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A new partnership has enabled the owners of the beleaguered H2O development in Coliseum Central to settle a long-standing tax debt with the city and get development there back on track, according to an attorney for the developer.

H2O owners Cygnus Capital and a Northern Virginia realty firm have formed a new company and broken ground on a $35 million apartment complex down the street from the Hampton Coliseum and Hampton Roads Convention Center.

Site plans obtained from the city of Hampton show the apartment complex consists of five buildings with 296 units. The complex is going up north of where dozens of townhomes have been built on the edge of Coliseum Lake.

F. Lewis Biggs, a real estate lawyer representing Cygnus, said the climate for residential development made it hard for Cygnus to figure out how to make H2O viable after it bought the development in 2012.

Since Cygnus took over, Biggs said, the housing market has improved, some of the improvements promised by the community development authority have been built and the potential profits on the project started looking up.

The original H2O proposal in 2006 described an $80 million development with nearly 500 condos and townhouses. But that was before the recession and housing market crash tanked demand and prices. Cygnus bought the original developer’s bank debt and foreclosed on the property in 2012, dividing the property into two separate entities.

Cygnus H2O Phase 1 handled the lake-front parcels south of Freeman where townhouses had already been built. Cygnus H2O Phase 2 handled most of the other undeveloped parcels.

The company never paid taxes and special assessment fees on the Phase 2 properties, claiming that work promised by the city and the H2O community development authority the city set up to fund improvements hadn’t been done on property north of Freeman Drive.

“Cygnus said, ‘Why should we pay special assessments for raw land that hasn’t been improved?'” Biggs said.

The dispute got to the point that Cygnus filed suit against Hampton last year, seeking to have the special assessments declared illegal.

Because Cygnus Capital owned the two properties under separate companies, the city couldn’t go after assets on the first phase to pay for debts on the second phase. Last summer, the city’s commissioner of revenue had discussed planning an auction for the delinquent properties to cover the unpaid tax bill.

The company dropped the suit and made good with the city to the tune of $1.37 million in December. Of that, $1.16 million was for unpaid special assessments.

Brandi Law with the Hampton City Attorney’s Office confirmed that Cygnus has paid in full and that there are no other pending legal issues with the property or the company.

Construction at the townhouse segment of the development has continued in the interim. More additions to that section are ongoing, according to Biggs.

Cygnus also owns land to the east of the townhomes, but the parcel is still covered in dense trees and Biggs said there are currently no plans to do anything with it.

For now, Biggs said, the group is just happy to have gotten a handle on the viability of H2O.

“You should see substantial improvements at the project over the coming months, both with new townhomes and with new multifamily apartments,” Lewis said in an email. “Cygnus is also working with the city in hopes of reinvigorating the Newmarket Creek Park and Trail System, part of which would run along the H2O development’s waterfront.”

The city has bought millions of dollars worth of property along Newmarket Creek, but segments of the trail project still haven’t had any funding earmarked.

Much of the Phase 2 property was transferred late last year to a company called Pinnacle Apartments LLC, a partnership between Cygnus and Bonaventure Realty, an Arlington-based firm that owns and manages apartment complexes.

Bonaventure has 15 complexes in Hampton Roads, including Patriot’s Crossing Apartments in Newport News. Pinnacle Apartments will be Bonaventure’s 30th property.

Calls to executives at Bonaventure over several days seeking additional details, including a projected completion date for the complex, were not returned.

Ryan Murphy can be reached by phone at 757-247-4760.

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