Q&A: Banks developer Carter "working diligently" on office, hotel deals

CINCINNATI —Carter & Associates LLC is an Atlanta real estate development company with a $2 billion portfolio of assets under management. It has invested more than $875 million in projects all over the country in the last decade.

It was selected as lead developer of the Banks project in 2006 by the Banks Working Group, a city-county advisory panel for riverfront development. Initially, it partnered with AIG Global Real Estate. But before its master development agreement (MDA) was signed in November, 2007, AIG pulled out of the project.

It was replaced by the Dawson Co., another Atlanta –based developer, which is why it was widely known as Carter-Dawson in 2007. USAA Real Estate also joined as an equity partner. All three entities remain partners in the Banks project, but over time, Carter executives have been the most involved in public interactions with city and county officials. So, it’s the Carter name that’s most often associated with the project.

In 2013, the group sold part of the Banks development to an affiliate of Nashville, Tenn. –based Nicol Investment Co., providing cash that paid off city and county loans to the project and new capital for future Banks phases.

WCPO business reporter Dan Monk posed a series of questions to Carter via email while researching a column . Here are excerpts of that exchange:

Q: The original contract called for construction to commence on 100 residential condos and 200,000 square feet of office space as part of Phase IB within four years of the Project Start date. When was the project start date?

A: The effective date of the MDA is November 23, 2007.  The Project Start Date is the earlier of the date on which the first building permit is issued (11-2-09) or 18 months after the effective date (5-23-09).

Therefore, the Project Start Date is May 23, 2009.

Q: Does that mean Carter has violated the terms of the MDA?

A: (No). The agreement gives guidelines and targets for square footage of office, residential, retail and hotel and for timing targets to ensure the project continues to move forward. These guidelines were designed to allow the project to develop based on market demands, rather than artificially demanding that certain products and uses be developed by certain dates.  Allowing a large, mixed use project such as The Banks to develop when and how the market demands is the best formula for success.

For Phase IA, all milestones and thresholds were met or exceeded by the Master Developer. The requirement for condominium was broadened to residential soon after the MDA was signed. That was in response to the unhealthy condo market. Financing condos at the time was near impossible given the pre-lease requirements. Condominiums are still a possibility at The Banks in future phases if and when the market will support them. However, it is important to note that Current @ The Banks, the Phase IA apartment building, is nearly 100% leased and has a wait list. The market is showing strong demand for apartment living at The Banks, and the apartments in Phase IIA are intended to help meet that demand.

For Phase IB, the Public Parties and the Master Developer agreed to modify the composition of the required improvements to include a first-class hotel and an office building. Pursuant to the MDA, the commencement deadline for the Phase IB improvements was May 23, 2013. Carter had the option to extend this deadline provided they pay an extension fee of $250,000 to the City and County. Carter requested such extension and paid the City and County prior to the commencement deadline. Carter is actively pursuing both hotel and office development with respect to Phase IB and Phase IIB of The Banks Project.

Q: The MDA requires at least 400,000 square feet of commercial improvements in Phase II blocks. Will Carter reach that threshold in Phase IIA or has that been modified?

A: The original plan sent to the city and the county last fall outlined 300 apartment units in Phase IIA. The plan now includes 291 apartment units. While the (square footage) for the apartments as a whole remains the same, the number of units has decreased. The original plan included more one-bedroom apartments. Since then, the market is showing an increased demand for two-bedroom apartments. Some of the one-bedroom apartments have been combined to form two-bedroom apartments.

The original plan outlined 20,000 (square feet) of retail and the current plan is substantially the same. No modifications of the (square footage) requirements for that block have been made.

The Phase IIA improvements to be built on Block 2 consist of approximately 310,000 square feet. The Master Developer is still required to meet the minimum Block 2 requirements of 400,000 square feet, which the parties fully anticipate

will occur when the balance of Block 2 is developed as part of Phase IIB.

Q: Why hasn’t Carter been able to do a hotel deal?

A: There have been opportunities with several different hotel flags and hotel operators. None of these have quite fit.  Given the opportunity at The Banks, the public parties and the Master Developer want to ensure we bring the right quality hotel with long-term sustainability to the development. They are working diligently to do this.

Q: Why isn’t more done on the office?

A: With regard to the commencement of a 200,000 (square-foot) office building, the Master Developer is currently marketing the office building and will start construction when they find a signature tenant that is willing to lease a significant majority of the building.

The downtown Cincinnati office market is still recovering with Class A and Class B vacancy rate in excess of 20%.  In addition, the rental rates required to finance new Class A construction are $5-$7 per (square foot) above current, existing Class A office rents, thus the challenge.

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