Developer asks city help with parking-space costs

CHAMPAIGN — City administrators at the end of August hoped a negotiation would not take longer than two months, but they will come back to the city council this week to ask for more guidance on how to proceed with the redevelopment of a campus parking lot.

After receiving proposals from a few developers in August, officials gave JSM Development the exclusive right to purchase and build on the city-owned Lot J on Green Street just west of Sixth Street. At the time, JSM asked to build an eight-story retail, residential and hotel building on the parking lot and connect it to a building it already owns at the corner of Green and Sixth streets.

As negotiations for the sale of the property continued, the proposal has evolved into a 12-story building that would still struggle to return its estimated $64 million cost after five years.

A $7 million "value gap" — the difference between the project cost and its value in five years — is attributable largely to the city's requirement that JSM include a public parking garage in the develop to replace, at a minimum, the 131 spaces that already exist at Lot J, according to city documents. City council members will look at how they might be able to close that gap when they meet in study session on Tuesday at 7 p.m. at the Champaign City Building, 102 N. Neil St.

JSM's original plans included a structure with 218 private parking spaces and 221 public spaces. Structured parking costs approximately $20,000 a space to build, according to city documents, and in the beginning, cannot collect an hourly rate high enough to break even.

To cover that gap, JSM has asked that the city help offset the expense of owning and operating the public parking when the revenues collected do not meet those expenses.

Here is the memo to the city council on the development.

Based on a JSM analysis, a deficit would exist for the first 12 years that the parking garage is in operation. The shortfall is most pronounced the first few years — up to $60,000 annually — then drops to below $3,000 by the twelfth year.

JSM has asked that the city rebate up to 50 percent of the hotel/motel tax revenue generated by the new building to cover the difference between the cost of owning and operating the public parking and the revenue it generates. City officials estimate that the hotel/motel tax generated by the JSM building would come in around $143,000 in the first year and $179,000 by the fifth year, according to city documents.

Once parking revenues grow to cover the expenses, JSM would pay the profit to the city until the rebates are paid back in full. At that point or after 25 years — whichever occurs first — the financial arrangement between the city and JSM would end.

City council members could take a straw poll on Tuesday night to determine if they support the arrangement. After that, officials will still need to finalize a contract with JSM for the sale and development of Lot J.

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cuvoter wrote on December 10, 2012 at 8:12 am

Win the bid, then change the deal. Why does this strategy keep working with the City? JSM knows what parking costs. The City does too. Why does the deal get changed now?

STMpioneer wrote on December 10, 2012 at 10:12 am

I'm not sure why you would submit a proposal for such a large project without making sure your proforma works.  JSM has been around the block a few times, they should know better. 

This reminds me of the bait and switch that was done on the Burnham project...local developers kept telling the City the project would not work with the requirement that the project NOT be student housing.  The City awarded the job to an out-of-town developer who said he could meet the requirement.  The developer gets going on the job, realizes that non-student housing won't work, then the City decides to allow it to be student housing.

So what will the City do here?  Change the rules after the fact, or go back to the original proposals and select a developer that presented honest numbers from the start?

billbtri5 wrote on December 10, 2012 at 12:12 pm

yes, my thoughts exactly on the Burnham deal....handing out money to out of town developers who couldn't make it work...

 

mankind wrote on December 10, 2012 at 10:12 am

Why, sure, and will the city get to examine the books to see if the JSM projections match up to reality during the next few years? And will the city get a cut of the profit if the parking garage generates more revenue than projected in this report? Anyone? Anyone?

nick wrote on December 10, 2012 at 12:12 pm

 The city of Champaign will never be allowed to examine the books of JSM Development.

Illini Libertarian wrote on December 10, 2012 at 9:12 pm

The NG article on 8/29/12, in which it was stated that the City would begin negotiations with JSM said:

"Parking remains in question, too. JSM Development has proposed including a structure with 218 private parking spaces and 221 public spaces, but whether the developer or the city will end up owning the parking still needs to be ironed out.  Currently, Lot J has 131 public parking spaces. City officials required that developers, at a minimum, replace that number of parking spots."

Therefore, no one has modified any agreement; that is why they are called "negotiations".  According to the publicly released details, every part of this development is profitable except for the public parking.  If I were a developer and the city required me to include a non-profitable aspect to the development, I would ask for assistance too.