Downtown South development

New Construction
528

Yeah, it had dawned on me more than once that we are very aligned on this issue, if for different reasons. And, BTW, I think the reason that we’ve had so much back and forth on the baseball stuff is that we’re both hyper-knowledgeable about it, so we can debate some incredibly granular stuff. Looking at it from the big picture, we probably agree about a lot more than we disagree about.

Anyway, I haven’t seen any studies that look exclusively at MLB. And I get where the question is coming from. NFL stadiums are by far the worst deals for taxpayers, whereas MLB stadiums can bring in more than 2,000,000 fans a year, so you would expect to see more in the benefits column. (FWIW, the research I’ve seen seems to suggest that arenas are the least-bad deal because they’re so flexible.)

I think the reason why success stories are non-existent at the big league level is that big-league stadiums are hellishly expensive. The higher the cost, the tougher it is to get a good ROI, and that goes for absolutely anything. @John asked what lessons we can learn from DBAP. Well, DBAP cost about $30 million in today’s dollars. The public contribution to BB&T Park in Charlotte, which is also usually seen as a success, was about the same. If I were to play devil’s advocate with myself here, I think the single most important ingredient in an improved deal would be shifting as much of cost as possible off the taxpayers and back onto NCFC. And, seriously, if we could do this project for the $30 million that DBAP cost, I’d declare victory and go home. But the cost of stuff matters a lot, even if the stuff is nice. But it’s really hard to make a decent ROI on $325 million for a soccer stadium (or a baseball stadium), because the sales tax rate is less than 8 percent, so you need several billions of dollars in taxable revenue for it to pencil out–and that’s new revenue, not substituted revenue. Put another way, $13 million would be almost 1 percent of the entire county budget, to support a business that would be an inestimably minuscule sliver of the county’s total economy.

The deal that NCFC is proposing is also incredibly generous to them. The public would cover 100 percent of the cost of construction, debt service, and maintenance. If the stadium is run by something analogous to the Centennial Authority, there would also be no property taxes on the land. This, by the way, contravenes the rules of the interlocal funds–the funds are supposed to be a matching grant. The public isn’t supposed to bear the full cost of any project. So step one would be negotiating hard to get a better deal that would also, you know, conform to the rules.

I agree with @orulz here: The smaller the public contribution, the better (or at least less bad, from my POV) the deal is. I would hope that even the stadium proponents here would agree that paying, say, $150 million and still getting the stadium and the surrounding development would be a much, much better deal for the public than paying $325 million for the exact same thing.

The proposed development is great, but is there anything holding Malik and Kane to those grand promises? I realize Kane at least has earned some trust, but what happens if we break ground on the stadium, and then the next recession hits? The second step to a less-bad deal would be that there needs to be some mechanism to enforce those promises that the rest of the project is going to get developed in a timely manner, or else the public gets some of that money back. (And if we could play the supplicants for interlocal funds off of one another and see who blinks first, all the better.)

I wouldn’t be surprised if this is more-or-less what happens. The county commissioners like the project, but it really is a difficult amount of money to swallow, and there are some hard noes on the board, and it’s supposed to be a matching grant anyway. Plus, going 50-50 with NCFC would be exactly the sort of everyone-can-call-themselves-a-winner compromise that politicians just love.

BTW, @evan.j.bost From when it opened in 1996 until at least February 2016, Bank of America Stadium hosted two concerts in 20 years: The Rolling Stones in 1997, and Kenny Chesney and Tim McGraw in 2012. That’s it. Charlotte has done a really good job bringing in two or three college football games a year and the occasional international soccer match, but that’s still not enough to move the needle at all.
https://www.charlotteobserver.com/living/liv-columns-blogs/theoden-janes/article62680067.html

3 Likes
529

I don’t think that anyone is saying there shouldn’t be conditions on the money. The agreement should have performance guarantees and the expected return should be spelled out. Maybe Wake County is guaranteed that the facility would be available for other uses or events. There should be priorities for what the money pays for first, such as land, road improvements, infrastructure, etc. There should be a board that manages the facility and Wake County and Raleigh should have a seat at the table. I would prefer it if they could grant the 30 year term with 5 year renewals. There has to be oversight.

