Downtown South development

New Construction
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I just decided to condense the replies to both of these posts into one post rather than trying to constantly edit stuff.

If the stadium is owned by the city-county, then the property tax revenues are going to be zero because the county would just be paying money to itself.

Even in a best case scenario, it would take decades to build out this land. Kane and Malik said as much, and Kane started work on North Hills in 2000 and that work is still ongoing. So the city would begin paying out $13 million a year immediately, while the value of the land would increase only gradually over time. Even in a best case scenario, it’s definitely not the case that they close the deal with the city and, poof, now it’s worth a billion dollars tomorrow, or any time in the near future.

The city/county would also be on the hook for firm commitments, while the Kane/Malik projections are aspirations. If it turns out to be only 1,500 residential units, then the city/county just gets less tax revenue.

I don’t think we’re justified in assuming that Renaissance North Hills is automatically a comp just because it says “1,200 hotel rooms.” And we obviously need to subtract the current property taxes collected on the land from any figure, or else we’re just double-counting the ROI.

And finally, if, for the sake of argument, Kane and Malik really, truly believe that the projections for this project are so rosy, and the land is in an Opportunity Zone, meaning that they would pay no taxes on the profits, then it makes it very difficult to believe that they would actually walk away from this project because the stadium didn’t get funding.

I will concede that the negotiating ploy of hitching the rest of the development to the stadium funds has been a very effective ploy! Most of the defense of this project on this thread has been for the other stuff, not the stadium itself. But, and this is a serious question I put forward, how much taxpayer money was used to subsidize the Bullhouse Durham apartment? How much taxpayer money was used to subsidize the Renaissance North Hills? How much taxpayer money was used to subsidize the Captrust Tower?

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Sorry, but you didn’t actually address any of the points I made. The fact that these parcels are increasing in value is irrelevant. Unless the stadium creates more demand for real estate development, then you’re just robbing Peter to pay Paul, so to speak. No one is saying that these individual parcels won’t be affected, but the demand for the ancillary real estate already exists.

Let me put it simply (Because I’m trying to be clear, not because I think anyone on this forum is stupid):
IF the stadium generates EXTRA economic activity for the ENTIRE CITY then it has a positive net present value. However, IF the TOTAL new real estate development in the city is UNCHANGED by the stadium, then the NPV would be zero. So, in order for the stadium to create ROI, it needs to create EXTRA economic activity above what would otherwise exist. (This is also true for all other public investments).

Every analysis I’ve ever read has made this point. Stadiums don’t CREATE new economic activity, they just SHIFT it. Now, maybe this stadium would shift economic activity from Cary to Raleigh, but it still isn’t creating anything extra. What I was asking for is an economic analysis that shows stadiums actually create extra economic activity (i.e. cause the city economy to grow faster than it would without the stadium) because I’ve never seen one and I doubt it exists.

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631

I was merely correcting your property tax/value assumption above and providing comps for context. Everything else is speculation

You guys keep slamming the proposal with the ROI argument. Can you provide us with your preferred alternative allocation of the taxes and its ROI?

632

Yeah, in fairness, I don’t think I articulated my point very well on the first attempt, and that’s my own fault.

This whole process has brought me around to the position that the entire premise of this tax is flawed, and it is actually a very bad idea for government agencies to act as an angel investor for tourism startups. Obviously it’s great for Raleigh to have a vibrant tech sector, but I think most people would agree that it would be a terrible idea for the city-county to have a dedicated “tech tax” that could only be used to provide venture capital to local tech startups, and the tourism tax is just as bad of an idea. So my ideal solution would be to change the law, eliminate the prepared food and beverage tax, and put the hotel tax revenue into the general budget like other taxes.

Obviously, that requires a change in state law. From a city-county perspective I’m still wrestling with that question, honestly, and it’s a very, very good question that you ask, but in the meantime there’s certainly no reason to treat that money like it’s burning a hole in our pocket and we have to spend it all today.

633

Am I part of the ‘you guys’?

I feel like I’ve made all my points pretty clear above. I’m saying the county should only take the risk of committing to owning a $300 million 20k seat stadium if/when Malik can guarantee MLS or when they can get a contract that holds Kane to his $1.9 billion development promise.

I think that’s fair and it spreads the risk/reward around evenly.

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I actually don’t think any investment like this would generate meaningful ROI on its own. I’m fine using the money for a stadium, but I just wish they would make a different argument. Maybe the stadium improves quality of life for residents or raises Raleigh’s national profile. I’m ready to accept those arguments. I like the proposal a lot, in fact, and hope it gets built, but the funding for stadiums problem is much bigger than one proposal.

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635

ROI discussion aside - There is absolutely no need for a 20,000 seat stadium without an MLS team and it’s a waste of money. That thing would sit empty and host half full minor league games and tournaments, and with half full concerts.

Give them some money for a smaller stadium now that can be expanded. And if and when Malik actually gets an MLS team, throw in some more to build it out to 20k seats at that time. Giving them all the money up front is ludicrous.

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636

If there is $1.9B of development I don’t see how it can be argued that the value of the development will be less than $1.9B. To do that you would have to assume that the value of land and buildings aren’t going to go up over the next 30 years. A more accurate comparison would be to look at how much North Hills was worth before Kane started working on it. See what the land was worth in 2002, how much office space rented and sold for, track it through today’s rates and sales. Then extrapolate that percentage increase out to Penmarc’s current value and the amount of development proposed. Add in annual property increases and inflation to get a projected value in 30 years. If office rates in Raleigh are $50/sf then, how much will the building be worth? This isn’t a simple math problem and I’ll be impressed if anyone can come up with a reasonable projection, even though any projection is most likely going to be wrong anyway. I doubt Kane even knows the exact amount. He just knows it’s going to worth a lot more than he puts in to it.

