STAR Bond Discussion at the CAC
2/4/09 - CAC MEETING REPORT - The name is bond. STAR bond. Couldn't resist that opener to this report.
NOW AND THEN: The meeting started off with a presentation by Neal Cobb. He presented some before and afters of certain areas of Reno, including UNR, Renown Medical Cetner, and several shots of downtown. The jist of his presentation was that long term redevelopment in Reno has worked.
MORE RELEVANCY: Then the meeting moved to the next issue, which involved the CAC itself. In the coming months, the CAC will become much more relevant in the process, with 9 members now, and a new name 'Redevelopment Agency Advisory Board.' The CAC will review all projects before they go to the Redevelopment Agency, and Dan Gustin, who was the council liaison in this meeting,
STAR BONDS: The meeting then progressed to STAR Bond discussion. Between this CAC Meeting and the last one I attended, there was special meeting to fill the CAC in on the three STAR bond proposals. So, yesterday's meeting was more about taking action and less about learning about the STAR Bond projects. Those of you who read my site long term already know the details. This step was simply to recommend to the city council that STAR Bond Districts be established, so the process can move forward. These STAR Bonds are nowhere near close to actually being approved by the City Council. First, the districts must be established; the boundaries of each STAR bond district.
Before a decision was made, Mark invited each of the three developers to come up and speak to the board. First up was Nick Pavich, from the Tessera project. Nick basically re-argued the point that he felt Tessera was an "appropriate, reasonable and feasible project", and that developing in an urban environment is extremely difficult, and that it's pretty unprecedented a developer has a chance to develop a project like this, and that they've spent the last 4 years acquiring tens of millions of dollars in land to get to this point.
After Pavich, Fernando Leal from L3 Development spoke about his project. He was very passionate, mentioning that "It was a very painful process to hand the Montage back to Corus". He also re-affirmed he isn't going anywhere, and he is still committed to his original long term plan and vision. Leal mentioned to the board that it is absolutely vital to continue the redevelopment that started because it's not just about creating jobs with these projects, it's about making Reno has a whole more appealing to attract businesses here to create high-paying jobs, not just construction jobs. He said he was 'not just here on behalf of L3.'
This is where what I'll call 'developer love' began to fire up. Here we had 3 of downtown's largest, most influential developers, and instead of competing against one another and bumping egos, they banded together in a united front, and REALLY tried to get this CAC board to understand that without tools like these to entice development, projects of this magnitude would never happen in Reno, in any economy. Each of the developers referenced the others' projects several times in their dialog with the CAC. Jim Hunting, president of DIA and all-around cool dude, mentioned how important it was to have these types of tools to attract large scale projects. And he's right (I'll go into that on another post, with how Los Angeles attracts large developments).
Drake, a downtown resident who has some kind of firm, has maintained a block by block property tax grid of downtown Reno for years, to track how redevelopment raises property tax, thus creating the revenue to do more redevelopment and pay off bonds, loans etc. He stood up in the meeting and said right now, the the property tax revenue for the land for the baseball district and Tessera, is less than .10 per square foot, while on the other side of Virginia Street, property tax revenue is anywhere from $1 to $15 per square foot (land under Silver Legacy). Since one primary goal of redevelopment is to raise property values and thus property tax revenue, he strongly supports these three projects.
And then there was Nate, owner of the Peppermill. I forget his last name, I am horrible with last names. It was clear the last special meeting about STAR bonds helped the new CAC Board members understand the process and pros and cons quite a bit, except for Nate. Right after the baseball folks finished saying their baseball stadium would be far more successful with supporting retail projects around it, Nate said he felt it would be a better approach to just finish the stadium first, then wait a year to see how it pans out, and then take a look at other projects. Huh? Nate really surprised me with some of the things he said. This spawned quite a heated discussion between Nate, these three developers, and Mark Lewis, Redevelopment Administrator. I agree more with Jim Litchfield, who said 'it's absolutely critical we start this process now. I don't feel comfortable waiting any longer, and would be irresponsible not to make a motion." So in the end, they made a motion to recommend to the Redevelopment Agency Board to move forward with all three projects, and only one, Nate, voted 'Nay'. I'll write about the Sierra Spirit discussion in a post this afternoon.
