Major Anchorage development deal to build a new city health department and a grocery store falls through

The Anchorage municipality has paid $1.1 million to settle a dispute with a Washington-based developer over a failed deal involving a major project on East Tudor Road.

The developer and the city had envisioned a huge new complex on largely vacant land at the southwest corner of Tudor and Elmore roads. The plans included a new city health department building, a grocery store, apartments, restaurants and offices. New downtown apartments for seniors were also part of the deal.

The Anchorage Assembly accepted the settlement in January with DHHS 1, the company approved by the city to build the project. City officials said they still hope the effort can move ahead with a new developer in some form.

The settlement provides $450,000 to DHHS 1. The company is owned by David Irwin of Irwin Development Group in Bellevue, Washington, and Irwin’s 5% project partner, Mark Lewis, of Alaska Pacific Development.

The settlement also paid $610,000 to four Anchorage architecture and engineering firms, primarily Rim Architects, for their work on the project, according to city documents.

Irwin said this week he’s satisfied with the settlement. But he would have preferred to complete the project after putting in 3½ years of effort, he said.

“I was trying to find ways to make something work,” he said.

The city spent about $320,000 on the project before it terminated the deal, for such things as rezoning fees and consulting services, a city resolution shows. DHHS 1 and subcontractors had spent about $1.4 million.

Under the settlement, the city receives the design and engineering plans and other work done for the proposed facilities, said Chris Schutte, the city’s director of economic and community development.

He said the city continues to advance the project to make it ready for a new developer. Finding one would likely require a new bidding process, he said.

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“The bones of the previous effort are there, so it would make sense if a future development partnership followed the same general approach to the site design (and other details) at the Tudor-Elmore campus,” Schutte said in an email.

“That being said, each developer will likely have their own ideas about how she/he would like to develop the site and deliver the most important thing we initially set out to deliver: a new building for the Anchorage Health Department,” Schutte said.

A “creative” proposal

The city launched the project five years ago when it sought “creative” proposals from developers to finance the replacement of the aging city health department building at Eighth Avenue and L Street, according to the 14-page development agreement.

The plans could include city land donations and property tax breaks, the city said.

Goals also included stimulating redevelopment and the Anchorage economy.

Irwin and Lewis responded with different plans, and city officials liked both ideas. They asked the developers to work together, and they agreed, Irwin said.

Lewis could not be reached for this article.

The plans proposed a mixed-use development valued at more than $150 million, Irwin said. It included potential property tax breaks exceeding $8 million and more than 15 acres in city land donations to the developer after milestones were met.

The area, just south of the University-Medical District, gets a lot of traffic. The land where the development would be built currently houses a bus barn for the Anchorage School District and a motorcycle training facility.

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As part of the deal, Irwin and Lewis would have financed and built the new health department building, and a new bus barn in a new location, at a cost of about $22 million. The city would have owned those properties, according to the settlement agreement.

The deal also called for new mixed-income senior apartments downtown, where the old health department building sits.

Complications stem from school bus barn relocation

The deal crumbled in part because of complications with the proposed relocation of the school bus barn.

The city and developer sought to build the new bus barn on an undeveloped tract of city-owned land — away from the campus at a site east of Elmore Road, where Dr. Martin Luther King Jr. and Tudor Centre drives intersect.

The city said the new bus-barn location drove costs too high, leading that part of the project to be terminated, according to the city resolution.

Also, financing for the health department building was jeopardized when the Alaska Department of Transportation and Public Facilities denied road access from Tudor Road until road infrastructure related to the project was completed, the resolution said.

“Accordingly, Developer was unable to commence construction of the new (Anchorage Health Department) building by the Development Agreement-required date of June 30, 2020, and the Development Agreement (and Project) was terminated,” the resolution said.

Irwin said the U.S. Army Corps of Engineers needed to permit construction at the new bus barn site. A response from the federal agency did not come until well after the June 30 deadline, he said. The delay raised uncertainty about the cost and work needed to develop the site, he said.

After it became apparent the bus-barn development would not happen, the city needed to alter the contract terms to allow the rest of the project to go forward, Irwin said.

But the city didn’t take that step, so construction of the new health department building could not begin in time, Irwin said.

“It didn’t start because we didn’t know how the city would pay for the project,” Irwin said. “An integral part of paying for it was giving us that land under the existing bus barn. But they couldn’t give us the land because they didn’t know if the bus barn was moving forward. So I’m like, city, how can we start construction on (the health building) when you don’t know how you’ll pay for it?”

Irwin said he sought ways to resolve the differences. He said he suggested an extension -- the project was already extended once in 2019 -- to buy time to find solutions.

But the city wasn’t willing, he said.

Developer and Midtown Assembly members disappointed.

A mediation process in December led to the settlement.

“They just flat out canceled the deal, that’s what got under my skin,” Irwin said. “We worked together for 3½ years and now you want to cancel the deal? No phone call or nothing.”

Schutte said in an email that the settlement agreement represents the views of both sides.

“We believe the settlement agreement speaks for itself,” he said.

Felix Rivera, an Assembly member for Midtown, said his biggest disappointment with the deal’s termination is that a grocery store won’t be built, at least for now. Residents in the area have long wanted a grocery in the area, he said.

Rivera hopes a new developer can be found, preferably one in Alaska, he said.

Meg Zaletel, also a Midtown Assembly member, said residents in the area generally want to see the project happen. Some people, complaining about fumes from the bus barn, want that facility relocated, she said.

“They weren’t really thrilled that the project stopped and that it stopped after significant funds were spent,” she said.

She said residents want to ensure that traffic improvements to increase safety are part of the plan, she said.

The city project is the second that has fallen through for Irwin, amid disagreements between the two sides.

Irwin was the original developer for a 12-floor boutique hotel at Sixth Avenue between G and H streets, on land owned by the Anchorage Community Development Authority, a city agency.

The project struggled to advance, with Irwin citing the poor economy during the COVID-19 pandemic as a complicating factor.

Both sides walked away from that effort without the need for mediation or a settlement, Irwin said.

Larry Cash, founder of RIM Architects, is part of a new investment group trying to move that project forward.