Archive for the ‘Mixed Use’ Category

Economic impact study shows state, local impact of Fourth Street Live

Wednesday, October 24th, 2012

Business First by John R. Karman III, Reporter

Date: Thursday, October 11, 2012, 1:27pm EDT

via – Louisville Business News

Fourth Street Live, the downtown Louisville entertainment hub that has been heavily subsidized by public money, will generate a more than two-and-a-half-to-one return on taxpayers’ initial investment, according to an economic impact study released Thursday.

Public costs for the project will be about $30.7 million over the course of 20 years, the study said, while Fourth Street Live is expected to produce more than $81 million in state and local taxes.

The complex, developed by The Cordish Cos. on the site of the failed Louisville Galleria shopping center, employs 500 people on a permanent basis and created 600 jobs during construction, the report said.

The 26-page Fourth Street Live economic impact study was conducted independently by retired University of Louisville economist Paul Coomes.

Officials with Louisville Mayor Greg Fischer’s office were not immediately available for comment.

Fischer in March ordered the study of the complex, which began opening in phases in 2004. Fourth Street Live has been praised by local tourism and economic development officials for drawing visitors downtown.

But it also has drawn heavy criticism from some political and community leaders for its reliance on public funding for its development.

And Fourth Street Live’s developer, Cordish, has been panned for a perceived lack of transparency in the development and operations of the center.

Mayor calls investment ‘wise’

Fischer said in a news release that the economic impact report underscores the importance of Fourth Street Live to the city.

“The study clearly shows that our investment in Fourth Street Live has been wise for our city and for the state in general,” he said. “The complex, coupled with new hotels and attractions and the KFC Yum! Center, have helped transform our downtown.”

In an e-mail response to Business First questions, Blake Cordish, vice president of development for Cordish Cos., said the firm relishes its role in the revitalization of downtown Louisville.

“Fourth Street Live would not have been possible but for a public-private partnership and the vision of sophisticated city leadership,” Cordish said in the statement.

The economic impact study cost about $10,000 to conduct and was paid for by Louisville-Jefferson County Metro Government and the Louisville Convention and Visitors Bureau.

Convention bureau president and CEO Jim Wood also could not be reached for comment but said in the release that Fourth Street Live has been “instrumental in helping us attract hundreds of meetings, conventions and trade shows annually to Louisville.”

Councilman opposes project’s public funding

The Coomes report estimates that, over 30 years, Fourth Street Live will produce taxes that will total:

• $69 million for state government, largely through sales taxes;

• $12.6 million for city government;

• $7.8 million for Jefferson County Public Schools;

• And $1.5 million for the Transit Authority of River City.

Louisville Metro Council member Kelly Downard, a vocal critic of Cordish and of the city’s dealings with the Maryland developer, had not seen the report before Business First’s deadline.

He said in an interview that he’s pleased with Fischer’s efforts to become more transparent regarding Fourth Street Live.

“Paul Coomes is a very respected economist,” Downard said. “If he did a study and said there’s value, then I have to respect that.”

Still, Downard said that he remains opposed to “massive amounts” of public funding for Fourth Street Live. He said he is bothered by the fact that no local developers or entertainment projects in the city receive the level of financial support that has been afforded to Cordish.

“When government chooses winners and losers, that’s when I think it’s incorrect,” Downard said.

Complex tops attractions list

Fourth Street Live, located on Fourth Street between Liberty Street and Muhammad Ali Boulevard, ranked No. 1 on the Business First list of the area’s largest for-profit tourist attractions with 4.6 million visitors in 2011. The list, which was published April 13, was determined by attendance.

Tenants in the restaurant, bar and nightclub complex include Hard Rock Cafe, The Sports and Social Club, Gordon Biersch Brewery Restaurant and Howl at the Moon.

The Coomes study says that Fourth Street Live has “inarguably revitalized downtown, with large crowds of restaurant and bar patrons at night and a bustling lunch business daily in the blocks.”

“The foot traffic into the area seems to have had a spillover effect in adjacent areas, particularly to the north where new restaurants have opened over the past few years.”

Center City project remains stalled

Cordish for several years has talked of plans for an expansion of Fourth Street Live through a project called Center City, but that development has not materialized. Officials with the firm have blamed the delay on the economic downturn. Plans call for Center City to be a mixed-use development along Muhammad Ali Boulevard.

The project was to include a renovation of the old Louisville Gardens at Sixth Street and Muhammad Ali. But the city recently amended its 2007 agreement with Cordish, relieving the development firm of its obligation to revamp the Gardens.

City officials still expect the remainder of the project to happen, but an exact timetable has not been established.

Metro Council President Jim King said in an interview that he believes the study validates the importance of Fourth Street Live.

“I think economic development studies like this have a lot of value in terms of building credibility,” he said. “There’s been a bit of negativity over the last four or five years because the (Center City) project has been stalled as a result of the economy. Clearly, the study shows we did the right thing when we began the work with Cordish.”