Post your comments
Posted by: Sub - 2/4/2009 2:23:19 PM
FYI - Nat's (or Nate) last name is Carasalli and he is a minority owner of the Peppermill.
Posted by: Danny - 2/4/2009 5:10:21 PM
Is it possible he suggested waiting a year due to his company not being near downtown? I mean... they just expanded so much the last thing the Peppermill could want is business being drawn to the downtown core. Sounds like someone has a hidden agenda to me... wouldn't that be nice for the Peppermill to delay downtown revitalization by a year? Just a thought...
Posted by: DowntownRenoFan - 2/5/2009 5:48:12 AM
The taxpayers need to stand up (either by compelling their representatives in government or writing letters personally) and clearly deliver the following message to Mr. Katzoff, Mr. Leal and every other developer seeking public support of personal, private investments: finance your projects privately or do not build them! If the private markets are not delivering the funds to build these projects, then the projects are (1) not currently economically feasible (we already have 20%+ commercial vacancy downtown people, why build more?) and/or (2) the borrowers are not creditworthy for the level of development they are pursing (have we learned a lesson on overextended yet... the Montage- do they even have the penthouses built out yet?, the Palladio, the Belvedere, and just about everything else attempted by out-of-town developers downtown).
Take your studies (which simply conclude what the purchaser wants them to conclude) and your promise of great things and present them to your banker, not the taxpayers of this community.
Posted by: Crystal - 2/5/2009 7:45:51 AM
I could not disagree more DowntownRenoFan. Public/private partnerships have been around longer since the dawn of time. Large projects don't get built otherwise, plain and simple. Right down to the Empire State Building, which got millions in tax subsidies and other government perks to be built.
I doubt you know much about STAR Bonds. And I agree with the above commenter, Nat will be opposed to anything downtown, because anything built downtown will lure tourists away from his casino.
Posted by: Teresa M - 2/5/2009 8:26:59 AM
I don't have a problem with sales tax dollars supporting massive tourism projects as long as those projects are held accountable for what they are putting forth to build.
Posted by: DowntownRenoFan - 2/5/2009 9:16:28 AM
I guess those who do not agree with Chrystal must "not understand" the intricacies of public/private finance. Here’s a great idea, let’s ignore the million square feet of currently unused space, most built with private money, and just build twice as much competitive commercial space because “if we build it they will come”. We could just give star bonds for 10% or so of the costs of these projects, and make these folks come up with 40% equity and at least 50% of conventional financing, but screw that, let’s just issue a public subsidy for 80% of costs. Let’s require anyone from out of town that’s willing to spend a couple of million dollars to get as much money as they can, especially those who have failed most miserably. Because, of course, the “dreams” of these few must be of much more compelling public interest than the sense of those in this community who have invested their own money and contributed millions to the tax base.
Posted by: DowntownMakeoverDude - 2/5/2009 9:59:11 AM
Hi DowntownRenoFan....first, be nice to Crystal she is a long long time reader of this site, and Id like my readers to treat each other with some dignity. People have the right to disagree. Let me throw in a few points here:
1. These developers have not spent a couple million dollars. To date, L3 Development has invested over $200,000,000 into downtown, the Tessera folks have bought over $20,000,000 in land during the prime height of the real estate market (i.e. when it was most expensive) in order to assemble land for their proejct, and the baseball folks have spent $50,000,000 out of their own pocket thus far for a stadium downtown.
2. Right now, the property tax generated under the properties that currently stand where Tessera and the Baseball District would be built are less than .10 per square foot for the city. The neighborhoods are both extremely blighted right now. When these projects are completed, the property tax could exceed $10 a square foot, generated hundreds of millions of dollars in property tax revenue over a 20 year period that wasnt there before. And that revenue does not go toward paying back the STAR Bond.
