Grains of Salt (v35): Throwing Good Money After... Good?

Grains of Salt

Regular readers of veritable pastiche likely have seen that I'm not a huge fan of how governments, including Onondaga County and the City of Syracuse, make economic development deals.

You know the kind I'm talking about, right?  The ones where we give money to profitable companies who would have us think that, absent a taxpayer subsidy, they would be unable to move less than a mile to new office space, for example. The post I've linked has several other examples of how happy this stuff makes me.

So - knowing I'm a fan, you can only imagine my delight upon learning that we're now giving even more money to two city projects that have already tapped the taxpayer well. The Syracuse Industrial Development Agency (SIDA) voted unanimously to the increases

One of the projects is the State Tower Building renovation, which created 61 apartments and new office and retail space; the project was originally budgeted at $27.5M, but had overruns of $14.2M.  The Pioneer Companies, the project's developer, blamed water damage, asbestos caulk, and repairs to part of the building's iconic features as main contributors.

Across the city, costs on a project by BVSHSSF Syracuse LLC (an offshoot of the country's largest builder of luxury student housing) to build 244 student housing units rose from the initial $66.6M - a bad omen right there - to $71.5M, because they spent more on materials, furniture and the like than budgeted, and because the pesky Syracuse Fire Department made them bury their overhead power lines.

So - the State Tower Building project's exemptions went from $803,886 to $1.4M, and the alphabet soup LLC's exemptions were bumped up to $1.72M from $1.36M.

Rents at the State Tower building are not cheap. According to this preview,

Monthly rents range from $1350 - $1500 for the studio apartments, from $1450 to $2200 for the one-bedroom units, and from $2700 to $3200 for the two-bedroom units. In addition, there is a $100 monthly 'amenity fee' which provides wi-fi, cable TV and access to a roof terrace and fully-equipped fitness center.

For student housing units, rents run upwards of $900 per bedroom, with some projects getting prices similar to the State Tower apartments - per bedroom.

I get that we benefit from having our downtown buildings renovated, repurposed, and rejuvenated - I really do. But what are these projects 'creating' other than a profit for the developers at some point, assuming they manage them better than they managed the projects?  OK, that was a little harsh, I know, but you get the point, right?

Yes, we'll have more people downtown, and they'll spend money at the bars and restaurants and they'll have their groceries delivered from Wegmans, and they'll call their Lyfts and Ubers and all that. And we'll probably get some property tax dollars from these projects. But they're not creating any significant number of jobs for the long term, or opportunities for entrepreneurs. And sometime, maybe not all that far off, we'll reach the point where the benefits of center city vibrancy will be far outweighed by the poverty that's already pressing its nose up against the windows.

And up on the SU hill, where for decades there's been a cottage industry of renting to students - whether it's landlords buying properties and renting the entire house, or folks like my grandmother back in the day, who rented rooms in her house on Stratford Street to grad students, forming lifelong connections with many of them - progress for builders and developers is not necessarily progress for us all.

Hopefully, SIDA and economic development professionals will get to a place of comfort saying no to rewarding cost overruns, and with saying yes, differently, on development projects. We'll look at that last part in an upcoming post.

Hotel Syracuse: Another Step Forward

Hotel developer Ed Riley got more good news this week, and so did the City of Syracuse, when the Syracuse Industrial Development Agency (SIDA) approved a PILOT agreement for Riley's project to redevelop the empty and aging Hotel Syracuse, a cornerstone of 'south downtown' and Warren Street.

The deal approved by SIDA gives Riley's project a tax break of roughly $4.7 million over 14 years, and according to reports, requires him to create at least 100 jobs within three years, use all local labor on the project, and make a significant financial contribution. He still needs to secure additional financing on top of the state grants that he's already received to get the project going. The projected reopening is about two years out, but Riley has promised to make some incremental repairs to prevent further degradation of the structure this winter.

This is just one more stop along the way in the move to rehabilitate and reopen the hotel, which has been closed for a decade. Riley's company, the aptly-named Syracuse Community Hotel Restoration Co., was named the preferred developer back in February, and eminent domain proceedings  in July finally freed the hotel from our years-long waiting for or fighting with the foreign investors who owned her. Another step yet to be completed includes an agreement with the county for a guaranteed number of rooms to be available for conventions.

Regular readers may wonder why I'm not complaining about yet another corporate welfare handout; they know that I'm not a fan of many economic development practices, nor of overly-generous tax deals like the 30-year package offered to a developer to build Syracuse University a new bookstore.

And I'll admit to a hint of confliction on this one -- but just a hint.

As I've noted before, I would love one of the old gargoyles for my garden, but I would much rather we had the Hotel Syracuse restored and reopened, not only for sentimental value, or for the bump this will give our convention business, but also because it's another move towards extending 'downtown' outside the boundaries of Armory Square.

Projects like this one and the new City Center project planned for the old Sibley's building, the Merchants Commons building and others that flex and stretch our center-city neighborhood just a little bit each time, and which offer more than just apartments and condos, are good for the city and the greater metro Syracuse area.

Why?  Because, through projects like these, Syracuse has more to offer, which leads to attracting more visitors, which could lead to new companies wanting to come here, which means more people working downtown who are exposed to what we have to offer, which maybe means more people wanting to live in the city, which gives us a chance to extend our vibrant boundaries even further...

Now, if could just get someone to jump on my Parade of Homes in the City project...

