Jun 11 2010
10:57 am
By: michael kaplan  shortURL

The article in Metro Pulse contains some inaccuracies/ambiguities, which become apparent if you compare it to Hayes Hickman's KNS article of 2007.

In fact, the cinema is solely owned by Regal Entertainment Group, which leases its premises from the city of Knoxville’s Industrial Development Board. The main reason the IDB was vested with this ownership was to make use of its tax-exempt borrowing authority ..

Which is it? According to Hickman, "the city owns the 40,000-square-foot movie house in the 500 block of Gay Street, which it leases to Regal at a varying rate .."

Finding a way to fit the cinema on the site in a way suitable to Regal without demolishing the historic buildings was also a remarkable design feat, for which architect Faris Eid deserves great credit.

There was nothing remarkable about it. That's what architects do. What is interesting about the design is the modification of a one-level suburban theater layout to fit a downtown location, in fact occupying half a city block.

Cumberland Securities, which managed the financing, sought out other prospective purchasers of these bonds bearing a low 5 percent interest rate. But it soon became apparent that only “angel investors” were prepared to buy them, and the Haslams became the angels.

That's 5 percent tax-free, at a time MBNA was paying 4% on its 5-year CDs (subject to tax, of course). And according to Hickman, "The property itself, rather than city funds, serves as collateral for the bond investors, including Haslam, who stand to make a 5 percent tax-free annual return on the 40-year notes." Note, too, that there is a reference to investors, plural. Who has seen the list?

Beyond getting repaid on his high-risk bond investment, Bill Haslam has no financial interest in the cinema’s success. Nor would he benefit in any way from a subsequent sale of the property by the IDB once the bonds are paid off.

The investment could be considered a bet on the cinema's failure, because the property is collateral on the loan. If the project fails within the next 40 years, my understanding is that the investors get the property - a building (less its furnishings and equipment) and a half block of prime downtown real estate.

michael kaplan's picture

MBNA did not exist in

MBNA did not exist in 2007.

If you read Hickman's article, you'll find that the financing was in 2004. The theater opened in 2007.

The architecture: You claim is that is is out of scale? Now that's subjective.

I didn't claim anything. I said there was nothing remarkable about the design. I am not talking about aesthetics - I took on that issue in my Knoxville Voice article.

michael kaplan's picture

What is the IDB?

What is the IDB?

Mykhailo's picture

The investment could be

The investment could be considered a bet on the cinema's failure, because the property is collateral on the loan.

Haslam pushed the movie theater project, hoping that it would fail, and he would get an empty building on Gay Street. Gotcha.

michael kaplan's picture

i assume 'property' means the

i assume 'property' means the building and the land. a 40-year-old concrete-block building would hardly be worth anything. remember that, at 5% tax-free, the loan would be repaid in about 20 years.

and, as hickman's article points out, there were other investors.

any investment brokers out there who could analyze this investment? after all, a lot of taxpayer money was thrown into this project, and at least the facts should be clear.

Mykhailo's picture

Wait, you're serious? You're

Wait, you're serious? You're actually claiming the mayor, who was already worth 10s of millions of dollars, manipulated this project so that he invest in it, cause it to fail, with the intention of owning some portion of the property 10+ years later? That's about one step removed from Victor Ashe being the Don of the Knoxville Tow Truck Mafia.

Rachel's picture

Haslam pushed the movie

Haslam pushed the movie theater project, hoping that it would fail, and he would get an empty building on Gay Street. Gotcha.

Jack McElroy must be part of that conspiracy as well.

Mykhailo's picture

The investment could be


Hapax's picture

No lender wants to own the property

These deals are done frequently to try to get economic development going. They are complex because of the tax laws and the legal entities involved, but they are not by nature 'conspiratorial.'

Foreclosing on the collateral property is not something that bond investors want to do. It is costly and time-consuming. If the project doesn't do well, it doesn't generate enough value to pay the bonds and likely the real estate isn't worth enough to break even by seizing it in foreclosure. If the project does do well, then it can be refinanced and the investors get paid.

The comparison of the interest rate to an MBNA CD is so bogus I can't even comment further.

michael kaplan's picture

Here's the initial list of

Here's the initial list of investors, according to another article by Hayes Hickman.

bizgrrl's picture

Thanks for all of the

Thanks for all of the information, Michael.

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