New Hanover County officials were in the N.C. Local Government Commission’s hot seat Tuesday as they faced questions and at times scrutiny over Project Grace, a proposed public-private partnership.

The project entails the renovation of an entire block of downtown Wilmington, involving the construction of a new public library and museum, hotel, multifamily housing and retail. The current library would be razed to make way for the new build, but library use would remain uninterrupted as the construction shifts the public resource from Chestnut to Grace street. 

In the arrangement proposed by the county, Zimmer Development Co. would finance and reconstruct the entire block, then lease the museum-library and parking deck back to the county for a 20-year term. 

The county would retain land ownership of about two-thirds of the block while the developer would own the structures for 20 years; it would sell the 1.2-acre portion of the block facing Chestnut Street to Zimmer for $2.5 million to be developed into a mixed-use facility. 

About 100 residential units and about 150 hotel rooms are planned, along with about 10,000 square feet of retail.

The governing body that oversees large financial transactions for the state's municipalities and other units of government, the LGC has the ultimate authority to approve the project. In a recent similar deal when the county was seeking public-private partnership for the redevelopment of its government center, the LGC stepped in and encouraged the county to renegotiate, according to WHQR.

On Tuesday, LGC members’ recurring question for the county seemed to be: Why not just finance this project yourselves?

Assistant county manager Lisa Wurtzbacher told the board that under a public-private partnership agreement, the county could dictate certain elements about the development of private land that it otherwise has no control over under a traditional land sale. Provisions Wurtzbacher cited include the ability to ensure the project is completed in a timely manner and the inclusion of 5% workforce housing for the multi-family portion of the development. 

New Hanover County enjoys a triple-A bond rating, the highest municipal rating available, and can access financing for a lower interest rate than the rate of return Zimmer is seeking: the county can obtain financing at about 3.25% interest rate, Wurtzbacher said, and Zimmer has locked in its lease values at 8%. 

The difference between the county’s total 20-year lease costs to Zimmer ($80 million) compared to a traditional design-build scenario ($66.8 million) is about $13.2 million, according to a county presentation. Those costs would be offset by the creation of an estimated $11.6 million new revenue stream generated by taxes from the enhanced value of the private portion of the block, according to the county’s analysis. 

State Auditor Beth Wood pointed out the unknown of how much tax revenue a different kind of development could generate (the county’s analysis put this new tax revenue value in the design-build scenario at zero, which she disagreed with). 

Wood locked in on the lack of competition Zimmer faced in submitting its proposal. Only two firms responded to the county’s request for qualifications for the project, and Zimmer alone submitted a proposal. “I would think a lot [before] jumping on that,” Wood said.

The county performed a market study to ensure it would receive the full market value for the disposition of its property and feels comfortable with the $2.5 million value it will receive from Zimmer, versus opening it up in an open sale, Wurtzbacher said.

A new provision in the agreement includes a clause that the county will purchase development plans from Zimmer for $2.5 million if the LGC doesn’t approve the deal (the amount was $800,000 in the initial memorandum of understanding approved last year). Folwell said this already agreed-upon element of the memorandum of understanding "puts a gun to my head" and added it "sends the wrong message, if another body doesn’t approve something, the unspoken taxpayers of New Hanover County are going to have to pay this developer $2.5 million." 

He asked the developer whether this condition was necessary, and Zimmer’s development director, Adam Tucker, said it was non-negotiable. "We have to have assurances that we can be reimbursed," he said. 

“We’re ready to go,” Tucker said. “We’ve been working on this for four years.”

At the mention of opposition to the project, Commissioner Deb Hays said it has overwhelming support. “There is opposition but it is small and it has continued to dwindle,” she said. “[Project Grace] is a game-changer for our downtown.” 

Diana Hill, an organizer of the group Save Our Main Library, told the Greater Wilmington Business Journal she disagreed with the characterization of the scale of opposition. Hill pointed out the group garnered 1,370 online signatures through its petition and has 800 Facebook members. 

A chief complaint of the group is that the project will decrease the library’s space: With currently about 60,000 usable square feet (another 40,000 comprises basement or mechanical rooms not utilized by the public), the new build will reduce library space by about 38%. 

Other groups, like the Historic Wilmington Foundation, oppose the project because they say it will destroy a historic resource, the 1926 Borst building.  

Asked how the project would fare on a referendum, Wurtzbacher said she'd guess it would pass. 

Current plans include beginning construction in the beginning of 2023 and wrapping up by summer or fall of 2024. 

The county first submitted its application to the LGC in late June, and initially planned on the project being reviewed in July, but the item was deferred to August “because of the complexity of the transaction,” according to an LGC spokesperson. 

The LGC did not take action on the item Tuesday but could choose to at its next meeting.