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Motor Row revival plans shift into gear

Monday, October 1st, 2012

As the economy slowly improves, plans to repurpose Motor Row’s buildings from their uses in the early part of the last century are resurfacing

By Kathy Bergen, Jared S. Hopkins and Melissa Harris, Chicago Tribune reporters

September 30, 2012

via – ChicagoTribune

Chicago’s convention officials long have dreamed of when historic Motor Row — just west of McCormick Place — could be transformed from its dilapidated state into an entertainment zone where visitors could cap their day with a grilled steak and a sizzling show.

But the collapse of the city’s 2016 Olympic bid, which had fueled hopes for the Near South Side, coupled with the flameout of the real estate and lending markets, left development largely dormant along South Michigan and Indiana avenues, between Cermak Road and the Stevenson Expressway.

The malaise left the city at a critical disadvantage to entertainment-laden convention center rivals, both domestically and globally.

When Tony Hu, the city’s most prominent Chinese chef, travels to China, for instance, he said convention centers are surrounded by “wonderful restaurants, wonderful bars, wonderful shops.”

In contrast, the area around McCormick Place “has been a ghost town,” said Chris Schneider, who runs a recording studio and private party venue on Motor Row.

As the economy slowly improves, plans to repurpose Motor Row’s buildings from their uses in the early part of the last century are resurfacing. Designed by notable architects, buildings include deep, high-ceiling auto showrooms and facades accented by glazed brick and swirling terra cotta.

Some of the city’s prominent restaurateurs — including Chinatown’s Hu, Harry Caray’s Grant DePorter and The Firehouse’s Matthew O’Malley — are weighing redevelopment plans in the compact commercial corridor, which remains pocked with for-lease signs and boarded-up historic hulks. The Rockford-born rock band Cheap Trick is planning a music venue and museum, while neighboring Pressure Point Recording Studios is building its own live music space, to be named “Riff.”

A hotelier that operates the historic Pfister in downtown Milwaukee is sizing up an abandoned Cadillac dealership for a boutique hotel directly across from the McCormick Place West Building, while Teatro ZinZanni, a Cirque du Soleil-type dinner theater company, is eyeing a boarded-up showroom next door. Some long-time Chicago Mercantile Exchange traders are financing the launch of Broad Shoulders Brewing, a microbrewery and tasting room, with help from city tax-increment financing.

Meanwhile, real estate/eminent domain attorney Langdon Neal said he has been approaching property owners near McCormick Place over the past 30 days to gauge their interest in selling parcels to the Metropolitan Pier and Exposition Authority, the state-city agency that owns the convention center and would like to see more hotel and entertainment offerings nearby. The authority declined to comment.

The Motor Row area is also steeped in the city’s blues history as onetime home to Chess Records and other recording studios, and in its Prohibition-era gangster past as the former stomping grounds of Al Capone. It’s in the 2nd Ward, whose alderman, Robert Fioretti, reports increasing numbers of inquiries from potential developers.

“It’s still very difficult in the financing world out there, but I’m more optimistic than before,” he said. “It took awhile to build the universe, but we don’t have that much time.”

Mayor Rahm Emanuel has turned up the heat on convention officials to regain footing against such entertainment-heavy rivals as Las Vegas and Orlando, Fla. Toward this end, the city last fall rezoned portions of South Michigan and Indiana avenues for entertainment uses. The ordinance prohibits further residential development — with the goal of separating residents who cherish their sleep from future revelers partying into the night.

The CTA plans to build a Green Line “L” station to serve the immediate area; its opening is scheduled for late 2014. And on Friday, Emanuel held a press conference to highlight $65 million in public infrastructure projects planned for the Near South Side, some of which had been announced earlier. The projects include $5.8 million in TIF funds for streetscape improvements on Motor Row, as well as improvements to mass transit, a new Chinatown library branch and expansion of the southern end of Grant Park.

“Those are the types of public investments that will multiply private investment,” he said in a later interview.

Like Printers Row in the South Loop and the West Fulton Street market area, Motor Row “has the bones” for redevelopment and should be aided by the influx of residents into the downtown area, he said.

But jump-starting the languishing area will not be easy. A long-running foreclosure battle has stalled potential hotel and entertainment projects on nearby blocks — developments that could provide a much-needed stream of evening visitors. And a stately icon at the south end of Motor Row, the former Chicago Defender building, at one time an exclusive auto club, is in foreclosure and is boarded up.

McCormick Place, Soldier Field and U.S. Cellular Park can provide potential customers, but only in spurts when events are under way.

“This area will be challenged unless and until a critical mass of developments begins to bring locals and visitors here on a daily basis,” said urban project adviser Rob Hunden.

Pressure Point Recording Studios, for one, is aiming for Chicago patrons — from students living downtown to South Loop condo dwellers — at its live music space, which it hopes to open in December.

“The McCormick Place situation — it’s a bonus,” said Schneider, the studio manager. “That’s part of the reason they want to develop this area, because people are constantly running up to the North Side.”

The risks for these sorts of projects are high unless there is significant assistance in the form of property tax breaks, historic tax credits or favorable financing terms, said Hunden, president of Hunden Strategic Partners.

