Greenfire plan: Today's Council discussion, and the loyal opposition?

Durham's City Council will discuss the Greenfire development plan and incentives today at the Thursday afternoon work session. We'll have coverage here at BCR of the meeting and the outcome as soon as it's available.

One item for the Council's consideration as it looks at the plan: A lengthy list of questions for the Council's consideration submitted by a group of citizens earlier this week (and obtainable under N.C.'s records laws.) See the full list of questions here (Download Greenfire_questions.pdf).

It's not surprising to see citizens and residents weigh in on development plans; it happens all the time at Planning Commission and City Council meetings. What is intriguing is that the citizens in questions are all downtown landowners with development interests in the city center and especially the Durham Athletic Park area.

You don't typically see developers bring forward thoughts on other developers' proposals. But it's not surprising in this case, given the breadth of the Greenfire plan and the questions it raises for current developers and property-holders downtown.

Members of the group include George Davis, owner of Stone Bros. & Byrd downtown; Hank Scherich of Measurement Inc. (who also has a stake in financing Ronnie Sturdivant's ownership of "The Oprah" at 202 Corcoran); Alex Washburn of the Trinity Lofts project; Denny Clark of the Durham Credo condo project; and John Warsalia of Alliance Architecture, who with Greg Hatem of Raleigh-based Empire Properties owns the Bargain Furniture building and 320/322 E. Chapel Hill St. downtown, the latter of which is adjacent to the Chapel Hill St. parking deck.

It's also not the first time in the spotlight: Some members of this group were also active in raising concerns to Struever Bros. initial proposal for the DAP renovations, which called for the Baltimore-based developer to redevelop the old ballpark but also to receive land and property near the landmark to build offices, residential units and retail space. (The final City agreement with Struever Bros. covers just the ballpark.)

Some of the concerns expressed in their 24-point list seem covered in the deal points as we read them, or in Durham precedent:

• "Is the transfer of public assets (i.e. Parking Decks) without an RFP process legal? Assuming yes, why has this project proceed without an RFP while other similar deals have used the RFP approach?" (As we've discussed already, this was a similar process used with the old DATA facility bought by Capitol Broadcasting.)
• "How does this deal structure encumber future councils?" (Certainly any incentives deal encumbers future Councils, but that's the nature of just about any economic development program.)
• "Should the developer falter mid-stream, what happens on these sites?  What are the financial penalties and will ownership revert to the city for the transferred properties?" (The deal points include the termination of all incentives, including those for finished properties, as well as the intention to include a right of the City to re-obtain the decks/lots transferred if Greenfire doesn't meet its schedule.)
   
• "How will the work be implemented? Phased? What triggers the sequence?  How long will it take to commence construction after deal is approved?  What are project durations?" (Most of these questions are covered in the deal points.)
• "How was fair market value arrived at for the city owned properties?  What are the current local comparable prices?" (Independent appraisals are posted on the agenda notes for today's work session.)

Still, there are other questions that the group raises that seem likely to merit some further discussion from Council, or at the least to draw attention. Among these:

"Is all parking in the future deck administered under the same rules?  Will this provide an equitable level playing field for all downtown parking?  Will Greenfire have control of the incremental parking to offer to its tenants under different terms/rates?"

BCR's conversations have suggested that the public access to parking would be unchanged via the deal, but look for this to get confirmed in project discussions.

"Why is there such a large delta between appraised fair value and tax valuation recently completed at Brame buildings?  What is the appreciation for those buildings from their acquisition as compared to the suggested value the city would pay to acquire those buildings for facilitate the Minor League Baseball fan experience/Museum?"

At issue here is that the Greenfire-owned buildings along Foster St. near the ballpark would, under the deal points, be sold to the City for $25,000 apiece, despite their valuation at $3.4 million; this would facilitate their use in the proposed Minor League Baseball museum complex. I'm a bit surprised to see the DAP developers raise this as a question -- it's a good deal for the City -- though from their perspective, this serves to increase the credit Greenfire gets for development incentives.

