Tag: Plutocracy

Wrong.

Rob Morris 0 Comment Campaigns, Local , , , , ,

On November 2nd, Lexington chooses its mayor.  I’ve spent much of the past few years observing the two candidates in action.  

Here, I address in some detail why one is the wrong choice for Lexington.  Next, I’ll address why the other candidate will lead Lexington to a more prosperous and successful future.

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Last December – late in his third year in office – Lexington Mayor Jim Newberry proposed an ordinance to overhaul Lexington’s ethics laws.

Newberry Among other proposals, the ordinance suggested that lobbyists be prevented from serving as fundraisers or campaign treasurers for local campaigns.

Two days later, Newberry attended a $10,000 fundraiser for his campaign at the home of David Whitehouse, a registered lobbyist.

Proposed after the Urban County Council had adjourned for its winter break, little came of Newberry’s ethics proposal when council reconvened in 2010, and the mayor did little to promote his ethics initiative.

In microcosm, “Lobby-gate” encapsulates Jim Newberry’s tenure as Lexington’s mayor.  Let’s look at a few themes which emerged from this incident:

  • Scandal Blindness.  The mayor seems unable or unwilling to recognize and act upon wrongdoing.

Why would Newberry attend  fundraiser in a lobbyist’s home only two days after suggesting that Lexington should eliminate such a practice?  He either didn’t think – or didn’t care – about how apparently inappropriate his actions were.

  • Failure to Lead.  Newberry has resisted decisive action when faced with important issues.

While ethics reform was a centerpiece of Newberry’s 2006 run for mayor, he waited over 3 years to offer a proposal, and did so only as he and his competitors were ramping up for the 2010 campaign.

  • Hypocrisy.  In the wide gulf between words and deeds, the mayor often opts for symbolic posturing (rather than substantive action).

When questioned by local media about the fundraiser, his response was less-than-satisfactory for a ‘reformer’: “I… will continue to operate by the rules of the world as they exist.”

With his ethics proposal, Newberry could now make the empty claim that he ‘delivered’ a campaign promise for ethics reform.  Meanwhile, he would do precious little to see his half-hearted proposal – made while council was on break – into law.

  • Favoritism.  When Newberry does take action – or refuses to act – the beneficiaries are often his friends and campaign contributors.

Refusing to act on ethics reform allows lobbyist-contributors like Whitehouse (who represents a software firm that did work on the city’s financial systems) to operate without scrutiny or interference from the city.

  • Failure to Deliver.  Ultimately, the Newberry regime is marked by a pattern of profound inability deliver meaningful results.

Lexington’s ethics laws today are essentially unchanged from when Newberry entered office.

Isolated to a single incident, these flaws might be forgivable.  But they are not isolated: We can see these tendencies consistently pervading Newberry’s conduct as mayor.

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Scandal Blindness
This administration has been plagued by scandal.

  • There was out-of-control spending by the Bluegrass Airport staff and poor oversight by the Airport board of directors, who are appointed by the mayor.
  • There was out-of-control spending by the Kentucky League of Cities and poor oversight by KLC’s board.   Newberry is a member of that board.
  • There was out-of-control spending by the Lexington Public Library staff and poor oversight by the Library board of trustees, who are appointed by the mayor.
  • In the wake of the Haitian earthquake, there was Newberry’s failure to quickly approve sending a specially-trained Lexington Search and Rescue team into the quake zone.  The delay meant that the team was relegated to a support role.  The mayor’s indecisiveness likely cost lives.
  • There were the accusations of fraud by Patrick Johnston, Newberry’s own Director of Risk Management in the Lexington-Fayette Urban County Government.

While actions in question failed to rise to the legal definition of fraud, the investigations into the Johnston affair revealed fresh concerns over how Newberry’s administration behaved – including audit breakdowns, ethical failures, privacy breaches, and retaliation.

After months of obstruction and delay in the Johnston affair, Lexington was left with a ridiculous predicament: the city government sued itself, and taxpayers footed both sides of the $50,000 bill.

While Newberry wasn’t implicated in these scandals, he has been indecisive and ineffectual in responding to them.