The Update Desk: Bookstore Deal is Off

According to published reports, Syracuse University fired the developer of its new bookstore, the Cameron Group LLC. In a statement, the University noted that

The developer has been unable to adequately address the University's concerns or demonstrate a credible ability to successfully complete the project as it had contractually agreed to do so.

The bookstore was the recipient of a 30-year payment in lieu of taxes (PILOT), which was granted just shy of two years ago by a 'bitterly divided' Common Council.  The PILOT would have given the city all of about $64,000 per year, or less than $2M over the life of the deal.

Back in April of this year, the developer was for the second time in hot water over failure to progress with the project.  One default from last fall had been cleared when the developer took down some trees, put up some stakes, parked a backhoe and made it look like construction had started.  In April the developer assured everyone that they were going to go forward and that, while they were not making any progress, they were not costing anyone anything, a comment I found distasteful. There IS a cost when developers promise something and don't deliver, I noted:

We lose faith in the system when we see the projects not get off the ground, when we see delays, when we see construction equipment parked on the building site but nothing happening. It leaves a bad taste in our mouth, because we've been down this road before.

Now that the developer is out, we won't get the promised minority hiring and fitness programs for local kids that were included as binding contingencies in the deal.  And worse,  unless SU decides to build their new bookstore themselves without involvement from SIDA and the Common Council, we'll have to go through this agonizing process again, with our legislators deciding  once more whether it's worth it to waive tax dollars in the millions for promises in the thousands.

The Update Desk: 30-year Bookstore PILOT

Back in July 2012 I did a post, To Pilot or Not to Pilot: the $64,000 Question, about a local developer asking the Syracuse Industrial Development Agency (SIDA) for a 30-year payment-in-lieu-of-taxes deal for a property that would house the SU Bookstore, other facilities for the university, and commercial retail space not affiliated with SU. Under the proposed pilot, the developer would pay the city $64,000 annually, or $1.9 million over the life of the deal.

I'm not a fan or this type of deal, as I've noted before.  I think the better way is for people to build things, hire people, sell things, and so on -- and once they start doing that regularly and successfully, we can give them a break.

In this case though, SIDA approved the deal, making it only the second time they've approved a 30-year deal - the first being the Carousel Mall/Destiny project.  I had half forgotten about this one, until I saw the paper the other day doing some catch-up reading. Seems the developer has not yet gotten this project off the ground.

In an article (written by Rick Moriarty) posted on Syracuse.com, we learn that Cameron Development is, for the second time, on the verge of losing the PILOT because of a lack of activity on the project.  Here's the scoop, according to the article:

The Syracuse Industrial Development Agency's directors asked their lawyer last month to look into the status of the $20 million project after noticing no construction occurring at the project site at the northeast corner of University Avenue and East Adams Street.  The same agency declared the developer, Cameron Group LLC, in default of its tax deal in November because construction had not started by the August 21 deadline included in the deal.   

The August deadline stemmed from the PILOT requirement that construction begin within a year of the deal being signed. The article continues

Cameron Group 'cured' the default in December when it staked out the site, removed trees and pavers, and paid National Grid to remove power lines. The developer also parked a backhoe at the side, but it has sat idle since December. 

The developer responded to the industrial development agency with a letter earlier this month saying bad weather and structural changes requested by the university delayed  construction during the winter. With ground now thawing, work will start on the building's foundation shortly, the company said. 

The company is committed to getting the building completed by May 2014, they said in their response to SIDA's attorney, so that the facility can open as scheduled in June 2015, and that

In light of our investment and in light of our compliance with the construction schedule set forth in the Agency Lease and the PILOT Agreement, we believe there should be no issue with respect to the SIDA approvals for this project.  We will continue to develop this project in accordance with all of the approvals that SIDA, the City Administration, the Common Council, the University and we worked so hard and so long to bring about.

I understand that SIDA board members may be frustrated with the length of time that this project has taken, but we will complete the project as promised.

Want to know what else the developer said, as quoted in the article?

No one wants to get it going more then me, but this isn't costing anyone anything.

I have to respectfully disagree with that last comment.  Listen, I'm sure the project will be completed, and likely on time.  As noted, Cameron Group has spent $2.5M of their own money on this project since 2006, so they're invested in its success.  But to say that this isn't costing anyone anything isn't true.

The 'cost' is in public faith in the economic development process.  Remember, this is only the second time SIDA has done a 30-year deal, and the first one did not turn out exactly as planned.  Mall developer Bob Congel declared his project done, he didn't build everything he said he would (including a hotel), and now he's back with hand outstretched looking for -- wait for it -- a deal to build a hotel.

That type of behavior, and the seemingly cavalier attitude of this developer, are among the reasons why people who don't know a lot about economic development (and, frankly, people who DO know a lot about economic development) don't like this type of deal.

We see developers asking for help to build things we don't know or don't agree we need, projects that are so critical that they simply cannot be built if an IDA or other governmental agency doesn't cough up cash or tax breaks. We get commitments and promises and disingenuous "golly, why don't you trust me to build what I said I was going to build?" attitude from developers. We're told that if they don't get the deals they ask for, they won't build anything and then the City won't get any money at all, so we're basically supposed to be thanking our lucky stars that the developers are willing to undertake these projects.

We lose faith in the system when we see the projects not get off the ground, when we see delays, when we see construction equipment parked on the building site but nothing happening. It leaves a bad taste in our mouth, because we've been down this road before.

That, Mr. Developer, is the cost that we are incurring now, and will continue to incur, until your backhoe starts up.