A year after demolishing the Utah Theater, Hines is set to miss first development deadline
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The development that was slated to replace the now-demolished Utah Theater on city-owned land Downtown is on track to miss its first deadline after interest rates spiked, the market slowed, and the developer struggled to shore up financing for construction, Building Salt Lake has learned.
Hines was expected to break ground on a 31-story building near 150 S. Main St. by March 31, according to the development agreement between the Texas-based developer and the Salt Lake City Redevelopment Agency, which was signed in late 2021.
But in the wake of a broad slowdown in new development projects in the capital city and across the country, Hines has struggled to secure a new capital partner who can follow through with the project. The group will miss the March 31 anticipated start date.
Documents reviewed by Building Salt Lake provide new details about what was expected of Hines after the city gave land to the developer at no cost, along with the expected timelines. They also lay out the potential path forward if the broader market shift derails one of the most politically fraught development projects in the city in recent memory.
“Hines Development has communicated to us that the 150 Main project is experiencing delays,” Amanda Greenland, a spokeswoman for the RDA, said in a statement. “We are currently working with Hines, within the context of our agreement, to explore all our options.”
According to the development agreement, Hines is “not entitled to an extension of any such deadline.” If the developer requests an extension from the RDA, “the Developer agrees that the RDA may decide to grant, modify, or decline such request, in the RDA’s sole but reasonable discretion.”
Within the development agreement is a schedule of development that shows that Hines has apparently achieved just one milestone laid out in the agreement: removing historic elements from the theater before tearing it down.
The developer demolished the 100-year-old theater in April after facing lawsuits and attempts by local preservationists to protect the building.
But the project quickly showed signs of delays, with Hines asking for and receiving a one-year extension of its design review approval in May. Hines said at the time it couldn’t finalize its designs until demolishing the building.
Shortly after the city approved that one-year extension, the landscape for financing real estate development shifted, marking the first serious blow to a decade-long run of development in Utah and throwing into question whether the city facilitated the demolition of a historic building for a development now facing strong headwinds.
In a brief statement, a Hines spokesperson said the group was committed to the success of the project.
“We’re dedicating significant time and resources to ensure the success of this project, despite unprecedented market changes over the last several months,” a Hines spokesperson told us. “We continue to be fully committed to the project and the Salt Lake community.”
Details of the agreement
Getting to an agreement with Hines was politically tricky.
The deal tested the city’s willingness to demolish a century-old building on a central street now mixed with buildings old and new. It also involved questions around whether the city was getting enough in exchange for a free piece of land worth over $4 million (likely much more today).
Within the 400-unit project, Hines agreed to include about 40 units that are affordable for people making 60-80 percent of the area median income for 50 years.
Hines would also include a privately owned, publicly accessible park on the third floor of a parking garage built for the project. The park would be open from 7 a.m. to 11 p.m.
The improvements would also include a mid-block walkway, at least 8,400 square feet of ground-floor retail and the restoration of historic elements that were part of the former Utah Pantages theater.
The development agreement requires Hines to spend up to $1 million repurposing historical elements for the theater.
Hines is supposed to have substantially completed the exterior of the new tower by September 2026, or 42 months after it was supposed to begin construction. With the company now apparently searching for an equity partner, it’s not clear when the city can expect the tower to be built, if at all.
It’s also not clear if or whether the RDA will seek to renegotiate any part of the agreement with Hines.
Greenland said the RDA would “determine what is best for the project’s future, Downtown Salt Lake City, and the community.”
Read the Development Agreement between Hines and the Salt Lake City Redevelopment Agency.
Development Schedule for Main Street Apartments
- Hines removes historic elements and salvageable items from property prior to demolition of the theater.
- Anticipated construction commencement date: March 31, 2023
- Anticipated partial construction completion date: 30 months from commencement of construction
- Outside substantial construction completion date: 42 months from commencement of construction.
What happens now?
The forthcoming delay comes amid a broader slowdown in development that has not avoided Salt Lake City.
Kip Paul, vice chairman of investment sales for Cushman & Wakefield, called the current moment the “great pause,” as high construction costs, land costs and interest rates have combined to create a stiff headwind for development.
“Eighty percent of projects out there are being slow-played or are openly acknowledging they’ve just passed,” Paul said. “You can’t make it happen at the moment.”
The city and Hines first entered into a purchase agreement for the property in November 2019, when rates were nearing historic lows and finding capital partners was markedly easier.
The Federal Reserve has already approved multiple steep rate hikes and just this week promised more to come as it continues working to tamp down inflation — including the price of rent — and cool the economy.
It’s possible Hines finds a new backer to help finance construction.
Should the development fall together entirely, there are options for the city to regain this prime piece of real estate.
The RDA and Hines agreed to a repurchase agreement giving the RDA first right of refusal to buy back the property. It would cost the RDA all of Hines’ out-of-pocket expenses to reclaim the property, which might be significant given the legal challenges and delays.
If it came to that, the city would have another key piece of land at the center of Downtown. It could try to find another buyer right away and hope to find one willing to provide public benefits. It could wait for the financial landscape to improve and sell the land. Or it could come up with any number of other options.
But of course, the theater is gone forever.
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