First, Newberry minimized possible wrongdoing.  Then, he questioned the motives and challenged the authority of those who wanted to take action on the scandals, preferring to let the respective boards handle their ‘internal’ issues.  As weeks and months of inaction (and, in some cases, obstruction) became deeply embarrassing, he finally ‘welcomed‘ the investigations which were already underway.

As scandal upon scandal broke, Newberry could have learned from each one – figuring out how to lead decisively in the face of scandal.  Instead, Newberry seemed to intensify a kind of bunker mentality – choosing to hunker down until the uproar passed.

Failure to Lead
As seen with the scandals above, Newberry has demonstrated an appalling failure to lead just when his leadership was needed most.

Another area which needed strong mayoral leadership has been Lexington’s urban development, especially throughout downtown.  Instead, Newberry has adopted a laissez faire attitude – opting instead to do little to help guide downtown development efforts.

  • The mayor has been a steadfast supporter of the failed CentrePointe development, even as the project’s deep flaws became evident.  As a result, Newberry stood by while the developer tore down a neglected-but-historic block of buildings in the center of our city.  And he has done little to ensure that responsible development happens on that still-vacant block.
  • As the council adopted design guidelines for the downtown area, Newberry failed to offer any executive leadership to see form-based guidelines defined and implemented.  So when CVS wanted to build a new pharmacy at the gateway to downtown, Lexington had few formal requirements guiding the ultimate design of the structure.
  • The mayor has extended this do-nothing approach to historic preservation initiatives, refusing to see how economic development and historic preservation can be complementary efforts.  He has incorrectly characterized design and preservation as matters of ‘taste’ rather than of smart economics for Lexington.
  • At the last minute, the mayor launched a poorly-conceived and transparent effort to block the funding of improvements for Lexington’s Distillery District.

As we’ll see more in a few moments, when the mayor actually does take decisive action, the results are questionable.

Hypocrisy
Without apparent shame, the mayor often maintains a stark and hypocritical disconnect between what he says and what he does.  He seems to think that voters won’t notice if he does one thing while he says the opposite.

  • He pushed his expensive water plant plan through council while accepting huge contributions from water company executives and allies.  Now he is ‘outraged‘ about 65% increase in water rates – a burden that his plant put on taxpayers.  Hypocrisy.
  • He and his staff actively suppressed the release of government information during the Johnston scandal while announcing a ‘new’ government transparency initiative.  Hypocrisy.
  • He dragged his feet on investigating scandals at the Airport, the Library, and KLC, only acting when his inaction became embarrassing.  Now, he likes to claim that he ‘strongly condemned’ the same scandals he failed to act upon.  Hypocrisy.
  • He browned out fire stations and decreased police and fire staffing while declaring that public safety was “job one”.  Hypocrisy.
  • His contributors like to ridicule putting local businesses first (especially this local contributor who contracted on the local $160 million water plant with his local business), while he champions projects which benefit those same contributors – some of Lexington’s wealthiest citizens and corporations.  Hypocrisy.
  • He attacks his opponent’s accomplishments in his part-time position as Vice Mayor, all the while hoping nobody asks “What has Jim Newberry really accomplished as mayor?”  Hypocrisy.

This serial hypocrisy is compounded by Newberry’s profoundly Bushian inability to admit mistakes. Such lack of humility means that he is unable to go back and fix the problems of his administration.

Newberry’s campaign is built upon the cynical belief that voters will remain ignorant of such hypocrisy.

Favoritism
There is a short list of mayor-driven accomplishments during the Newberry tenure: downtown streetscapes, the Lyric theater, the $160 million water plant, and CentrePointe stand out.  As we look across this list, we notice a distinct pattern: the primary beneficiaries of the mayor’s action – when he chooses to actually take action – are Lexington’s richest citizens and companies.