On the flip side, the development of a DAP museum would greatly increase the value of these property-owners' project, so it's tough to see this as a negative necessarily.

"How will existing businesses and residents that have already bought into the downtown vision and are early adopters be kept whole during the implementation phase? For those that lose business, will there be a subsidy? Will there be a reduction of property taxes to reflect the loss of nearby parking for the 2+ year implementation phase? Will there be a shuttle service to temporary parking decks during construction (similar to American Tobacco)? Will residents be offered parking passes for street level parking?"

Expect to see this be a major point of discussion. The closure of the E. Chapel Hill St. deck for reconstruction will lead to a heavy usage of the parking deck at the Durham Centre, bringing it at times close to capacity. Parking levels ease out after this point, but there's likely to be a period of pain that comes to downtown stakeholders on the heels of the recent downtown streetscape effort.

Some of the suggestions here, like a circulator bus or trolley -- already a possible element of regional traffic planning efforts -- could be a good additions to keep businesses like Rue Cler, which sits directly across from the deck in question, successful during the project.

"Why not build on surface lots first and allow the East Chapel Hill parking deck to function to maximize the value from the current $2mil repair investments?"

An interesting question, and one that is also likely to come up in discussions. Our guess is that Greenfire wants to take care of the E. Chapel Hill parking deck first because of the tie-in with the Parrish St. office tower, in order to provide the closest parking opportunities. At the same time, the Ramseur St. project's residential scale and size would be logical reasons for Greenfire not to want to build out that structure first.

I'd count on hearing more about this subject in the weeks to come.

Still, the most interesting question touches to an extent on some of the reasons these questions may be coming up in the first place:

"Will the focus on the city center by Greenfire forestall development in other districts where they have substantial holdings? Is the rest of Durham “on hold” until city center is developed or should some properties be divested to allow for more development opportunities in the near term?

What impact do these incentives have on future projects?  In other words, what is left for other projects and neighborhoods?" (emphasis added)

For some, one of the most fret-worthy aspects of Greenfire's rapidly phased-in, all-at-once plan is -- well, that it'd be rapidly phased-in, all-at-once development.

If you're in the development game, you worry a lot about market absorption. If you're going to build condos, and some other dude builds an overscaled complex first, the market goes soft and takes years to recover. More to the point, you may need to delay your construction plans to wait for that recovery. But you were expecting a return on your investment -- land, soft costs, etc. -- an investment you may have been holding for several years.

A certain amount of the concerns I'm hearing from different elements of the development community revolves around exactly this kind of issue. Will Greenfire's scope and scale crowd out other development efforts, at least for a short period of time?

Maybe so. As one developer from outside the DAP district put it to me, a deal like this cuts out the small guys -- who may benefit ultimately by seeing a quality product built, but for whom the scope and scale at play here is just too big for them to match.

Some have made a counter-argument that it's healthier for Durham to see the City Center grow and prosper as the next district for investment. After all, if the DAP district comes next, Durham's downtown begins to resemble a donut, with Ambacco, West Village and the DAP surrounding a quiet core.

Worth noting, though, that there's already a big public investment going into the DAP district, too. Durham is investing $5 million in renovating the DAP, and trying to draw tourists to that part of the city through a museum/entertainment complex.

And for that investment to succeed, the City certainly wants to see landowners and developers around the DAP be successful, too. Which makes the question of crowd-out a very pointed one indeed for public- and private-sector stakeholders alike.

All of which should make today's debate most interesting, to say the least.

Comments

[Johnny]

Despite the rather lopsided view presented here, I'll focus on one obvious gem..