I haven’t read through the NCFC request, but it should be a little more sophisticated than asking for a handout. And I think the amount granted should correspond to a percentage of the stadium cost so that if they build less, or it costs less than expected, the allocation would be reduced.

2 Likes
530

Why can’t we have nice things?

6 Likes
531

David,

why does the analysis you keep citing ignore the ancillary development and subeqent tax revenue (ie: ROI) generated by a stadium project?

In the case of NCFC, how could you ignore the fact that the property taxes alone will top the $13MM/year request by 2X maybe 3X? It IS one massive project, NOT just a stadium. This ROI doesn’t even include additional occupancy & meals taxes generated by the ancillary development (and yes, a lot of this WILL be from out -of- towners), not to mention sales taxes, etc. It makes your ‘anti-funding of stadiums’ analysis empirically questionable, at best, dubious, at worst.

4 Likes
532

Panthers stadium is disconnected from any other mixed use development. It is a single use facility. Compare this to DBAP where at least you have some connected retail/restaurant space. DoSo proposes lots of mixed use integrated with the stadium. Obviously no one has drawn the floorplan yet but I trust that this stadium would be integrated with mixed use (skybridges/tunnels, restaurants that overlook the field, etc.).

Didn’t Kane get some of his Dillon parking deck subsidized by the city to provide parking for Union station? Without the parking deck, the Dillon would be 9-10 floors high.

There would certainly be disproportionate funding of the interlocal tax by downtown if the purpose of expenditure was shifted to infrastructure or county services that are more needed in the expanding burbs.

1 Like
533

Agree on this. I don’t mind continuing going back and forth on the baseball thing when new talking points arise. I think debates like that are what make this forum so rich and unique.

As for the question on stadium funding and ROI, i think we need a more 2019 approach to financing when it comes to stadiums. Even if we’re talking about a sport I care deeply about (ie. baseball), I still would be on the end fighting for a smarter, more even deal for the city/county when it comes to tax money used on a stadium.

You can’t just ask the city/county to foot the whole bill and carry all the risk. You need to have risk held by both parties. We shouldn’t mind investors asking to tap into a tax pool that was created for this very reason. However, we SHOULD mind if those investors aren’t willing to commit to any risk. (Proposing $1.9 billion of surrounding development does not count because no one can contractually hold a private developer to make good on that proposal.)

At the same time, if an investor group wants a stadium, but doesn’t want to commit to putting down a ton of money up-front, there are certainly innovative ways to create that money.

For instance, look at Portland’s proposal to fund their potential baseball stadium (they are in the MLB expansion running as well). They are asking for only $150 million from their state on a much more expensive project.

They have passed a law that takes the taxes from the player’s income and redistributes it back to the front office to help pay off the stadium. This eliminates the everyday citizen from their taxes going up to pay for a stadium, and at the same time does not drain the Tourism Tax pool. The investors are on the hook for a portion up front and the county would be as well. All sides hold equal risk. The only one getting away scot-free here would be the local tax payer.

Point is, there are alternatives out there that may be a bit out-of-the-box, but would make a heck of a lot more sense than just playing chicken with the city/county and hoping they cave, pay for the whole thing, and accept all risk.

2 Likes
534

Sure, great question about the projected increase in property tax revenues. The fundamental disconnect here is that when Steve Malik says that they will walk away from this project if the city/county doesn’t deliver the funding, there’s good reason to believe that this is a negotiating ploy/threat and not a completely honest statement.

In a March 21 story in the N&O, Malik said that if public money wasn’t allocated he would “develop the land in another fashion.” Sure, “another fashion” is pretty vague, but it’s totally inconsistent with what he said at the press conference. What explains this volte-face? Nothing has really changed in terms of the value proposition of developing this land. But we do know from the public record that between March 21 and the press conference NCFC commissioned a poll testing various proposals. Certainly they would have tested to see if funding a large, multi-use project had more support than funding just a soccer stadium, and of course the bigger project had more support.

