Economy stalls fourth phase of Town Center plan in Virginia Beach

VIRGINIA BEACH

The next phase of Town Center, which includes a hotel, boutiques, apartments and an office tower, has stalled.

The project, which was planned for two city blocks, has become the latest victim of the down economy.

Construction on the buildings was supposed to start by the end of the year. But developer Armada Hoffler is still looking for financing and tenants.

"Given the current economic climate, that obviously has not been as easy as it was in the first three phases of Town Center," said Danya Bushey, a spokeswoman for the company.

"Nonetheless, we are confident that we will finalize the financing in the near future and break ground shortly thereafter."

Virginia Beach officials said it is unclear how soon that will happen or whether some of the tenants initially announced are still committed.

Among the businesses planned for the fourth phase of the development, which is a private-public partnership, were an Aloft hotel, the clothing store Anthropologie and Bank of Hampton Roads.

"It probably won't resemble what the original plan was," Councilman Jim Wood said. "They'll have to take a look and see what is going on in the marketplace. You have to re-evaluate where the market is, what people are doing, what are the latest trends and what's financeable."

Wood said he knows that the project's developers, Armada Hoffler and Divaris Real Estate, are still working on deals with potential tenants.

According to the initial plans, Armada Hoffler was going to build the Aloft hotel, apartments and stores on the block across from the Westin hotel. The office tower and a garage were proposed on the site of the former Virginian-Pilot building off Virginia Beach Boulevard.

City Council members agreed to support the continued expansion of Town Center earlier this year. Armada Hoffler planned to spend $158.4 million on the project, and the city committed to about $60.1 million. It was the largest investment of public money in Town Center's 10-year history - almost double the amount of past phases.

According to a recent city report, for the first three phases of Town Center, the developers have spent $365 million, and the city has invested $83.6 million.

The city's portion of Town Center is paid for with economic development grants and new taxes generated by the tax increment financing district, or TIF, around the project. New real estate taxes from around Town Center go into the TIF fund and help pay off the debt incurred by the public portion of the project.

For this latest development, the city also agreed to use some hotel taxes generated in Town Center to pay off the debt. Those hotel taxes, budgeted at about $500,000 this year, would have gone to the general fund to pay for schools, roads and other services around the city. It is now going into the TIF fund.

But the city hasn't done anything with that money, since officials haven't issued any bonds for this new Town Center phase, said Patricia Phillips, the city's finance director.

"When we see the building going up and the garages going up, we would think about when we would issue the bonds," Phillips said.

Armada Hoffler has until April 30, 2012, to buy the two city-owned blocks and start construction on the hotel, offices, apartments and retail.

If the scope of the private development changes significantly the city may reconsider the extent of its investment, Wood said.

"Right now, we're not at that point."

Deirdre Fernandes, (757) 222-5121, deirdre.fernandes@pilotonline.com