Tue
Apr 14 2009
09:03 am

Property Scope reports that the state has approved the property sale. Check out the architect's rendering of the proposed Metropolitan Plaza.

211
like
jbr's picture

If I understand this,

If I understand this, Knoxville or IDB buys property from the state for $2.8 million, leases it to LLC formed by developer for 17 1/2 year, which would be the $2.8 million, then sells it to developer for $100.

The NS article with details...
(link...)

Hayduke's picture

So is that a total of $2.8

So is that a total of $2.8 million ignoring the time value of money or a stream of payments with a net present value of $2.8 million?

I'm all about PILOT, but this looks more complicated than that. Any deal like this needs to be looked at in terms of what happens if it fails. Most developers push to make sure the public side of the "partnership" handles the risk side of the equation while they handle any profits (getting a piece of the action along the way so they make out regardless). For examples, see any proposal Earl Worsham ever had anything to do with.

Even if you truly believe that this is a great time to add hotel space to our Failed Convention Center, office space to a city with an entire tower of empty Class A, retail in a city that can't fill store fronts on the main retail drag and condos when the last new residential building is still sitting mostly empty after two years, you still need to look at the possible downside and play "what if."

bizgrrl's picture

I'm all about PILOT, but

I'm all about PILOT, but this looks more complicated than that. Any deal like this needs to be looked at in terms of what happens if it fails.

Nah, sort of like derivatives and mortgages, it's just so complex that only a few people need to worry about understanding it and if it is not successful, so what. Don't worry, be happy.

Even if you truly believe that this is a great time to add hotel space to our Failed Convention Center, office space to a city with an entire tower of empty Class A, retail in a city that can't fill store fronts on the main retail drag and condos when the last new residential building is still sitting mostly empty after two years, you still need to look at the possible downside and play "what if."

Wow.

Anonymously Nine's picture

voting seems so archaic...

Maybe we should just let the courts run the government? It seems the courts decide what the people have already voted on in this scruffy little backwater.

How does this help the convention center?

Ragsdale2010's picture

Are Morgan Keegan/BassBerrySimms in this deal yet

this looks like another wonderful project, which should be privately financed rather than dumped on the city of knoxville taxpayers along the lines of the convention center anyway. What will happen is the city will essentially own the hotel (and will finance its constuction/operation with the bond issue)despite the voice of the community that said they didn't want the city of knoxville further involved in these pie in the sky developments which don't work and which won't work as Knoxville is not and never has been a convention destination.

Those people associated with this development, aside from the developer who won't put any of his own money in the deal anyway, should be tarred and feathered and run out of town for throwing public money around like drunken sailors on projects we (a) don't need and (b) can't afford.

Bill Lyons's picture

Inebriated sailors

Two points. One, the city has not a dime of appropriated taxpayer money going into this hotel. The property is producing zero taxes today. The PILOT just "costs" taxes we did not have and would not have without this project, which will provide a ton of sales tax, hotel motel tax, and jobs and provide a different set of room options for those using the convention center as well as providing for more total rooms such that larger conventions can consider using the CC.

Secondly, the referendum did indeed prevent direct taxpayer money from going to a convention center hotel. The court ruled that this was not a convention center hotel. However, if also ruled, in effect, that even if it were, the ordinance was not violated because and, excuse the emphasis, the language that taxpayers approved included an explicit statement that nothing in the ordinance limited the City from using tax abatement. The PILOT process is how taxes are abated in Tennessee.

In short, this is not a convention center hotel. It is a mixed use project with may elements included a small hotel. But, regardless, the funding mechanism is fully consistent with the language of the ordinance before the voters when they cast their ballots even if this was a convention center hotel. The sailors are sober.

Anonymously Nine's picture

What is the meaning of the word is?

The court ruled that this was not a convention center hotel.

Good one. Another interpretation from the court to get around the voters. Those who interpret the words make the decisions.

Most people would believe that a hotel directly next to a convention center is a convention center hotel, except of course the court.

