Why accommodate Hemisfair developer?

Four years after Zachry Hospitality was supposed to start building a $200 million mixed-use development around a 9-acre public park at Hemisfair, the company has yet to turn a teaspoon of dirt.

Neither has it forked over a cent of the rent it owes the Hemisfair Park Area Redevelopment Corp. — though the amount the San Antonio company agreed to pay was among the reasons it bested 10 other bidders for the downtown project in 2017.

Instead, Zachry has been renegotiating its deal with HPARC and the city. At a City Council briefing this month, the public got its first look at the proposed revisions, which include reduced rent and a new 2025 deadline.

Zachry’s failure to execute on the original deal didn’t seem to give council members much pause about considering a new one. Andres Andujar, HPARC’s CEO, said he doesn’t blame the company for the holdup. Neither does the mayor.

“We’ve seen many iterations and it’s no surprise that we’re seeing a new one related to the interruptions over the last few years,” Mayor Ron Nirenberg said during the briefing. “I appreciate Zachry and the team at HPARC in their efforts to get this back on track in a way that I think fits the larger vision that we had at the beginning.”

HPARC and city staff have attributed the delays primarily to the coronavirus pandemic.

They also cited apartment developer NRP Group exiting the deal, underground parking proving too difficult and pricey to build, and programming at the site for the NCAA men’s Final Four and the city’s Tricentennial in 2018 delaying progress.

The pandemic is an understandable reason for delays — it upended financing for many real estate projects, ravaged hotels and tanked demand for office space downtown. Reconfiguring parking and finding new developers to work with also take time.

But starting construction in mid-2018 — after the Final Four and Tricentennial activities — was baked into a timeline shown to the council in 2017. That was also nearly a year and a half before the pandemic began taking hold.

And as my former colleague Richard Webner has pointed out, email and agenda records indicate Zachry’s rent payments were under discussion as early as April 2019.

Council members will vote next month on the proposed changes to the 2017 deal between Zachry and HPARC.

Under the original lease, which was to last up to 97 years, Zachry was to pay HPARC about $1.9 million in rent annually for the first two years and $1.45 million a year after that, along with a slice of revenue from retail tenants.

Rent was due either when the development was finished or on Aug. 1, 2021. The payments were to reimburse the city for debt from $18 million in certificates of obligation it issued for the first phase of Civic Park and to help make Hemisfair self-sustaining.

The delays have hampered progress on Civic Park. It was slated to be completed in 2020, but officials didn’t break ground until early this year.

Assistant City Manager Lori Houston maintains Zachry’s delay was irrelevant to the park’s construction and the main reason for the slowdown was that costs were higher than initially estimated.

Under the new agreement, Zachry would pay $1.15 million in rent annually. Because HPARC has not received payments from the company, the city would defer HPARC’s reimbursement payments through 2029, at which point the nonprofit would pay back the city with interest.

Zachry would foot the bill for a parking garage the city was going to pay $59.5 million to build.

But the company would get help from taxpayers, too. Under state law, the hotel qualifies for a rebate of state hotel occupancy and sales taxes, and that money would be used to reimburse Zachry for parking costs and public improvements for 10 years.

Also, the city would pay for $8 million worth of utility infrastructure through the Hemisfair Tax Increment Reinvestment Zone, a cost Zachry was going to take on under the original deal.

Because office space is not as attractive now as it was before the pandemic, the development’s office component would be replaced by a second apartment complex. That bumps the number of units to 525 and parking spaces to 1,100 from 800.

Total private investment would increase to $340 million from $200 million because of inflation and Zachry paying for parking. That would generate about $488,000 more for the TIRZ, which uses increases in property tax revenue from land within the zone for reimbursement of costs for public improvements.

There are several other changes: fewer city and SAWS fee waivers; at least $125,000 for a property owners association; $and a $150,000 annual credit for HPARC to use hotel space, among them.

The new deadline of 2025 is centered around the NCAA men’s Final Four, as Civic Park and Zachry’s development will be used for programming. The new agreement also would include stipulations to keep Zachry on track, but so did the original deal.

With all the changes, and considering how business conditions have changed, why not go back to the drawing board and perhaps choose a different developer?

When Councilman John Courage asked Houston at this month’s meeting why the city wasn’t issuing a fresh request for proposals, she said construction must be finished in time for the Final

Four. “When we looked at the revised proposal, it is in line with how Zachry was selected,” she added. “We are making out better with this deal than we were previously.”

But does that matter if the company can’t deliver?

Civic Park and Zachry’s mixeduse development have promise to transform downtown — drawing a host of residents, businesses and events while rejuvenating an underused historic area.

But the delays, and city leaders’ failure to press Zachry to perform on its deal, are troubling.

Josie Norris / Staff photographer Zachry Hospitality was slated to complete a $200 million mixed-use development in Hemifair last year, but it hasn’t even begun the work. Yet the city seems to have no qualms about renegotiating its deal with the company.