  • If the Tax Increment Financing (TIF) that Newberry promoted for CentrePointe does more for Dudley Webb than for the average Lexingtonian (and it does), it amounts to little more than corporate welfare.
  • If streetscape projects greatly benefited Leonard Lawson (the owner of ATI Construction and already one of Kentucky’s wealthiest people), while the average citizen was made to wait in traffic jams for 15 months, it seems that the mayor’s friends’ priorities are put ahead of voters.
  • KAWCPlant If the mayor pushes through a $160 million water plant which lines the pockets of Warren Rogers and other campaign contributors – while making average families pay 65 percent more for water – that, too, amounts to corporate welfare and pay-to-play.

These projects were among the most contentious that the council considered over the past four years.  And on each one, the mayor was more active and vocal than usual in strong-arming them through council.  For whose benefit?

Failure to Deliver
When we look over the Newberry record, we have to ask what Jim Newberry has really accomplished for Lexington.  And that record is not impressive:

  • He dropped the ball on overseeing the Airport scandal, the Library scandal, and the Kentucky League of Cities scandal.
  • He dropped the ball on CentrePointe.
  • He dropped the ball on the water plant.
  • He dropped the ball on delivering more firefighters and police officers.
  • He dropped the ball on saving lives in Haiti.
  • He dropped the ball on the fire station brownouts.
  • He dropped the ball on the budget and responsible spending.
  • He dropped the ball on jobs.
  • He dropped the ball on economic development.

After so many fumbles, it is time to bench our current mayor.

Jim Newberry is the wrong choice for Lexington.

The CentrePointe Scam

Rob Morris 10 Comments CentrePointe , , , , , ,

We’ve long been critical of the economics of the proposed CentrePointe development just a few blocks away in downtown Lexington.  

One of the least understood portions of the project is the element known as Tax Increment Financing, or TIF.

In essence, TIF allows cities and states to allocate future incremental tax revenues to finance today’s public improvements related to new economic development initiatives.

The recent changes to the CentrePointe project invite a reassessment of the CentrePointe TIF program.

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NewCP2CentrePointe’s TIF program would use future new tax revenues from the CentrePointe development to fund about $50 million in projects around CentrePointe.

These public initiatives would include:

  • A new underground parking garage beneath Phoenix Park;
  • Renovating Phoenix Park;
  • Renovating the old Fayette County Courthouse (now the Lexington History Museum); and,
  • Providing new infrastructure including storm sewers, sidewalks, and – according to the most recent renderings – a pedway which seems to cross Upper Street to (?!) McCarthy’s Irish Pub.

The state and city would issue some $50 million in 30-year bonds (i.e., public debt) to fund the initiatives.  Over the course of the next 30 years, our governments would pay out some $100 million in principal and interest to the investors in the CentrePointe TIF bonds.  The state would cover three-quarters of the total payments (about $72 million), and Lexington would cover the rest.

Then, the state and city would hope to use new taxes generated from CentrePointe over the next 30 years to offset the $100 million spent paying bondholders.

But is this a good investment of taxpayer dollars?

To get an informed answer, we need to dive deep into the business fundamentals of the CentrePointe TIF project.

(Note: What follows is financially ‘geeky’, but it is also critical to understanding how our money is invested.)

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We have two major concerns with the CentrePointe TIF:

  1. The valuation methodologies used by the state and city are fundamentally flawed, and are not the standard for evaluating a long-term investment.
  2. CentrePointe will not generate the promised revenues, due to incredibly optimistic business model assumptions.

Let’s look at each of these concerns in succession.

Valuation Methodology
As far as we can tell, there have only been two evaluations of the public impacts of the CentrePointe project:

  • A late 2008 assessment of CentrePointe done for Lexington by Morgan Keegan & Company which expected $211 million in total tax revenues over 30 years; and,
  • An Economic Research Associates (ERA) report [PDF Link] done last summer for the state’s Cabinet for Economic Development, which expected nearly $70 million in tax revenues from CentrePointe for the state alone.

Of the two, ERA’s assessment is the more recent, more complete, and – in our judgment – more reliable.  It is also the one which the state used to approve the CentrePointe TIF.

But, as mentioned above, there are deep flaws in how both of these reports valued the public benefits stemming from CentrePointe.

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Businesses make investment decisions all the time: products, facilities, acquisitions, marketing, and so on.

When businesses evaluate an investment project, they look at how much they put in up front (‘the investment’) versus how much they can get out over time (‘the return’).

