkin before terms of any settlement agreement with the city could be finalized.
The mediation will be the parties’ latest attempt to resolve their disagreement over the payments, also called general obligation payments, which were required in an agreement with the city and developer Capital City Partners to ensure that the property would be tax-generating for the city. Real estate owned by VCU Health or Virginia Commonwealth University typically is exempt from local taxes.
If the project for whatever reason did not generate the annual real estate tax revenue forecasted in that agreement, CCP and VCU Health, as the project’s master tenant, agreed to cover the missing amounts. The agreement put that obligation on CCP, with CCP delegating it to VCU Health.
If paid in full, the annual payments, which increase incrementally, would total nearly $56 million for a project that was never built.
Demolition of the old Public Safety Building wrapped up in recent months, with VCU Health footing the $5 million bill. (BizSense file photo)
Three initial payments had been made before and after VCU Health pulled out of the project in late 2022, but the health system has not made a roughly $2 million payment that was due this year. Levy has maintained that it is not obligated to make further payments in light of a directive from state legislators for VCU Health to find a way to stop the annual payments.
In his report to legislators last month, Levy said health system leadership met with city administrators on the issue five times in the past year, from December 2023 to this June, when this year’s payment was due. He said the health system proposed buying the site at 500 N. 10th St. but was unable to reach an agreement with the city.
Earlier this year, in response to the state directive, Stoney issued a statement that VCU Health’s obligation to make the payments is contractual and remains legally binding. When the city took back the property in 2023 after the project collapsed, VCU Health and VCU said in a joint statement that they would “uphold our obligations as they relate to prior real estate tax commitments.”
Months after the agreement was signed in mid-2022, CCP informed VCU Health that the original project couldn’t be built, citing challenges with the site that were driving up costs further fueled by the pandemic and inflation. To back out of the project, VCU Health had to pay a $73 million exit payment to the project’s investor group.
The exit payment added to an overall cost to VCU Health that has included $5 million to complete demolition of the site, as well as the three obligation payments that have been made so far, totaling about $2 million. Youngkin has said the costs to VCU Health could total $100 million.
VCU Health has maintained that backing out of the $325 million project avoided much larger financial obligations that came with its deal to be the project’s master tenant, including $617 million in rent over the 25-year lease.
A rendering of the 20-story project that would have replaced the Public Safety Building. (BizSense file)
Following previous negotiations that failed to resolve the issue, VCU Health has agreed to the City of Richmond’s request to enter into mediation over disputed tax payments stemming from a aborted development project.
In a letter submitted to the city Friday, CEO Marlon Levy said the health system “is amenable to working with a mutually agreeable mediator” to “resolve your contentions” about annual real estate taxes that the city says it is owed from the failed Public Safety Building redevelopment, which was to include an office tower for VCU Health.
The letter was addressed to Mayor Levar Stoney and City Council President Kristen Nye, who proposed the mediation two weeks earlier and had requested a response by Friday.
Levy added in the letter that VCU Health would be required to obtain approval from the Virginia General Assembly and Gov. Glenn Youngkin before terms of any settlement agreement with the city could be finalized.
The mediation will be the parties’ latest attempt to resolve their disagreement over the payments, also called general obligation payments, which were required in an agreement with the city and developer Capital City Partners to ensure that the property would be tax-generating for the city. Real estate owned by VCU Health or Virginia Commonwealth University typically is exempt from local taxes.
If the project for whatever reason did not generate the annual real estate tax revenue forecasted in that agreement, CCP and VCU Health, as the project’s master tenant, agreed to cover the missing amounts. The agreement put that obligation on CCP, with CCP delegating it to VCU Health.
If paid in full, the annual payments, which increase incrementally, would total nearly $56 million for a project that was never built.
Demolition of the old Public Safety Building wrapped up in recent months, with VCU Health footing the $5 million bill. (BizSense file photo)
Three initial payments had been made before and after VCU Health pulled out of the project in late 2022, but the health system has not made a roughly $2 million payment that was due this year. Levy has maintained that it is not obligated to make further payments in light of a directive from state legislators for VCU Health to find a way to stop the annual payments.
In his report to legislators last month, Levy said health system leadership met with city administrators on the issue five times in the past year, from December 2023 to this June, when this year’s payment was due. He said the health system proposed buying the site at 500 N. 10th St. but was unable to reach an agreement with the city.
Earlier this year, in response to the state directive, Stoney issued a statement that VCU Health’s obligation to make the payments is contractual and remains legally binding. When the city took back the property in 2023 after the project collapsed, VCU Health and VCU said in a joint statement that they would “uphold our obligations as they relate to prior real estate tax commitments.”
Months after the agreement was signed in mid-2022, CCP informed VCU Health that the original project couldn’t be built, citing challenges with the site that were driving up costs further fueled by the pandemic and inflation. To back out of the project, VCU Health had to pay a $73 million exit payment to the project’s investor group.
The exit payment added to an overall cost to VCU Health that has included $5 million to complete demolition of the site, as well as the three obligation payments that have been made so far, totaling about $2 million. Youngkin has said the costs to VCU Health could total $100 million.
VCU Health has maintained that backing out of the $325 million project avoided much larger financial obligations that came with its deal to be the project’s master tenant, including $617 million in rent over the 25-year lease.
Would be good to have a mediator who has both city and state experience hear the arguments. What’s Doug Wilder doing these days?
I see Mark Rubin’s name all over this!