Tag: TIF

Be Original. But Be Smart, Too…

Rob Morris 3 Comments Local , , , , ,

(A fun little break from our To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Yesterday, we asked readers to support a $3.2 million bond issue for Lexington’s Distillery District, which includes much of Town Branch Trail.

As part of the same post, we called for Lexington to “be original“.

But we didn’t expect so much originality so soon.  And we didn’t expect it to be so completely inept…

::

As we mentioned yesterday, the Urban County Council is in a financial pinch.  And it was deciding what projects to issue bonds for, including the ever-growing bill for South Limestone streetscape construction (now at over $17 million) and early 2010 streetscape projects on Main, Vine, and Cheapside, totaling $12.7 million.

Ddimage024 At $3.2 million, the Distillery District bonds were relatively small, and the Distillery District was the only bond project which would provide infrastructure to spawn new jobs and new revenue – meaning that it was the only initiative which could provide taxpayers a return on their investment.

This return on investment is a principal feature of tax increment financing (TIF) projects.  Public funds are made available to such projects as those projects generate tax revenues back to the city.

Roughly two-thirds of the Distillery District’s bond would go directly for public improvements for direct public benefit – building out the Town Branch Trail and improving pedestrian access throughout the district.  The rest would go for researching road and utility improvements along Manchester Street (the District’s primary corridor).

::

An hour before the council met yesterday, councilmembers were sent an ominous memo [PDF link] from a former counsel (attorney James Parsons) who formerly advised LFUCG on the TIF process.

The last-minute memo appears to be a very deliberate misreading of the Distillery District request.

It creates the incorrect impression that the developer (Barry McNees) could simply pocket the bond funds and leave the city in the lurch.  As mentioned above, most of the funds would go directly toward civic infrastructure improvements, not the developer’s bottom line.  And the remaining funds would go toward research and design initiatives – also not the developer.

And the memo is plain wrong on the developer’s ability to start the project – The Distillery District already has one active, successful entertainment venue (Buster’s) which employs over 30 people and, in just a few months since opening, has drawn 10,000 fans from across the region.  Other, smaller businesses are already in place, too.  And McNees has a letter of intent from a major investor to start a new distillery in Downtown Lexington.

In total, the Parsons memo appears to intentionally mislead the council on the magnitude of “dangers” associated with the project – It appears to be a blatant scare tactic designed to squelch the Distillery District.

Good News, Bad News
The good news is that the council saw through the transparent attempt to derail a worthy project.  The bad news is that they only partially funded the request (about $2.2 million).  The council narrowly (6 to 5 vote) missed approving the entire $3.2 million request.

But the Parsons affair raises a number of troubling questions:

  • Why was the former TIF advisor weighing in on this project?
  • Why did he so badly mischaracterize the project?
  • Were taxpayer funds used to craft this diversion? (If so, this taxpayer wants a refund.)
  • Who requested Parsons’ input?  Why?
  • Was Parsons directed to magnify the potential dangers to the project?  Again, by whom?
  • And where was this alarmist “DANGER, DANGER!” attitude toward TIF while Mr. Parsons was advising LFUCG on CentrePointe?

The broader question is this: Who wanted to derail the Distillery District so badly that they used such a transparent, ham-handed approach?

::

When we called for Lexington to be more original, we wanted that originality to be smart, too.  The Parsons memo was certainly “original”.  Smart?  Not so much.

LowellsSquare

To-Do List for Lexington: 6. Be Original

Rob Morris 3 Comments Local , , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Quick!  Think of a city you love (outside of Lexington).  Really savor that mental image.  Let your positive thoughts run for a bit.

Got it? OK.

If you’re like most folks, when you think of your favorite city, you think of one (or a combination) of a few key types of memories:

  • Places.  You remember neighborhoods, buildings, parks, alleys, establishments, etc.
  • History.  You remember important things that happened there.
  • Products.  You remember things that they have or that they produce there.
  • People.  You remember who you met and how they treated you there.

I have the wonderful affliction of loving nearly every place I visit – but always for different reasons.

