I have watched the presentations made at the CC meeting last evening. Generally speaking, I feel fairly comfortable. However, I think some comments are in order.
I think the entire discussion can be broken down into four subgroups. They are: 1) Developer, 2) Carl's camp, 3) Doug's camp, and 4) City's Risk.
Developer: I like the concept of development as presented. It looks good and captures the theme of what I believe most citizens want. I think I like the developer. I have never seen anything they have built, but I like his low key style. I think he demonstrates thoughtfulness and he appears to attempt to satisfy the city's needs in addition to his own wants. It seems apparent to me that a lot of thought went into the design.
After all the above, what does the developer get? The answer is "a whole bunch." Essentially, he gets the friendship from the city in building apartments in one of the strongest apartment markets in 40 years. In fact, the city is making the down payment requirement to the banks. Most banks want 20% down on any new development projects. This project is estimated to cost $30 million, and Rowlett's proforma contribution in cash or kind is $6 million. There's the down payment. Furthermore, the developer is getting 15 years in which no city taxes are collected at all. If the city offered the same deal to all the developers in the DFW area, the line of developers would stretch to the horizon with apartment developers lining up outside city hall.
Carl's camp: Carl made an accurate observation during the two public meetings. He essentially said the city was getting no guaranty that commercial space would be developed. He is right, and in fact, that is a shortcoming of the Rowlett 2020 vision. The only thing the city is sure to get is an apartment project and space for a library. That, by itself, will not generate downtown traffic and commerce. As discussed elsewhere in these posts, the apartment is a surefire chance of success. But, that's all the citizens are promised. Carl wanted more of the vision. That's okay. It's a legitimate objection.
Doug's camp: Doug probably agrees with Carl, but feels that before any business or commerce will develop downtown, its going to have to be "seeded" with something. Doug feels the apartment project is sufficient to generate new business, which in turn, will create other new business. I don't know whether 219 residential rental units are sufficient mass to create very much interest in new restaurants, shops, clothiers, etc., but its a start. I also agree with Doug that "jump starting" is probably appropriate and needed. I think the new project will certainly spark interest in the community and hopefully new business. Otherwise, I don't see much future in trying to sell an apartment project as a tourist attraction in charming downtown Rowlett.
When taken in total, if I was on City Council, I would have voted for the project. I agree with Carl that I wished there had been more commercial, but I guess I feel more strongly that we need to get underway.
Risk Containment: The one thing that was not discussed in any part of any discussion was risk containment. Some things come to mind. The city is to "sell" the land into the project upon securing the financing commitment. In the fine print there is a provision for the land to "revert" back to the city in case of default during construction. Chris Cobal says, "These are good guys. They are not going to default." "Good guys" have nothing to do with it. I have been in this business a very, very long time. Construction Finance is my specialty. Even good guys default. They don't want to. It just happens.....quite often. The bank is going to have a huge problem with that provision. In the case of foreclosure, the bank is not going to agree to start funding on $24 million of loan commitment, become partially funded, then run the risk of losing the land under the 2x4's and brick they have been funding.......unless the city offers to pay them back. That is a big risk for both the banks and the city. Somebody is going to have to address this problem. I think the "reversion language" will go away. Kiss the land goodbye.
The papers I have seen are unclear about whether the city has a proprietary interest in the partnership deal. If so, they're a part owner. There is an "after school" program that the city has with school kids during the late afternoon hours. Kids are all over the downtown. If something happens, the owners will be sued......including the city.
I don't like the answer given by the developer about the parking situation. He's pretty smooth and disarming, but I don't think his street parking plans will work for any significant increase of business traffic. Any new business contemplating downtown as place of business will be very interested in parking. The proposed 400 parking places will accommodate the 219 rental units, but with many two car families, there isn't much parking for pizza shop business. I think the city is going to have to address an important parking problem. To save land, I think a 2-3 story parking building might work. You can meter it if you need the revenue to pay for it.
The biggest risk in the room, though, is the 380 Grants. The city Staff Report is almost cavalier about the availability of 380 Grant funds. The grants are flippantly referred to as a replacement for funding advanced or forgiven by the city. Any "unavailability" of 380 Grant money changes the risk factor enormously. Grant money comes and goes. Will it stay for 15 years?
I am confused with some of the numbers as set out on the Staff Report. Some of the numbers don't fit the presentation. However, a down and dirty look at the 380 Grant numbers suggest that if these funds don't become available, Rowlett citizens will have to come up with another $5,325,000. Now, they're getting a little cute. They said the 15 year tax abatement would only be $2.2 million net present value. They did a NPV to make the number smaller. I don't think you're interested in NPV unless you're in a conversation including Internal Rates of Return (IRR), Yields (the financial kind), Discounted Rates, and other stuff that bean counters like. The real number for the ad valorum tax forgiveness is 15 years @ $225,000 per year = $3,375,000.00. This money is to be returned to Rowlett by 380 Grants. Also, 380 Grants are to pay for $1,950,000 in infrastructure improvements. What happens if there is no 380 Grant money? I gotta hunch that the partnership agreement says that Rowlett has the obligation. If 380 Grant money isn't available, the developer is still due his funding.
Perhaps the CC approved the entering into the contract, but has anyone seen the documents? Are they already drawn up? I hope someone reads them that know what the hell they're doing.
I still think we needed a little more time. I want to see the details of the contract. I want to know if anyone has addressed the risk if things don't go right. Liking the project and analyzing the risk are two totally different calculations. I haven't heard one peep about risk if things don't go as planned. Without reservation, I feel the City of Rowlett owes the citizens more information than they have. This seems to be a continuing problem.
