Good piece, but, am I reading this wrong?

"...An 8,000 square foot space at 806 World’s Fair Park Drive appraised in the report rents for $7.50 per square foot. Applying the same rate to the Sunsphere’s 10,000 square feet puts the fair market rental value at $75,000 annually...

"...KPH will lease the Sunsphere from the city for about a third of the average rate, or about $5 per square foot (or $57,000/year)..."

I assume she meant 2/3s? Or am I mssing something?

You've gotten better lately, and this piece is a good summation of the avialable info, but it isn't like this hasn't been covered in other media.

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that the definition of development in Atlanta, Nashville, Louisville, and Charlotte.

Here, as a precondition for doing anything in the city, the Knoxville taxpayers have to pay a privilege fee, usally starting at $1 million, to "get the ball rolling" or "help the developer offset the initial project costs", which is a buzzword for nothing more than a local subsidy to get the deal done.

Thanks to Randy for the opportunity to respond.  I will start with some general reactions more focused on the Sunsphere proposal and then address some of the assertions made about past projects. I was pleased that the Knoxville Voice was taking an interest in local stories. Ms. Trenda and I had two very nice conversations. I realize that constraints of space do limit what can be in the article.

 “The average price for downtown development is roughly $9 per square foot, according to a market appraisal prepared for the city last summer by Property Service Group Southeast. An 8,000 square foot space at 806 World’s Fair Park Drive appraised in the report rents for $7.50 per square foot. Applying the same rate to the Sunsphere’s 10,000 square feet puts the fair market rental value at $75,000 annually. Such a price tag, however, doesn’t account for the Sunsphere’s unique cultural identity, an asset that private owners would surely stress in marketing the structure.”

Comparing this lease amount to downtown space or even to the space occupied by the Butcher Shop, at ground level, with large amounts of free parking in the immediate vicinity is tenuous at best.  At this point we are talking apples to candy bars.  The comparison is more like apples to pencil sharpeners when you add the fact that the developer is required to spend $1,000,000 (apprx) to build out the entire interior of the structure including ductwork, wiring etc. including a large sum that they would expend in building out the entire fourth floor observation deck that they would have no use of. I took great pains to explain to Ms. Trenda that her article would be very misleading if she did not stress the tenant obligations.  

I also explained that renting the Sunsphere requires a very specialized tenant. There is no parking in the vicinity for customers and we are having a very difficult time identifying spaces for the tenants. There is very little pedestrian traffic. The layout of the floors is very difficult. But taking this at face value their spending $5 a square foot and leasing the finished space at $9 a square foot would yield a profit of $40,000 a year.  Twenty years would yield $800,000.  Adjusting their investment down and their possible rent upward would pump those numbers up a bit but it is hard for me to see that this proposal is some type of “giveaway” to developers. I don't think it is any kind of a slam dunk that they can recoup their original investment in twenty years yet alone make any money. The businesses would have to be wildly successful in drawing folks to the Sunsphere in order for them to have the ability to raise the rent they charge to the point at which they could make much money. But would not that be a "win" for the citizens of Knoxville?

In exchange the city receives a finished observation deck, two floors with public access, and at less expense than the city would otherwise pay for finishing the observation deck and paying the utility costs, which are such that only limited economies of scale are realized by heating and cooling one floor as opposed to the entire structure. Again, I carefully explained this in our interview and am surprised that there is scant, if any reference to the requirement that the developer build out space they would control as well as the requirement that they build out space which they would have no use of.  Suffice it to say that most tenants are not expected to finish space for others’ use. More typically it works in reverse in that the rent charged the tenant includes common space in the building that the tenant can use.

There is on other item which, in fairness, I don’ think I did mention to Ms. Trenda and was brought up by Mr. or Ms. Hayduke. The city will control the thermostat setting in the structure and keep them set at conservative levels to control any excess consumption. Also, and I don’t recall if I mentioned this or not, the city will have to approve any change in uses within the structure to make sure that no energy draining uses will be introduced without adjustments to the rate charged.