CME traders Bob Lassandrello and Gary Lark are in line to receive $628,000 in TIF assistance for their Broad Shoulders Brewing, a $2.5 million project under construction at 2337 S. Michigan Ave. and scheduled to open in January. A city development panel recommended the assistance, which still needs a city council vote.

Building out the brewery in what used to be a truck refurbishing facility is a complex endeavor, with tasks ranging from installing an elevator in the long, narrow space to rounding up an adequate number of original glazed bricks to use on the facade, said brewery manager Frank Lassandrello, a craft brewer who is Bob Lassandrello’s son.

“We were very fortunate to receive the grant from the city,” he said. “We’re on the frontier of this neighborhood. … We’ll be hiring employees and we hope to be generating foot traffic with our tasting room.”

An open question for the brewery and other prospective business ventures is what will become of the former Chicago Defender property, a prominent clock-tower structure that a group of investors led by O’Malley had hoped to redevelop. Fioretti said O’Malley continues to weigh potential projects in the area. The restaurateur could not be reached for comment.

Potential Motor Row investors also are keeping an eye on two large parcels east of the historic district, along the north side of Cermak Road, where major hotel-and-retail development has been on hold because of another foreclosure struggle. A U.S. bankruptcy judge on Friday gave the longtime ownership group, which includes developers Pam Gleichman and Karl Norberg, a last chance to avoid repossession by lender Centerpoint Properties Trust.

The group, Old Prairie Block Owner LLC, said it has a buyer willing to pay $150 million for the property — about twice what it owes Centerpoint — and to lease it back to the group for 99 years. Judge Jack Schmetterer gave the group three weeks to show the proposal had viable financial backing.

Meanwhile, Gleichman is moving ahead with separate projects on Motor Row, where her LandmarkAmerica Illinois LLC controls six properties. She is assembling partners and trying to line up financing with the goal of starting redevelopment next year. She expects projects would make use of federal historic preservation tax credits.

First-phase plans include remaking a former Rambler dealership at 23rd and Indiana, across from the McCormick Place West Building, into a mixed-used development with restaurants, shops and a coffee bar on the first floor and potentially Teatro ZinZanni upstairs. “Nothing is firm at this point,” said theater company spokeswoman Tina Gonsalves.

A boutique hotel is scheduled for the former Cadillac showroom next door, and Gleichman is in talks with Milwaukee-based hotel owner and operator, Marcus Hotels & Resorts.

The company is evaluating construction costs and potential brand options, said David Merritt, senior vice president of development, noting the project would require public assistance.

“It will take quite a lot to reposition that closed industrial building,” he said.

Two other hotel developers are scouting the area as well, Fioretti said.

On South Michigan, Gleichman is working to assemble four other projects, the highest-profile one involving a Cheap Trick performance venue, guitar museum and restaurant, the latter to be operated by DePorter, CEO of Harry Caray’s Restaurant Group.

DePorter also might open an Irish pub, while chef Hu is weighing a restaurant called The Bund, named after the waterfront area in Shanghai and aiming for what he describes as a “1930s Shanghai night life” atmosphere. Gleichman is also aiming for a barbecue restaurant with live R&B music, modeled after the B.B. King blues clubs, said Gunnar Falk, vice president at LandmarkAmerica Illinois.

The evolution will take some time, noted restaurant operator DePorter.

“You need critical mass versus any one restaurant opening by itself,” he said. “When venues come down there all at once, it will be the place to be.”

Tribune reporters Mary Ellen Podmolik and Jon Hilkevitch contributed.

kbergen@tribune.com

Twitter @kathy_bergen

Copyright © 2012, Chicago Tribune

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Reinsdorf’s sweet deal at U.S. Cellular Field gets even sweeter

Thursday, September 20th, 2012

By: Shia Kapos October 26, 2011 (Crain’s) —

Jerry Reinsdorf is about to make a lot more money from his operations at U.S. Cellular Field, while cutting out his landlord, an Illinois agency created to build the baseball stadium.

Mr. Reinsdorf’s franchise pays just $1.5 million in annual rent to the state, which owns the South Side ballpark, while keeping gross receipts for ticket sales, parking, concessions, signage and merchandise operations — including a soon-to-be-opened Chicago Sports Depot store and Bacardi at the Park, an adjacent restaurant that opened last spring.

The White Sox do not pay rent on the properties, even though the Illinois Sports Facility Authority is paying the debt service on the restaurant project. The Sox paid for the build-out on the souvenir shop. Mr. Reinsdorf has leased the Bacardi restaurant to Gibsons Restaurant Group, which runs it. The retail shop will be leased to Delaware North Companies Sportservice, which also runs the retail shops in the stadium.

Construction terms were permitted by the lease between the Sox and the state, according to a Nov. 18, 2010, agreement on a 35th Street revitalization project that includes the restaurant and store. In that deal, White Sox Executive Vice-president Howard Pizer notes a supplemental state fund would finance the restaurant’s construction and the Chicago White Sox would be responsible for building the retail shop.