Why do we vote? What is the purpose? People need to have better memories on election day.

metulj's picture

"People need to have better

"People need to have better memories on election day."

When they are keeping the incumbents that they are not keeping, but it was more convenient, so ... Wait how does that all work?

True happiness is knowing you are a hypocrite. -- Ivor Cutler

Seppuku is in a way the ultimate awful libertarian act -- Frank Popper

Bill Lyons's picture

Clear language in ordinance

Again, the Court said it was not a Convention Center Hotel so the ordinance did not apply, but, for the sake of argument let's consider it a convention center hotel and covered by the ordinance. We always made this worst case assumption in negotiating the development agreement - assume that the project was indeed a convention center hotel and make sure the funding fits withing the constraints of the ordinance. Under that assumption the project still clearly does not violate the ordinance, which made it clear that no direct funds or extension of credit went to the project. The only city participation is through tax abatement --- which is exactly what the payment in lieu of taxes (PILOT) is. Here is language the the voters saw before them as they cast their votes.

"The City of Knoxville shall not extend or use the credit or financial resources of the City of Knoxville to guarantee, support or fund, directly or indirectly, any bonds, loans, or other debt obligations or other credit enhancement facilities of any nature, to support or finance the construction or acquisition of any such above-described new facilities or structures, provided that this prohibition shall not apply to the City’s existing authority to otherwise provide for tax or lease abatements. ."

There is no need to interpret these words from the referendum. There is no arcane judicial reading of emanations or intentions or hidden meanings. They mean what they say, and they say in plain English, that this referendum -- and subsequent ordinance -- does not limit the City's use of tax abatement.

This is just for the sake of argument and I appreciate #9 raising the question. But it does not matter anyway. This project was ruled not to be a Convention Center Hotel according to any meaningful, traditional use of the term. If it applied to any hotel in proximity to the CC then the Hampton Inn would be so considered. It was not. The bottom line is this. For a project to be in violation of the ordinance it had to meet two requirements. It had to be a CC Hotel and the funding had to contain direct use of appropriated city dollars. This project did neither.

Joe328's picture

What the city has recently

What the city has recently done for downtown has been great, except for the convention center. Downtown Knoxville needs to grow as a regional destination site before a convention center is needed.

Bill Pittman's picture

Thank you Bill.

Great info Bill. I appreciate your engaging in public forums such as this.
Kind regards,
Bill Pittman

michael kaplan's picture

Check out the architect's

Check out the architect's rendering of the proposed Metropolitan Plaza.

classic modernism ..

bill young's picture

Good project

In baseball when an ump calls it a third strike..you're out.You may have a different opinion but the batter is still out.

Same true with a court ruling.You may have a different opinion but if court rules it ain't a convention center hotel..it aint.

I think this is a good project & I'm glad the city moved on it.

Having said that..everyone knows nothing makes money till it does.

Time will tell if this project is completed & then makes money.

But IMO the court the council & the mayor made the right call.

Rachel's picture

That design had better

That design had better change. No way it meets downtown design guidelines.

We don't need a suburban development in the middle of downtown. How many times do we have to fight this battle?

rocketsquirrel's picture

looks like 1990s Atlanta

looks like 1990s Atlanta wanna-beism. That design is so Perimeter Park. Too bad they didn't design it for Knoxville. If they'd followed the design guidelines, it could have looked more like the old Hotel Farragut and less like a Perimeter Atlanta Crowne Plaza.

hopefully it is not too late.

Rigsby Werner's picture

I'm betting the thing is never built, who'd finance that thing

in a backwater town like Knoxville. Condo's are being foreclosed on left and right in Nashville and condo's are being sold at firesale prices just to pay the lenders.

This building looks like it will go the way of the Sentinel Tower, great idea, just not bankable anymore in an economically/culturally stagnant town like Knoxville.

Just don't see how a project like that is bankable in this day and age unless it is somehow tied to the convention center in a way that the public cannot see.

