Corrections & clarifications: An earlier version of this story noted an incorrect acreage for the current Waterside site and the amount of the Waterside site sold to the Indianapolis Zoo. Ambrose Property Group sold about 12 acres of the former GM stamping plant site to the zoo. The remaining acreage at Waterside is about 90 acres. Ambrose also donated 10 acres and sold 4 ½ acres to the zoo from a separate parcel.

Ambrose Property Group is bound by an existing city contract that requires the company to construct $92.5 million in public development at Waterside by 2022.

But that agreement, which also sets forth how much the city would spend on infrastructure for phase 1 of the mixed-use development, is complicated by Ambrose's decision to sell the former General Motors stamping plant site — an unexpected announcement Friday that shocked residents, public officials and real estate experts.

The developer plans to rid itself of the massive plot of land as the company positions its business away from mixed-used and office projects to e-commerce and industrial developments.

On Wednesday, Indianapolis officials said not so fast.

The city said it intends to take ownership of the property through eminent domain to ensure redevelopment of the site and has set in motion the steps required under state law to begin the process, according to a Wednesday letter from Mayor Joe Hogsett's corporate council.

The city also offered another option.

"If Ambrose would prefer to avoid the delay and expense of a court process, we would welcome the opportunity to begin negotiating acquisition of the property immediately," the letter said.

Ambrose representatives did not respond Wednesday to requests for comment on the city's action.

The dramatic turn of events of the past six days mark not only the latest chapter in the city's efforts to expand Downtown west of the White River but also reflect how challenging the redevelopment of the former GM site is.

A door to local government control

The mayor’s office is optimistic that Ambrose will want to negotiate a sale, according to the letter, which notes the developer's "oft-repeated commitment" to the community and redevelopment of the site in a manner that is compatible with the surrounding neighborhood.

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If Ambrose doesn't, Hogsett’s chief of staff said the eminent domain process is a last resort to get local ownership of the land.

“Under an ideal set of circumstances, the city is asking Ambrose to enter into negotiations with us to purchase the property,” Thomas Cook said. “The mention of eminent domain is only relevant if they are going to take the position that they are refusing.”

He hopes the matter will be resolved quickly.

The city is requesting that Ambrose provide a copy of its purchase agreement from the seller, Racer Trust, and a log of expenses the developer incurred for any improvements to the property. The documents would help determine a fair and reasonable purchase price.

Racer has said the price Ambrose paid for the property is confidential.

Cook said that obtaining government control of the former GM property has been an option for redevelopment since Ambrose announced Friday its intention to sell the site. The decision to send the letter, however, was made Wednesday morning — shortly after the zoo announced that it had acquired roughly 26 acres from Ambrose for parking lot and other future expansions.

Ambrose sold about 12 acres of the former GM stamping plant site to the zoo. Ambrose also donated 10 acres and sold 4 ½ acres to the zoo from a separate parcel.

“It was not, for whatever it’s worth, a reaction to the zoo transaction. We were prepared as of this morning to take a stance and send that letter anyway,” Cook said. “While we were not consulted, and therefore surprised by this zoo transaction, we aren’t opposed to it or disappointed in any way.” The zoo has been interested in using a portion of the nearby property as parking for some time.

The city has yet to identify how it would pay for the purchase. Funding could come from a variety of sources such as building demolition funds or tax increment financing from the consolidated Downtown TIF, which the property is located on.

Benefits of local control

The city points to two reasons for seeking ownership: Ownership would give the city control over who buys the land and potentially ensures greater flexibility in how development takes place.

The land could be divided and sold to multiple developers.

No timetable has been established for Ambrose to make a decision, but Cook said the city doesn’t want to lose the opportunities presented by Downtown market conditions and low interest rates. "The work to establish a vision for the property has already been done, so city officials feel that they aren't starting the development process from scratch."

“The city absolutely needs to be involved in future development of this site,” he said.

Ambrose had not responded to the city’s letter as of 3 p.m. Wednesday.

The developer still has obligations to the city under an existing Waterside project agreement, Cook said in interview Tuesday. Indianapolis also has spent hundreds of thousands of taxpayer dollars on a development project that is not coming to fruition, though city officials can't say exactly how much.

"We're still essentially running the numbers on what those expenses that we've incurred to date might end up being," Cook said.

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What was unclear was whether Ambrose would reimburse the city for its costs, what new terms a potential buyer would want and whether the city would agree to them.

If the city becomes the owner of the property, those concerns largely become moot.

Emily Mack, the city’s director of the Department of Metropolitan Development, said it is hoped that negotiations to purchase the property will start soon.

The project agreement

The existing Waterside project agreement, effective Feb. 21, 2018, allowed the city to spend up to $26.7 million on infrastructure projects for phase 1.

Those projects would include storm water work; updates to Oliver Street, New White River State Parkway, Division Street and New Street; a pedestrian bridge; intersection upgrades at Oliver and Kentucky streets; and loop improvements.