The agreement was signed by former Gov. Jim Thompson, who was chairman of the sports authority at the time.

The supplemental fund was created when the state authority and the White Sox renegotiated their original contract so that, after 18 years of free rent, the ball club would begin paying a base rent to the authority. That revised agreement also set terms on annual rent based on ticket revenues. Since 2008, the team must pay $3 to $7 for every ticket sold above annual attendance of 1.9 million.

With paid attendance under 1.9 million in 2011, the Sox won’t pay ticket fees this year.

In 2010, however, paid attendance was 2,074,011, exceeding the trigger by 149,011. So Mr. Reinsdorf paid $455,974, or about $3 per ticket.

Including rent, that means he paid about $2 million to the sports facility authority last year for the 80-or-so games played at the Cell—far less than some other MLB teams in similar relationships with municipalities.

Philadelphia, for example, pays $18.5 million a year, which includes $2.5 million in base rent and $17.9 million in interest payments on the bonds issued to fund the stadium’s construction.

Minnesota pays $12.5 million: $600,000 in base rent plus $300,000 for inflation adjustments and $11.5 million for debt service.

On the lower end, Kansas City pays $450,000 in base rent. The team also must pay 5% of gross receipts above annual revenue of $7.5 million.

Within Chicago, the Chicago Bears pay $5.7 million (including a parking allotment fee) to the Chicago Park District for playing about 10 games each year at Soldier Field.

Under the terms of its original 1988 lease with Illinois, the White Sox, valued by Forbes at $526 million, do not report their revenues. The authority says it can only guess what Mr. Reinsdorf is raking in from ticket sales, parking, concessions and signage.

Mr. Reinsdorf has declined to comment.

In an interview earlier this month, Mr. Thompson praised the 35th Street deal as benefiting the community. “They (the White Sox) get the profits for the duration of the lease, and at the end of the lease (the state) owns both properties,” he said, adding that the development project could include future properties that would immediately benefit the state.

“Quid pro quo was that the White Sox would agree to the deal if they got (the profits of) the first two properties,” said Mr. Thompson.

The former governor acknowledged that there are no plans for any future development on 35th Street. And even if there were, Mr. Reinsdorf would have to give his thumbs-up before they could go forward.

“He can’t develop the property without our consent and we can’t develop without his consent. We own the property but he has the lease,” said Mr. Thompson, who recently was booted from his position as chairman by Gov. Pat Quinn.

That relationship carries through in all areas of the lease, which states Mr. Reinsdorf has “unfettered discretion” to determine how the stadium will be used.

That hasn’t stopped the authority from talking about possible revenue-generating events — though none have come to fruition.

Last year, the authority commissioned a study to analyze what the financial and economic impact from one hypothetical special event held in the summer, on a day when the Sox are playing out of town. The study by Hunden Strategic Partners concludes that it could generate $2.8 million in gross revenue from admission, concessions and parking — or $1.3 million in net revenue.

Mr. Reinsdorf, meanwhile, has used the ballpark for personal events. A few years ago, he hosted a 50th birthday party at the ballpark for his friend, Andrew Berlin, who is CEO of Arlington Heights-based Berlin Packaging.

Emil Jones, the newly named chairman of the Illinois Sports Facility Authority, told Crain’s Chicago Business earlier that he plans to examine the White Sox lease.

Acknowledging the team pays less than other Major League Baseball teams that play in stadiums owned by municipalities, Mr. Jones said, “It’s something we’ll be looking at.”

The ISFA has yet to meet on the issue. The agency is under the auspices of the state, though its seven members include three appointed by the Chicago mayor and four by the governor.

For years, the politically connected agency had been overseen by Mr. Thompson, who helped broker the original lease agreement with the Sox when he was governor and his friend, Mr. Reinsdorf, was threatening to take the White Sox to Tampa, Fla. (The men have known each other since attending law school together).

Mr. Quinn replaced Mr. Thompson last summer with Mr. Jones. He also appointed Chicago attorney Manny Sanchez; real estate entrepreneur Elzie Higginbottom Jr., and Dennis Gannon, formerly the head of the Chicago Federation of Labor.

Mayor Rahm Emanuel has yet to weigh in on his own appointments, leaving holdover board members Peter Thompson, a nephew of former Mayor Richard M. Daley; Alvin Boutte Jr., a financial-services adviser; and attorney William Power.

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Tupelo to study entertainment district

Friday, September 14th, 2012

via hattiesburgamerican.com

TUPELO, Miss. (WTW) — Five Tupelo groups have partnered to pay for a market analysis that will target the possibility of building an entertainment venue in the Fairpark District.

The Northeast Mississippi Daily Journal reports  the Tupelo Redevelopment Agency on Monday said it has joined with the Tupelo Convention and Visitors Bureau, the Coliseum Commission, the Community Development Foundation and the Downtown Tupelo Main Street Association for the study.

TRA chairman John Oxford said the groups will hire Hunden Strategic Partners of Chicago in an $84,000 contract.

