Wilmington leaders are set to negotiate the sale of roughly 34,000 square feet of commercial space on the ground floor of downtown’s River Place complex to developer East West Partners.

Since 2018, East West Partners has leased the commercial space at 202 N. Water St. from the city through a ground lease. Now, the development company wants to buy the land outright, said McKay Siegel, a partner with the firm.

“Ground leases kind of come and go in popularity,” Siegel said Tuesday. “For whatever reason, when the original River Place deal was drafted, the city seemed to want to own the property, which … from a real estate perspective is almost never your preference as a developer. But if it gets the deal done, it gets the deal done.”

The 13-story River Place is a mixed-use complex that was completed in 2020. The project, a public-private partnership between the city and East West Partners, replaced a defunct parking deck with a new parking deck and constructed 79 apartments and 92 condominiums along with ground floor space for commercial tenants. 

According to city documents, the commercial space ground lease began in January 2018 with an initial term of 50 years and two options to renew for 25 years and another 24 years. The original lease had an annual rate of $48,552, which has escalated to $56,897 per year. Wilmington’s City Manager Tony Caudle said East West Partners approached the city about purchasing the land. 

The portion owned by the city extends from the ground up to 12 feet in height, Caudle said, encompassing River Place’s commercial storefronts. Current tenants include Axis Fitness, Mellow Mushroom, a Bank of America branch and DGX, an urban market brand from Dollar General.

“Underneath those residential portions on the 12 feet that the city owns, we allowed the developer to lease that property from us,” Caudle explained, “and then, in turn, lease it to individual commercial establishments.”

The Wilmington City Council unanimously voted on Tuesday to authorize Caudle to enter negotiations with East West Partners. Any proposed sale of the site or change to the city’s purchase and development agreement with the development firm would come before the council again for consideration, Caudle said.

The current structure of the ground lease with the city has added a “layer of complication” to River Place’s operations, Siegel said.

“It’s a complicated deal for me, and I’ve been in the middle of it for seven years,” he said. “There’s a whole bunch of agreements that govern, you know, who pays for what when and what’s the percentage split.”

When East West Partners began the process of converting the complex’s 79 apartments into condominiums, the ground lease again presented some challenges, Siegel said, and ultimately pushed the firm to reach out to the city.

“In order for us to convert the apartments to condos, we had to separate the retail portion out of the apartments, so we had to basically create two LLCs,” he said. “When we were going through that whole process, having a ground lease and the headache of that sort of came back to the surface.”

The resolution approved by the city council on Tuesday notes that the potential sale “would enhance the City’s near-term cash position, expand its debt capacity and allow the City to forgo the operational costs of administering its duties as part of the ground lease.”

Caudle said staff would recommend proceeds from a sale be used to pay down the debt service for Skyline Center, the city’s offices at 929 N. Front St. City leaders purchased the campus, which formerly housed PPD and then Thermo Fisher Scientific, in July 2023 for $68 million.