Updated at 3:30 p.m. on May 24 — The estimated costs of the total infrastructure improvements at the former Landmark Mall site have ballooned 40% since City Council signed off on the project in 2021, forcing the city to get creative with its financing.
Tonight (Tuesday), the City Council will vote on directing City Manager Jim Parajon to execute an agreement between the city, Landmark Land Holdings (a joint venture between Foulger-Pratt, The Howard Hughes Corp. and Seritage Growth Properties.) and Inova Healthcare Services to address the $62 million shortfall.
The increase is due to a number of issues, including inflation and equipment shortages, according to a staff report to be presented to Council. The initial agreement between the parties had the city contributing $86 million for infrastructure and $54.25 million for the future home of Alexandria Hospital for a total of $140.25 million. Now the city proposes to increase Landmark Redevelopment-related City Bonds in a “maximum aggregate principal amount sufficient” to raise $37.6 million in net construction proceeds to pay for the infrastructure improvements and interest charges on those bonds.
City staff said that worsened economic conditions pose challenges to future private investments to the project, and that “unanticipated interest rate hikes coupled with illiquidity of the debt markets further worsened by the collapse of regional banks have resulted in a deterioration of asset values.”
“The cost increase is a factor of various events including advancement of design and engineering, infrastructure, parks and open space scope refinement, supply chain disruptions, material and labor cost increase due to both inflation and shortages, and regional competition due to the prevalence of major projects stimulated in part by federal infrastructure funding,” city staff reported.
Additionally, “While the Developer was able to value engineer approximately $17 million in savings, the overall cost for infrastructure improvements has increased by approximately $45 million based on executed guaranteed maximum price construction contracts for approximately 70% of the infrastructure costs.”
In March, City Council unanimously approved the Inova at Landmark project, which includes a 569,000 square-foot hospital center, a 111,000 square-foot cancer center, an 83,000 square-foot specialty care center and a retrofitted 550-space parking garage. Inova wants to start construction on its 1.1 million-square-foot project in 2024 and have the four-building hospital campus finished by 2028.
The proposed plan to address the funding gap is below:
- Landmark Land Holdings has agreed to cover approximately $7.5 million of the funding gap by waiving fee on increased costs and increasing its equity contribution, further reducing its developer fee, and shifting a portion of the infrastructure improvement costs to individual vertical parcel developments
- The City will fund $37.6 million of the funding gap through the increased issuance of City Bonds to be repaid from synthetic Incremental Tax Revenues (real property tax, retail sales and use tax, meals tax, and transient lodging tax) generated from the Landmark site. The CDA will increase the special assessment backstop to account for this increased issuance
- Block D in the project will be dedicated as workforce housing
- The parties will explore exemption/removal of Block J (Affordable Housing/Fire Station) from the Landmark Community Development Authority special assessment obligations and from assessments related to a future business improvement service district to increase feasibility of affordable housing at Block J
- For two years, Landmark Land Holdings will identify and make available up to three pop-up spaces for local businesses with a minimum of 90 days to operate with their license agreement becoming month-to-month after the initial 90 days
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