I loved crawling through the historic back alleys (and patronizing the restaurants and bars) of Boston’s North End.  I had the fortune of being there in a little Italian restaurant while Italy won the World Cup in 2006.  I remember the flags, the honking, the cheering, the flavors and smells…

I loved going to Tokyo with a couple guys I worked with in my last job, and visiting the temples at Asakusa and seeing the bewildering variety of Japanese people at the temple and at surrounding neighborhoods and markets.  In one of those inexplicable cultural moments, I remember 3 separate families awkwardly approaching me to take pictures with their sons (and giving me their sons’ “business card” afterward).

I love Portland.  I love Austin.  I love Boulder.

More than anything else, I love the utter originality of those cities’ places, history, products, and people.

But Lexington is the city I chose.

::

Our city leaders often go on tours of “model cities” which Lexington might be able to learn from, including Boulder, Austin, and Madison.  In the process, they see many unique things to love about those cities.

But too often, rather than focus on what original qualities Lexington should leverage, our leadership focuses on what those cities have that Lexington does not: “If Madison has bike trails, so should we!”  (No, I’m not opposed to bike trails; I am opposed to the mindless parroting of other cities’ actions.)

Lexington must be original.

What impressions do we make on people when they visit Lexington?  What impressions do we make upon our own citizens?  What unique experiences do we create?

Here are a few which jump out at me.  I’m sure there are more I missed.  (Add your own in the comments below!)

There are the memorable places like no other – Keeneland, Ashland, Gratz Park, the UK campus, the Transy campus, Victorian Square, and the downtown pasture at CentrePointe, just to name a few.  (OK, I’m joking on the last one.)  I love the North Limestone neighborhood that Lowell’s is privileged to be a part of.

There are the memorable histories of Henry Clay, Town Branch, the East End, and the Carnegie Center.

There are the memorable world’s-best products – basketball, Camrys, horses, and bourbon.

There are the incredible people of our city – smart, thoughtful, hard-working, and funny.

When we’re looking to influence how people – tourists, visitors, job applicants, investors, business owners, our own citizens – view our city, we need to amplify our best assets.

And, when we are presented with the rare opportunity to leverage all four memorable assets  – original places, original history, original products, and original people – at the same time, we must jump on those opportunities.

Oldtarr2 Right now, we have such an opportunity with Lexington’s Distillery District and Town Branch Trail. Many people still don’t know that Lexington even has a Distillery District, so I’ll offer a brief overview.  On Manchester Street, there are several old, historic, and distinctive distillery buildings and warehouses which were last used last century to make bourbon in downtown Lexington.  They used the water supply from nearby Town Branch, a stream which used to run through the center of Lexington, but is now buried under Vine Street.  Several of Lexington’s best and brightest people want to transform the largely abandoned district into a vibrant neighborhood with entertainment, arts, shops, restaurants, and – for the first time in nearly a century – distilling.  Businesses are already beginning to open in the district, and one – Buster’s – is an entertainment venue which is already attracting notable new talent to Lexington.  The Distillery District would also be the starting point for Kentucky’s Bourbon Trail.

This afternoon (at 4 PM), Lexington’s Urban County Council is voting on whether to issue $3.2 in infrastructure bonds for the Distillery District.  Issuing the bonds would not be a handout – the funds would be reimbursed through taxes on the new commerce that takes place within the District.  Also, the funds would be released incrementally – as new commerce takes place, more funds would be available for needed infrastructure improvements.

Ddimage027 The bonds would be used to create parts of Town Branch Trail (a greenspace and walkway along historic Town Branch), to improve pedestrian access along Manchester Street, and to look at how to improve utilities, roadways, and streetscapes along Manchester as well.

Lexington is in a financial pinch at present, and there are many on the council who just want to “wait a while” for things to get better in the economy.  The trouble with waiting is that – often – waiting turns into permanent deferral, and projects never get done.  Unlike CentrePointe – of which I have been highly critical – the Distillery District has active businesses and active investors who are ready to utilize the improvements that this bond offers.  These businesses are poised to contribute far more than $3.2 million back to our city’s coffers over the coming years.

::

Lexington has the all-too-rare opportunity to create a unique place in our city – the kind of place which ultimately would stand next to Keeneland, Gratz Park, and Ashland as one of Lexington’s “signature” locations.  We should leverage our our originality – our unique and memorable places, history, products, and people – to craft a better Lexington.