Has a building been built downtown since 2000 which was financed purely with private funds and not with any whammys, "public-private" partnership, TIFFs, PILOTs, or other municipal accomodation?

Bill Lyons's picture

Downtown Development

Very few new buildings of any type have been built downtown. There have been some renovations that did not make use of some sort of public participation. However most downtown renovations are very expensive because of changes in building codes since they were first constructed decades or more ago and would not happen without TIFs, which are a perfectly legitimate tool, one of our only tools, to encourage people to invest in riskier, more difficult projects rather than in safer alternatives. I think our development tools have been used fairly, in a transparent manner, open to all who apply, with significant public benefit.

Putting aside everything about our being "a backwater, culturally and economically stagnant town, which is an opinion that I do not share, the amount of downtown buildings now on the tax roles at 30+% of a tremendously higher base, later to 100% is paying great dividends already. Take the Candy Factory, The Holston, the Burwell, the Fire St. Lofts, all fully occupied and figure what these taxes are now vs. what they were before.

And, to point out the obvious once again, most greenfield development is underwritten by public infrastructure dollars that are not required in the core of the city where the infrastructure exists already.

Whether any proposed project is able to ultimately become funded is obviously a major question. We very much hope that all the proposed projects come to fruition. Banks want higher pre-sales, etc. so the bar is high. What is clear is that not a single taxpayer dollar is at risk in any of these projects. If they do not occur then we are just where we are before.

This discussion is a recurring one, and should be revisited occasionally and skepticism is healthy, even required, in such a discussion. I an biased but I think any dispassionate analysis of the public policy benefits of the city's downtown and core of the city assistance policy would yield a pretty positive conclusion. The changes in Downtown North are a direct result of our approach and, I believe, critical to the health of the city and to providing economic opportunity to those who live in the city center.

(link...)

Rachel's picture

It shouldn't be anywhere

It shouldn't be anywhere near too late. The design will have to be approved by the downtown design guidelines review committee.

I suspect the City will work with the developer on troublesome parts of the design (e.g., parking garage along a block of Henley) before it gets that far.

Bill Lyons's picture

Design Review

Unfortunately, and understandably, I guess, way too much is being made of the picture displayed on the NS web site. That is from a preliminary sketch submitted a long way back in the process. The folks in charge of the project are well aware that the ultimate design of the building will go through the design review process.

Rachel's picture

I assume as much, and I'm

I assume as much, and I'm sorry to grumble about it every time it comes up.

I guess it annoys me that the developer had a preliminary sketch drawn up w/o paying any attention to the guidelines. Does he not know about them? Think they don't apply to him?

Either way, it makes me nervous.

michael kaplan's picture

it could have looked more

it could have looked more like the old Hotel Farragut

why should a new hotel look like an old hotel?

Ragsdale2010's picture

No new buildings have been built in downtown Knoxville because

from an economic perspective and a building perspective, they don't make sense anymore, downtown Knoxville is no longer the cultural and business center of East Tennessee that it once was, those accolades having been parced out to various haunts in Maryville, the Tri-Cities, certain points in Sevier County and in Chattanooga.

Howard Baker's law firm, along with a number of other successful law firms, is relocating to Bearden, which cannot be considered part of downtown under any theory. Most of what is downtown, including Mast General and the movie theatre are propped up by the local government, such that but for this artificial support, these downtown amenities would not exist.

If I were the Hampton Inn downtown, the Cumberland House Hotel, Regas, Club LeConte, Chesapeakes, Calhoun's on the River, I'd have my hand out to the City of Knoxville for some downtown tax abatements, other incentives, and other municiple welfare as those folks made it without any public assistance and have thrived despite the inept Ashe administration and its wholesale confusion of what downtown Knoxville really is.

metulj's picture

I dare you to say this to

I dare you to say this to the owners of the Brewery, you idiot.