So the threat to walk away from the whole project is likely just that–an empty threat, and Malik was telling the truth in his March interview with the N&O. But let’s suppose for a minute that Malik and Kane really did walk away. As @orulz notes, the land has been vacant for a long time. I’ll concede that if Kane and Malik really did walk away, there’s at least some risk that it lays fallow for another economic cycle. But the land is still in an Opportunity Zone and still along the new BRT line (neither of which was true until recently), and still a fantastic redevelopment opportunity. Surely there’s the very real possibility that if Kane and Malik actually did bail, someone else would snatch up this land and develop it in a broadly (though not identically) similar way, in which case we get all the benefits for none of the costs.

And even if a project did get delayed for a cycle, is that really worth $300M? If the project gets approved, the city/county would start shelling out immediately. But Kane and Malik have conceded that developing this land would be “the work of a generation”. And that makes perfect sense–Rome wasn’t built in a day, and neither was North Hills. So we would start paying out immediately, but the increased tax revenue would start accruing only gradually. And as @Loup20 points out, it’s not like Malik and Kane are legally committed to following through on any of these promises. If they ever decided to scale back the project for any reason, the city/county would have no recourse.

(EDIT: $13M a year in property taxes equates to the land having a value of around $1.12 billion, and I got the math totally wrong the first time because I was a dunderhead, and hoo boy, does that value not sound at all realistic!) And again, I’m getting tired of having to reiterate this point, but North Hills, Smokey Hollow, you-name-it, all generated a lot of new property tax revenues, but none of them were propped up with taxpayer subsidies.

So when you combine the facts that 1. Malik and Kane are very likely bluffing and would just develop this great location anyway even without the stadium, as Malik flat-out told the N&O they would, 2. If they don’t develop it themselves, there’s a very, very good chance someone else will, 3. There’s absolutely nothing ensuring that Kane and Malik have to deliver on their promises, 4. We would start paying the $13M/year immediately while the benefits would accrue much more slowly and, 5. The city/county is simply not in the business of directly subsidizing the construction of new hotels and restaurants, then the cost-benefit analysis becomes much more aligned with reality and the business case for subsidizing the stadium starts to look a lot worse.

@Loup20 outlined some creative ways that the city could help bring this project to fruition while minimizing the exposure to taxpayers, and I have no objections to the city/county engaging in those sorts of negotiations to look for a deal that actually makes sense. But just writing the team a check for $300M+ and putting the taxpayers on the hook for 100 percent of the cost of the construction, debt service and maintenance of the stadium is such a fantastically bad idea that it should be rejected out-of-hand.

EDIT: Here’s a good column from Luke DeCock that puts the NCFC request in context. NCFC missed the deadline for getting recommended for funds, so now they’re trying to contravene the established process to overrule city staff. And I do have to give the city some credit: PNC asked for $200M, but they only got $115M. I would personally argue that they should have gotten even less than that, but I will concede that $115M is a much better deal than $200M, so good job politicians for not just giving PNC whatever it asked for.

https://www.newsobserver.com/sports/spt-columns-blogs/luke-decock/article231935103.html

2 Likes
535

David, what would you use the hotel/food tax for and can you make a compelling ROI case for that?

3 Likes
536

Not David, but I’ll weight in…

1) Dix Park
I know they proposed a land-lease on the Lake Wheeler side of the park (for high-rises) and a boutique hotel in the middle of the park. Neighborhood groups fought those ideas hard. They passed the plan, but did not commit to those high rises or the hotel. The problem is, while I understand that they don’t want to commercialize the park, those ventures would go a LONG way in funding what is going to be a VERY expensive build. This article estimated it would be about $1 million per acre to develop it and I think that is being conservative. The park is 308 acres. That means that we’d be committing $300 million over 25 years to a stadium (without a high volume tenant) instead of basically being able to fund a majority of the buildout of Dix. note: Allow the high-rises and the hotel and then you don’t need to lean on the Tourism Tax pool so heavily. But with Dix being the future crown-jewel of the city, guaranteeing it’s funding, IMO, is paramount.