I like the project. I want it to succeed. As did the people that built the stadium in Allen.
I think the entire discussion can be broken down into four subgroups. They are: 1) Developer, 2) Carl's camp, 3) Doug's camp, and 4) City's Risk.
Developer: I like the concept of development as presented. It looks good and captures the theme of what I believe most citizens want. I think I like the developer. I have never seen anything they have built, but I like his low key style. I think he demonstrates thoughtfulness and he appears to attempt to satisfy the city's needs in addition to his own wants. It seems apparent to me that a lot of thought went into the design.
After all the above, what does the developer get? The answer is "a whole bunch." Essentially, he gets the friendship from the city in building apartments in one of the strongest apartment markets in 40 years. In fact, the city is making the down payment requirement to the banks. Most banks want 20% down on any new development projects. This project is estimated to cost $30 million, and Rowlett's proforma contribution in cash or kind is $6 million. There's the down payment. Furthermore, the developer is getting 15 years in which no city taxes are collected at all. If the city offered the same deal to all the developers in the DFW area, the line of developers would stretch to the horizon with apartment developers lining up outside city hall.
Carl's camp: Carl made an accurate observation during the two public meetings. He essentially said the city was getting no guaranty that commercial space would be developed. He is right, and in fact, that is a shortcoming of the Rowlett 2020 vision. The only thing the city is sure to get is an apartment project and space for a library. That, by itself, will not generate downtown traffic and commerce. As discussed elsewhere in these posts, the apartment is a surefire chance of success. But, that's all the citizens are promised. Carl wanted more of the vision. That's okay. It's a legitimate objection.
Doug's camp: Doug probably agrees with Carl, but feels that before any business or commerce will develop downtown, its going to have to be "seeded" with something. Doug feels the apartment project is sufficient to generate new business, which in turn, will create other new business. I don't know whether 219 residential rental units are sufficient mass to create very much interest in new restaurants, shops, clothiers, etc., but its a start. I also agree with Doug that "jump starting" is probably appropriate and needed. I think the new project will certainly spark interest in the community and hopefully new business. Otherwise, I don't see much future in trying to sell an apartment project as a tourist attraction in charming downtown Rowlett.
When taken in total, if I was on City Council, I would have voted for the project. I agree with Carl that I wished there had been more commercial, but I guess I feel more strongly that we need to get underway.
Risk Containment: The one thing that was not discussed in any part of any discussion was risk containment. Some things come to mind. The city is to "sell" the land into the project upon securing the financing commitment. In the fine print there is a provision for the land to "revert" back to the city in case of default during construction. Chris Cobal says, "These are good guys. They are not going to default." "Good guys" have nothing to do with it. I have been in this business a very, very long time. Construction Finance is my specialty. Even good guys default. They don't want to. It just happens.....quite often. The bank is going to have a huge problem with that provision. In the case of foreclosure, the bank is not going to agree to start funding on $24 million of loan commitment, become partially funded, then run the risk of losing the land under the 2x4's and brick they have been funding.......unless the city offers to pay them back. That is a big risk for both the banks and the city. Somebody is going to have to address this problem. I think the "reversion language" will go away. Kiss the land goodbye.
The papers I have seen are unclear about whether the city has a proprietary interest in the partnership deal. If so, they're a part owner. There is an "after school" program that the city has with school kids during the late afternoon hours. Kids are all over the downtown. If something happens, the owners will be sued......including the city.
I don't like the answer given by the developer about the parking situation. He's pretty smooth and disarming, but I don't think his street parking plans will work for any significant increase of business traffic. Any new business contemplating downtown as place of business will be very interested in parking. The proposed 400 parking places will accommodate the 219 rental units, but with many two car families, there isn't much parking for pizza shop business. I think the city is going to have to address an important parking problem. To save land, I think a 2-3 story parking building might work. You can meter it if you need the revenue to pay for it.
The biggest risk in the room, though, is the 380 Grants. The city Staff Report is almost cavalier about the availability of 380 Grant funds. The grants are flippantly referred to as a replacement for funding advanced or forgiven by the city. Any "unavailability" of 380 Grant money changes the risk factor enormously. Grant money comes and goes. Will it stay for 15 years?
I am confused with some of the numbers as set out on the Staff Report. Some of the numbers don't fit the presentation. However, a down and dirty look at the 380 Grant numbers suggest that if these funds don't become available, Rowlett citizens will have to come up with another $5,325,000. Now, they're getting a little cute. They said the 15 year tax abatement would only be $2.2 million net present value. They did a NPV to make the number smaller. I don't think you're interested in NPV unless you're in a conversation including Internal Rates of Return (IRR), Yields (the financial kind), Discounted Rates, and other stuff that bean counters like. The real number for the ad valorum tax forgiveness is 15 years @ $225,000 per year = $3,375,000.00. This money is to be returned to Rowlett by 380 Grants. Also, 380 Grants are to pay for $1,950,000 in infrastructure improvements. What happens if there is no 380 Grant money? I gotta hunch that the partnership agreement says that Rowlett has the obligation. If 380 Grant money isn't available, the developer is still due his funding.
Perhaps the CC approved the entering into the contract, but has anyone seen the documents? Are they already drawn up? I hope someone reads them that know what the hell they're doing.
I still think we needed a little more time. I want to see the details of the contract. I want to know if anyone has addressed the risk if things don't go right. Liking the project and analyzing the risk are two totally different calculations. I haven't heard one peep about risk if things don't go as planned. Without reservation, I feel the City of Rowlett owes the citizens more information than they have. This seems to be a continuing problem.
I like the project. I want it to succeed. As did the people that built the stadium in Allen.
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