The analysis will focus on what will work best for Tupelo, he said. Ideas in recent years include a concert hall, movie theater, entertainment venue with a restaurant and Branson-style entertainment.

“We’re letting them tell us,” Oxford said. “They’ve done this before.”

The study also will focus on pricing that would attract developers. HSP president Rob Hunden will lead the study, Oxford said.

The agencies’ participation is contingent on approval of their boards.

The CVB board on Monday approved spending up to $30,000. The Coliseum Commission is slated to chip in $30,000, as well. TRA and CDF unofficially have committed $11,000 each. Main Street unofficially has committed $2,000.

“All of us feel the economy is starting to turn, starting to thaw,” he said.

Oxford said the study will take three to four months to complete.

“By combining our efforts, we limit the risk of paying for projects that overlap and we increase our chances of putting together a plan that can really make a difference,” said Scott Reed, chairman of the Coliseum Commission.

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Lansdowne Park

Saturday, January 21st, 2012

Lansdowne Park

City followed Lansdowne critic’s advice in studying
redevelopment deal, lawyers tells judge

BY MOHAMMED ADAM, THE OTTAWA CITIZEN JUNE 29, 2011

OTTAWA — The City of Ottawa was so determined to conduct the redevelopment Lansdowne Park in an open, honest and transparent manner it followed the advice of one of the plan’s principal critics on how to evaluate the financial projections, an Ottawa court heard Wednesday.

Peter Doody, the lawyer who is appearing for the city, said that when Carleton University businessbprofessor Ian Lee told council in the winter of 2009 that the best course was to conduct anbindependent third party review of the financial projections of the Ottawa Sports and EntertainmentbGroup’s plan, city manager Kent Kirkpatrick took the advice to heart and acted on it.

Doody said Kirkpatrick asked the city’s auditor general who is an independent watchdog, to conduct such a review. The auditor general, in turn, asked Lee for advice on which firm to hire to help him.

Lee suggested the Chicago consulting firm Hunden Strategic Partners and they were hired, Doody said.

At the council meeting in question on Nov. 12, 2009, Lee was asked by former councillor Alex Cullen for advice on how to evaluate the finances. Lee responded that his criticism of council was that it had not hired a financial accounting firm from outside Ottawa, or even Canada, to do “full diligence” on the OSEG numbers.

“Let’s bring in an independent third party … accounting firm from the U.S., from New York City or San Francisco, or one of the big cities where there are a lot of capital projects, who can run through the numbers and give you an independent, arm-length, objective analysis so that you are not believing me, or you or some other critic,” transcripts of the city meeting show Lee as saying.

Doody said that’s exactly what happened and the auditor general used Hunden’s advice to help write a report that found the assumptions underpinning the financial projects to be sound. The Hunden report, like others that the auditor general receives, is confidential.

The Friends of Lansdowne, a citizens’ group opposed to the OSEG redevelopment plan, has taken the city to court alleging that it acted illegally on several grounds, including bad faith, providing illegal subsidies to OSEG and violating municipal and provincial law. The group wants the court to quash the Lansdowne Partnership Plan and have the city start the redevelopment again.

But Doody said the city’s action in response to Lee shows that it conducted itself properly, listened to a variety of views and suggestions and made its decision in good faith. There is no indication throughout the process that the city acted unlawfully or illegally, Doody said.

Doody’s theme on the second day of his submissions was of a democratically elected council performing its lawful duties. He argued that Justice Charles Hackland, who is hearing the case, should be wary of second-guessing it.

He said council, in its wisdom, had decided that the redevelopment of Lansdowne has to be linked with a CFL franchise to reduce the drain on the city’s finances.

Having made that decision, council proceeded to determine the best way to achieve its goal, and when OSEG made its proposal, he told the court, the city felt it had found the right partner.

The Friends of Lansdowne contend that the city stacked the deck in such a way that it disqualified other potential bidders, leaving the door open for OSEG. Doody rejected the argument that sole sourcing the project showed bad faith and was illegal. He said the law allows sole-sourcing in exceptional circumstances, and the Lansdowne redevelopment was one of those unique circumstances. He said it was not unreasonable for council, which wanted to redevelop Lansdowne and have a CFL team to pick OSEG because it fit the bill perfectly. It was “reasonable” Doody said, to conclude that only OSEG could do the job.

Doody also attempted to rebut a major criticism that the city may have withheld or hidden documents. He said under city policy, e-mails are kept by staff for 90 days and then deleted but the documents may still be held electronically in the system. But after 180 days they disappear. He said some of the records may have fallen victim to this policy. The problem, he said, is “endemic” and is not confined to the Lansdowne redevelopment.

The hearing continues and the judge has indicated he wants it to end Thursday.

© Copyright (c) The Ottawa Citizen

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Unusual North of South deal leaves taxpayers vulnerable

Thursday, January 19th, 2012

Unusual North of South deal leaves taxpayers vulnerable

Cory Schouten April 16, 2011

Proceeds from a refinancing of bonds that paid for road improvements near Lilly Technology Center will help fund North of South.