3. Anyone who knows Retail knows you cant attract retail to pieces of crap strip malls. So the argument that there are millions of square feet of empty retail space already doesnt fly with me. We are in a recession right now. RIGHT NOW. That doesnt mean we will be in a recession at the end of 2010, when most of these projects are due to be completed. In the meantime, these would produce thousands of jobs.
4. You are jumping the gun a bit here. In each projects case, the STAR Bond would pay for MAYBE 10-15% of the projects overall costs. Its just an incentive, it doesnt pay for the whole project.
5. This is only the first step. All the City is doing is establishing the actual physical boundaries of where any STAR Bonds could be issued in each proejcts case, and it establishes a district of which then the process can move forward to the next step. This first step hasnt even reached the council yet. This doesnt include the steps of the City Council actually approving the STAR Bonds, which then has to go to Nevada State Board of Tourism and the Governors Office, and then if THEY approve it, it goes back to the Council who then decides how much of the bonds to issue, how much in sales tax the developer can retain (it is not locked in at 75%...the council has the right to choose 30%, 20%, etc). I hope that helps explain the process a bit.
Posted by: DowntownRenoFan - 2/5/2009 10:50:13 AM
DowntownMakeoverDude, you know I like you and I respect what you do a bunch, but let’s review some facts in your points:
1) You are including an awful lot of Corus Bank’s money (which will technically be a bunch of US Taxpayer money if that bank is shut down) in that $200 million L3 figure. The baseball folks financed the $50 million being spent on the baseball stadium ($10 million of which was the demo of an operating fire station) through the State/City/County’s commitment to repay them $2.0 million per year in sales / rental car taxes. At the end of day, the property is theirs! The true amount of equity from these groups is a fraction of what you are representing (I don’t include the purchase of the team because that’s an independent asset that can move just as easily out of town as it moved from Tuscon). You’re probably light with the Tessera folks because they have to carry all of that property (taxes, insurance, etc)
2) Generating property tax revenue is a tail wag the dog approach to justifying development. You could build the Empire State Building on top of the Cal Neva and it would generate more property tax revenue, but it would be an economic disaster. It would be just another monument. Let’s let basic economics dictate what gets built and where. If downtown desperately needed another boutique hotel, then the Siena would be booked 2x over. You can talk to those folks, but I doubt that’s the case.
3) So I guess virtually all of the commercial space in the Montage, virtually all the commercial space in the Palladio, 50%+ of retail in virtually every high rise, entire blocks on 1st & Virginia qualify as crap strip malls?
4) So I guess the Fitzgerald’s renovation is a $2.47 billion project since, they are asking for $247 million (per the RGJ)? I think you need to check your percentages.
5) How much of the City’s overtime was related to the ballpark, the retrac project, the other monuments currently unused, and all of this back and forth with the STAR bonds? This, seriously, should all be tabled, as the owner of the Peppermill suggestion, until we see the results of the ballpark. He has a right to be mad, as does every land owner or business owner who built their land & businesses without a government handout. They financed all of their expansion with PRIVATE money and these guys want to compete with him using a public subsidy? It’s just not right. The Peppermill does way more for attracting meaningful tourism to this community (conventions, etc.) than all of the downtown properties combined.
Posted by: Devin Sommerton - 2/5/2009 11:41:09 AM
Raising property tax values is one of the primary reasons redevelopment agencies exist. Hello! I have read the real NRS statues regarding star bonds and honestly, I don't see anything wrong with them. Just because one developer or casino owner (Peppermill) chose not to use that avenue to jump start a project, that doesn't mean no one else should either. Come on, that's 5th grade thinking. The state passed this legislation to be used for this purpose, catalyst tourism projects that would jumpstart redevelopment around it. This is nothing new. These 3 projects from what I have read fit the bill more so than Legends or Cabella's. Nearly every state does it, just in different forms. Ever hear of TID? TIF? CBG's?
