The troubled Symmes Hospital redevelopment in Arlington, which has hit snag after snag since it was conceived, has encountered another potential roadblock: The likely soon-to-be owner of the site, and potentially its would-be developer, is not the town’s preferred development partner.

The town’s Redevelopment Board recently voted 4-1 in favor of Dedham-based Upton + Partners proposed mixed-use project on Hospital Road, dubbed “Arlington 360.” Plans include condos and apartments, an assisted-living facility and a public park with views of Boston’s skyline in the distance.

But Virginia-based Jefferson Apartment Group (JAG) has purchased the property’s original $13.6 million mortgage note from lender PNC Bank, after original Texas-based developer JPI lost its financial backing and became insolvent in 2008. JPI still owns the site, for now, but owning the note gives JAG, comprised of former JPI executives, the power to foreclose and take full ownership – which is probably exactly what they’ll do, said JAG President Jim Butz.

“We are likely to foreclose on the note and end up owning the land, and we’re talking to all the interested parties,” Butz told Banker & Tradesman. “We’ve been meeting with neighbors … and will meet with other potential builders and developers, including Upton + Partners, if they so choose. We have a large, well-known investor and we had the capability of moving forward to buy the note, and we did. We met with the town and talked to them about the opportunity for us to build it. We’re now looking at all alternatives.”

But those “alternatives” don’t necessarily bode well for a different developer – like Upton – because JAG may simply decide to develop the property itself. The town narrowed its preferred development proposals to two – JAG’s and Upton’s. JAG proposed approximately 200 “flats and townhomes” which would initially be rentals but could also be sold as condo units, the town’s preferred residential template, Butz said.

Executives from Upton, undaunted by JAG’s maneuvering, told Banker & Tradesman they had already identified subcontractors to do the work and want to start “ASAP.” They also confirmed they were making moves to acquire the site themselves.

“We have a plan that we have worked out with the community and the town, and we’re looking forward to executing that plan,” said Jake Upton, a partner in the firm. “If JAG did buy the note, it just means there’s a different lender to JPI. JPI is still the owner. And we’ve been selected as the preferred developer. The next step is Upton acquiring the property.”

The Fine Print

But whichever company ends up owning the site, preferred developer or not, could have a number of complex hoops to jump through, thanks to a complicated Land Disposition Agreement (LDA) which dictates strict parameters to be followed by any potential developer.

“We were disappointed to learn that the developer that wasn’t chosen went and bought the promissory note,” Carol Kowalski, Arlington’s planning and community development director, told Banker & Tradesman. “There’s a lot of support for Upton + Partners. The town acquired the hospital site to control development there and to realize certain town goals that are in the Land Disposition Agreement (LDA). Whoever takes over as redeveloper is obligated to that contract.”

The LDA mandates complex profit-sharing mechanisms between the developer and the town that would be triggered based on how many residential units are built and when. It also requires construction of a medical office building at the site.

But after a decade of starts and stops, the profit-sharing and medical office building portions will likely be up for negotiation, according to Bruce Fitzsimmons, chairman of the Arlington Redevelopment Board.

The potential for negotiations is important, because the contract includes certain conditions JAG told town officials it has little interest in following – namely the complex profit-sharing clause. And JAG isn’t the only developer to balk at the lengthy conditions.

“Virtually every developer … has said this can’t be done if profit-sharing is part of the mix, so they would want us to amend the LDA,” so that’s a negotiation any developer would likely enter into with the Redevelopment Board, Fitzsimmons said.

The mandated medical office building or wellness center to be built on a portion of the property resonates with the nostalgia some feel toward the old Symmes Hospital. Upton + Partners has proposed an assisted living facility to fit this bill.

But Butz said a requirement for said medical building “is not part of the property or note that we bought back from the bank, so our goal is simply to work with the town of Arlington to complete whatever they want done on that [medical office building] site. I don’t believe we would choose to build [a medical facility on-site], but we will work with the town and provide,” what they need there.

Waiting Game

But that may not be necessary if the town finds a workable compromise or otherwise exhibits some flexibility. Essentially every time in last five years a developer went to the Redevelopment Board to talk about progress, they reported “tepid interest in building a medical office building or a wellness facility.” There never seemed to be a willing candidate able to follow through on that part of the project, Fitzsimmons offered, and so the idea may end up on the scrap heap.

“As time went by … we eventually said the overriding goal is to get a project built that works for the town, and if that means we lose the medical office building component, so be it,” he said.

So the project is again in a sort of limbo until JAG decides what it will do with the land if, and when, it forecloses on the note. But uncertainty is nothing new for town officials trying to jumpstart development on the site.

The soap opera started when planning began 10 years ago. When the hospital’s closure and land sale was announced, the town viewed it as an opportunity to control development on what Fitzsimmons called “a very significant piece of land.”

First, town officials issued a special permit needed to allow for the dense residential units called for in the LDA. A lawsuit from abutters that opposed the plan then took nine months to slog through before a settlement was eventually reached.

Next, the town selected Braintree-based EA Fish as the site’s original developer. EA Fish brought in national developer JPI as controlling partner. JPI completed initial demolition on the site, but construction stalled in 2008 when JPI lost its financing for planned construction of a luxury apartment complex on the site.

Fast forward to June, when Upton edged out JAG as the town’s preferred developer. Not to be outdone, JAG bought the mortgage and now has the power to make itself the property owner and possibly developer.

“We’re not in a hurry and we’ll see what happens,” Butz opined. “We paid all cash for the note, and we don’t have time pressure ourselves, but we would like to see the best project built on the property.”