Category Archives: another parking garage

Mabley Place: what a win for a rookie in real estate

I’m not much of a football fan, but from what I can see real estate development is its own kind of rough-and-tumble, drawing the same kind of guys with a focus on winning no matter what the cost.

Former Bengal, Chinedum Ndukwe, grew-up in Dublin, Ohio, just outside of Columbus.  Drafted in the 7th round in 2007, he was mostly a reserve defensive back and made OK money for a guy fresh out of college, averaging $425,088 for the four years he played, . But a knee injury sidelined him in 2010 and the Bengals did not renew his contract.  After 2 games with the Oakland Raiders in the fall of 2011, they didn’t want him either.

Nedu was smart, articulate, and ambitious.  But apparently not star foorball material

Fortunately #41 is breaking all kinds of records in his new profession.  In December of 2013, right after Mayor Cranley took office, the  City announced 28 year-old Ndukwe had formed Kingsley & Co LLC and would be putting together a group of private investors to transform the former Tower Place Mall into a 775 space parking garage.  His partner was Jake Warm of JDL Construction, the same family associated with the Hilton and Carew Tower.  Having owned the property since 1988, City Council voted to sell one of our most embarrassing development albatrosses to Warm for $1, and immediately put the asset in the name of the Hamilton County Landbank.

Why the detour to the Landbank?  Somebody owed almost a million bucks in back property taxes on Tower Place Mall, but the Port Authority that runs the County Landbank used one of the “unique tools” in their “development toolbox” (please read “tax loopholes for for-profit corporations”) for those taxes to be waived, stating that the new developer had nothing to do with the tax liability and could not afford to make the project work if they had to pay what was owed to Cincinnati Public Schools, mental health services, indigent hospital care, etc., etc., etc.

Fast forward to December of 2014.  12 months.  1 year.  365 days. (Got it, Citizens?  Catching on here?)

Tom Demeropilis of the Cincinnati Business Courier reported that 70% of the garage that opened in October was being sold to a San Diego Real Estate Investment Trust for $15,000,000.  Let’s do the math.  If 70% equals $15,000,000, that means the whole garage is worth $21,428,571.

Now there’s a wide range of numbers as to how much the renovation of the space cost the developers.  Tom Demeropolis, a professional journalist not known for outlandish statements who always checks and double checks his facts, puts the number at $9,000,000.  Mayor Cranley’s office puts it around $5,000,000.  Let’s be conservative.  Let’s use Tom’s number and call it a $9,000,000 investment.  That puts the profit at around $12,428,570 in one year

That’s a 12,428,570% return on investment, Mr. Ndukwe. Wow. That is, if you don’t include the contributions #41 made to Mayor Cranley’s 2013 campaign (his family came in #7 on the list of contributors with a total of $12,700)  – or Christopher Smitherman’s campaign.  In any case, I’d say his foray into development qualifies as a touchdown.  Ndukwe was wasting his time in football.  With that kind of talent just imagine the wealth and power he could have accumulated if he’d started out in real estate in Cincinnati.

And the rest of us Citizens, what should we take away from the story of the Mabley Place parking garage?  Look what $12,700 can buy a 28 year-old rookie with no experience and no training. A well-placed political contribution might very well be by far the most profitable investment of all.

Is TIF District Money Reserved to Subsidize Corporations?

Leave it to my friend, Jule Zavon, to keep asking questions until I can explain these public financing concepts in clear, simple terms. Julie and I went to Walnut Hills High School and should have graduated together in 1973 except that she left at the end of her junior year to start college early. These days, she speaks four or five languages including Russian and isn’t afraid of tackling a bit of public finance on the side.

Yesterday she sent me an email and suggested I write another blog post about the relationship of Tax Increment Financing to the Oakley Station garage and include my answer to her simple question, “How much cheaper for a developer is TIF financing than other forms of financing?”

First, let’s review a simple definition of the TIF concept, courtesy of the villiage of Shaumburg, Illinois (municipalities present these definitions in their most favorable light as they are using them):

TIF stands for Tax Increment Financing.  A tax increment is the difference between the amount of property tax revenue generated before TIF district designation and the amount of property tax revenue generated after TIF designation.  Only property taxes generated by the incremental increase in value of TIF district are available for TIF projects.  Tax rates do not change when a TIF is created.   TIF districts do not increase taxes. 

Now my answer to Julie’s question:

Oakley-Station-Birdseye

Here’s where the documents on the Oakley Station Garage get very confusing, Julie.  TIF financing.  All my reading of these agreements and I have not yet been able to identify the language that differentiates TIF District grants from TIF Project Financing.