That’s why we should support the Distillery District, even in difficult financial times.

Let’s be original.

(This post is awfully late in getting up – If you don’t have time to contact your council person prior to their 4 PM vote, please do take the time to see how they voted.  And remember that for the next election.)

Postscript: The backroom intrigue as the council vote approached.

Next: 7. Plan Well

LowellsSquare

An update on CentrePointe

Rob Morris 5 Comments CentrePointe , , , , ,

At the Lexington Forum this morning, CentrePointe’s developer updated the public on the status of the faltering project in the center of our city.  As he has done in other venues, he laid much of the blame for any CentrePointe controversy at the feet of bloggers and the media.

In his presentation, he revealed a few new details about the secretive project, along with several layers of backup plans.  In this post, I’ll outline some of my notes and some questions which arise from the developer’s presentation.  In a future post, I’ll share more of my thoughts on the development in the wake of this morning’s presentation.

Plan A

  • The dead financier (call him Mystery Investor ‘A’ – or MIA, for short) was introduced to the developers by a pre-eminent, distinguished American
    who was heavily involved in the Justice Department.
  • MIA was committed to 5 such projects around the world involving some $800 million, including 3 in the US worth some $550 million.
  • He went into some detail on the reason that MIA’s estate was held
    up.  He characterized it as a chicken-and-egg problem.  The
    heirs aren’t sure they wanted access to the ‘numbered Swiss bank accounts’
    until they knew whether those accounts had enough to cover the estate’s
    liabilities (like CentrePointe).  The accounts and the liabilities seem to be a package
    deal, but the heirs are blind to the numbered accounts: They can’t know what the actual assets of the estate are unless they also accept the liabilities.
  • Question: If MIA’s heirs don’t have confidence that MIA had enough assets to cover these deals, then what makes CentrePointe’s developers so confident that the money is there?

Plan A Minus

  • If the developer’s ‘Plan A’ falls through, he has an intermediate plan (‘Plan A Minus’?).  In the last couple of
    days, he has talked with someone who happens to have 20 to 30 thousand cubic
    yards of dirt for free, so filling in the site is an option if the current plans
    fall through.  He also mentioned that he had talked with someone who
    hydroseeded strip mine sites who might be willing to help seed the
    place.
  • The developer claimed “It is not our intent to embarrass the community” for the World Equestrian Games.  He hates to do it, but is tempted to backfill the pit and plant seed “even for 60 to 90 days, just to shut those people up”.  The friendly crowd roared with laughter.  Later he said he thought about “putting in a liner and turning it into a lake”.  More laughter.

Plan B

  • CentrePointe now has a ‘Plan B’, complete with a Mystery Investor ‘B’ (MIB) who has recently come forward to
    express interest in the project (should ‘Plan A’ with MIA’s estate fall through). They are “ready to go” if ‘Plan A’ does fall
    apart.
  • Question: If MIB is so “ready to go”, then why not relieve the heirs of MIA’s estate of their burden and allow MIB to take over financing for the deal? 

Plan C

  • Even though MIB is ready to go, there is also CentrePointe ‘Plan C’
    involving a Mystery Investment Bank ‘C’ (MIC) who will put up $30 million, and
    the developer briefly mentioned some sort of ‘bond arrangement’ to finance the rest of it.
  • Question: If Plans A and B are really viable, then why does CentrePointe need a Plan C?
  • Question:
    What kind of bond issue supplies the other $220 million needed to build the project, if the investment bank is only ponying up $30 million?

Other notes

  • If one of the financing options lines up today, CentrePointe would begin construction in the fall.  15 months after the initial demolition began.
  • The developer claimed that 65 of the 91 condominiums at the top of CentrePointe had been committed to by many people, including horse farms in Ireland and Dubai.  (He didn’t mention Napa Valley wineries this time.)
  • He took pains to correct Herald-Leader writer Beverly Fortune for
    reporting that the 91 units had an average price of $1.2
    million.  “That’s just the average… The units will start at $600,000
    and go up from there.”
  • “Hard Rock Café was one of the first to call us” when they heard about the project, strongly implying that they were lined up.  (Since the meeting, I have learned that the developer really talked with ‘House of Blues’ – not Hard Rock – and that they are anything but ‘lined up’.)

