Developers ask Norfolk for financial safety net

NORFOLK

The City Council will decide tonight whether to provide more financial guarantees that a developer says are needed to build an office building in a low-income community that officials believe is desperate for new life.

Tivest Development of Chesapeake agreed last year to build the six-story Midtown Office Tower on city property at the corner of Tidewater Drive and Virginia Beach Boulevard.

Now, Tivest officials want the city to guarantee 65 percent of rent payments for space the Southeastern Tidewater Opportunity Project will lease. The guarantee would kick in only if STOP could not pay its rent.

STOP, a private social services provider funded largely with government dollars, would pay annual rents of more than $2 million for more than 100,000 square feet. If the council agrees to Tivest's request, it would mean the city could be on the hook for more than $12 million.

Mayor Paul Fraim called the risk minimal Monday and said he will urge the council to vote yes. He said that even if STOP were unable to pay its rent, the city would lease the office space.

"This is about creating jobs," he said.

"The STOP organization has been around 46 years, and they have an excellent record of paying their bills. There are always reasons not to do things. I don't think that's a reason not to do this."

Tivest head Dwight Etheridge, who grew up in the nearby Tidewater Gardens public housing project, said prospective lenders demanded the guarantee.

"But this is still a good deal for the city," he said.

Tivest's request is the latest financial guarantee it has asked of the city since it signed a deal to develop the property last March. At the time, community leaders praised the $32.7 million project after learning it would bring 150 permanent jobs to an area ringed with public housing.

To get the project built, the city agreed in 2008 to help subsidize the development by providing the land, about $500,000 in infrastructure improvements, and a $490,000 tax subsidy.

Then, early last year, Tivest requested and the city agreed to lease 60,000 square feet of the building and move its Human Services employees there. In return, Tivest agreed to pay $1.2 million for the land and give the city the right to buy its portion of the office space.

Although the rent over 12 years would cost millions of dollars more than the city is currently paying, Norfolk leaders said it was worth the cost to jump-start economic development in the area and would provide additional tax revenue.

Tivest was scheduled to begin construction last year but, according to documents obtained from the city under the Freedom of Information Act, acknowledged last June that it was unable to obtain financing.

It remains unclear whether Fraim, Vice Mayor Anthony L. Burfoot and Councilman Paul R. Riddick, the project's main council proponents, can muster a majority tonight.

Councilman Tommy Smigiel is opposed. "I cannot support any deals that cost the taxpayers additional money," he said, citing a recent announcement from the school system that it faces a $21 million deficit.

Council members Angelia Williams, Barclay C. Winn, Andy Protogyrou and Theresa Whibley said they will wait to hear a presentation today from Rod Woolard, the city's director of economic development.

There has been no public discussion of the latest Tivest proposal. The council discussed the issue in closed session on Dec. 21. Information on how the Tivest deal would be amended was not released in writing to council members until Monday afternoon.

The city has been trying to develop the property since 2002, when it acquired and tore down the Red Carpet Inn, a hotel officials said was notorious for harboring drug dealers.

Former NFL star and Norfolk native Bruce Smith and downtown businessman Jim Baylor both submitted proposals for office projects on the site that were rejected by the city.

Smith's project would have been similar to Tivest's and asked the city to lease the entire building at $19.50 per square foot. Baylor proposed a smaller, less ambitious project for 65,000 square feet of office space at about $16 per square foot.

The city will lease office space from Tivest at $21 per square foot.

Baylor currently leases a 60,000-square-foot building the city uses for Human Services on Monticello Avenue, but that lease expires July 1. Correspondence between Baylor and the city indicates he has offered several extensions to the city at rents from $14.85 to $17.75 per square foot depending on the length of the lease.

Harry Minium, (757) 446-2371, harry.minium@pilotonline.com