2) Natural Science Museum expansion/renovation
Haven’t heard much chatter about this on here, but there is some potentially big news coming down the line for the Natural Science Museum. I’m sure a lot of you have probably heard rumors (or maybe it’s already been discussed here), but if all goes according to plan, there is going to be a need for some big money being put to this project and it should be well worth it. Could be a once in a lifetime opportunity for Raleigh.

That right there, in my eyes, is reason enough to questions the DT South proposal as it’s been laid out. I am not against a stadium at all, but I feel what is out there is very risky for the city with a lot of these big-time projects hanging in the balance especially with MLS not being a guaranteed tenant.

**note: My view on these priorities probably would change if MLS granted Raleigh a franchise prior to county funding approvals (or with conditions). No pro-sports team (that I am aware of) has ever built a stadium on speculation before being assured a franchise.

5 Likes
537

That would mean property taxes were 10% per year wouldn’t it? They’re almost an order of magnitude less than that (1.1589% total combined rate according to Wake County’s site). So the property value would have to be >$1 Billion to generate $13M/year in property taxes, by my math (~$1.12B to be precise).

2 Likes
538

I’m very strongly in support of the Marbles Kids Museum project, but their request is pretty small, so certainly the city/county could completely fund the request and have plenty of money left over for a stadium or something. I haven’t had a chance to really scrutinize the specific proposal from the NC Museum of Art, but in general it’s a great community asset worth supporting. And I totally agree with @Loup20 that both Dix and the Natural Science Museum are fantastic projects worth supporting. (BTW, St. Petersburg built a stadium on spec, and needless to say, while they did land the Rays, the project has not worked out as well as either St. Pete or MLB had hoped.)

Admittedly, it would be easier to marshal opposition to this NCFC request if there were a ton of really compelling projects competing for the same funds in this go-around, but aside from Marbles, there’s really not. The PNC request is certainly not a compelling request, and the Convention Center hasn’t been a great investment for the city, and I’m quite unimpressed with the request to build an entirely separate sports stadium elsewhere in Raleigh. But while keeping funds in reserve for the next round of funding is a not-very-sexy answer, I think it’s a good one in this case. And I personally would argue that the prepared food tax should be scrapped. The hotel tax, fine, but the prepared food tax is paid mostly by local residents. Just let people go out to eat and scrap the surcharge.

2 Likes
539

And how would the ROI look like on those projects? Marbles, NC Museum of Art, DIx (would that even qualify for this tax pot), Natural Science Museum

540

Mitch is correct here and I did the math very badly, and I am just absolutely mortified that I botched that, but I did. This is a great example of how discussion on this forum is great. I was wrong, and Mitch corrected me, and now I can stop being wrong, and start being right instead. Thanks, Mitch!

So, yes, the property value would have to be $1.12 billion or so, which absolutely, positively does not pencil out.

2 Likes
541

Marbles currently attracts 600,000 visitors a year, and is one of the top 10 tourist destinations in North Carolina. I don’t personally have data on how many of those folks come from outside Wake County, but given the attendance figures, it would have to be a lot, and Marbles says that a lot of those visitors are also from out-of-state. My understanding is that the numbers are similar for NCMA and NSNSM, but we could definitely run down the hard data.

Obviously, the numbers for Dix would be a projection and would depend a lot on how the park is developed, but I would think that the numbers on that would be really high.

1 Like
542

The museums already attract these numbers at present day. Are they operating break even, surplus or with a deficit? Do they need the tax to continue operation? Let’s assume the museums at least break even. That means for the ROI the additional investment would need to be justified with additional visitors, right?

543

So many assumptions here.

You assume that you know what Kane/Malik will do, even though by your own examples they have given conflicting info. This is an extremely fluid situation. I’ve seen full construction plans for a “Triangle” baseball stadium that was supposed to be located next to RDU. That stadium ended up becoming DBAP instead.