The plethora of mystery investors and backup plans might have been intended to reassure his audience.  But they actually raise troubling questions about the future of the project, the developers’ ability to obtain financing, and the financial viability of the development’s business model.

The UnTower Manifesto: 2. Consequences

Rob Morris 3 Comments CentrePointe , , , ,

[Note: The UnTower Manifesto is a three-part series about responding to the failure of CentrePointe.  You can read the full story of that failure here.]

The consequences for UnTower should rest on the people who perpetrated the scandal: The mayor, some council members, and the developers.  Let’s start with the mayor.

In other venues, I’ve seen the mayor talk with his skeptics with apparent openness and graciousness.  He was quite articulate.  He listened to their concerns and seemed to hear them.

But the last several months have shown a repeated abdication of his duties in the face of scandal.  This pattern first emerged with the airport staff’s misappropriation of public funds in their credit-card-and-travel scandal, where the mayor displayed a perplexing tendency to drag his feet.  Now, as CentrePointe devolves into the UnTower scandal, the mayor has shown a similar lack of initiative to lead on his citizens’ behalf.  Instead, he has resorted to ‘happytalk’ to defend what is clearly a failed project.

Meanwhile, the vice mayor has been active and vocal in challenging both scandals.  The effect: a grassroots effort to draft him to run for mayor in 2010, complete with its own Facebook fan page and glowing coverage in local media.  The current mayor seems to have no such dialog with the citizens he serves, and seems to have generated little enthusiasm for a 2010 run.

The mayor needs to begin to lead with candor, action, and transparency – beginning with complete clarity around what happened to create UnTower – or his constituency will chase him from office.

The same can be said for the members of the Urban County Council – especially those who rubber-stamped the UnTower project without adequate scrutiny or analysis.  They must assume a more actively transparent posture – including using the tools and technologies to have conversations with the people they serve – or they, too, will be removed from office by their increasingly-informed electorate. Their citizens will no longer tolerate the kinds of hijinks and misdirection that characterized UnTower.

Finally, there are UnTower’s developers.  What should happen to them?

The scar in the middle of town is their property.  But the destruction of the block and the special tax status endowed on the block were public events, with public investments and public impacts.  If anyone doubts the public impacts, just talk with businesses bordering the UnTower eyesore about its effects as a customer-repellent.

So here’s my modest proposal for penalizing their deception.

First, the council should explore all options for rescinding the block’s special Tax Increment Financing (TIF) status.  TIF was granted under conditions which no longer seem to apply, and the developers no longer appear to have earned that special status.

Second, the council should – to the extent it is able – strictly re-define acceptable future uses of the property in light of the UnTower scandal.  Given that the developers contributed to the scandal with their hollow promises and continual lack of disclosure, I would hope that our council would be particularly stringent with requirements for how the property functions as part of our community and that they would set a strict timetable for the developers to act.

The developers misled us to gain advantage; now they should pay the price.

[Continued in: The UnTower Manifesto: 3. Beyond UnTower]

[where: E Main St & N Limestone St, Lexington, KY 40507]

Why CentrePointe will fail

Rob Morris 7 Comments CentrePointe , , , , ,

CentrePit A few months back, I openly wondered about the viability of the CentrePointe project, which thus far has only managed to crater an entire city block of historical buildings.

Since our post (which came long after the controversy started), there has been a continued flurry of discussion around CentrePointe in the community.  But nothing has happened on the construction site.

In all of this turmoil, one fact has become crystal clear: CentrePointe will fail.

The project will fail in one of two ways:

  1. The project will fail to be constructed, or
  2. The project will be constructed, and then fail financially

I say this not out of emotion or disgust aimed at the project, the developers, the mayor, or their conduct (although all may be worthy of disgust) – but because the justifications for the project fail to stand up to basic business logic.

Instead of acknowledging the flaws in their business plans, CentrePointe’s developers have continually invoked wishful thinking to rationalize their actions.

I’ve seen this kind of fatal optimism in business many times before.  Business executives often think they can make a project succeed by just wanting it badly enough.  (Unfortunately, optimism isn’t a viable business strategy.)  In their blind pursuit of their goal, they disregard the facts.

