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Monday, June 29, 2009

City Hall Asking Right Questions about McEagle Project

Friday's St. Louis Business Journal carried two stories on McEagle's NorthSide project that quoted Deputy Mayor Barbara Geisman and Mayoral Chief of Staff Jeff Rainford. (Articles are available online only to subscribers.) The primary article, "Will Paul McKee and City hall bond?" dealt with the developer's request that the city guarantee via general revenue half of the $410 million in tax increment financing bonds sought. From the comments in the article, it sounds like City Hall is not ready to roll over on the request.

Rainford says that Mayor Francis Slay is skeptical on the city backing the bonds, and that Slay will only do so under "extraordinary circumstances." Rainford acknowledged ongoing negotiations between the mayor's office and McEagle, but the article did not elaborate on what "extraordinary circumstances" would be.

Deputy Mayor Geisman went further, stating that the city doesn't know enough about the project yet to consider a request for general revenue backing. The article ends with a frank -- and encouraging -- quote from Geisman: "Lots of people ask for lots of things; it doesn't mean they're going to get it."

While there is much to admire in the scope of McEagle's vision as it has been laid out, the TIF request is abrupt and based on unsubstantiated financial information. The size of the request alone raises questions, but the push for city backing is premature. As the Business Journal article notes, the only three times when the city backed TIF bonds -- St. Louis Marketplace, the convention hotel and Pyramid's acquisition of One City Center -- the city has ended up on the hook for failed or troubled development projects. McEagle has yet to demonstrate that its project would be any different.

I am heartened that City Hall has shifted gears from largely favorable comments to on-point comments. Hopefully this indicates a stance of tough bargaining, because a city that is eliminating jobs and implementing furloughs cannot afford to throw the treasury open for an untested vision.

That said, the second article, "McKee eyes land swap with MoDot for first phase," showed some of the possibilities of the McEagle development. McEagle wants to eliminate the 22nd street ramps and use that site for new office development, and it seems that City Hall favors that approach. Readers know how much I want City Hall to support eliminating needless highway components, so I am glad that Geisman seems positive about removal of some of the most useless highway infrastructure in the region.

I have little to complain about the 22nd Street part of the McEagle vision: it removes useless and divisive infrastructure, adds density, does not affect any houses, businesses or historic buildings and it could result in a termination of the visually-challenged Gateway Mall other than a chain link fence. McEagle wants this to be the first phase -- why not separate this area out into its own redevelopment area with its own enabling legislation?

One major problem with the McEagle project has been the lack of public-side planning. If city government was vigilant about setting and enforcing urban planning goals, the McEagle project would conform to those objectives and not be as problematic as it has been. Barring real planning, City Hall ought to use its powers to make sense of the project for the benefit of the city. Beyond the TIF deal, City Hall should look at the possibility of breaking the project down into smaller redevelopment areas, creating real historic preservation planning and placing the promises unveiled on May 21 into an actual contract between the city and the developer. A good deal is possible, and City Hall is at the center of that.


Brian said...

Was the reference to "Once" City Centre intentional? :)

Anonymous said...

Michael - one thing I'm always at a loss to understand is how McKee could show that this project will be different that the other city-backed TIFs or how he can "test" the Northside vision as you state it is "untested".

I'm of the opinion that cautious incremental development may do more harm than good here.

Anonymous said...

actually, the "test" that is required here is pretty simple and has nothing to do with the counterfactual--ie., incremental development. It is that McKee's project (or projects) meet a basic financial feasibility--that anticipated increase in public tax flows--property taxes and other economic activity--will be large enough to pay off the TIf investments at the front end. The fact that this is such a hard test for city projects is one reason why TIFs are rarely a significant component in commercial project financing--absent from Loughborough Commons.

Anonymous said...

The news articles referenced contain mayor speak that translates into the following.

We're talking tough, but will roll over in the end and give McKee whatever he wants.

Slay and Reed will vote for putting the city on the hook for this project and use the same stale and worthless arguments to back their decisions.

The author correctly recognizes that an economic feasibility study is crucial. The question is will they get one, and if/when they do, will they divide the assumptions in half to get a realistic sense of what revenue the project will actually generate?

Michael R. Allen said...

Last Anonymous, I am not so sure about that. I think that that one bind on the mayor is the aldermanic support -- why would Slay go against Davis and Ford-Griffin in the end? If the aldermen were open to making productive changes, the mayor would have more leverage. The aldermen have supported this project since 2001, before Slay was even elected mayor.

Anonymous said...

No, I agree with anonymous. I don't read much into what the mayor or his spokepeople are saying in terms of a lack of support for the project. Their comments and Geisman's in particular are just public sector development speak that is usually stated in the initial stages of negotiation around public subsidy. I don't think that Geisman is going to give McKee a free ride in terms of TIF and other things, but if they have incentives to throw at this project like the Kiel project they will do it.

The more difficult problem for the city is to break this thing up into a series of phases that can be fed through the process in some order. While McKee has done this in conceptual terms, I would suspect that the nuts and bolts of the proposals in terms of the development pro-formas are still coming--that is probably one of the reasons why McKee is asking for the city to back the bonds, recognition that the total package at this point lacks financial stability.

The preference of the mayor's office is probably to break the TIFs up into component parts--something that is done with other big projects with many parts--that can stand on their own and presumably on their own economic merit. At this point, the latter is unproven, which is why Geisman is trying to point the project components to other reasonable development ideas--for example, new class A office buildings--that other developers have also talked about.

Anonymous said...

Even in the city-backed TIF was cut in half to $100 million, it would still be disastrous for city services if/when the project fails to make payments.

Also, what about the city's credit rating? $100M or $200M in city-backed debt for a speculative real estate venture would be extremely detrimental and cost the city even more money.

Moving forward with this project with $100+ million in city-backed bonds will, ultimately, bankrupt the city when/if the McKee project fails.

barbara_on_19th said...

The $739M in TIF + state money is just about enough to handle the areas A, I and B of the TIF (downtown along 22nd plus the new bridge). I still don't understand why he gets to include also taking 2400 parcels on the northside when he is only showing wherewithal to develop the desirable commercial areas downtown. Sorta like, if you give me $738M to build on the Mall, you also have to give me future rights over 2400 parcels in Soulard, Benton Park and Tower Grove South. Huh?

Anonymous said...

Crucial issues surround financing will dictate design and ultimately the quality of the final product. The McEagle-McKee grand design was envision in a period of time when financial markets priced risk as if it didn't exist. The times have changed... and dramatically.

Cities and states across our country are hemorrhaging as their costs continue to increase while revenues are falling. St Louis is no different. The public markets, both equity and fixed income, now price incremental risks severely.

Breaking the grand scheme into smaller units will reveal major holes as any honest economic feasibility study will reveal. Even EWGC now recognizes that local TIFs have not worked. Spouting critical comments is like the corporate leaders of the Titanic offering swimming lessons to their passengers in order to create an image of responsibility. Meanwhile city leaders are becoming more desperate to find solutions to mounting unfunded liabilities.

Anonymous said...

What great discussion. Paul McKee, are you listening? Paul McKee, can you respond?

Today on 90.7, Don Marsh used the expression, "pig in a poke". Paul McKee, did that make you wince?