At least $8 million of the $26.7 million is upfront funding for the work. However, much of that has not been spent because Ambrose changed Waterside's layout several times over the course of the year, Cook said.

However, some contracts for the design of the infrastructure work were issued, said Cook, who expects that cost would likely be somewhere in the hundreds of thousands of dollars but not in the millions.

He wouldn't say whether Ambrose has to pay that money back now that it intends to sell Waterside. But Cook does contend the city's $8 million upfront commitment and the project agreement are still relevant.

The contract requires Ambrose to construct the $92.5 million in phase 1 development by 2022. That hasn't changed, and neither has the city's obligation to provide the public infrastructure, Cook said.

"Obviously, we have received the same indications that everyone else has that they don't intend to do that," Cook told IndyStar before Wednesday's letter was sent threatening the use of eminent domain. "At this point, we're waiting for Ambrose to give us their best explanation for why the city shouldn't hold them to what that agreement says."

An organic evolution

Ambrose has been less than forthcoming about why it no longer plans to move forward with Waterside, a proposed mixed-use district that would have added 30 blocks to Downtown Indianapolis.

The company did not address specific IndyStar questions about whether it had secured funding for the first phase of the development and what factors influenced its shift in focus.

"Our decision to pursue the sale of mixed-use projects, including Waterside, has evolved organically. We have decided to focus our business on e-commerce and industrial development," Ambrose CEO and founder Aasif Bade said Tuesday in a written statement. "Those who are speculating that our decision to sell might have been driven by factors related to financing, staffing, tenants or investor interest are wrong and misinformed."

The developer was selected in 2017 to acquire the site, located south of the zoo, from Racer Trust, which was created to clean up and sell former General Motors properties amid the automaker's 2009 bankruptcy.

Ambrose initially proposed constructing a mixed-use commercial project that may consist of offices, hotels, restaurants, retail, multifamily rental units, for-purchase residential units as well as live-work spaces, advanced manufacturing, and training facilities. The total anticipated project cost, as outlined in the agreement, was $471.2 million — a figure that eventually ballooned to roughly $1.4 billion.

The project would be constructed in phases over a 15- to 20-year period.

In his statement, Bade did not answer an IndyStar question about why the scope and scale of the project grew. Instead, he noted that Ambrose engaged with residents living nearby in The Valley neighborhood and with the Central Indiana Community Foundation to position the site for development through rezoning, site analysis, civil engineering, and Opportunity Zone designation.

"We are proud of what’s been accomplished to date," he said.

Bill Callen, a Racer Trust spokesman, said Ambrose did make certain representations to RACER concerning its development plans, which were carried over into the scope of the developer’s commitments in the final project agreement with the city.

Racer handed off the responsibility to enforce Ambrose's commitments under the project agreement to the city, Callen said. The trust cannot elicit development commitments from a subsequent buyer.

But Ambrose cannot transfer the rights and obligations outlined in the project agreement— and the tax dollars that come with it — to a new developer without written consent from the city's Department of Metropolitan Development.

Cook hopes Ambrose and the city can mutually agree on a path moving forward.

Until that is settled, he said, the city is going to be mindful about not spending any more tax dollars on Waterside.

Finding a buyer

Ambrose said it’s looking forward to what will become of the former GM property. The developer hired the Indianapolis and Chicago offices of JLL, an international commercial real estate services firm, to find one or more buyers.

Bade, in his statement, noted that the site was a finalist for Amazon's HQ2.

And he said there is deep and ongoing interest in the site from a global office tenant seeking to establish a new North American headquarters, an international shared office space provider, a destination entertainment retail tenant and others.

Local real estate expert George Tikijian of Cushman & Wakefield said he is somewhat surprised Waterside faltered when it did. "It is a very ambitious project, and it requires a lot of risks and a lot of investment that they may not have been comfortable pursuing any further," he said.

He agrees that the city would have more flexibility in controlling the site's development if the city owns it.

Steve LaMotte Jr., a local real expert with CBRE, added that obtaining financing can be challenging to redevelop a site the size of Waterside, which he considers the last great development site of scale in Indiana. But he believes that as the size increases, so do the opportunities.

Still, the former GM site is an unproven area, with nothing currently there, Tijikian said. The challenge, he added, is finding someone willing to put the first dollars into the project.

"It's got lots of potential, but it's going to require a (new) developer with the horsepower to buy the land, spend the upfront money to do all of the planning to figure out what to put there, so it's not just for the small-time developer," he said.

Projects the scale and price of the $1.4 billion Waterside are difficult for any developer to finance, Tikijian said. "It's a lot of real estate in an area that hasn't yet been developed. There's a fair amount of risk for how long it will take, and there's a fair amount of capital to get it going," he said.

"Anybody who bought it would be challenged by it."

Contact IndyStar reporter Alexandria Burris at aburris@gannett.com. Follow her on Twitter: @allyburris.