Tag Archives: Great American Tower

The Lytle Park Mystery Hole

Last week I was running to an appointment when I bumped into Mario San Marco coming out of the University Club.  He’s the President of Eagle Realty, a subsidiary of Western & Southern, the developer of Queen City Square/Great American Tower, the hotel-conversion of the Anna Louise Inn, and the new hotel proposed for the Banks, to name but a handful of their current mega-deals. (He’s big.  Really big.)

“I was just talking to one of the guys on the crew on the Lytle Park construction site,” I told him, “and he said the only reason for that hole IS to replace the utilities.”

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This picture was taken on August 16, but all the dirt is out of the hole now. This is what a 2-year project to replace ventilation fans and upgrade the lighting system looks like. Come see for yourself. It’s a damn, big hole.

The “hole” I was referring to is the giant mystery hole that looks suspiciously like the same type of construction used for the underground garage in Washington Park and I knew Mario would be interested since he’d sent me an email on July 27th regarding my post, “Calling all Engineers and Construction Professionals.”

washingtonparkgarage

This is what the underground garage looked like during construction in Washington Park. You can see why a neighbor might get confused.

“Your posting of rumors that you have not taken the time to validate does nothing to further the efforts  of attempting to restore 311 Pike Street and the former Anna Louise Inn Building for adaptive reuse, with positive impact for our neighborhood and City. Had you called me or emailed me and waited for a response to your inquiry of the State of Ohio, you could have used your forum to make a positive statement that would have reassured stakeholders that the work being done by the State was federally/state mandated and will serve to maintain the park for many years to come. You can be assured that none of the work on the tunnel is to accommodate any plans we have for the Lytle Park neighborhood.”

While Mario’s offer to answer my questions regarding the Ohio Department of Transportation project in a public park is generous, I’m stymied. Why would I contact an executive of a private corporation about a public project on publicly owned land?   I thought the logical source for information would be officials who have a fiduciary responsibility for taxpayer interests.  And yet this is the second time that Mario has called me to task for not coming to him on such a matter. After 6 months of calls to the Cincinnati Public Schools, the Port Authority, the Hamilton County Auditor, city administrators and elected representatives, finally Western & Southern summoned me to their office and told me where to look for the semi-annual property tax payments they’ve been making to our public schools for Queen City Square.  (Indeed, it was a lot faster when the pros gave me the clues – but, come on, somebody in the public sector should have known where to look for the tax payments on one of our biggest public-private partnerships ever-completed.)

“Were you telling them how to do the job?” Mario chided when he heard I was talking to the construction guys.

Which is pretty much the same attitude I always get from the professionals who have made all the decisions about our “public-private” partnerships behind closed-doors for decades.

This is none of my business.  I don’t know enough.  About public financing.  About real estate development.  About journalism.  I should go back to school before I write about these complicated matters.  I should trust the professionals.

Except I don’t.

Because all the professional-experts earn their livings from building these big projects, even the ones who work for public agencies – and the professional journalists clearly can’t afford to alienate the business community if they don’t want advertising pulled. Our experts are not capable of being objective.  Objective sources I can identify – long-term trends in property tax income, infant mortality rates, the poverty rate, and population figures – all of these sources are flashing the exact same great big giant red neon warning signs:  Whatever we’ve been doing based on the advice of our experts hasn’t been working.  If the point is not just to build buildings but to improve the standard of living for all the residents of Cincinnati, the results have been a disaster.

This country was founded on democratic principles of citizen participation in the decision-making process.  We not only have the  right to ask questions about public projects.  It is our responsibility to ask them. The reason for Ohio Sunshine Laws, for open records and meetings is so that we can verify the integrity of the democratic process as well as fair and even application of our laws.  Access to information is not enough in and of itself.  We have to use that information to demand accountability so that we can make better decisions about our collective future.

Whether or not the Lytle Park Mystery Hole turns out to be a garage or just a hole is irrelevant to my responsibility to raise awareness about decisions from which the public has always been intentionally excluded.  The public needs to ask more questions. Lots of them  And hard ones.  If developers and public administrators find the questions annoying, these projects should be undertaken with private money, not the public’s.

BTW, I did call Mario in response to his email and even offered to let him write his own post for cincyopolis.  He never returned my call or acknowledged my emails.