Posted by: GreyGoose - 2/5/2009 11:49:45 AM
This city needs a serious jump start. It's dying, fast, people need jobs, bad, this city needs something appealling besides Lake Tahoe to draw tourists in, and you say let economics take the city where it shall naturally go? You must be republican if you think that way. You don't believe in public/private partnerships then either hmmm? Invest some serious $$$ into Reno so it becomes appealling to tourists in california again. The Peppermill has not done more to draw in tourists than all the downtown properties combined. Have you heard what comes out of tourists' mouths when they are interviewed about Reno on the news? Nearly all want something new to draw them back.
Posted by: DowntownMakeoverDude - 2/5/2009 12:14:48 PM
Lets keep this discussion at an intelligent level. I know plenty of Republicans who believe in public/private partnerships....but lets not get into that.
I am pretty sure these developers would not spend hundreds of millions of dollars on these projects if they didnt feel they could fill the retail spaces up, in fact I bet that they wouldnt even start them unless they already had a certain percentage of tenants locked in. Its called Speculative Building, and NO ONE is doing that right now (except for State Street Center). This is why the Woolworth Building, 100 North Sierra, and other empty retail buildings downtown are sitting unrenovated. L3, Tessera, and Sk Baseball cant get any STAR Bond funds unless they actually build the project, and they cant pay it down unless the the project is actually generating sales tax revenue. So an empty vacant project would be disastrous for them.
So for me, since they cant start the projects until they have financing, and they cant get STAR Bonds unless they show proof of financing (according to the NRS) and I doubt Tessera would break ground without a certain percentage of the retail space already filled, I dont see what the problem is in letting them move forward in this process. Plus, the STAR Bonds are in no way guaranteed to them...the applicants are the ones who put forth tens of thousands in fees and studies for the STAR Bond process...not the City of Reno.
Posted by: DowntownRenoFan - 2/5/2009 12:30:41 PM
I'd like to build the world's largest and best horse and buggy carraige factory right in the middle of downtown Reno. I need $250 million in STAR bonds to accomplish it. The City of Reno needs to give me the money because it creates jobs and it will build up the property tax base. If you don't agree with me, you must have a 5th grade mentality or don't have understanding of how STAR bonds work.
Posted by: Devin Sommerton - 2/5/2009 7:05:27 PM
http://www.leg.state.nv.us/Nrs/NRS-271A.html read the code man read the code. Thats the law. It's pretty cut and dry to me.
Posted by: Curiousbuyer - 2/5/2009 8:01:29 PM
If you were one of the buyers losing on Leal's initial foray into Reno - the one where he gave it back to the bank - you wouldn't think so highly about financing - publicly or otherwise - another of his projects. As a developer he left everyone that believed in this project in the untenable position of having to lose their deposits or partner into a building 75% owned by a failing bank.
Just think what will happen when it's public money.
Posted by: lester - 2/6/2009 12:24:46 PM
The Montage is one of the best looking buildings in Reno.
If it wasn’t for Leal, that spot would have been an eyesore.
Leal put people to work.
Leal added millions of dollars to our city.
I think the people who oppose our continue progress downtown are fooling us.
Could they be imposters from the Casino's down the street? I think they just might be.
Posted by: Steve Watts - 2/6/2009 12:48:56 PM
The oft-repeated argument for STAR bonds seems to be "other states do it too" and "It's legal, so there." Folks, the public has turned against them. They don't like how Legends and Cabelas STAR bond money is not contributing to schools and the city budgets, going instead to commercial enterprises that don't even pay enough for their employees to buy homes and help the real estate market...what sense does THAT make? No, we don't want our property taxes to make up for big dreams and empty pockets of developers. Geez, even Grand Sierra resort wanted STAR bonds.
Posted by: Danny - 2/6/2009 3:05:52 PM
I feel like downtown development is necessary. It is also obvious that DRF has an anger issue and needs to chill out instead of dealing out rude comments to his fellow citizens. But then again... I am just a 5th grader so what do I know?