But when looking out into the future, most businesses lower the value of future earnings.  In other words, the promise of $1 million next year isn’t worth as much as $1 million in-hand today.  A lot of things can happen in the course of a year – inflation, disasters, competition, market shifts.  And $1 million two years from now is worth even less, because there is even more risk of something happening.

Typically, stable and established businesses use an annual rate of around 10% to ‘discount’ future earnings.  For example, if an investment generates a return of $1 million today, that is valued at $1 million.  Simple enough.  But if it promises another $1 million next year, that is worth just $900,000 to us today (i.e., 10% off of $1 million). The promise of $1 million two years from now is worth just $810,000 today, and earnings further in the future are given even steeper cuts in their valuations.  So the promise of $1 million 30 years from now is worth just $42,000.

This ‘discounted cash flow’ method is the same standard that Warren Buffett and other investors use to evaluate how much to pay for an investment, and it is the financial equivalent of ‘a bird in hand is worth two in the bush’.

Depending on the kinds of risks an investment faces, the discount rate might be significantly higher.

When we purchased Lowell’s, we used a 20% discount rate.  Even though Lowell’s was a solid business with loyal customers, we faced a number of uncertainties.  Would we lose key employees? Would customers stay away in droves?  Would things fall apart? Those things didn’t happen, but they posed very real risks as we purchased a new business.

With an especially speculative venture like CentrePointe, we would usually apply an annual discount rate of 20%. Or more.

So what kind of discount did Morgan Keegan and ERA apply to CentrePointe’s promised future tax revenues?

Zero.

Instead of incorporating the risks inherent with a project like CentrePointe, these assessments valued CentrePointe as if there were no risks at all. In these scenarios, the faint promise of $1 million in 2040 from CentrePointe was just as secure as having $1 million in our wallet today.

This is especially problematic, because so much of CentrePointe’s tax revenues were promised so far in the future, when a conventional valuation methodology would steeply cut their value.

For instance, in Morgan Keegan’s assessment, nearly half of CentrePointe’s tax benefits – over $100 million – came between 2030 and 2040.

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The original report [PDF link] from Economic Research Associates (the state’s CentrePointe consultant) estimated that 30 years of tax revenues from CentrePointe would generate some $70 million for the state – while the state’s expenses for CentrePointe projects ran $72 million.  So ERA projected that the state stood to lose $2 million on the CentrePointe TIF.

And that estimate derived from the faulty methodology we described above.

So what does the CentrePointe TIF look like when we apply standard valuation techniques?  Let’s be generous, and apply the 10% annual discount rate reserved for stable investments to our analysis of CentrePointe.  We’ll also use ERA’s estimated stream of future tax revenues.

Using a more conventional valuation of CentrePointe’s incremental taxes, they’re only worth about $25 million to the state, and an estimated $32 million overall.

In reality, the city and state would incur $50 million in public debt today for the CentrePointe TIF bonds, and only get back $32 million of that in future tax revenues.  CentrePointe TIF is a poor investment which loses $18 million for taxpayers.

And that is even before we look at the stability of CentrePointe’s overly-optimistic business model…

Business Model Assumptions
A distinct pattern emerges in ERA’s assessment [PDF link] of the CentrePointe project for the state. At numerous points throughout the document, ERA hedges: they express skepticism about some element of the project, but then use the developer’s assertions about the project as ‘proof’ of its ultimate viability.

How ERA evaluates CentrePointe’s million-dollar condominiums is typical of these hedges (we’ve added emphasis in red):

“ERA approaches new luxury condominium projects in 2009 with a healthy degree of skepticism. […] Bank financing for new condominium construction has seized up. There is a very high degree of uncertainty in residential markets, especially high-end condominiums, across the U.S.  And in recessionary times, introducing a luxury product where it has not been present before represents a considerable risk.

“However, there are two reasons for optimism in the CentrePointe Tower. First, the developers have pledged an all-equity transaction. This greatly reduces the risk that loans would have to be renegotiated in the middle of a deal, that payments would be missed, or that financing would be pulled at the last minute. While it does not eliminate all risks associated with financing, an all equity transaction greatly reduces the risks and complications of development in this difficult market.

