Metro Pulse/Insights/Downtown Redevelopment

Comment
on this story

by Joe Sullivan

When the Worsham Watkins downtown redevelopment plan was unveiled earlier this year, a lot of emphasis was placed on the interdependence of all elements of the plan. Only a concurrent commitment on the part of WW and the city to proceed with the entire $240 million in private and $130 million in public investment could support projected returns to both parties sufficient to justify a public/private partnership on this scale, it was stated by all concerned.

But now it's beginning to look as if the redevelopment plan may proceed in piecemeal fashion, with higher risks to city taxpayers in particular unless and until all of the pieces fall into place. City officials and officials of the Public Building Authority who are negotiating the enormously complex terms of a deal with WW remain committed to a year-end target date for a go-ahead. "We really want to bring things to closure by year end," says the PBA's administrator Dale Smith.

But it's becoming increasingly likely that WW won't be in a position to proceed with crucial elements of the plan by then. Moreover, the elements that appear most problematic are the very ones that are calculated to generate sales tax revenues that represent the bulk of the money the city is counting on to cover its $130 million outlay for parking garages, a mall over Henley Street and other supporting public infrastructure.

A traumatic shake-out in the overscreened movie business casts doubt on plans for a cineplex. Prospects for a Scripps/HGTV cable network center remain shrouded. Tenant commitments needed for the 170,000 square feet of "shoppertainment" space in and around the Henley Street mall appear contingent on the cineplex and/or a Scripps Center. And appealing concept plans for the commercial revitalization of Market Square are likely to remain hung up for many months over the issues of whether and on what basis a master private developer gains control over all the property on the square.

That leaves the 417-room Marriott Hotel and 33-story office building complex in the block to the west of Market Square as about the only elements of WW's grand design that are ready to proceed. (The good news is that financing for a first-rate convention center headquarters hotel has been secured and that tenant commitments are said to be sufficient to justify downtown's first major new office building in more than a decade.) The hotel/office complex that would go on top of a 1,300-space underground garage also takes considerably longer to build than anything else in the WW scheme of things. Even if work on the underlying garage gets underway early next year, completion of the hotel and office building is not projected until well into 2004. Yet every day the amenity-laden hotel remains unfinished after the scheduled opening of the city's new convention center in mid-2002 bites into prospects for booking gatherings that will help cover the operating costs of that $162 million facility.

Thus, there's a move afoot to authorize proceeding with a $34 million city outlay for the garage to support the $52 million hotel and $70 million office building while placing much of the redevelopment plan on some sort of contingent status. "It shouldn't be the goal to do things sequentially," says the PBA's Smith. However, "the city is never going to figure out in advance what the odds are of a cinema coming in or when it may occur....Scripps is a wild card....Market Square probably takes a longer and different path through a revised redevelopment plan approval process....and I can't fathom a developer who would put up the [157 units of] rental housing that's proposed adjacent to Market Square if the Market Square plan doesn't work."

The prospect of proceeding with the hotel/office complex in isolation raises two basic questions: (1) Is the city justified in spending $34 million on a supporting garage that doesn't project to generate nearly enough city revenue—at least directly—to cover its cost?; and (2) What sort of contingency plan should govern other elements of the undertaking that lag behind?

As for the garage, projections that the PBA and WW prepared in conjunction assume that the hotel/office complex would yield the city about $1 million a year in sales taxes and another $1 million-plus in property taxes. Together with about $400,000 in assumed lease payments and parking fees, that would be just about enough to cover debt service on the garage. However, the $1 million-plus in incremental property taxes are likely to be dedicated toward covering WW's own debt service on the hotel and office buildings through the same sort of tax-increment financing (TIF) that's supported construction of several of downtown's other major buildings. Along with TIF, the city has also ponied up for the garages that support the Hilton and the Hyatt Regency hotels as well as the Riverview Tower and Bank of America office buildings. A convention center headquarters hotel and an office building that could add some 2,000 jobs to downtown's workforce appear at least as worthy of support as any of these investments that have gone before.

It's less clear how far the city should be prepared to go toward risking another $100 million on garages, trans-Henley malls and World's Fair Park enhancements to incubate WW's other eggs before they've hatched. At first blush, it would seem that any binding commitments on the city's part should be coupled with similarly binding commitments on WW's part to deliver the panoply of attractions that have been projected to yield all parties a positive return on their investments. But such bindings could shackle WW's efforts to get the commitments it's seeking for a Scripps center, cineplex, entertainment venues, retailers, restaurants and the like. So it may be that a staged approach would involve commitments from the city contingent upon WW's delivering subsequently.

"The best laid plans don't always materialize on the timetable envisioned, and the most important thing is to make sure that we're doing something positive for the community," asserts the city's estimable director of finance, Randy Vineyard.

Of course, the entire undertaking is still subject to the negotiation of a host of terms between WW and the PBA, acting on the city's behalf, and then approval by City Council. Everything from WW's proposed developer fees to clarification of who's responsible for what costs and how the city would be indemnified if WW fails to fulfill its commitments is on the table—to name just a few of the issues.

No matter how hard a bargain Smith is able to drive, the redevelopment plan still represents a big bet on the city's future. Yet in any last analysis, the costs of failing to make that bet far exceed the risks of doing so.