The city of Des Moines is hedging its bet on a Hy-Vee Inc. grocery store that is planned for 420 Court Ave.

Hy-Vee and Knapp Properties Inc. have teamed up for a $26 million project to develop a 2.3-acre, city-owned parking lot at the the site into a 35,000-square-foot grocery store that will be topped by 81 apartments and include a one-story parking ramp.

The development agreement calls for the city to receive $270,000 in a land sale valued at $3.57 million (that amounts to an in-kind grant of $3.3 million to developers), provide a 100 percent tax abatement on the residential units for 10 years, then provide five years of tax increment financing at 80 percent of the value of improvements in years 11 and 12 of the agreement and 75 percent in the final three years.

City officials have enough confidence in the project that they used the projected tax revenues from the full-service grocery store to increase their request for rebates under a special state taxing district that includes the site by $3 million. It is estimated that over 20 years, the store will generate nearly $8 million in sales tax revenue.

Still, commercial uses in multi-tenant buildings come and go, said Assistant City Manager Matt Anderson, and with that thought in mind, the city incentives can be withdrawn.

“The motivating factor for this deal is the Hy-Vee,” Anderson said. “And with one large commercial tenant, we wanted to guard against providing incentives for a large vacant commercial space.”

According to a report to the City Council, city incentives come to a stop “if Hy-Vee ends operations on the site and its first floor space is not reoccupied by commercial use within a year and if any residential units are sold before 15th year.”

“It’s unique,” Anderson said.

Though lenders and lawyers would step to the fore to secure the interests of private financers for the deal, the long and short of the city agreement is that its tax abatement and TIF payments would come to a halt, said Andrea Hauer, an economic developer coordinator for the city.

The city went through a vetting process of development proposals for the site that concluded with the selection of the Hy-Vee-Knapp project. A key part of that process was selecting businesses with the financial wherewithal and development expertise to put together a successful project in an area that has been noted for failed attempts, generally because of an inability to secure financing.

Other funding sources for the Hy-Vee-Knapp project include $2.6 million in federal New Market Tax Credits and a potential $1 million in state of Iowa Workforce Housing Tax Credits. The project was not granted the state tax credits in the initial round of funding under the new program, which exhausted its $20 million annual allocation. However, the Iowa Economic Development Authority will consider the request again after the start of the 2016 fiscal year on July 1.

The proposal also includes a $14 million mortgage and nearly $9 million in developer equity.