After City Council started to publicly discuss the Oakley Station Garage, I finally understood that this was a TIF District grant.  That means the $6.2 million to build the garage is coming from the Oakley TIF District as an outright payment from the city – free money (the best kind and it beats all other financing hands-down).  Residents of the Oakley TIF don’t pay their property taxes on the full value of their homes and commercial properties.  Taxes on any appreciation in value in the District after its formation (I’m pretty sure it was in 2004) don’t go into the general pool to pay for basic services.  They go into a special TIF fund and can only be used for infrastructure improvements in that specific District.  That can mean streets, landscaping – probably park improvements.  But in reality more and more of the money goes to these damn garages which are really the foundations of buildings for major for-profit development projects and a subsidy for the tenants who lease the space at therefore reduced rates.  Doesn’t matter if we really need anymore covered garages.  That’s immaterial. As I understand it, this office building is near lots of surface parking.  (As was the garage that the Port owns at Kenwood Collection.)  This is a way for taxpayers to foot the bill for 20% (Queen City Square) – 50% (dunnhumby) of a building’s cost.

 

So we could be using this TIF District money to actually pay for street improvements in these neighborhoods.  Instead the City Manager just put through an Emergency Ordinance to borrow more money to repair streets in the same meeting Council approved the TIF grant for this garage.I have to ask, Is TIF money reserved to subsidize our corporations?”

In a 2013 Brown University study published in Socio-Economic Review, “Tax Increment Financing, Economic Development Professionals and the Financialization of Urban Politics,” The author, Josh Pacewicz, lays out the history of TIF — originally a funding method of last resort for “blighted” neighborhoods — and looks at how it has evolved.

  • Because developers’ reputations depend on successful outcomes, “they become invested in these solutions, which are frequently expensive.”
  • Politicians in the two cities used for the study expressed concern that TIF was “corporate welfare,” that it produces unsustainable debt, and that repaying it diverted crucial resources. “Despite such reservations, however, city council always unanimously approved TIF packages during my fieldwork,” the researcher states.
  • Frequently, “politicians and other urban leaders who hire development professionals do not understand TIF’s mechanics and are unable to directly evaluate the technical virtuosity of development professionals.”
  • “The special status of development professionals in urban politics has co-evolved with a set of professional incentives that do not align with the city’s long-term fiscal outlook,” the author concludes. “First, they have an incentive to fund large development initiatives, which can allow them to move to a more prestigious position in another city before the long-term fiscal consequences materialize. Second, they have come to identify their professional identity with the capacity to creatively solve any problem, and this gives them an incentive to create ever-more elaborate, and generous, financing schemes with TIF.” –

See more at: http://journalistsresource.org/studies/government/municipal/tax-increment-financing-economic-development-urban-politics#sthash.fRzDCeT2.dpuf

A Primer in Garage Building in Cincinnati

There’s no such thing as too much parking in Cincinnati, Ohio.  According to current public policy in this city, every problem we have can be solved with a one-size-fits-all answer: taxpayers pay for more garages.  Taxpayers paying for more garages will result in more jobs.  More jobs will generate more income-tax revenue to pay for basic services to fill our pot holes and hire more police which will make middle class homeowners happy “customers” (that’s what the City Manager calls us these days). More jobs will apparently alleviate poverty, reverse our absurdly high incarceration rates, stop violence and get people off drugs.

Since we are making these infrastructure investments as fast as we can – and they are very expensive – it behooves us to become garage literate, Citizens.

image (8)Here are the costs for three of our most recent garage projects.  But the figures are not entirely apples-to-apples fair.

Western & Southern’s Queen City Square figures are inflated due to the fact that I did not try to back out non-garage costs from the total $65,000,000 Tax Increment Financing package.  We didn’t just get garage space.  We purchased a multi-storied pedestrian promenade, two giant escalators, a plaza and quite a bit of ground level retail for our money.  It’s a pretty sophisticated set-up and Eagle Realty probably did a very decent job of holding garage costs to within 10-15% of the national average.

Of course, Oakley Station’s $6,200,000 structure hasn’t broken ground yet.  We can see that our development professionals must have used the same national average costs for garage construction I did for their projections.  New construction always costs more than we think it will and this project will probably be no different.  Let’s just hope it comes in close.