The History of Tax-Increment-Financing in the Queen City (Oh my!)

Tom Stapleton (Senior VP from Eagle Realty) and I exchanged a few emails recently and I happened to mention that I thought Great American Tower was the first use of TIF project bonds in Cincinnati and “there is no other way for citizens to critically examine this financing structure without citing specifics about Great American Tower.”

Tom responded, “What do you mean by the statement “this was the first use of TIF project bonds”?  Project-specific TIF financing has been around for a long time, so I don’t understand your comment.”

He was kind enough to follow up with a link to the Ohio Development Services website that lists all the active Tax Increment Financing Districts and Projects in the state.  Tax Increment Financing is a type of financing structure that uses tax payments (that would have been used for basic services like police and trash collection) to pay down debt associated with a specific building project instead.

Of course, Tom’s right.  He’s the pro.  TIFs have been used for quite some time, 32 currently active within city limits.  19 of those are Districts that benefit a wide variety of businesses.  The other 13 were established for specific projects, usually pretty big ones.

Our oldest TIF was for Fountain Square South parking garage in 1980.

In 1984, we used the TIF tool to build Hyatt/Saks.  Partners that owned the Hyatt filed for bankruptcy protection in 1994 and a foreclosure action was sought on the property in 2008. The hotel was sold in 2009 at sheriff’s auction after years of financial woes.  The TIF, however, remains outstanding and benefits the current owner of the property.

10 years later in 1994 we used another project TIF to finance the  square and parking garage at Fountain Square West.

A TIF was used again in 2001 for the Center of Cincinnati Milicron project in Oakley, a Neyer development.

In 2004 we established a project-based TIF for the first phase of Tom’s project: Queen City Square, now owned by the Port Authority with Western & Southern named in the Master Lease Agreement.  The second phase was established in 2008.  Total financing amounts to over $323 million.  Redirection of property tax payments to pay down the debt of both buildings and their garages will continue until all the bonds have been paid off, probably around 2038. (Cincinnati Public Schools still receive 25% of the payment and another part of the payment goes to finance other development.)

The Baldwin Building just purchased by Neyer was originally granted a TIF project in 2007.  They will most likely continue to benefit from the arrangement as they reconfigure the property into apartments.

Neyer was awarded a project TIF to develop the Keystone Park Project, a $100,000,000 office campus in Evanston in 2008.

The dunnhumby garage received the benefits of TIF financing in 2013.  3CDC holds the master lease on the $70,000,000 garage.  (The headquarters portion of the building will receive a 15-year Community Renewal Act abatement.)

5 new TIF projects have also been recorded as of 03/02/2015:  3D Color Project Development, Centennial TIF, Emery Pineapple Project Development Public Improvement,  P&G June Street access, and Rumpke Project, Public Improvement.  No details have been provided for any of these new Tax Increment Financing deals.

So – Tom –  thank-you for correcting me.  Tax Increment Financing has been used for projects in Cincinnati since 1980.  But it’s been a fairly rare occurrence, Queen City Square/Great American Tower was the largest private financing to date three times over, and we have used this 30-year arrangement for only a handful of companies.  I stand by my statement that your financing structure is one-of-a-kind – no other building is owned by the Port Authority with the developer holding a master lease – and it is important for citizens to study this particular example and understand it.

It’s especially important right now, as the use of this highly advantageous, 30-year tax subsidy is apparently gathering steam in the city of Cincinnati – all this while we project at least another five years of budget deficits.  Let’s hope our elected officials don’t get so greedy for growth that they forget what can go wrong and cripple the next generation of hard-working middle-class taxpayers who will have to cover the costs of their great expectations.

One Small Step for Cincyopolis – one giant leap for transparency

Yesterday’s letter from Tom Stapleton, Senior Vice President of Eagle Realty Group, marks the beginning of a new era in Cincinnati.  The tone was co-operative, the information, a helpful and specific record of the logic behind public subsidy on one of the biggest for-profit projects Cincinnati has ever under-taken.  My only frustration is that it took 9 months of relentless arm-twisting to get to these numbers in a format that is easy to understand and can be shared.

Yet Tom and his boss, Mario San Marco, would tell you that those 9 months were completely unnecessary.  “Why didn’t you just ask us?” Mario said during our conversation last week. And maybe he’s right.  Maybe I should have just picked-up the phone and asked.