“The second reason for optimism is that the developers have reservations for 64 units, out of 91. While a reservation is less a commitment than a purchase contract, this is still an impressive level of sales for this stage of the process. With two-thirds of units reserved before construction begins, the developers have demonstrated there is demand for these types of units.”

Both of the reasons for optimism that ERA cites come directly from the developer’s tenuous assertions.

The ‘all-equity transaction’ refers to the developer’s dead mystery financier, whom the developer had claimed was putting up cash (the ‘all-equity’ part of the transaction) to back the development. Last week, the developer admitted that he was forced to pursue more conventional financing.  Using ERA’s logic, this would greatly increase the risks to the project’s success.

The ‘reservations for 64 units’ refers to the handshake deals that the developer claimed for the old CentrePointe design.  As we have previously documented, 64 ‘reservations’ stretches the bounds of credibility in a market which only sold 10 million-dollar properties in all of 2008. And last week, the developer trimmed the number of condominiums in the new design from 91 to 63.

(Update: As Beverly Fortune notes, the numbers haven’t gotten better for million-dollar residential properties: Only 8 sold in Lexington in 2009, and only 5 have sold thus far in 2010.)

With both ‘reasons for optimism’ now rendered impotent, how would ERA evaluate CentrePointe’s condominiums today?

ERA’s skepticism extends to every other major part of the project:

Offices: “Estimated rents of $26 per square foot would be about $6 per square foot higher than the current highest quoted rate in the market – a number that may be difficult to achieve given current market conditions and may require some concessions.”

Retail and Restaurant: “ERA believes that $27 per square foot is an aggressive ask in this market, especially in downtown.”

Hotel: “With a first year ADR [room rate] of $175 and RevPAR [revenue per available room] of $103 at 53 and 45 percent higher than any comparable properties in the market at the end of 2008, these metrics may be optimistic. […] Projected hotel occupancy as well, is projected by the developer to be nearly 10 percentage points higher than the 2008 year-end average of 61.9 percent.”

In evaluating the entire project, ERA says

“Traditional bank financing would be extremely difficult, if not impossible, to secure for a project of this scale at a time like this. […] If the project’s equity financing remains intact and the investors are satisfied with the projected return, then ERA does not see a market barrier to feasibility of the project.”

How would ERA evaluate CentrePointe’s feasibility now that the ‘equity financing’ has fallen through?

Not well, we suspect.

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We took the liberty of re-running ERA’s estimates with more realistic (but still quite generous) assumptions:

  • The developer estimated that he would spend about $250 million on the old CentrePointe design. While there are few specifics, he has used a figure of $200 million for the new design.  We adjusted construction spending down by 20%.
  • The developer assumed they could get higher occupancy levels (over 71%) even though they were charging 50% more per night than the Lexington hotel market.We adjusted hotel occupancy to market levels – a more reasonable 62%.
  • The developer has claimed to be able to sell two-thirds of their condominiums at the outset of the project. We adjusted expectations down to about 20% at the outset, and we never expect full occupancy of the 63 condos without drastic reductions in property price.
  • The developer assumes a $26 to $27 per square foot rate for its office, retail, and restaurant leases.  We’ve adjusted those assumptions down by about 20%. Such an adjustment still leaves these CentrePointe spaces as the highest rents in the Lexington market.

These adjustments to the CentrePointe business model have a number of economic ripple effects: Lower spending, lower sales, lower profits, fewer jobs created, lower quality of tenants, and lower tax revenues.

Using these more realistic assumptions, our estimate is that CentrePointe will generate incremental state and local taxes worth only $21.5 million ($16 million of that would go to the state, and the remaining $5.5 million would go to Lexington).

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As long-time critics of the CentrePointe project, we hear a common counter-argument: that CentrePointe is a private development on private property and that we and our community leaders have no business questioning the project.

CentrePointe is a private development on private property.

But CentrePointe also has a number of externalities that make it of public interest. It would require significant public investment in new infrastructure and facilities to support the new development.