(IBJ Photo/ Perry Reichanadter)

The $156 million North of South project is a complicated, risky and potentially transformative bet on
downtown.

It’s also a no-brainer of a deal, at least for Buckingham Cos., the developer, and Eli Lilly and Co., which owns the 15 acres of surface parking lots set to be developed along South Street east of Delaware Street.

That’s because taxpayers—acting as the project’s bankers—are shouldering most of the risk in the no-bid deal, while the potential for a tangible profit rests squarely in private hands, a review of documents and interviews with people familiar with the project show.

Buckingham stands to cash in every step of the way, earning fees for all three of its divisions—development, construction and property management. And Lilly gains a new amenity for its corporate campus while cashing out of a 20-year-old arrangement with the city that required the company to make periodic payments on infrastructure bonds.

Taxpayers are putting up nearly every dollar used to build the apartment, hotel and retail project, chiefly by loaning $86 million raised from the sale of municipal bonds. All without the city’s landing any job commitments, charging the developer a spread above the city’s cost of capital as any banker would, or installing a mechanism for taxpayers to enjoy some upside if the deal succeeds.

The benefits to the city are a larger tax base, a plugged hole in the downtown streetscape, and a powerful employment driver for the corporate campuses that surround the property, city officials say.

They point to a study showing an estimated five-year economic impact for North of South of $350 million, and a conservative loan-to-value ratio of about 70 percent that gives taxpayers a good shot at recouping most of their investment.

Devil in the details

Several developers who spoke with IBJ on condition of anonymity and are generally supportive of public-private deals said the North of South arrangement upends the traditional risk-reward calculation for land development. They say any developer would have jumped at the deal the privately held Buckingham achieved.

“All the developer has is upside!” one said. “The taxpayer has all the risk.”

A 90-page project agreement provides insight into some of the risks. City officials declined to share the project agreement until they finalized the details and the City-County Council approved the plans in mid-March.

Buckingham, which has its headquarters at Ninth and Meridian streets downtown, broke ground on the project last month.

A few details found in the agreement and other documents:
• A $15 million cash contribution credited to Lilly is more complicated than it appears on the surface. Because Lilly’s Technology Center did not generate enough in property taxes to service the debt on a package of infrastructure improvements the city approved in the late 1980s, Lilly had to cover the shortfalls. Now, the city is paying back the pharmaceutical giant, and Lilly is reinvesting the proceeds in North of South.

The city also gives credit to Lilly for contributing the 15-acre site on which North of South will be built, valuing the property at $15 million. For tax purposes, though, the current assessed value of the 12 parcels set for development is $2 million.

• Buckingham is credited with a $7 million equity contribution. But that’s not money it put up. Rather, the sum represents the project’s development fees, which the company agreed to waive.

The company will be paid separately, out of municipal bond proceeds, for the project’s architecture and engineering costs and for construction management. Once North of South is complete, Buckingham will earn more cash by managing parts of the property. If the project revenue is insufficient to make debt payments, Buckingham will be on the hook for the first $6.9 million, backed by a personal guarantee from Buckingham CEO Brad Chambers.

• Buckingham could start cashing in profits from the project by selling individual components before taxpayers are paid back in full.

The hotel, office and apartment phases each are assigned a “base release price” at which the bonds for that portion are considered satisfied. For instance, the release price for an office component starts at about $2.4 million (and falls as payments are made on the bonds).

If the developer can sell that portion, it can pocket any profit above the release price.

A potential consequence of the arrangement is taxpayers could get stuck holding underperforming portions of the project while the developer cashes out of profitable ones.

Deron Kintner, executive director of the Indianapolis Bond Bank, said the city “increased the value” of various components to help guard against the risk.

“From Day One, when we started down this road, risk mitigation was of utmost importance to us,” he said.

• Taxpayers could be on the hook for building a multimillion-dollar parking structure for the adjacent WellPoint Inc. campus since the North of South project will remove some spaces and create more demand for existing ones.

The city is obligated to provide 2,000 free spaces to WellPoint as part of a 1997 agreement, expiring in 2012, that enticed the insurance giant to consolidate operations from the suburbs.

The North of South agreement suggests the city could pay Buckingham for use of some of the new spaces in the project or build a new garage at taxpayer expense. For reference, the North of South deal assigns a value of $12 million for its two parking garages and 800 total spaces.

Lilly is key

Lilly initially approached Buckingham in 2007 about putting together a redevelopment of the North of South properties.

The companies worked on the project for two years before approaching the city to request a $45 million subsidy to support it, Chambers said. City officials came back with an offer to act as a lender instead.

The decision came down to a philosophical question: Is it more prudent for the city to cap its exposure by investing a cash sum in a private development as it did with the JW Marriott and Conrad Indianapolis, or to put more money at risk for a chance to recover the full amount?

The city opted for the latter, giving Buckingham what amounts to a mortgage loan. Under the arrangement, after a two- to four-year period of construction and stabilization, the city will apply an estimated $2 million in property taxes and state income taxes on the North of South properties toward about $8 million in annual bond payments.