That leaves the mysterious dunnhumby, now known as 84.51, a 3CDC public-private partnership with Kroger’s latest acquisition.  I contacted Anastasia Mileham, VP of Communications, five times over the past three months asking for a clarification on why construction costs were so high.  At dunnhumby taxpayers bought 1,003 spaces for somewhere between $60,000,000 and $70,000,000.  (The figure tended to float a bit as we talked.) She explained that only the top four floors of the 9 story structure are currently needed for offices, but they anticipate significant growth and it was decided to build the lower floors so that they could someday be converted. Ramp design was complicated, ceiling height had to be 12 feet as opposed to the normal 10, and two floors of the garage were built below ground.

Call me annoying – but that didn’t seem an adequate explanation for costs more than three times the national average.  So I did what I always do – kept asking questions.  I asked super-smart staff members of City Council.  I mentioned my concerns to other developer friends.  I even called Robert Bertsch, Sr. (otherwise known as Bob), the guy who is in charge of development projects for this area of town in city administration.  He called me back within 5 minutes, was funny and charming and forthcoming. But he couldn’t tell me why the project cost so much more than anticipated when Council approved the deal in June of 2012. (They voted on $88 million.  It came in around $140 million.)  “You’ll have to ask 3CDC,” he said.

So I sent my little-Kathy charts to Anastasia and explained why I was confused.  More than 2,200 spaces at Queen City Square cost us about the same as 1,003 at dunnhumby.  I told her I would have to start to ask publicly why this building cost so much for us to build.  And I heard nothing.

I hate to write this post.  Because I’m a 3CDC fan.  I think they’ve done about as good a job as is humanly possible in Over-the-Rhine and on Fountain Square.  But since City Hall clearly intends to use 3CDC as their preferred developer on parking garages in the city center and we are building them as fast as we can, it’s important that we honestly evaluate our garage-outcomes.

Hey, Everybody – John Cranley wrote me an email!

Dear Ms. Holwadel:

Thank you for writing me about the Oakley Station Parking Garage.  I have received a few emails on this subject and I’d like to take a moment to clear up some misconceptions about the project and share with you why I support it. . . .The garage is a 383-space garage and will cost $6.2 million to construct. The developer, Vandercar Holdings, is contributing the land, valued at $700,000.  The developer will have an option to purchase the garage from the City for the cost of construction, less depreciation. The developer will lease and manage the garage for 35 years and has the option to purchase the garage at the end of the 35-year term for $1, when it is fully depreciated.

That’s true, Mayor, except that the land has to be in the city’s name or it can’t qualify for the 35-year property tax-exemption that comes with Tax-Increment Financing, tax payments that would usually be made to fund basic services but will now be used to pay for this garage.  What’s the dollar value of the tax exemption to the developer over 35 years?  The city doesn’t get any benefits from depreciation like a for-profit company would since Cincinnati doesn’t pay any taxes.  Do our buildings really only have a 35-year usable life?  Such a waste of resources, both financial and environmental, is sad.

It’s also interesting that if the building is ever sold, it’s my understanding that the developer receives 100% of the proceeds, including the garage – and holding periods usually end up being much shorter than that stated in the master lease agreement. Even if the property is sold, those tax benefits will be passed to the new owner for the entire period.

I support this project for one big reason: It will create jobs and economic growth in Oakley. 

But, Mayor, according to the city’s own ordinance this particular office building will not result in ANY new jobs to the city.  

F. Developer intends to lease the Private Improvements to Community Insurance Company (the “Tenant”) for a term of not less than 10 years and 6 months, which Developer represents will bring approximately 400 jobs to the building site of which 0 shall be new jobs to the city and 400 shall be jobs retained from the Tenant’s prior location within the city.

The city projects income taxes from the temporary construction jobs to be $84,000.   Building a $6.9 million garage in order to generate $84,000 in new income taxes to the city – wow, I don’t mean to be critical – but can’t we do any better than that?????

According to an economic impact study done by the University of Cincinnati, development of the Anthem office building and parking garage will support 82 new jobs during construction, and Anthem employees will bring annual purchasing power of $4 million to area restaurants and retail. Through our agreement, Anthem must retain at least 400 jobs in the City with $15 million in payroll. Construction of the office building is expected to create 111 construction jobs with an annual payroll of $4 million during construction.

Mayor Cranley, would you mind if I asked who paid for that economic impact study? Usually it’s the for-profit developer.  Haven’t we had a few problems in the past with overly optimistic projections?  