And while TIF projects are targeted to public improvements, the reality is that about half of the $50 million publicly-financed CentrePointe TIF projects would most directly benefit CentrePointe’s developer: the parking garage, sidewalks, pedways, and other infrastructure.

It is highly unlikely that the developer would go forward with the project without the public subsidy of these elements – despite his prior threats to do so.

A second TIF reality is that the public bears a disproportionate part of the risk of the new development: In return for putting up $50 million of our money today, taxpayers are promised an unreliable trickle of future tax payments over the next thirty years.

So despite what many of CentrePointe’s defenders – including Lexington’s mayor – say, CentrePointe’s TIF program does amount to a public subsidy of the private development of CentrePointe.

And when we apply a realistic analysis, that CentrePointe TIF subsidy is a truly awful investment.

In return for committing $50 million in new debt (and paying another $50 million in interest on top of that), taxpayers get a return of just $21.5 million.

Local government would lose almost $7 million on its $12 million investment, while the state would lose $21 million on its $37 million investment.

And despite the developer’s indignant none-of-your-damn-business attitude toward public inquiry on CentrePointe, it clearly is a public issue with public dollars at stake.  The CentrePointe TIF is little more than outright welfare for the developer and his project.

The CentrePointe TIF is a spectacularly bad public investment, and every attempt should be made to rescind the TIF approval.

The proposed redesign of CentrePointe should be a time for community leaders to rethink the community’s investment in CentrePointe.

At a time when our public budgets are under extreme duress, now is not the time to spend extravagantly on a wildly speculative private development such as CentrePointe.

No responsible business would make this kind of investment.  Our governments shouldn’t either.

The Tombstone at CentrePointe

Rob Morris 3 Comments CentrePointe , , , , , , ,

We last wrote about CentrePointe one year ago this week.

In Tangled Webb, we wrote about the folly of the CentrePointe development, capping a series of posts chronicling our growing skepticism about the downtown Lexington project’s financing and viability.

We then stopped writing about CentrePointe because there wasn’t much left to say.

Four months later, Business Lexington reprinted Tangled Webb, prompting an aggressive and condescending response from CentrePointe’s developer, in which he simultaneously attacked us, bloggers in general, and Business Lexington.  He asserted that we knew “little about commercial real estate development or the potential and viability of this project”.

Time would tell.

NewCP
New v. old CentrePointe designs

A New CentrePointe?
Yesterday, finally admitting that his financial backing had failed and that his initial design wasn’t viable, the developer submitted a smaller design for CentrePointe to the Courthouse Area Design Review Board (CADRB).

The new tombstone-shaped design (shown at right, superimposed over the older design) is 210 feet shorter than the one that the CADRB had previously approved.

The project still proposes a 237-room J.W. Marriott, along with office and retail space.  The upper tiers of the project would house 63 high-end condominiums (scaled back from the originally-proposed 91).

The developer asserts that “progress is being made” on “more conventional financing”.

What is the CADRB?
Within Lexington’s crazy-quilt of planning bodies and agencies, the CADRB is a five-person board commissioned by the Urban County Council to oversee a small portion of downtown called the Courthouse Area Design Overlay Zone.  The CentrePointe site falls within this irregularly-shaped zone.

In 2008, the CADRB approved the developer’s demolition of several long-neglected-but-historic buildings on the site – including Morton’s Row, which had some of Lexington’s oldest commercial buildings.  In June 2008, the CADRB approved an initial design for CentrePointe, issuing an “authorization permit” good for one year.  The CADRB  then approved a modified design again in November 2008.

On July 8th, 2009 the developers sought – and received – an early extension to their November 2008 authorization permit.   That third permit expires less than 30 days from today.

The Overlay Zone is intended to “encourage growth and redevelopment in the downtown area, while preserving and protecting the unique features and characteristics of the area.”  As outlined in its bylaws, the CADRB has 5 mandates:

  • promote those qualities in the environment which bring value to the community;
  • foster the attractiveness and functional utility of the community as a place to live and work;
  • preserve the character and quality of Lexington’s heritage by maintaining those areas which have special historic significance;
  • protect investment in those areas;
  • raise the level of community expectations for the quality of its environment.