Buckingham will be responsible for paying the rest out of project revenue, Kintner said.

The city considered taking an equity stake but decided against clouding its role as lender, Kintner said.

He said the city would have had to contribute more to the project to earn equity.

Chambers noted his company’s equity in the deal is merely theoretical until taxpayers are paid back.

“We’ve got significant motivation and skin in the game to work hard on this project, and have for three years now,” he said in an interview. “We’re going to work very hard to make this successful. At the end of the day, the project and its merits are solid.”

Chambers said a successful deal would be “very profitable” for Buckingham, but he would not provide a number.

Kintner said it doesn’t matter how much Buckingham profits on the deal as long as the city gets a new amenity and taxpayers are paid back. The project simply would not have worked if the developers had to tap private credit markets.

“Our goal was to protect the city’s interest and to see the project built and financed in a way that’s most advantageous to the city,” Kintner said. “Buckingham is no less at risk than other developers who have borrowed to put money in projects—they borrowed $97 million; there’s an inherent risk in that.”

Public and private?

The city sold about $98 million in bonds to finance the project and will kick in another $9 million for infrastructure improvements. Add in a $6 million state grant, and taxpayers are on the hook for about $113 million.

The bonds will generate $86 million for the project itself; the rest will cover fees and pre-paid interest for the time North of South is under construction.

City officials say the big public investment helped leverage $37 million in private contributions to the project by Lilly and Buckingham, though that figure includes the city’s payment to Lilly and the $7 million equity awarded to Buckingham in lieu of development fees.

The plans call for 320 apartments, a 157-room conference hotel, 40,000 square feet of retail or office space, and 800 parking spaces. An $18 million YMCA branch also is planned, but its financing is separate from the city-supported deal.

“These are amenities a lot of corporations move to the suburbs to chase,” said Scott Travis, Buckingham’s senior development executive.

But Melina Kennedy, the presumptive Democratic challenger to Republican Mayor Greg Ballard, was surprised the incentive package didn’t come with any job-creation commitments or an opportunity for taxpayers to earn some return alongside the developer if the project succeeds.

“Certainly, the actual development itself will be positive for downtown, but I believe some of the negotiating on the city’s behalf wasn’t as aggressive as it should have been to protect the taxpayers,” she said.

One protection the authors of the plan included was hiring locally based Keystone Construction Corp. as the city’s agent in the deal to watch over Buckingham. Regions Bank, meanwhile, is administering the loan on the city’s behalf.

“The city is acting as the bank on this project—taking on roughly the entire project in terms of risk financing,” Kennedy said. “If it fails, it will be on the city’s shoulders.”

The flip side is, if North of South succeeds, the city gains an asset that could attract more young professionals and make downtown more walkable, said former real estate broker and developer Gus Miller, who now works for a pension fund adviser.

He sees it as a prudent gamble to keep up the momentum that appeared in a recent study of U.S. Census data: Between 2000 and 2009, downtown Indianapolis saw an 83-percent rise in the number of college educated residents ages 25 to 34.

And it helps when the risk involves a 27-year-old developer that manages more than 18,000 apartment units and has built 5,000 of its own. Buckingham also owns The Ambassador and Harness Factory Lofts apartment buildings downtown, and is developing The Avenue, a $25 million apartment and retail projectalong Indiana Avenue.

“We beat up people for pushing these kinds of things through,” Miller said of North of South. “You can build all kinds of sewers and roads, but at the end of the day, people like to live in communities. [The deal] is unorthodox, but we have to take risks to move forward as a community.”

Paying old debts

The North of South deal also settles a 20-year-old agreement between Lilly and the city that went expensively wrong for taxpayers.

City officials agreed in 1989 to vacate a portion of Kentucky Avenue and spend $36 million to widen surrounding roads to accommodate an expansion of the Lilly Technology Center.

The city sold bonds backed by property tax revenue on the property, but starting in 1997—thanks in part to a new round of abatements, Kintner said—the bond payments due exceeded the property tax payments, triggering an agreement for Lilly to cover the shortfall.

Lilly paid about $13 million toward the bond payments over the years, and would have been entitled to reimbursement from the city of the remaining balance after the original bonds were retired in 2020.

Instead, as part of North of South, the city opted to refinance the debt, paying off the remaining $15 million balance (including interest) owed to Lilly and forgiving the requirement that the company cover any shortfalls in bond payments. In exchange, Lilly agreed to reinvest the entire sum in North of South.

The upshot: Twenty years after building $36 million in road improvements, the city still owes $44 million. And it will continue making payments until 2024, unless a future mayor opts to refinance again.

Kintner doesn’t see a problem with taking 33 years to pay for road improvements since, he says, the point of municipal borrowing is to fund improvements with a long life.

In fact, Kintner said refinancing the bonds and paying Lilly now saves taxpayers $20 million. That’s because the city replaced bonds accruing interest at about 6 percent with new bonds at 3.5 percent.

Promises kept?