True happiness is knowing you are a hypocrite. -- Ivor Cutler

Seppuku is in a way the ultimate awful libertarian act -- Frank Popper

Bill Lyons's picture

Response

If I were the Hampton Inn downtown, the Cumberland House Hotel, Regas, Club LeConte, Chesapeakes, Calhoun's on the River, I'd have my hand out to the City of Knoxville for some downtown tax abatements, other incentives, and other municiple welfare as those folks made it without any public assistance and have thrived despite the inept Ashe administration and its wholesale confusion of what downtown Knoxville really is.

The city cannot just grant tax breaks to businesses under state constitution and law. Freezing of the taxes and subsequent substantial improvements to the property -- such that the assessment is increased in major way -- must occur.

As for the list above, The Hampton Inn has a PILOT, which was done in a complex deal that saved the historic home behind it and led to a much better design that enhanced rather than detracted from a key downtown intersection. Calhoun's on the River operates under a lease from the city. Club LeConte is in a building that never would have been built without significant public support. Chesapeakes and Regas are not at any competitive disadvantage because of our development policies. To the contrary they benefit greatly by increased economic activity downtown, as is exactly the same with Tomato Head, Trio, Cafe 4, Downtown Brewery, Dazzo's. They are not victims of largess to others, somehow. They are direct beneficiaries of the policies we have pursued, of having Mast and the Regal Cinema to draw people downtown and to eat in their establishments. Any notion that they are on the losing end of a zero-sum game is badly misguided. Perhaps we would be better off with Gay Street boarded up as it was, a dead 500 block, no SW, Mast etc. I don't think so. I don't think would be preferred by owners of La Parigo, Nama, Little Havanna, etc.

Knoxville's downtown is clearly attractive to those who live, work, and come for events or just to relax and have fun. There has been a tremendous amount of private investment, which is continuing. Any characterization of the risk incurred under a TIF as "Welfare" with the private investor holding all the risk for failure while putting up the vast majority of the cost is a simplistic mislabeling. The developer personally is on the hook to the bank for servicing the TIF loan if the project does not generate the tax appraisal necessary to retire the loan serviced by the TIF. The taxpayer is at no risk.

Most cities use tools such as we use. We constantly are complimented for our program in its systematic testing of the "but for" and "civic benefit test," our placement of all project details on the web, etc. (link...)

If people think we are backwards, well, so be it. I guess that is an hypotheses that could be tested with some rigor, across cities. Interestingly, we were criticized for being backwards years ago for failing to utilize all tools available."

I have to confess that, despite being a reputed social scientist, I really don't know what the point of the sort of argument that continues to emerge from which the above is extracted. I guess it is part of the fabric of the local body politic and should leave it at that, as sort of the civic dialog equivalent of selling short in the stock market. I know that financial short sellers can enjoy individual wealth in a negative business climate. Not so sure what civic short selling produces even in a negative civic climate. Personally, I like reality constrained, positive civic climates without excessive, ineffective boosterism.

There will be elections for a whole new council and new mayor over the next few years so perhaps candidates can provide a viable alternative approach that will carry the day. Folks seemed pretty positive about the way things were going during the last election.

Thanks

Hayduke's picture

PILOT isn't the problem

Not seeing how PILOT costs the city anything. If the development wasn't going to happen without the tax break, the revenue to the city would be unchanged. It's a no-brainer. There's no cost or downside to the taxpayers.

The fishy thing with this deal is the financing and city ownership of the underlying property. Don't see why it's needed unless there's some shift of liability from the developer that we probably don't want. After watching the city bend over for bullshit deals like Worsham-Watkins and Universe Knoxville, I don't trust them to protect our interests against catching the risky end of the deal.

Bill Lyons's picture

This is the way it works.

This transfer of ownership is the only way a PILOT can work because a government related entity (IDB) has to hold the property (and lease it back during the PILOT period) so taxes can be abated. After the PILOT is over the developer / investor buys the property back and pays taxes. Under the TN constitution taxes on a privately held parcel cannot be reduced or eliminated. This is the process set up by the state legislature to enable such projects.