The deal points written by the Office of Economic & Workforce development state:

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Page 10 #1 - Greefire agrees to set aside three properties - 609, 619 and 621 Foster Street - adjacent to the Durham Athletic Park (DAP) for the sole purpose of development of the Minor League Baseball Fan Experience and Museum. The appraised value of these properties is $3,399,500 (see Exhitbit I). The City will pay Greenfire $25,000 per property for this purchase option, which will last until January 1, 2011.
####

I'm not an expert, but I read that as the City agreeing to purchase the property for $3,399,500 plus pay an addition $75k (3 x $25k) for the privilege. It is further interesting that the appraisal includes two methods - Value or Income. On an Income basis, these properties are worth a fraction of the $3,399,500. I suspect the correct answer is someplace in the middle. 609 Foster was sold for $900k in 2007 and the other two were ~$520k in 2005. Did they really more than double in value over that period?

Either way, Greenfire is not giving those properties to the city for $25k each.

[Johnny]

One more thing, you seem so ready to accept that Greenfire has the ability to execute this plan. The consultant review was a little more skeptical although I would be surprised if the consultant didn't give the city the answer it wanted..

Aside from that, the consultant questioned the many of Greenfire's financial projections. Including the occupancy rates, lease rates, etc.. Thus, I think the question of how these projects interrelate is relevant. If the financials don't work for the first project will the next one happen? In terms of the properties reverting to city ownership, I sense there will be a lot of legal debates and financial consequences if this isn't clearly defined in the deal including the triggers for that happening.

[Bull City Rising]

Johnny,

You are correct about the $25k = an option, not a right to purchase. I will correct that shortly in the post but wanted to acknowledge this right away in the comments. My bad on the mis-read here.

The valuation at income-producing vs. market value issue is also a good question. Not that it's unheard of to ask more than tax value -- John Warsalia and Empire Properties are asking 2x tax value for 322 E. Chapel Hill St., for instance. But that picture looks different for a public purchase. (Still worth noting: An appraiser is held to fiduciary standards of their profession in evaluating the value of properties.)

I take some exception to the idea of a "lopsided" view or that I am "ready to accept that Greenfire has the ability to execute this plan." While I'm assuming that as a basis for analyzing the project, I've noted several times, including in Sunday night/Monday morning's coverage that the external consultant expressed skepticism on the aggressiveness of the recommendations. I don't see that issue having been covered in the H-S, N&O, etc. coverage.

I've also raised, from day one, the fact that there is concern and deep interest among Durham's developer community in this project. Today's post is included because it's a good insight into some of the concerns in the community.

My goal in writing this blog is to try to bring information on a variety of Durham political, development, and quality of life topics in a timely fashion, and to offer analysis where appropriate. I hope I've been able to do that with this plan.

Perfectly? I doubt it. But I'm approaching this issue without a financial stake or bias in the outcome, it must be noted.

And, FWIW, the entire letter to Council is republished as a PDF, without comment or annotation.

[cw]

Are the city council work meetings open to the public?

[Johnny]

Hi Kevin -

Having read the list of questions and read the materials posted by Greenfire, I can see relevance to most of them. I don't believe the materials provide adequate information on how things will be handle if Greenfire falls apart. The questions were raised by some prominent folks in the community, some I know personally. If they are asking those questions it is likely that the answers were not clear. Your handling of them made it seem as if the answers were obvious and provided the necessary clarity for public consumption. I disagree and apparently so did they.

Even the title of this post says "loyal opposition", I don't see anyone outright opposing the improvement of Durham. What I see are people questioning if the plan is realistic and can it be successful and what is the ultimate cost both directly (i.e. public money) and indirectly (i.e. impact to existing businesses).

I agree with you that I haven't seen adequate coverage in the H-S, N&O etc.. The only coverage is blindly positive from what I've seen. It will be a travesty if this project starts and fails. All the efforts to date will be lost, maybe that is doom and gloom but it sure would be nice if we do what is necessary to avoid that scenario.

