JACKSONVILLE, Fla. — A proposed Publix-anchored development in downtown Jacksonville is facing new questions over its price tag, projected property values, and whether taxpayers will see a sufficient return on the city’s investment.
Action News Jax has been reporting on this phase of Gateway Jax’s Pearl Square since last year.
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The developer is seeking $49 million from the city, including a $28 million completion grant that is under scrutiny by the Jacksonville City Council tied to the mixed-use 15 story tower.
It’s for the Block N7 portion of the project that would replace the former First Baptist Church auditorium with up to 500 apartments, parking and a 32,000-square-foot Publix. It’s part of the larger $1 billion nine-block development.
Inside the numbers
Action News Jax’s Ben Becker obtained the Downtown Investment Authority’s financial projections for the Publix portion of the project.
Those numbers show that, even with the subsidy, the DIA is projecting property values to increase by a modest 2% annually. Gateway Jax is assuming a rosier 4.25% annual increase.
Gateway JAX CEO Bryan Moll said the increase could reach as much as 7% when looking at properties within the surrounding half-mile area.
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But Sheila Weinberg, CEO of Truth in Accounting, a nonpartisan financial organization, said an increase in property values does not automatically translate into an equivalent increase in city tax revenue or guarantee that taxpayers will recoup the city’s investment.
Property taxes are based on assessed value and the applicable tax rate, and the city receives only a portion of overall property tax collections.
In addition, Weinberg said the money and incentives put forth by the city today is worth more than any benefit in the future because of the time-value of money. And that raises questions about whether the return on investment for the City is worth the risk. She said the margin for error in the projections appears narrow.
“It’s razor thin, there’s a lot of assumptions they are using,” Weinberg said.
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Weinberg said development incentives are generally intended to provide a financial cushion for developers facing risks such as higher construction costs, more vacant apartments, lower rents, or a weaker real estate market.
She said she becomes concerned when a developer says a project cannot happen without a city’s financial support.
“I get nervous when developers say they can’t do the deal without the city’s investment that’s a red flag to me,” she said.
Weinberg also said the city needs to account for what would have happened to those properties without the grocery store.
“If surrounding properties would have increased 5% anyway because of Pearl Square, downtown investment, population growth, etc., then the relevant question is whether the grocery adds another 1% or whatever the studies actually attribute to it,” she said.
What do studies say
Moll sent Becker multiple studies to back his argument of grocery stores acting a catalyst. One targeted inner city property values in Worcester, Massachusetts from 1988-2011 when 12 grocery stores were added. Another was a food desert in Memphis, Tennessee six years ago and a third was from Washington, DC.
Moll believes that higher rental values should eventually translate into higher property values and, therefore, higher property taxes.
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“I would argue that any increase in rental value flows through to the bottom line (or most of it - doesn’t cost any more to operate it), and commercial property taxes would increase based on the income approach. So, I would argue an increase in rental value flows down to property taxes. i.e. value to the city,” Moll said.
Moll maintains the tower with the Publix project cannot go forward without incentives.
“This is not a handout purely an investment as part of a public private partnership it’s the definition of a transformative project,” he said.
DIA errors
The DIA financial report revealed an important error in its projections.
First-year income for the project was adjusted from $5.7 million to $4.36 million.
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That matters because the revised figure is only about $170,000 higher than the project’s expected annual loan payments.
DIA CEO Colin Tarbert issued the following statement:
“Gateway Jax’s Pearl Square represents one of the most exciting urban transformations underway in the country. The DIA is working closely with its Board, the developer, City Council and the administration to advance the project with an incentive package that demonstrates a sound return on investment while balancing the needs of the project with the City’s budget priorities.”
What’s next
City council members are expected to meet with DIA and the developer in late August and September to reevaluate the terms of the completion grant.
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