 Now that fact that there was more to the lease agreement than made it into the final version, I would like to address some specific items, hopefully with a minimum of editorializing.

 “Tying anything up for 40 years is kind of scary,” Lyons said. “Any more than 20 years is hard for [KPH] to return up-front investment, so 20 [years] is the point of compromise.”

Obviously there has to be a long term lease unless the city is going to do the entire build out and just turnkey the space.

“Yet the city’s “compromise” doesn’t sit well with some council members. “We’re giving them such a sweet deal for such a long time,” said City Councilman Steve Hall. “To enter into a deal like that for 20 years is a very long time, we just want [the Sunsphere] back open.”

One councilperson is usually not referred to as “some.” I did have a very long and pleasant discussion with Councilman Hall on this topic. I explained the reasons for the necessity of a lengthy lease when great investment on the front end was required. I want to be very fair to Mr. Hall. He did reference this discussion in his remarks at council.  I was not present for his interview with Ms. Trenda but I was not informed of his remarks so that I could respond.  In fact during this interview I was not given the opportunity to respond to any of the criticisms that appear in the article by Mr Hall, or any other “facts” gleaned from unnamed “reports.”

I didn’t like the way [the Candy Factory deal] was handled,” Hall said. “I perceived it as a giveaway. The Victorian Houses, in the condition they were in, [the city] could have gotten $100,000 a piece. That was a sweetheart deal and the way the request for proposals (RFP) read, people had the impression they had to bid on the Candy Factory, the houses, the Sunsphere, and the Amphitheater.”

Councilman Hall and I have had a long and respectful disagreement on this matter. Councilman Frost and I have had a like disagreement.  I fully respect their decision not to support the sale of the Candy Factory and I am sure that both of them, along with Councilman Hultquist, the other person to vote no would agree that our relationships have remained unaffected by that disagreement. That should not be necessary to point out, but in this town that has not always been the case. I am sure that all would characterize our relationship to be a positive one based on a lot of communication. With that in mind I am going to repeat my perspective on the points referenced here by Mr. Hall and Mr. Frost. :”

I have never understood how a “deal” could be that was the product of a lengthy, well publicized “Request for Proposal” (RFP) process which drew in excess of 80 visitors to tour the site and nine proposals could be characterized as “sweetheart. The bid for the Candy Factory was one million dollars higher than that the second highest bidder (TIFs included) and nobody else bid any money at all for the Victorians.  Any notion that the price is “ridiculous” must confront the question… “Then why did the dozens of people who toured the structures during the pre bid time period not make a comparable, let alone higher offer.  Moreover even the “ex post facto, extralegal “bids” for the seven Victorians by various individuals who neglected to bid during the RFP period never exceeded much over $400,000.  These “bids” occurred after we decided to remove the arts restrictions regarding the development of the houses in exchange for KPH spending and extra $200,000. Thus they paid $415,000 for the houses to do with as they wish within the restrictions of H1 zoning but still under the approval of the city. Other strange extralegal bids appeared in my office and not one exceeded this amount.  Once again, to repeat much of the verbiage between #9 and me in the SKB days (hey there #9) , this was not a straight “sale” but a request for proposals under which the winning bidder would have to meet conditions set by the city in development the property. We did this because the community has a large interest in the restoration of these historic structures.

 “Retired UT architectural professor Gerald Anderson, who actively opposed the sale of the Candy Factory, agrees. “The Candy Factory was a real loss, it was a great resource for all the arts. The classes, the Art Market, the outlets. It was a community resource that should have been built up rather than sold to the lowest bidder,” he said. “Losing the Candy Factory to [private enterprise] is unfortunate.”

 Certainly this, like the rent percentages discussed earlier, is a mistake.  The retired professor who was a long time critic is Michael Kaplan.  Nobody identifying himself as Gerald Anderson ever appeared as far as I could tell so if there is such a man he was active under a bushel basket somewhere.