Except for two things:

(1) There’s a steep learning curve involved in commercial real estate development, especially the financing part of it – and in the beginning I didn’t even know what I didn’t know, much less what questions I needed to ask.

(2) You don’t really want to ask the people who are making the money off the project for independent and complete analysis of their building.  I thought the government entities that facilitated this mega-Tax-Increment-Financing Project should – in a perfect world – be the keepers of record and my best source of verifiable data.

But the world is not perfect, Citizens. The only page on the internet dedicated to public involvement on Great American Tower is on the Port Authority web site, a couple of paragraphs that are more public relations material than accurate and complete financial data with measurable benefit-expectations clearly spelled-out.  When I pushed for more information about the “whys” of city involvement early on, one of the most knowledgeable public employees associated with Queen City  Square admitted, “We did it because City Hall told us to do it and you’ll have a hard time finding anybody there to talk to since those people are all gone.”  This is a building that opened 4 years ago – not 30 – and we should have a written, on-line record accessible to the public in a format that is easy to understand – not 50,000 pages of documents in boxes in storage.

Let us rejoice, Cincinnati.  In the scope of world problems, this one is relatively easy to solve.  It’s not poverty.  It’s not the Middle East or global warming.  This is numbers on a page and all it takes to fix it is commitment and some focus.  We’ve even got a model to use – not a perfect model – but a darn good start:  3CDC dedicates a page to every single one of their projects complete with financing details and links to informational videos for people who want to learn more.  (Wouldn’t it be nice if they could add information about how these deals impact property taxes?)

Screenshot 2015-04-09 at 8.55.38 AM

Tom and Mario, I have a lot to learn about how a city gets built – but here’s one thing I know for absolute sure:  If we discipline ourselves to do our homework and ask the important questions before we make investments that will be with us for generations, and if we put our assumptions out in public where everybody can see what we are doing and why we are doing it – we will make better decisions.  I learned that as a financial consultant and the principles of good investment are the same for families as they are for cities.  Public scrutiny is not a cumbersome evil to be avoided.  It’s a crucial step in the decision making process that will help politicians, public administrators and – yes!  – even private, for-profit developers build a really, really great city where everybody wants to live.

“Guess who this is? . . . It’s Mario.”

SAN_MARCO_MARIO_Eagle_WS_0662

My friend, Mario San Marco

Mario San Marco, President of Eagle Realty Group, and I have a history.  It started in 2011 when I concocted an extravaganza called “Cincinnati Dreams Italy” in conjunction with the Taft Museum. Even though I’d never met him before I wrote Mario a letter asking if we could use a few of his buildings and – the crazy Italian – he said ‘yes.’  It was a ridiculous undertaking that included over a hundred local artists, 3 locations, and the installation of a bocce court in the middle of Lytle Park – all in less than 6 weeks.

A few days before the opening, my phone rang and it was the president of the United States Bocce Federation.  “It’s been brought to our attention that you intend to hold a tournament without official sanction from our governing body,” he said.  I tried to be polite.  I explained that the tournament was about building community, that I didn’t really know anything about bocce or the Federation or sports in general.  The conversation went on for several minutes before Mario finally identified himself.  I’d been punk’d by the best.  He was en route to a family vacation with one of his sons riding shotgun, the whole exchange broadcast on speaker.

So when I answered my cell phone the other day my first reaction was to assume someone was playing a joke on me.  But it was really Mario.  He wanted to get me together with Tom Stapleton, Eagle’s senior vice president, so they could clarify the facts regarding Great American Tower.  We agreed to meet the following afternoon at his office in the Guildford Building.

Am I brave?  Or ridiculously foolish?  Our meeting was on Good Friday and the front door was locked when I arrived.  I had to call upstairs for somebody to come down and let me in, the whole place dark and empty, me, alone, with these two powerful, important men on their home turf.

Mario was very serious.  He communicated that Western & Southern cared deeply about its reputation and readers of my blog were getting the impression of wrong-doing, particularly related to my focus on their Queen City Square development. The real purpose of our emergency pow-wow was to hand-deliver a formal letter of clarification Tom had prepared.  Until Mario handed me my copy of the document, I hadn’t even noticed the blue folder sitting in the middle of the conference table.