This has nothing to do with trust, Universe Knoxville or Worsham Watkins and absolutely zero to do with any shift of liability for anything. If someone trips on a banana peel upon entering the elevator the usual liability situation holds and the developer's defense attorney would be the one to get the call.

The fishy thing with this deal is the financing and city ownership of the underlying property. Don't see why it's needed unless there's some shift of liability from the developer that we probably don't want. After watching the city bend over for bullshit deals like Worsham-Watkins and Universe Knoxville, I don't trust them to protect our interests against catching the risky end of the deal.

Hayduke's picture

Thanks Bill. I didn't

Thanks Bill. I didn't realize that the transfer of title trick was universal to these deals. So folks who already owned the property they wanted to develop had to transfer and lease back?

By liability I was concerned with the downside of the development failing. Hadn't even considered the relatively minor banana peel aspect (but now that you mention it, I don't see how the property owner would necessarily be shielded).

I'd like to see someone go through explaining what happens if insufficient market is found for these spaces and Nick Cazana's Metropolitan Plaza LLC limits its liability by evaporating into thin air leaving the mortgage or bond holders upside down on the new devalued property. Who do we get the rest of the $2.8 million from? Do we get to keep the property with someone else's buildings on it. Is there any way we could get tagged for anything beyond the $2.8 million? What control, if any do we have over the fate of the property after lenders take over from the developers?

And, given the current surplus of all the things they want to sell on that lot, who is investing in this and will Obama please legalize whatever they're smoking?

Nobody's picture

Ragsdale2010

Sure sounds like you're a blast from the k2k past.

You any kin to actdelta/Troutman?

Ennui's picture

They are still mighty sore

They are still mighty sore over that Sapphire deal.

MemphisSlim's picture

Brewery owners bought the building/business from prior owners

after it had already collapsed and it had been closed for a period of time.

New owners are better with the pencil than the original owner and they might be able to use a tax abatement or a break from the CBID payments which businesses in Bearden don't have to pay.

What is the status of the Sentinel Tower and the TVA North Tower?

Rachel's picture

What is the status of the

What is the status of the Sentinel Tower and the TVA North Tower?

It's the east tower, and as far as I know, it's still virtually empty and looking for a tenant(s).

metulj's picture

What's the cost per sq ft at

What's the cost per sq ft at TVA North? I'll hazard a guess that it stinks.

True happiness is knowing you are a hypocrite. -- Ivor Cutler

Seppuku is in a way the ultimate awful libertarian act -- Frank Popper

Rachel's picture

It's the east tower. Sorry,

It's the east tower.

Sorry, I just like saying that.

JoshT's picture

Response to jbr and Hayduke

It is my understanding that the developer makes a lump sum payment to the IDB when the property closes. The amount of money paid IDB equals the amount of money the IDB pays the State. The City, nor the IDB, is out any money at any time on the purchase of the property.

michael kaplan's picture

The developer personally is

The developer personally is on the hook to the bank for servicing the TIF loan if the project does not generate the tax appraisal necessary to retire the loan serviced by the TIF. The taxpayer is at no risk.

Unless the developer and/or project declare bankruptcy and the bank, loaded with toxic assets, fails. At that point the taxpayer could be at risk if he/she is asked to bail out the bank. But that doesn't happen in the real world, right?

michael kaplan's picture

Many cities have adopted

Many cities have adopted "set-asides" for the use of TIF funds in a redevelopment and/or urban renewal area that require an affordable housing component. In the case of downtown Knoxville, this would mean housing affordable by the people working in the kitchen and cleaning rooms in the proposed hotel. (Such a policy would have, for example, significantly changed the demography of the World's Fair Park redevelopment project.) Both City Council and County Commission vote on the allocation of TIF funds included in a redevelopment plan, so there is still the possibility of these funds being denied by our elected legislators.

Here's Portland, Oregon's TIF requirement:

"It is the policy of the City of Portland that 30% of Tax Increment Financing (TIF) over the life of an Urban Renewal District shall be dedicated to the development, preservation and rehabilitation of housing affordable to households with incomes below 80% median family income."

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