I was not unhappy with the concept of The Villages. I believed our downtown needed a boost. The Villages, or something similar, was what was needed. The rental market is quite strong, so the market risk was slight. It brought people into the downtown. When you've got people in a place, other business show up to fulfill the needs of those people. Therefore, business expansion downtown, after construction of The Villages, to some extent was a reasonable expectation. I researched somewhat the developers. I did not know them, but they seemed to be knowledgeable and worked on some good projects. I watched their presentations on Rowlett's Live Streaming. I liked their low key presentation. I compliment any members of Rowlett's "officialdom" for recognizing the proper type of project needed, and to vigorously go after it. The only glitch after a cursory review of the developer was the developer's earlier association with our previous city manager. I didn't trust anything that person touched. Still don't. I feel the previous city manager established a culture in city hall that is harmful to Rowlett. I further feel most of that culture still exists. I became wary, but still continued the analysis.
The Staff Report delivered to City Council on May 20, 2014, was awful writing. I found writing skills that were not communicating accurately, errors in math, important costs that were left out the city investment total, and what I subsequently concluded was misrepresentation. I let you decide if the misrepresentation was intentional.
I have already written about what I thought was misrepresentation of 380 Grants, let alone costs. At the very least, an explanation was due about how 380 Grants worked. Why? Because 380 Grants represented funding of all of the city's contribution to the project, except the 12 acres of land. That means $1.6 million of the city's funding was satisfactorily explained.........but $9.6 million was not. That is a bit lopsided. I can assure you, if a loan officer placed such poorly underwritten material in front of a loan committee, he/she would be summarily discharged immediately and, accompanied by a drum roll, "perp walked" to the front door.
The writing was a horrible attempt at communication with the public. The understated cost math was discussed in the previous post. The actual cost so far is 6.67 times what the Staff Report could have let a reader believe. Casual reading could have missed some very important points.
Now I want to comment on some language and some observations. Some observations I have mentioned before, but I want to bring this all together. Below are some "bullet" paragraphs that caused concern as I read thru the Staff Report. Altho the Staff Report is 54 pages long, including exhibits. Only the first nine pages contain all the information I am writing about. You can find all my topics in the first nine pages. Those are pages 329 thru 337 of the City Council packet of May 20, 2014.
I am ignoring some language in which Staff is making some marketing representations in which they are not qualified to make. Appraisers, loan officers and developers are very good at reading markets, based on data. Our staff presents no such encumbering gadgets as data. They just make a claim. To the best of my knowledge, no one on staff has ever been an appraiser, loan officer, or developer. They're probably good at something else.
The selection of the developers was interesting. Altho the developer has an earlier association with the previous city manager, a Downtown RFQ Advisory Committee was formed to actually select the best developer that responded to the request. If the then city manager left them alone to do their work without influence, then they would be okay. If she influenced them, they weren't okay. You can decide what happened.
Apparently, the city has a new "city representative" by the name of Chris Coble of Black Label Real Estate. Does anyone know who he is? I asked the mayor who he was and I was told he was a consultant and recommended by the developer. I had to think about that one. A negotiation is an adversarial relationship. Both parties negotiate to their best advantage. Did the mayor just tell me that Chris Coble was negotiating on behalf of the city, and was recommended by the developer??!! I would like to think I heard that wrong, but I don't think I did. Chris Coble is from Denver. I wonder how big a fee he gets. Apparently we don't have superb real estate analysts in the Dallas area. You remember Dallas, don't you. That fairly well known area has some of the best multi-family developers in the world. They kinda know how things work. Denver is where Mary Jane is legal.
Also, this is about the third or fourth time I have seen, "City's third party real estate economists" mentioned in a Staff Report. They "thoroughly vet" our deals. Would someone please stand up and identify who "third party real estate economists" are? THIS IS SOMEONE PLAYING MONOPOLY WITH MY MONEY. I WANT TO KNOW WHO IT IS. Why are the names being purposely withheld? This is no accident. This information is deliberately being withheld.
The Staff Report says that "a catalytic project like The Village would require a partnership." No it doesn't. Who says? You can hire anything done. However, if you believe that crap, it makes it easier to accept a partnership. There is something called a "symbiotic relationship" whereby both parties benefit from the presence of the other. They do not have to be partners. They both have to be smart. In one paragraph on page 4 of the Staff Report, the word "partnership" is mentioned four times. Think someone is selling an idea?
"The Village of Rowlett project will require a partnership and public investment of approximately 20 percent and is in line with the expectations needed and is critical to realizing the long term vision for Downtown." Partnership required by who? Investment of 20% as required by who? In line with whose expections? I know the bank would require 20% down of the developer, but the city has no proprietary interest in the deal. Nobody can make us put any money down, if we don't want to. We might agree to if we get something in return. Who is conducting the negotiations for us, anyway? Our consultant as supplied by the developer? How could we possibly lose? There is some hint that the Economic Development Department had a hand in the negotiations.
