The sandy hole where the historic Utah Theater once stood along Salt Lake City’s Main Street wasn’t supposed to be quiet Friday.
Under contracts with the city’s Redevelopment Agency, global developer Hines was to start construction of its 150 South Main Street Apartments, a luxury 31-story residential tower slated to rise across from the Eccles Theater, along with new pedestrian-friendly green spaces and up to 40 apartments kept more affordable than typical downtown rents.
The Texas-based firm now says it has run into financial difficulties after a key equity partner “recently pulled out of the project due to the unprecedented market changes over the last several months,” forcing the developer to miss its legal benchmark to start building.
Hines remains “absolutely fully committed” to the upscale tower’s success, a spokesperson said, but offered no estimates on how long the delays might continue.
“We are working closely with the RDA and the city, within the context of our agreement,” Hines executives said via email, “to explore all of our options.”
The March 31 lapse also comes less than a year after the same company hurried to tear down the dilapidated, century-old performance venue, known for years as Pantages Theater, as historic preservationists fought in court to save it.
Hines is one the largest privately held real estate investors and managers in the world, making Friday’s hiccup another sign of a slowdown in the city’s recent commercial real estate boom amid the effects of market swings, a deflated office sector and rising interest rate rises.
Hurry up and wait
Hines, which owns the adjacent Kearns Building on Main Street, won approval in July 2021 to proceed with a full design phase for the proposed residential high-rise of 400 apartments — 40 of them rent-subsidized — as well as a pocket park and midblock walkway.
As part of a deal signed in late 2019, the RDA conveyed the theater building and nearby properties on Main Street to Hines for zero dollars in exchange for the tower’s affordable apartments and other amenities.
The city bought the ornate, neoclassical playhouse in 2010 with visions of refurbishing it, but after much study and debate, that overhaul proved too expensive. They opted instead to craft the deal with Hines in light of a dire lack of affordable housing and park space downtown.
Historic preservationists, film buffs and other residents sought repeatedly to prevent the venerable theater from being flattened, including with a series of failed restraining orders. Lawyers for Hines told a 3rd District judge that every construction delay potentially cost it tens of thousands of dollars daily.
Yet a month after the theater was razed, Hines sought a one-year extension from the planning commission on its final designs. The firm’s lawyer later cited newly discovered challenges he said had been revealed by soil samples at the site.
Recent market turbulence
In a statement last week, Hines cited recent market volatility and shifting investor sentiment as contributing factors in its latest difficulties.
“These factors were not at play during that time,” its spokesperson said of its campaign a year ago to hasten demolition.
Hines notified city officials of its latest delays well before Friday’s missed deadline, as first reported by the blog Building Salt Lake.
While stalling construction, Hines’ notice has also thrown the firm’s 2021 development agreement with the RDA — along with the zero-dollar property acquisition — into strange territory.
The RDA has first right of refusal on buying back that choice piece of downtown real estate if conditions with Hines go decidedly sour. Part of its agreement also gives the agency authority to “grant, modify or decline” deadline extension requests, “in the RDA’s sole but reasonable discretion.”
It hasn’t done that yet, at least not officially.
After talks on a path forward involving Mayor Erin Mendenhall and RDA chief operating officer Danny Walz, the city reportedly has opted not to overturn the whole deal, avoiding a route one source called “the nuclear option.”
Instead, the RDA is negotiating with Hines on modifying contract terms and deadlines in hopes of keeping 150 Main Street Apartments afloat, although, an agency spokesperson added, those talks now include a request the city be compensated for construction delays.
“With steadily increasing costs across the board and rising interest rates, it’s common for today’s projects to take longer to secure equity and financing in order to get shovels in the dirt,” said RDA communications manager Amanda Greenland.
“This unique project remains important to the RDA,” she added, “and we will continue working with Hines to achieve outcomes that are beneficial for Salt Lake City.”
Hines’ spokesperson did not address compensating the city but confirmed the company was seeking alternative sources of funding, while dedicating “significant time and resources to ensure the success of this project.”
The firm, the spokesperson said, “is working in good faith to come to a resolution that is acceptable to the city while maintaining project viability. We are actively working to find the most efficient capitalization path forward for the project.”