Mario and Tom said they seldom grant interviews because the media so often gets the facts wrong. In order to avoid any possibility of mis-interpretation, this is the original text of that letter in its entirety:

W&S page 1

W&S page 2

As we shook hands before I left, Tom smiled and handed me his business card.  “Call me with any questions,” he said – and he sounded sincere.  So let’s call this the start of a new version of public-private partnership in developing Cincinnati, one where citizens and for-profit developers work together in a spirit of trust and cooperation to create a great place to live.  Tomorrow I’ll share a few comments about Tom’s letter and my first steps towards team-building.

"Guess who this is? . . . It's Mario."

SAN_MARCO_MARIO_Eagle_WS_0662

My friend, Mario San Marco

Mario San Marco, President of Eagle Realty Group, and I have a history.  It started in 2011 when I concocted an extravaganza called “Cincinnati Dreams Italy” in conjunction with the Taft Museum. Even though I’d never met him before I wrote Mario a letter asking if we could use a few of his buildings and – the crazy Italian – he said ‘yes.’  It was a ridiculous undertaking that included over a hundred local artists, 3 locations, and the installation of a bocce court in the middle of Lytle Park – all in less than 6 weeks.

A few days before the opening, my phone rang and it was the president of the United States Bocce Federation.  “It’s been brought to our attention that you intend to hold a tournament without official sanction from our governing body,” he said.  I tried to be polite.  I explained that the tournament was about building community, that I didn’t really know anything about bocce or the Federation or sports in general.  The conversation went on for several minutes before Mario finally identified himself.  I’d been punk’d by the best.  He was en route to a family vacation with one of his sons riding shotgun, the whole exchange broadcast on speaker.

So when I answered my cell phone the other day my first reaction was to assume someone was playing a joke on me.  But it was really Mario.  He wanted to get me together with Tom Stapleton, Eagle’s senior vice president, so they could clarify the facts regarding Great American Tower.  We agreed to meet the following afternoon at his office in the Guildford Building.

Am I brave?  Or ridiculously foolish?  Our meeting was on Good Friday and the front door was locked when I arrived.  I had to call upstairs for somebody to come down and let me in, the whole place dark and empty, me, alone, with these two powerful, important men on their home turf.

Mario was very serious.  He communicated that Western & Southern cared deeply about its reputation and readers of my blog were getting the impression of wrong-doing, particularly related to my focus on their Queen City Square development. The real purpose of our emergency pow-wow was to hand-deliver a formal letter of clarification Tom had prepared.  Until Mario handed me my copy of the document, I hadn’t even noticed the blue folder sitting in the middle of the conference table.

Mario and Tom said they seldom grant interviews because the media so often gets the facts wrong. In order to avoid any possibility of mis-interpretation, this is the original text of that letter in its entirety:

W&S page 1

W&S page 2

As we shook hands before I left, Tom smiled and handed me his business card.  “Call me with any questions,” he said – and he sounded sincere.  So let’s call this the start of a new version of public-private partnership in developing Cincinnati, one where citizens and for-profit developers work together in a spirit of trust and cooperation to create a great place to live.  Tomorrow I’ll share a few comments about Tom’s letter and my first steps towards team-building.

A picture worth $323,000,000 of words.

Here’s why I am so obsessed with Queen City Square, The Great American Tower:

Port Authority of Greater Cincinnati Financing Projects in Millions

Port Authority of Greater Cincinnati Financing in Millions; chart by the ever-so-clever Anonymous

Historians boil facts down into numbers so they can look for disruptions in the norm. Data doesn’t give you answers.  It shows you where you have to start asking the questions.   After a few hours studying the Port Authority numbers on their web site, this is what I saw:  “Apple,” “Banana,” “Kumquat,” and a “Really Big Elephant” in glowing,  glorious red neon.

In public presentations, Laura Brunner, the Port’s executive director,always focuses on their mission of helping blighted neighborhoods that wouldn’t be developed otherwise and old manufacturing facilities with environmental problems.  Queen City Square clearly doesn’t fit either of those categories and so I called the Port Authority last spring to ask about their logic.  But when I pushed, all they could tell me was, “We did it because City Hall told us to.  And you’ll have a hard time finding anybody there because they’ve all left.”