So, lets explore the facts around CentrePointe (‘CP’ from now on), which really can’t be ignored any longer.  (Read more from the Herald-Leader here, here, and here.)

  • CP has had an unnamed international financier who committed $250 million to the project.  This week, we learned that the mystery investor died.  Without a will.  The project certainly won’t commence until a) the financier’s estate goes through probate court, and b) the heirs agree to continue support for CP.  Odds the financier ever existed: Iffy.  Odds heirs will support CP: Doubtful.
  • CP is supposed to house a J.W. Marriott luxury hotel.  Meanwhile, Marriott’s CFO (who is their soon-to-be CEO President and COO [correction]) has repeatedly announced that even the best projects – a group that CP cannot possibly belong to (see more below) – are stopped in their tracks.  Odds Marriott will end up in CP: Doubtful.
  • The Marriott would have 250 rooms going at $190 per night.  The price is 50% higher than competing hotels, yet the developers’ analysts estimate occupancy rates at startup which are better than those (less expensive, more established) hotels.  Odds of getting higher occupancy at a much higher price: Very slim.
  • There are 91 luxury condos at the top of CP, which would sell for $1.2 million each and which would generate over $100 million for the project.  The analysts estimated that 45 of those would sell before construction starts.  And all 91 condos would be sold in 3 years.  In all of Lexington, there were 31 million-dollar properties on the market at the end of 2008, and only 10 such properties sold during the entire year.  So… CP’s developers would flood the market with luxury properties — essentially quadrupling the number that are on the market — and expect to sell them faster than historical rates.  Odds that Lexington could absorb a 300% increase in ultra-luxury properties in only 3 years: Zero.
  • CP’s developers have to sell 4.5 years (45 condos at 10 condos per year) worth of luxury property inventory before construction starts.  And that assumes that every million-dollar prospect would prefer to live in a 2700-foot high-rise condo instead of a country estate. Odds that CP’s developers can sell 45 million-dollar condos before construction starts: Zero.  (Note: This week, CP’s developer claimed that 61 of the 91 condos were ‘spoken for’.  This is patently false, and reveals a worrisome desperation from the developers.  Unless ‘spoken for’ means that someone said “I wish that I could live in a place like that…”  Which is also worrisome.)
  • CP’s analysts assumed that the $1.2 million condo buyers would have an average income of $220,000.  That’s an incredibly aggressive price-to-income ratio of nearly 6, which ranks with inflated San Francisco, New York, San Diego, and Los Angeles averages – before the real estate bubble burst.  Snakebitten banks are much more critical of an applicant’s ability to pay in this economic environment.  Lexington’s average price-to-income ratio: 2.35 – indicating an income of over $500,000 to afford the condos and drastically limiting the pool of eligible buyers.  Odds of finding enough eligible prospects in Lexington: Very slim.

So what are we to conclude about CentrePointe from these facts?

  1. The developers’ tendency toward secrecy and intrigue are unacceptable in light of the public investments in and public impacts from this project.  We deserve transparency.
  2. The project is not financially viable.
  3. The primary financing (if it even exists) is shaky at best.
  4. The analysts’ projections are unrealistic and misleading.
  5. The project cannot generate the promised tax revenues.
  6. The developers are prone to either fantasy and/or outright deception; either case bodes poorly for the feasibility of the project.
  7. CentrePointe will fail.  Miserably.

Lexington must now accept the failure of CentrePointe and begin to move beyond the CentrePointe fallacy.  We must hold accountable those who recklessly ramrodded the flimsy development through our city council.  We must prevent future irresponsible allocations of our common wealth.  And our community and our public officials must begin carefully contemplating what’s next for the block that CentrePointe obliterated.

Update 4/13: Crossposted to Ace Weekly as “Optimism is Not a Business Strategy”

Update 4/14: Tom Eblen did an excellent parody of the CentrePointe situation here.  Very cool.

Update 4/17: OK.  Let’s just get the whole story out on the table.  The UnTower Manifesto: What went wrong, what to do about it, and what to do about the scar it left on our city.

[where: E Main St & N Limestone St, Lexington, KY 40507]