Five years ago, The Webb Cos. held a news conference at City Hall to announce a massive $250 million project in downtown Lexington that would be called CentrePointe.
Developers cleared a block of 14 buildings at Main Street and South Limestone. Financing failed, and the project came to a halt.
Late Thursday, a bill that might move the project along cleared the General Assembly and awaits Gov. Steve Beshear's signature or veto.
House Bill 260 would reduce the amount of money the developers must spend before they can start recovering money spent on public infrastructure, such as a parking garage. The threshold for the so-called "signature" tax increment financing, or TIF, project drops from $200 million to $150 million.
The change is crucial because the costs associated with CentrePointe have dropped to $160 million as the project has been scaled down, developer Dudley Webb said. The height of the proposed building was cut from 40 stories to 28, and the number of condos was reduced from 77 or more to 14. "Fewer condos was the biggest factor in bringing down costs," he said.
John Farris, TIF expert hired as a consultant on CentrePointe, said Friday that a 700-space space garage will cost about $30 million to build, but it would generate only about $10 million in revenue for the duration of the TIF — typically 30 years.
"A TIF is designed to help alleviate the high cost of building public infrastructure in urban area projects," Farris said.
"Without the TIF to pay for the garage, we couldn't afford to do the project," Webb said.
A parking garage is essential to this or any downtown development, Webb said. "Parking is a code requirement. Before you can get a building permit for a hotel, you have to show one parking space per room." A similar requirement exists for office space. "One space per 1,000 square feet of office space," he said.
In general, with TIF funding, a company can keep the new tax revenue it generates to pay for public infrastructure that it builds. The city will not put up any money for the CentrePointe garage, said Kevin Atkins, the city's chief development officer. Neither the city nor the state would be on the hook if the project does not generate the anticipated revenue.
The state originally granted CentrePointe TIF status in 2009.
Even before the passage of HB 260, Webb and his nephew Woodford Webb indicated that they were not backing away from CentrePointe and were optimistic about securing financing.
"We wouldn't be doing this project if we didn't think we could bring it to fruition at the end of the day," Woodford Webb said.
When first unveiled, CentrePointe was to be a 40-story tower with a major four-star hotel, luxury condominiums, office space and 26,000 square feet of retail.
The development was going to be put on an aggressive construction schedule, Dudley Webb had said, to be ready in time for the Alltech FEI World Equestrian Games in September 2010.
The financing failed, and ground-breaking never happened.
The 1.8 acres was sowed with grass and enclosed with a plank fence, and the grassy plaza — sometimes called "CentreField" — has become a popular place for community festivities.
Mayor: 'Define Lexington'
City officials want to see the project completed.
Mayor Jim Gray — a vocal critic when CentrePointe was announced — said he is confident that the CentrePointe block will be developed in the next couple of years. Still, Gray said, "Let's acknowledge, yes, there's frustration" that it has not happened yet.
When visitors and new companies see the CentrePointe site, Gray said, they ask, "What's going on there?"
The mayor said the eventual development represents an opportunity "to define Lexington in terms of aspirational energy, enthusiasm and excellence" and he's "in no rush to encourage something that is mediocre."
"Whatever is built there will be important to the future of our downtown," he said. "I want to encourage a responsible, thoughtful and excellent development. I'm not willing to compromise, because what is built there will define our city for centuries, arguably for history."
The city is limited in what it can do to move the project forward because it's a private development, said Atkins, the city's development official. "We can create the environment. We can do things like a Town Branch Commons and the Arts and Entertainment District, to create more of a desire to be downtown," he said. "But at the end of the day ... this is a private sector development. We can do our part, but the developer has to finalize and close the deal."
Financing has been the project's Achilles' heel. The initial was unveiled in 2008 just as the economy plummeted.
To make matters worse, CentrePointe's key financial backer, an international financier, died. The financier was never identified and his nationality was never revealed. Dudley Webb said the financier had died without a will.
Talking to banks
The economy is slowly recovering, a good sign for CentrePointe and similar projects across the country, Dudley Webb said. "Everyone appreciates the economy in the past five years has been the worst in recent memory."
Webb said recently he has been in contact with five banks, all of which indicated interest in financing the project.
On Friday, Webb said that he and his nephew had selected the bank they want to work with. "They have given us their proposed terms," he said. The Webbs now have to see if they can meet the terms.
"It makes a big difference that we now qualify as a signature TIF. Now that we're over that hurdle, we can get into the heavy lifting," Webb said.
Jeff Fugate, executive director of the Downtown Development Authority, said CentrePointe's financial problems were not unique to Lexington.
"It happened in other cities, to an even greater extent," Fugate said. He called CentrePointe "a large, complicated project, with multiple pieces. It would be a difficult project to finance anywhere."
Several downtown projects have been announced in the past two years, including a proposed 46-acre Arts and Entertainment District with a new civic center and a renovated Rupp Arena, Town Branch Commons and a movie theater complex.
The 21c Museum Hotel, a boutique hotel and art museum, is going into the old First National Bank Building, across the street from CentrePointe. Construction on 21c is scheduled to start this year.
These projects will work together to create a downtown environment where people will want to live, work and come for entertainment, Fugate said.
Getting these projects started should improve chances of the CentrePointe block being developed, Gray said.
Fugate would not speculate about when the CentrePointe block might be developed. Asked whether the block could remain vacant for another five years, Fugate said he certainly hoped not, "but I don't pretend to know the future."
The mayor's staff remains in regular contact with the developers, Fugate said. "We know as much as we are being told," he said.
Whatever eventually is built on the CentrePointe block must be "smart and exciting," Fugate said. "This is a singular block of town — very expensive dirt. That's why it was cleared and why it's important that what goes back is a signature project that leverages the private development." The public sector can't do it, he said.
What exactly the mixed uses on the block might be, Fugate could not say.
"We certainly expect, and have been promised, a lot of activity at the ground level, whether that's retail, restaurants or entrances to the hotel," he said. "But having street activity will be an important part of the project."
It cannot be developed only as a downtown office park, Fugate said.
Commercial real estate broker Al Isaac said downtown does need more new office space, which a mixed-use development could provide.
"The demand for office space isn't for a 25-year-old office building," Isaac said. "But you can get the attention of tenants with new space, where all the latest technology, and new HVAC, is included."
Jeff Stidham, also a commercial broker, sees a similar need for "large blocks of class-A office space, at least 25,000 to 50,000 square feet of contiguous office space," he said.
As for the demand for another convention-size downtown hotel, Dennis Johnson, vice president of sales for the Convention and Visitors Bureau, said the demand isn't there right now.
If the city builds a new, larger civic center that would bring in bigger conventions and more people, another hotel would be justified, Johnson said. "Right now, the hotels would cannibalize each other."