 Councilman Rob Frost voiced similar opinions about the value of the houses.  “I didn’t think the price was adequate. The houses were way below value price. The RFP wanted people to respond to the Candy Factory and Victorian houses together. If the houses had been broken out separately it would have opened a whole new universe of people who would have responded,” Frost said. “It’s easier for someone to redo a house than a multi-story building…What [KPH] offered didn’t work for me.”

 See above, Also, the RFP made it very clear that a bid would be accepted on any or all of the assets and that one could bid on either or both the Candy Factory and the Victorian Houses. Segundo properties bid only on the Victorians. Lee Burch bid only on the Candy Factory. In fairness to Mr. Frost I would willing to bet that his point was that higher bids might have been obtained if the houses could be bid on separately rather than as a group. I will concede that point but only to a minor degree. Of course then the city could be left with only the condemned house, not a particularly good outcome.

 “Utilities will run around $60,000 annually when [the Sunsphere] is fully occupied,” said Sunsphere project manager Jeff Galyon. “That’s the worst case scenario, but we hope to reduce cost on overall utilities, we hope to do a lot of improvements to make it more energy efficient.” Galyon said that in the best-case scenario the utility bill could drop to $40,000 after improvements. Yet under the agreement due before City Council, KPH will pay only $21,000 annually toward utilities, leaving the rest to be picked up by taxpayers.”

 Well, yes, and nobody in town would take on this development if they had the entire utility bill, or even one somehow pro-rated to remove the observation deck.  Perhaps that is why not a single other person or group advanced any proposal for the Sunsphere despite ample time for inspection and many, many tours by people who expressed interest at an early stage. At least four people volunteered to me that we would never get anyone to propose leasing that structure. See again above statements about “sweetheart deals.”

 “For his part, Mayor Haslam has remained positive about KPH. During his mayoral campaign, Bill Haslam singled out KPH proposals as examples for others to follow, which comes as no surprise, given that Haslam and senior director of policy development Bill Lyons served on the KCDC board that approved KPH’s 2002 downtown development proposal.”

 Yes, I did chair the KCDC board when they were chosen.  This entire history is preserved on the K2k board if anyone wants to go back that far. I posted over seventy single spaced pages of “stuff” during that time. But I digress. In fact I appointed an advisory group that included administration critics Carlene Malone and Lynn Redmon to consider the proposals. We all agreed that Kinsey’s, which included the public space for the square, a parking garage behind Market Square, and a cinema, was the best proposal. In fact (does this sound familiar) they were the only viable proposal.  Now I don’t want to mislead anyone. Carlene has had reservations regarding the implementation of the plan.  I have not heard from Lynn on this so he may or may not.  Many of the remaining points reference objections about KHP with which Ms. Malone may well concur.

 “A 2005 report commissioned by the city found that a negligible amount of development dollars had been spent in the Market Square Phase I and II projects, despite KPH promises in its proposal that the $20 million in public funds would be matched with $22 million in private investments downtown. Curiously, specific language holding KPH—or anyone else—to this $22 million figure was absent from the actual signed contract. Jon Kinsey told the News Sentinel last year that his firm was only responsible for “some of it.” Meanwhile, public funds continue to be poured into the projects on schedule.””

The “report” cited here is one paid for under, well, somewhat questionable conditions. The author never came to Knoxville in his evaluation period and did not consult any building permit records or contact the parties. His methodology was, well, not textbook. Now an enterprising reporter might have asked me about this in the interview, or better yet, might have pursued this through local records. A conservative estimate of investment since the plan was approved in 2002 approaches sixty million dollars in the CBID, or close to triple the figures referenced in the proposal (but not contracted for)  This included the following  Fire Street Lofts - Dewhirst-$6,400,000, Burwell Building – Cardinal-$7,450,000, Holston  Dewhirst- $13,725,000, Candy Factory          Kinsey, Probasco, Hays $11,696,000, Victorian Houses-Kinsey, Probasco, Hays -$1,710,580, New Union Lofts -Kinsey, Probasco, Hays $6,000,000, Sunsphere (proposed) Kinsey, Probasco, Hays $1,000,000 I don’t have the figures for the Watsons building or the Emporium (Dewhirst) but that, along with the Watson’s build out easily are well in excess of $10,000.000.  Regardless, these investment amounts can easily be found locally.