As far as the agreement with Anthem is concerned, you must be referring to the Property Investment Reimbursement Agreement the city signed in 2013 (Ordinance 206-2013) to fix up their current building at 1351 William Howard Taft.  We gave them a forgivable loan of $300,000 outright.  And another $1,250,000 over the next 5 years if they retained 325 jobs and created 75 new ones. This agreement didn’t have anything to do with the new building, but I can see where you might get confused.  It’s hard to keep all these job-creating deals straight isn’t it? 75 jobs cost us $1,550,000 or $20,666 per job. It will take more than 26 years to break even on that investment. (the city assumes an average salary of $37,500 and we tax at 2.1%)

Again, thank you for writing me about this important issue.  I always enjoy hearing from thoughtful, engaged citizens like you.  Please feel free to contact my office if I may ever be of further assistance.

Sincerely,

John Cranley

Mayor, City of Cincinnati

Thanks for taking time to write, John.  But while all the talk about jobs always sounds great, the reality is that we can’t afford to give away more than we can ever hope to take-in.  That’s Economics 101.  Current policy only makes sense for developers who build big buildings and tenants savvy enough to sign the taxpayer-subsidized lease.  

Should government speculate in luxury shopping malls?

The conservative right has done a great job of selling America the idea that big government is bad and  a free-market economy best left unfettered by pesky government interference.  Over and over we hear how taxes are too high and the system full of waste.

Isn’t it odd that this same principle doesn’t apply to commercial real estate development, where the biggest public dollars are involved?  When for-profit corporations build big buildings, then the government is smarter than the free market.  Government intervention is not only encouraged to over-ride current realities of supply and demand, cities are routinely blackmailed by the for-profit sector as they negotiate richer and richer deals at taxpayer expense, our corporate “citizens” suggesting they can get better deals outside city limits if municipalities don’t pay up.

These days Cincinnati is turning the entire decision-making process over to the corporate sector:  3CDC, the Port Authority, and REDI, their governing boards almost entirely composed of corporate executives with no possibility for input from the public.   ALL deals are perceived as desirable, with no critical assessments beyond available financing.   And it doesn’t seem to matter that government agencies have crappy track records in terms of investment decisions since nobody ever bothers to measure our returns. We’re apparently mesmerized by the soothing repetition of the “job creation” mantra, that greatest trickle-down hoax of them all.

Kenwood_Towne_Place-304

Perhaps my favorite example of bad real estate investments by a public agency is the Port Authority’s involvement in Kenwood Towne Place, now called the Kenwood Collection, a development in a “flourishing luxury retail corridor.”* The Port Authority owns the 2,500-space public parking garage financed with bonds that mature in 2039. Since parking is free at the mall, it’s hard to understand exactly how the revenue is generated to pay off the debt – but it surely hasn’t been easy as the development drowned under a sea of liens filed by subcontractors who were never paid, many of them smaller minority-owned companies trying to benefit from the Port’s Economic Inclusion Policy. The FBI was involved.  There was a criminal investigation as well as civil litigation.  It’s been a mess.

Why was government ever involved in a $30,000,000 parking garage in a “flourishing luxury retail corridor”? When should public servants expect middle-class taxpayers to shoulder this kind of financial risk with no possibility of personal reward?  While there’s a clear public benefit to fix  environmental brown-fields and actual blight, using government intervention to provide more covered parking so shoppers don’t have to get wet on their way to Crate & Barrel is absolutely absurd.

According to the Constitution, government was established for the purposes of unity, justice, domestic tranquility, defense, promotion of the general welfare of the citizens and securing liberty for all. It doesn’t say a damn thing about making the rich richer and convenient parking at fancy shopping malls.

* “flourishing luxury retail corridor” is the term used on the Port Authority’s website – though it is currently difficult to locate information on the Kenwood Project.  The “Our Projects” tab is now limited to deals done within the last ten years in the Central Business District.

Building Down! at 7th & Sycamore

 

 

IMG_1888

 

The Downtown Ambassador sweeping the sidewalk assured me I’m not crazy.  There was a garage on this corner yesterday. Today it’s gone.

As far as I can tell this is going to eventually be a 725 city-owned car parking garage in the works since 2008.  There’s a Holiday Inn & Suites Hotel planned next door.

Here’s the link the to article in the Business Courier in November 2012: 

http://www.bizjournals.com/cincinnati/blog/2012/11/garage-design-slammed-for-looking-like.html

 

Building Down! at 7th & Sycamore

 

 

IMG_1888

 

The Downtown Ambassador sweeping the sidewalk assured me I’m not crazy.  There was a garage on this corner yesterday. Today it’s gone.

As far as I can tell this is going to eventually be a 725 city-owned car parking garage in the works since 2008.  There’s a Holiday Inn & Suites Hotel planned next door.

Here’s the link the to article in the Business Courier in November 2012: 

http://www.bizjournals.com/cincinnati/blog/2012/11/garage-design-slammed-for-looking-like.html