The 1989 agreement said Lilly was entitled to reimbursement only if it invested at least $168 million in improvements at its Technology Center along Harding Street. The company told the city in a March 1998 letter that its investments at the facility since Jan. 1, 1989, had totaled $357 million.

In 1999, the company announced a 10-year, $1 billion expansion in Indianapolis, a commitment Lilly spokesman Ed Sagebiel says the company also has met.

Yet during the North of South negotiations, Lilly was “doing cartwheels” to rid itself of its guarantee to cover bond payment shortfalls on the Harding Street project, Kintner said.

David Lewis, Lilly’s vice president of taxes, said the company hadn’t anticipated it would ever need to make the payments. He said “nothing comes to mind” on why the property taxes came up short of covering the bond payments.

“Assessed values used in the forecast and the ultimate values were different,” he said.

So did the city get enough in return for releasing Lilly from its obligation to backstop the bond payments?

“We negotiated with them for quite some time,” Kintner said. “Instead of a bonus to executives, they agreed to reinvest it into downtown.”

The payments between the city and Lilly seem murky to Christopher Steele, an economic development and site-selection consultant and president of Massachusetts-based CWS Consulting Group.

Steele applauds local governments that find creative ways to partner with developers after “sober reflection” to attain “broader public goals.”

But Steele, who reviewed the documents at IBJ’s request, described the agreements as “poorly negotiated.” He can’t quite understand how, if a company doesn’t pay enough property taxes to cover the bonds for its own infrastructure improvements, the city could wind up in arrears.

“There are very good and effective ways of structuring incentive and tax programs to build a strong and mutually reinforcing situation between company and community,” Steele said. “This is not one of them.”

He described the commitment that Lilly reinvest the proceeds in the North of South project as “trying to make a very bad deal better.”

Misplaced priorities?

Taxpayers are being fleeced, plain and simple, for a project that offers no clear benefit to the public, said Julia Vaughn, policy director for the government watchdog Common Cause Indiana.

If North of South really were such a certain success, the developers should have been willing to part with some of their own money to help finance it, she said.

“It really shows what the city’s priorities are,” Vaughn said. “We’re going to help out a private developer and one of the largest pharmaceutical companies in the world, yet we’ve got a second-rate public transport system, infrastructure is falling apart, neighborhoods have so many needs. But apparently the checkbook is open if you’re the right corporate citizen.”

The arrangement sounds like the deal between the city and the Indianapolis Colts that paved the way for Lucas Oil Stadium, said Gary Welsh, author of the cantankerous political blog Advance Indiana.

The city under former Mayor Bart Peterson credited the Colts with contributing about $100 million toward the stadium, but the claim was disingenuous at best: The team had simply agreed to waive the lease-termination fee on the RCA Dome in exchange for a state-of-the-art new stadium.

Welsh’s problem with deals like North of South is that they prevent property taxes collected downtown from going to anything other than new downtown projects, to the detriment of neighborhoods and schools.

“They always make those deals so complicated, deliberately so, to confuse people and make it seem like money is coming out of someone’s pocket that it really isn’t,” Welsh said.

But for Buckingham and Lilly, North of South makes perfect sense.

“It’s the deal of a lifetime,” said one local developer who would have bid on the project if given the opportunity. “I can’t imagine there would ever be anything like this again.”

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CityWay breaks ground at Downtown site

Thursday, January 19th, 2012

CityWay breaks ground at Downtown site

Written by Jeff Swiatek
jeff.swiatek@indystar.com
10:49 PM, Aug. 3, 2011|

City and business officials turned some ceremonial dirt Wednesday to mark the start of a $155 million hotel-retail apartment project Downtown.

The project also got a new name. Originally touted as North of South, the project will be called CityWay, said Brad Chambers, president of Buckingham Cos. of Indianapolis, lead developer and construction manager.

The groundbreaking for the city subsidized project drew a host of public and private-sector leaders, including Mayor GregBallard and Eli Lilly and Co. Chief Executive John Lechleiter.

The city floated $98 million in bonds to help finance the project, and Lilly is leasing the 14 acres of former parking lots where it’s being built.

From a tent pitched at South and Alabama streets, Chambers told a crowd of more than 75 people, including Indiana Pacers head coach Frank Vogel, that the project will be “a trend-setting model for urban living.”

Ballard said the coming of CityWay was one reason Rolls-Royce decided in March to consolidate 2,500 employees from several offices into a former Lilly office two blocks from South and Meridian streets.

“Without this project, that probably doesn’t happen,” the mayor said.

Shrugging off the impact of the weak economy, Chambers said the project has drawn strong interest from retail and restaurant tenants.

“We’re looking two to three years out, and hopefully the economy will be in a recovery mode” by the time the complex opens, he said.

CityWay will include a 157-room Dolce brand hotel, 320 apartments, retail and office space, two parking garages and a full-service YMCA. The complex will be finished in late 2012 or early 2013, except for the YMCA, which might not open untilThe mayor and City-County Council decided to sell bonds, backed by Downtown property tax revenues, to help finance the project, which they hope will spur development between Downtown and the Lilly corporate campus.

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