Now I'm Pi$$ed

Five months ago I decided to learn about how real estate development decisions are made in the City of Cincinnati.   And the first thing I noticed was that nobody wanted to talk about it.

People I’ve known and adored for years in the private sector, people who used to invite me for beers, now cross to the other side of the street when they see me coming.  If they answer my emails at all it’s short and to point.  And those are the folks that acknowledge my requests.  I’ve worked on several big civic projects since I retired from the financial services industry almost fifteen years-ago and I’ve never gotten the no-answer/answer like I have on this one. 

But city employees have to answer all inquiries.  Not always the first time you call.  Maybe not even after the third email.  But if requests are made for documents on specific topics referencing the Ohio Public Records Act, it initiates a formal preceding through the legal department that has to be documented and eventually folks comply.  

This month I tackled the Queen City Square project on 4th St., the tallest building in town, AKA Great American Tower.  I wanted to know why the Port Authority, a “quasi”- (still haven’t figured out what that “quasi” means) public agency owns it.  Since when has city government started speculating in real estate?   Western & Southern Life insurance owned the parking garage on the lot and had talked about building for years.  What did they get out of the development deal and why didn’t they want to own this building themselves if it’s such a great investment?   Apparently nobody is super-excited about long-term ownership of the thing because even though the Tiara Building was just finished in 2012, it’s already on the market to be sold.  

I’m proud of the progress I’ve made on my real-estate development education.  This Spring I had no idea what Tax Increment Financing was all about, or triple-net leases or air rights.  It was a foreign language.  But little by little, contract by contract, in spite of a total, absolute and complete lack of transparency designed to make sure the electorate will never understand what’s going on with their tax dollars, I can now hold my own in a conversation on the topic with almost anybody in town.

There are just a couple of pieces of the puzzle still missing on this particular building and I was feeling pretty cocky about it.  — Until I got the most recent email from the associate counsel for the Port Authority on Friday.  

I’d asked (3 times) if Western & Southern retained any equity ownership in the $326,000,000 property, the biggest deal by ten times over that the Port Authority has ever done.  If the building is sold, where will the profits go? – which is especially important because the city gave away 30 years of property tax revenue and used Tax Increment Financing dollars to build about 20% of the project.  (That’s the portion we paid for , Fellow Citizens.  We Citizens apparently like to pay for parking garages with all the trimmings.)

Simple, simple question.  Do they own any portion of the building or not?

Their staff lawyer attached a 63 page document that doesn’t address equity ownership, the second such misunderstanding on this question and concluded our conversation as follows:

“We are more than happy to continue to provide you with our publicly held records to assist you in your endeavors, so if you would like any further documentation, please let me know.  With respect to the information contained therein and your interpretation of the documents themselves, I would recommend that you consult an expert or an attorney who can assist you with your analysis.”

When I asked about Western & Southern’s development fee, they gave it to me.  They didn’t make me guess which document of the dozens related to this one building might contain it.  They just told me the truth.

But on the BIG money – ownership – which a developer friend of mine from California told me is the norm on these deals – the Port Authority refuses to confirm or deny, and tells me to hire an attorney.

No.  I am not going to pay an attorney to get information that should be easily accessible in a form that the average well-informed citizen (or city council member) can understand without taking five months to track it down and piece together.  What is everybody afraid of?  And by everybody I mean the employees of the Development Department who put these deals together, as well as the Port Authority, all the biggest real estate developers in town, and members of the boards and commissions who vote on these projects. Why are the financial terms of the biggest building in Cincinnati with significant public investment a secret?

If people are doing things they don’t want citizens to know about, then they shouldn’t be doing them at all.  

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2 thoughts on “Now I'm Pi$$ed

  1. Zachary Schunn

    I’m assuming you’ve already seen this, but here is some information on the Port’s bond financing of the project: http://www.cincinnatiport.org/financings/the-great-american-tower-at-queen-city-square/

    I have a hunch any reluctance to release information has more to do with the strict confidentiality Western & Southern holds on its real estate deals, than with government secrecy, per se. I believe Western & Southern did end up buying the building shortly after construction completed. My sources tell me W&S has now either completed selling or nearly completed selling a large equity stake in the building to an outside investor. They are keeping a large stake themselves–I think a majority stake but not certain–to prevent negative PR from not owning the building they got so much in public financing for. This should also represent a sizable profit to them since I’m sure they bought the building at a discount.

    Confusing, but probably an arrangement that needed to happen to get such a huge development (and thus tax windfall for the city) completed during the worst real estate downturn in 80 years.

    I’m sure you understand the reasoning for keeping many real estate deals confidential, but of course sometimes it can go overboard, especially when public money is involved. (And, of course, when the benefactor is one of the largest political donors in the city.)

    Reply
    1. executivedreamer Post author

      Thanks for the link, Zachary. Not much new info – but a slightly different take as this page was written before the building was finished.

      Here’s what I know for sure: The Port Authority owns the building, not Western & Southern (check it out at http://www.hamiltoncountyauditor.org and do a search for 301 E. Fourth). Western & Southern lent the money to build the project, buying 100% of all the bonds (the mortgage) for their insurance portfolio. They were also the developer and now have a Master-Lease arrangement to sublease the space and manage it. Weird, huh? We haven’t done that for anybody else in the city and that’s what made me so curious.

      AS to secrecy being necessary, I’ve thought about that a lot. I understand why real estate developers need to stay out of the public eye as they are acquiring property over long-periods of time for big projects. Competition that might drive up prices. But once the development is finished, there is no reason for secrecy on the part of any government agency. Not that I can think of. In fact, it’s illegal, isn’t it?

      As far as this being a tax windfall for the city, I don’t see it. All the companies who leased space in the building were already tenants in other central business district buildings – so no new income taxes. They didn’t pay sales tax on construction materials or any services to build the building. We’ve waived property taxes for 30 years in order to pay-off the bonds. AND we’re taking over 60 million out of property taxes paid by middle class home owners to pay for the garage and associated costs. Where’s the windfall?

      Thanks for your thoughtful comment. I really appreciate any and all thoughts as this is complicated stuff and the more we talk about it together, the better we think it through and understand it.

      Reply

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