Since initial approval, the CentrePointe site has been, by turns, a pit of rubble, a dust bowl, a pond, and, now, a horseless horse pasture with huge signs heralding how CentrePointe is “Coming Soon”.

By issuing demolition and construction permits for the CentrePointe site, the CADRB failed on every one of its own mandates.  The development has failed to bring value to the community.  It has failed to deliver the promised 900 jobs.  It has failed to preserve the character and quality of Lexington’s heritage.  The fantastical proposal never had the right scale or proportion for the Overlay Zone. Along every dimension, CentrePointe has been a collossal failure.

In light of that multidimensional failure, now is the time for the CADRB to take corrective action.

New design, same old problems
NewCP2While scaled back in height, the new ‘Pointe-less’ design for CentrePointe is no less problematic than the old one.  It fails to address some of the project’s deep, long-standing flaws. These include:

Financing: While the developer asserts that progress is being made on new funding, this is actually a step back from previous assertions that funding was already in hand.  On June 4th, 2009, the developer assured the Lexington Forum that he had two ready sources of funding if his dead mystery financier’s estate didn’t come through.  Yesterday’s application for extension made it clear that those sources failed as well – if they ever existed at all.

Capital flows to the most promising investments, even in a difficult economic environment.  The fact that the developer has yet to secure funding for CentrePointe speaks volumes about its quality as an investment.

Business Model: The developer has continually asserted that he has a ready list of tenants for the property.

But there are enough problems with his business model assumptions to call the viability of the entire project into question.

  • Analysts hired by the developer assumed that the J.W. Marriott hotel could achieve higher occupancy rates – at start-up – than surrounding hotels even though the Marriott would charge 50% higher room rates.
  • While the number of million-dollar condomimiums has now been scaled back to 63, that is still far too many for the Lexington market to absorb (when only 10 million-dollar properties sold in all of Lexington in 2008).
  • The one retail prospect that the developer has named as ‘interested’ in the project wasn’t really that interested.

Vague Assurances & Broken Promises: The developer has offered many claims – but little substance – with regard to the project’s viability.  He has repeatedly decommitted from previous promises.  When challenged, the developer usually responds by playing either victim or bully – and, sometimes, both at once.

It is time to openly challenge the developer’s overreaching claims and blithe assurances.

Scale: CentrePointe’s proposed tower has never had the appropriate scale for the historic character of the Overlay Zone.  The CADRB’s approval of the initial designs and subsequent re-approvals were mistakes.

Now is their chance to undo those mistakes.

Accountability for CentrePointe
Before issuing a fourth permit, the CADRB needs to require the kinds of accountability for this iteration of CentrePointe that was missing in the project’s earlier phases.

They have a responsibility to ensure that our community does not end up with – in the words of former Councilmember Don Blevins Jr. – a “vertical Lexington Mall”.

When the developer presents CentrePointe’s new design to the CADRB on June 30th, the board should do the following:

Ask the tough questions.  Especially the ones which weren’t answered the first time.

  • Does the developer have financing in hand, or is he just ‘working on it’?
  • What, exactly, happened to CentrePointe’s previously ‘rock-solid’ financing?
  • Can the developer really build the design being considered?
  • What is the business model for this property?  Will that model really work?
  • Is this design really consistent with the unique character of our downtown?

Require documentation.  Don’t accept the developer’s word at face value.  His proven inability to deliver on previous promises mean that he should be required to document the stability of his financing and his business model before any design is approved.

Rethink prior approvals. As mentioned above, the CADRB made a mistake by approving the old design of CentrePointe.  Don’t just rubber-stamp the new ‘tombstone’ design.  Make sure it works with the surrounding community.

The Overlay Zone exists for a reason.  On June 30th, The CADRB should fulfill their duty to ensure responsible economic development within the Zone which preserves the unique character of our downtown.

The old design of CentrePointe didn’t do that.

The new one still doesn’t.

The CADRB should reject the application for extension.

It is time to put a stop to the empty promises.  It is time to stop enabling this kind of overreaching incompetence.  It is time to end the delusional fantasy of CentrePointe.