 “Following the downtown deal, KPH successfully purchased the Candy Factory and Victorian houses last summer on the premise that it would spend $200,000 to finish the first floor of the Emporium Building for artist use, Councilman Hall said. “Originally they were going to finish that space out and make it available to art groups in the Candy Factory to have space to use. Someone came up with the idea to just give $200,000 to the Arts and Culture Alliance, and they’d just finish out a smaller space,” Hall said. “But one of the things motivating them was so much time had transpired and nothing had happened.” “It was kind of a nasty squabble,” Councilman Frost said. “The administration was approached by Lisa Zenni [executive director of the Arts and Culture Alliance] said that KPH hadn’t gotten around to the Emporium building…she was wanting to have a check so the Arts and Culture Alliance could take over the project.”

 “Both councilmen said that after the dispute, Brian Conley of Cardinal Enterprises—one of several prominent local coordinating partners including Dewhirst Properties—wanted KPH out of the Emporium Building deal. But the group’s $200,000 pledge to provide an alternate art space was part of the reason the houses weren’t split off from the Candy Factory. Both Hall and Frost, among other council members, voted to keep KPH committed. “We voted against letting them out [of the deal],” Frost said.”

I stated without equivocation on this blog and elsewhere that I approached Kinsey with this suggestion after talking with Ms. Zenni.  I also explained that I did this because KPH had agreed in the contract to replicate specific space and that Ms. Zenni thought that function could be served better if the space was built out differently from that which was contracted for.  Mr. Frost and Mr. Hall and I have different perspectives on this but I am the one who tried to broker this and I did so in an abortive attempt to find the best solution. Unfortunately, as we often do, people put the facts into the frame within which they feel comfortable. This was not one of my finer moments but this suggestion came at my request after talking with LIza. KPH was the last party to be aware of its existence.

 “Anderson isn’t a huge fan of the Sunsphere and points out the economic impact of Knoxville’s having to maintain it. “The Sunsphere has been a definite drain on the economy. No one can find a business to work there. It can be an albatross to keep maintained. The gold glass definitely has a life span and as [the 360 individual panes, which cost $1,000 apiece in 1981] start to fail it will be very difficult to maintain. It’s a drain on the city’s finances.”

Anderson? If it is Kaplan, then I guess he is just against the restoration of the Sunsphere with or without going through with the KPH proposal. That is certainly a reasonable position but council already voted 9-0 to proceed with the restoration of the Sunsphere so that at least the observation deck could be opened. Unless they rescind that vote quickly work will begin.

 “The Kinsey Probasco Hays deal guarantees that the Sunsphere will continue to drain public funds for the next two decades. As the development deal looms—apparently etched in stone before the public officials hold a vote, with little possibility of a public referendum—the glittering fixture in Knoxville’s downtown skyline may come to represent more than just a former World’s Fair site; it may ultimately serve as an uncomfortable reminder of the continued gifts bestowed upon private enterprise by elected officials.”

Public referendum? I have not heard that anyone is starting a petition drive. Thanks to those of you who waded through this.

 Bill Lyons

Thanks for providing so much material for class discussion whenever I get to my "online dialogue, bloggers and print media can be a pro/am collaboration" theme... It's at least encouraging that some "pros" are reading this site and each other.

Interesting analysis from Bob Stepno:

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dr. lyons, why have you attached my name to the discussion of this issue?

He brought your name into it because the article quotes a retired architecture professor named Gerald Anderson. You are the retired architecture professor who has been vocal on the issues in the article. Do you know this Gerald Anderson person? Was there a retired architecture professor other than yourself who has been involved in public forums?