Further, other contributors to this blog (which I do appreciate your efforts for hosting) seem to accept Greenfire as some savior of downtown. They criticize and suggestion removing older buildings and forcing divestiture of other GF properties however this plan does both as near as I can tell. I would love to see people raising those issues evenly, start digging in to the details. This proposal is only worth doing if it will be successful. Therefore, the public and city council must make sure that everything is done to ensure that before blanket approval is given.

Approval of the project will delay or stop other developers in the City Center for the reasons you have mentioned. Absorption and Disturbance. Sure, several years after completion there might be benefits so that means sometime between 2011 and 2020, other developers, business owners and residents may have a benefit. Maybe that is the price that must be paid, but I cannot agree to that without a significant amount for discussion and investigation to the details of the plan and abilities of the developer.

[Johnny]

Also, if the over inflated price for the Foster Ave buildings moves forward, I'm sure that will form the basis for another tax hike...

If those buildings were appraised at approx $1.1mm total by the recent tax appraisal process, why is it that 2-3 months later they are worth 3x that amount? Are they paying taxes based on this new appraisal??

[Bull City Rising]

Johnny: I may have been trying to be too clever by half in the title of this blog post, and lost some meaning in the process. The "loyal opposition" phrase came to mind from the sentiment of the letter in question talks about the group's support for improving Durham and moving the city forward, while asking what were insightful questions about the nature of this program.

From Wikipedia:

"Loyal opposition is the concept that one can be opposed to the actions of the government or ruling party of the day without being opposed to the constitution of the political system.

In the United Kingdom and many other Commonwealth countries the leader of the party possessing the largest number of seats in Parliament whilst not forming part of the government is termed "The Leader of Her Majesty's Loyal Opposition". Their constitutional function is to scrutinise government legislation and actions. Whilst frequently opposing Her Majesty's Government at every turn, the leader of the opposition is not opposed to Her Majesty's right to the throne."

Just based on the language of the letter, it was the first thing to come to mind. Apologies if it the intent was unclear.

[Johnny]

Thanks for the history lesson. I think the common understanding that is taken when someone uses the word "Opposition" is that they are opposed to something.

In that narrow view, I am opposed to proceeding without proper due diligence, I am opposed to the rushed manner in which the council appears to be operating on this matter, I am opposed to this deal in it's current form since it has not been properly vetted, and I am opposed to this developer (Greenfire) because I don't believe they have the financial strength nor skill set to make this project successful.

I would love to be a supporter of a plan that has addressed the needs of the existing businesses and residents, that doesn't require tons of public money, that has been subject to a public process/RFP and has a real chance of being successful.

There is a gap in between those two positions and that is not to say the the City and/or Greenfire can't close it. They have not made the effort to try. Maybe today is day one of that effort, we'll see. I look forward to your posts and any information you can provide on the discussion at the work session.

[Michael Bacon]

Given the amounts of public money set aside for AT and WV, the $20 million in public money doesn't seem like "tons" to me. Also, if this were a comparable sized greenfield project, with 400+ houses, a comparable amount of square footage and parking, would $12 mil from the city and $8 mil from the county invested in infrastructure really seem that large?

[Johnny]

Hi Michael - Those amounts for infrastructure would be reasonable assuming the economic benefit was there. Of course, you are only hearing from the release materials what the City of Durham is signing up to. I fully expect to see the scope of public funding in the 50-75 million range by the time this is all tallied up. $20m from City, $20m from County are numbers on the table. Add to that tax credits and other public dollars, the 50-75 range is hit pretty quick. And that is ignoring some of the hidden subsidy in creative valuations.

A little clarity would help us all... Of course, even at $50million, it could be money well invested in the Cities future. But from what I've read, the independent consultant is questioning the aggressive forecasting by Greenfire. So who really knows the truth, I guess Lemanski does.

I'll have to go back in check the docs, I wonder if we can find the project ROI that Greenfire stands to gain. Perhaps the City should participate in that upside since it is technically an Investor. I'm sure that is how their private investors will work.