There are a couple of humorous comments about "claw back" and "reverter" provisions in the proposed partnership agreement. This means the return of all 380 Grant money, or a reverting of the property back to the city should our partner fail to perform or go into default. Either this language will disappear, or the developer has located the dumbest bank in 50 states to fund the loan to build the Villages. How so? Pretend you're the bank. You have a customer approach you and says, "Please loan me $24 million dollars to build some apartments. You know I'm good for it, however if I default anywhere, the land goes back to Rowlett and I have to repay the 380 Grant funds." At that point, any money your bank funded would become junior to the City of Rowlett. As a banker, you just gave Rowlett a whole bunch of money. Would you take the risk? I think this language will be eliminated. Therefore, another selling feature offered up by the Staff Report goes kaput.
Staff Report sez, "Property today (City owned) doesn't generate any property tax revenue." Well, it isn't going generate any tax revenue for another 17 years, even after investing $11 million into it. I fail to see anything good here. This is just cannon fodder language. Doesn't make BANG. Waste of words.
Finally, staff report says that The Villages is expected to spur another $200 million dollars of new private investment in the Downtown District over the next 10-15 years. That is $13.3 million to $20 million annually. Better get started. Got a lot to do to achieve that number. Where did that number come from? No market data was quoted. Someone just shot off their mouth.
The whole deal is $30 million dollars. The city of Rowlett is contributing the down payment of $6 million. That leaves $24 million to build the project. I have not seen any plans, but I will estimate the 225 units will average 900 sq. ft. per unit. That $24 million equates to $118.51 per foot. There is no builder's profit on individual units in a rental project. There are no individual closing costs on a rental project. The land and utility improvements are already paid for. The $118.51 is only for sticks, bricks, and concrete. There is an old appraiser's tool called "the rule of fives." It is only a guideline when no other numbers are present. It says the land under any habitable and safe structure is worth 20% of the total. In a house, for example, in addition to the 20% for land, another 20% is allocated for fees, overhead, and profit. That leaves 60% for "sticks and bricks." $24 million divided by 225 units = $106,667 per unit, or $118.51 per foot, of a 900 sq. ft. structure. So, if a 900 sq ft. structure costs $118.51 per foot , then $118.51 X 900 sq. feet =$106,659, then another $35,553 for land, and another $35,553 for O/H and Profit, that means the price tag of these units if carried into the marketplace as condos would be $177,773 per unit. If a 900 sq. ft. unit, that's $197.52 per foot. Apply that number to the square footage of your house. Think you could make money at that price? Clearly, the budget seems over inflated. As an ex-lender, that budget would come under very close scrutiny. There is a whole host of reasons for a really fat budget. Some of them aren't nice. I won't go into that here.
I didn't mention all I saw. I was getting tired. Let's pull it all together.
The concept of The Villages is a good concept. The rental market in Texas and DFW metroplex is exceptionally good. Filling up the apartments has minimum risk. So, I think the project will pull 400 people to live downtown. It is reasonable to assume that other businesses will locate downtown to service these new occupants. However, not at the rate of $13.3 to $20 million annually. That is "blue sky" perpetrated by someone in "officialdom." Somebody on council should have questioned that, but didn't. The writing of the staff report was shoddy at best. It would not be hard to think that the purpose of the staff report was to deceive the reader. On top of the deceptive rhetoric, come the arithmetic. The absolute first thing that should have been done was to explain the 380 Grants program. It was not done probably to avoid the explanation that it was Rowlett taxpayer's money. Additional budgets were not even properly labeled in the staff report. Why wasn't the library rent costs added to the staff report total? To me, it seemed clear that the absence of explaining the 380 Grants and the application of those funds, plus leaving out additional costs to be incurred was a clear deception of the facts. The deception was clearly there under anyone's judgment. It is up to you to decide if it was intentional.
I want the project to be developed. It would be good for Rowlett. I have nothing against the developer, but we are giving the developer far too much money. I could beat this deal with at least three other developers in one day of phoning. I could share infrastructure improvements, and give them the land. I would give them tax abatement for two years during development and another two years during rent up and stabilization of rents.........but no more. I think the library rent should be subsidized in return for the free land. We still have to address the Chamber problem. I think that deal would be very gracious. If not, I would look at other developers.
Oh, you say the deal is already signed? If so, you should have just now learned something. Furthermore, it is adding to a pattern that seems to be emerging. If you have been following this blog, I have addressed three "real estate deals" in this blog. I see a strengthening pattern. You may also.