The biggest, most complicated development deal this city has ever undertaken – by far – and 6 years after the fact, not one single person wants to articulate why we did it.

wtf? Hamilton County Board of Revision: the real cost of 30-year abatement

Yesterday’s post on the 20-story office tower at 1 E. Fourth St. followed the building from a value of $24,240,000 in August of 2010 to a board decision of $19,250,000, followed by a further unexplained reduction to $16,000,000 just three months later.

But that’s not the shocker.

Because in the end, the disappearing $3,000,000 doesn’t even matter.  Less than two years later, the owner files yet another complaint, this time asking for a reduction from $16,000,000 to $7,400,000.  And guess what? The owner’s not crazy.  Nobody laughs them out of the hearing room or suggests they are filing frivolous complaints.   Because they aren’t.   The market for commercial office space in Cincinnati’s central business district has gone into a tail spin totally unanticipated just 20 months earlier.  The upscale building on the corner of Fourth & Vine that was 100% occupied with above average rents and profitability, now has a 50% vacancy rate, been forced to renegotiate the lease  with their biggest remaining tenant to lower the rent, has to invest millions in upgrades, and is struggling just to cover costs, much less make any money at all, even if they do find new tenants. And it has absolutely nothing to do with mortgage-backed securities or the recession.

What happened?

Queen City Square, the Great American Tower  That’s what happened.  Over a million square feet of pristine, Class A office space opened for business in January of 2011, shuffling tenants from 6 other buildings in the Central Business District and spiking the vacancy rate on Class A space to over 20% – where it stubbornly remains to this day, including 10% of their own building and all the still-unoccupied street-level retail where John Barrett waxes poetic about attracting a fancy French restaurant someday.

Queen City Square, the Great American Tower, the same building the Port Authority, an agency of the City of Cincinnati issued $54,000,000 of bonds to pay for the parking garage, lobby and front plaza.  Money that we will never get back – but will continue to pay back for 28 1/2 more years, long after the building has been sold and Western & Southern has pocketed any profits.

Queen City Square, the same building we awarded a 30-year tax abatement on 100% of the improved value, almost $200,000,000 if the building remains at the same value for that period.  (Real wonks who are interested in a complete list of estimated financial benefits to Western & Southern on this development can check out A Grand Slam for Western & Southern.)

The shocker is that during hearing number 2 on Parcel #083-0001-0097-00 on June 26, 2012, we not only hear about the new financial reality for 1 E. Fourth Street.  This new giant office tower has negatively impacted all the commercial office space in the central business district.

Over and over again throughout the second hearing – which this time lasted over an hour and a half as board members tried to get their heads around the new reality of commercial real estate in Cincinnati – witnesses made reference to all the other buildings experiencing the same challenges. Everybody seemed particularly worried about the 580 Building, wiped out and desperate with a 100% vacancy rate, the same building that is now being converted into 176 residential units.

Which is great.  Residents are much more reliable than commercial tenants who can be lured away with tax credits and abatement, the kind of consumers who eat in all our new restaurants at night, go to plays, ride our streetcar and get annual passes for the Red Bike program.

But remember, we had to give the 580 Building a 12 year tax credit in order to make the transition. Yep.  We lost the property taxes we had been collecting on the property and then had to make a deal to give up everything for the next twelve.  It’s a ripple effect, with negative consequences that impact local governments for at least a decade in a very big way.   The value of all the commercial buildings has plunged since Queen City Square opened for business, reflecting the reality of higher vacancy rates and resulting in property tax reductions that hurt our schools, parks and basic services.  When we give huge financial incentives to build commercial office space based on vague hopes of attracting new corporations, the short term financial impact on the citizens of this community who are paying taxes is disastrous.

It sounds so easy in theory doesn’t it?  New office towers result in lease upgrades which result in residential conversion of Class B and Class C space.  Density.  Hooray! Which is all true from a perspective of decades.  But the short-term consequences of subsidizing more office space than the market can absorb for one favored developer is painful and very, very expensive. Before we make any more 30-year bets on big speculations, let’s ask ourselves long and hard if it’s really worth what it costs.  At least with the GE deal we had 2,000 new jobs in hand before we signed off on our future.