You assume that other developers see the value that Kane/Malik do in the Penmarc site. The track record here is that Kane has seen value in the Raleigh market where others haven’t. This is a “visionary” concept. Other developers likely wouldn’t propose the same level of development that Kane has proposed. Kane is actively building in multiple locations. Other developers are having trouble getting individual buildings off the ground at Peace Capital/Nexus/400H. There’s not a guaranteed line of developers who are actively developing projects in Raleigh waiting to pounce on this. It could literally be a strip mall and an apartment complex for the rest of our lifetimes.

You’re not paying $300M to avoid a down economic cycle unless we had a 30 year recession. You’re paying $13M/year (or whatever it ends up being) for the duration of the recession. If you scale the funding allocation the city/county would have a recourse. If there are performance standards for continued funding the city/county would have a recourse. If there’s a required funding review or renewal request, the city/county would have a recourse.

Also, does the $13M/yr ROI account for 30 years of inflation? If $13M covers infrastructure and debt service, at the end of a 35 year period it’s probably going to seem like peanuts compared to what things will cost then. 30 years ago the median US home price was $125K, and today we’re looking at $315K. Does it follow that 30 years from now we’ll be getting $40M in value/year for our $13M/yr deal made way back in 2019?

6 Likes
544

Agreed. You also have to look at this as from a financing view. primarily office and residential space driven projects like North Hills or Smokey Hollow probably has a more predicable cash flow once they are built (rent or lease as income), versus a stadium where it’s more dependent on attendance to cover costs. As any of these large scale projects, almost all of the costs would be financed. Would a bank be more willing to extend credit knowing that you have $13M / year guaranteed coming in rather than purely dependent on the economic activity you may generate from the project. I also agree with a previous poster that the property value and the tax from it alone once it’s built should exceed the $13M outlay the county would have to fork over per year, especially considering the tax payer really footing the bill are the hotel and entertainment usage.

2 Likes
545

Maybe this is dumbing things down tooooo much. I remember back in the day when I played SimCity (circa early 90s) I didn’t build a stadium and make money. I spent money to build a stadium, but it made the citizens happy and more people would move to my town.

:man_shrugging:t3:

I was also like 13 years so what did I know, except I wanted a stadium.

19 Likes
546

I LOVED SimCity… too bad the wrecked it with their latest version :rage:

547

All great questions! Yes, the museum is self-sufficient. The interlocal funds are earmarked for significant capital investments. They’re not intended to cover day-to-day expenses, and that goes for Marbles, NCFC, whatever.

Marbles is planning a major expansion with a projected cost of $45 million. You can read the full proposal here, and I definitely encourage folks to read it, but they’ve got projections on how this will increase the number of visitors (they estimate the numbers will climb to 850,000 to 1,000,000) and ROI. They’ve also got data on who comes to Marbles–half of the visitors are from outside Wake County, and half of those (so 25% in total) come from 50 miles away or more. I can testify firsthand that the place really is jammed pack on busy days, so expanding the facility would I’m sure allow it to attract more visitors.

http://www.wakegov.com/roomfoodtax/Documents/Request%20for%20Information/RFI%20Responses/Marbles%20RFI%20Response.pdf

@OberlinSouth I’m not suggesting that I know 100 percent for sure what Kane/Malik will do, but the latest, contradictory statement seems fishy, and we should at least treat it with some very healthy skepticism. Nor I am saying that another developer would definitely come in if they did in fact back out, but that there’s certainly the reasonable possibility of this happening. All this stuff about recourse sounds great, and could be negotiated in, I suppose, but they’re not part of the current proposal–certainly not the funding review or renewal.

I should probably not attempt to do any more math today, but can anyone calculate what $13 million a year for 25 years would be in present value? O’s point is a fair one, but even accounting for present value, it’s still a ton of money, and if we’re going to compare apples to apples the competing projects would need to be likewise adjusted.

2 Likes