New Hanover County makes pitch for Project Grace's financial benefits
This week, New Hanover County took another step forward with Project Grace, its plan to combine private development with a new library and museum in downtown Wilmington.
Camille Mojica: Alright so I have Ben Schachtman in the studio with me to talk about Project Grace. Ben, thanks for being here.
Benjamin Schachtman: No problem, happy to do it. This plan, which would redevelop the county-owned block with the library and parking deck in downtown Wilmington, is really fascinating.
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Cami: So first things first, Monday morning the New Hanover County Commissioners voted to approve two things regarding project Grace: first, updates to the memorandum of understanding put out back in 2021, and second to put the financial agreement on the state treasurer’s desk for approval, and to make county manager Chris Coudriet in charge of making a long-term lease agreement for the library and the museum.
Ben: And a lot of numbers were thrown around at this meeting, right?
Cami: Yeah. So let’s start with the changes to the memorandum. The building would no longer be on the south side of the block, but rather on the north side, on Grace Street. They’ve updated the square footage from 81,000 to just shy of 85,000, and approved a stair tower to be built, on the developer’s dime, as part of the parking garage. And the last change was to base rent which decreased. Those were the big things.
Ben: Alright, and they showed us the financial analysis breakdown as to why this project is beneficial. Could you speak a bit more on that?
Cami: Oh, sure! I’ll try to keep the numbers simple here, but here’s the gist: the county is arguing that it’s a financially better deal for the county to lease-to-own this project rather than build it itself. Now, real quick, Ben could you explain what lease-to-own means?
Ben: Sure, the county will essentially pay for the new museum and library in 20 annual installments [of a little over $4 million each]. This means the developer deals with the upfront cost of construction and financing – but because of that, the developer tacks on some additional costs. So, like any lease-to-own deal, it’ll cost more than if the county paid directly for the construction itself, upfront.
Related: New Hanover County could save $24 million on Project Grace. The deal could also self-destruct
Cami: Right – if they were to build it ourselves, it would cost $66.8 million, as opposed to roughly $83 million with the lease-to-own option. Without looking at the other “benefits” as the county calls it, it seems like we’re spending more money.
Ben: But, the county argues that if it ‘went it alone,’ it wouldn’t be able to promise private development. But with the lease-to-own, there’s a public-private partnership, which means private buildings, which means — more tax revenue! Now that could happen if the county just built the museum and library and sold the other half of the block, but they argue they couldn’t guarantee it.
Cami: Right. So, the county says some of the benefits are the property tax revenue that the county will get over the years, that’s estimated to balance out roughly $11.6 million in costs over 20 years [these include property tax and the lease of parking spots]. But there are others, like Room Occupancy Tax, Sales Tax, and City of Wilmington tax, which the county pegs at around $12 million dollars over two decades. The combined benefits over that time frame are about $23.6 million – according to the county.
Ben: Just a note here, it seems like the county is basing the room occupancy tax, and at least some of the sales tax, on the hope that the private development will include a hotel. We’re working with the county to get a better sense of where these figures come from, but it looks like almost $9 million in benefits would be derived from a hotel over 20 years — that said, we don’t know for sure that a hotel is planned, although the county said there have been some conversations about it.
Editor's note: The County confirmed a hotel is part of the financial projection:
"The financial model used does take into account a hotel being part of the private development, and it accounts for part of the $30 million in private investment that is now outlined in the MOU. The county’s financial model uses a standard calculation of 151 rooms with an average rate of $125 and a 65 percent occupancy rate. There is no additional ROT considered in the financial model such as VRBO units.
Related: New Hanover commissioners to consider tweaks, next steps for Project Grace
The sales tax estimates in the financial model are from a potential hotel. There is also the possibility of additional sales tax within the 10,000 square feet of retail anticipated in the private development, but there wasn’t a clear way to calculate those dollars since the end uses haven’t been determined. So additional sales tax, above what is included in the financial model, is likely."
Cami: Ok, but if the county’s financial assumptions are right, and you knock almost $24 million off the lease-to-own cost, then it actually comes out cheaper than the county building the museum and library directly — by about $7 million.
Ben: That assumes that, if the county went it alone, there would be no other private development on the block, but yes — that’s the math!
Cami: Ok, after the new updates to the memorandum were approved, they held a public hearing to approve the second part pertaining to Project Grace.
Ben: Yup! This is, basically, the county submitting their financials to the state treasurer’s desk, since this is a lot of money moving around. And that's why the county wants to make the argument that the lease-to-own model is the better financial deal. What about public speakers during the hearing?
Cami: Two people. Diana Hill, a resident, who leads a group opposing the current Project Grace plan, and Natalie English, President and CEO of the Wilmington Chamber of Commerce.
Ben: And what did they have to say?
Cami: Well, they were two opposite sides of the coin. Diana Hill argued along the lines of saying the project wouldn’t cost what was said back in 2021, and that, with inflation the cost will be much higher. She also brought up the library in Durham which was able to renovate itself to become a 100,000 square foot space. But Natalie English came forward and said that the Chamber is in full support of the project, and that the business community of Wilmington is also on board.
Ben: So, two very different reactions.
Cami: Yup. Well, thanks for joining me, Ben.
Ben: Sure thing!