There are a lot of questions being asked that don’t necessarily have answers, and can only be answered with speculation. All of this is based on projections. Everyone has their own belief threshold with projections.

From what I’ve read Kane/Malik have options on up to 130 acres in the area. You can believe them or not. I’ve been looking at this area for over a decade and I believe that much land could be assembled by the right group who is actually interested in it. Before the recession we looked at a Walmart proposal for the property across SSaunders from Sams. There is a lot of potential beyond just the Penny property.

I think it all comes down to personal preference. Some people don’t like the city investing money in a way that would benefit a private developer, some people don’t want the city to own a stadium, others have different priorities for the money, etc. Some are soccer fans, some just like to see development happen, some want to see development along BRT corridors etc.

I do think there’s probably a way to grant funds and allow a specific percentage to be contingent on Raleigh landing an MLS team. For all we know a LOI might be all it takes to push us over the franchise threshold. An LOI from the city/county and the $250M franchise fee that is.

I hope they get it, because I’m excited about the potential, and I think if they get it things are going to work out. I do tend to be an optimist.

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637

Double , Double Like This !

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638

Me too @nipper.dwight.

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639

I am actually losing hope that this will happen, or that Raleigh will get an expansion team. Like everything else, Raleigh will be second place. This time the sting will be bad though because we are going to lose this to Charlotte. Just watch…

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Im not an MLS official but seems like the chances are pretty low. There is one spot left and Raleigh is third in the pecking order… please help me do the math. It’s not just Charlotte you have to worry about, it’s Sacramento, St. Louis, Phoenix, and Detroit too. This is not a “build it and they will come” situation, it is a “buy it and we’ll see what happens” one.

Here’s another punchline, siphoning that money toward a stadium that may not have a pro team will increase the chances of losing the Hurricanes.

Am I taking crazy pills? How are people falling for this?

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641

People that sell pro sports franchises know that LOIs are nonbinding and they want developers to make firm commitments before they will do the same.

If you worked for the city, would you buy a $1.9billion stadium that doesn’t have a pro team? Oh and if it doesn’t work you get fired. That is literally the situation here.

642

When did the stadium become $1.9B?

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643

MLS is expanding beyond 30 teams

644

Where’s the proof? I thought 30 was the maximum amount

645

The point is that I don’t think the stadium will have to be constructed prior to being awarded a franchise. I think if the $250M franchise fee is paid and there is a comfort level of commitment for the stadium, they could get a team. Whether that is a guarantee, grant or whatever, the money isn’t spent immediately. There’s rezoning, design, plan review, construction plan review, bid, award, construction, incremental review, certifications, bank draws. I think there’s a couple of years before they’re actually paying for construction which could allow for the MLS process to move forward before the money goes hard.
There’s also the possibility that if this is a construction loan at $13M/year over 30 years, $300M total on a $225M construction cost, they could decide to pay it off early and save finance costs.
This is all speculation.

Literally nobody at the City is paid enough to make a $1.9B decision. The decision would be made by elected officials that are serving in a voluntary capacity. Their risk is that if this doesn’t pan out they could lose an election, if people blame them for it. Since they’re typically in their late 50’s and 60’s, and aren’t career politicians, losing their position isn’t even close to losing their primary source of income. When you consider that most local politicians should be running because they want to improve the City/County, provide opportunities for greater quality of life, use hotel taxes intended for sports, cultural, and art purposes for the facilities they are intended for, and promote development that works with the mass transit BRT that was just approved through a referendum, I’d be inclined to vote for it with a reasonable set of conditions.

646

Unless I’m really missing something, we need to stop throwing around a $1.9B number in regards to the stadium. I am under the impression $1.9B is what Kane and company said the total investment in the area would be (hotels, residential, offices, etc.).

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647

I really do learn a lot from this debate. One thing that definitely jumps out at me is that people really seem to care what’s going on in Charlotte and whether Raleigh is keeping up with Charlotte and being cooler than Charlotte.

I’ve often said that this whole stadium debate bears an uncanny resemblance to the iconic Simpsons episode “Marge vs. The Monorail,” with Raleigh being Springfield, the stadium being the Monorail, Steve Malik being Lyle Lanley, and me being Marge. And now I’ve come to realize that Charlotte is essentially our Shelbyville. And in this case, MLS actually is more of a Shelbyville idea. David Tepper’s plan is to put an MLS team in a stadium that already exists, rather than asking taxpayers to shell out $300 million on a purpose-built new stadium. That seems like a much, much more sensible idea, and MLS should probably just do that. (Yes, I know BOA stadium was itself massively taxpayer subsidized, but you can’t go back and fix the mistakes of the 90s.)

Anyway, @Steve makes a great point. At some point, there’s only so much demand for office space in the Raleigh area. Putting new office space in Penmarc would do more to shift economic activity from other parts of Raleigh to Penmarc than it would to actually generate new economic activity. Once you account for that, a lot of the supposed “economic development” turns out to be illusory.

I’ve also been thinking a lot about @niko’s very well thought out posts on the tax implications of the new offices, hotels and housing and I’m struck by two things. 1. You’re not allowed to use these tax dollars to subsidize the construction of hotels, offices, or housing. It’s just not allowed under the law as written. 2. Arguing that we should kick back money to Malik and Kane to compensate them for the new taxes generated fundamentally misunderstands how taxes are supposed to work.

I live in a house that sits on land that was a patch of dirt before I paid someone to build a house on it. Now there’s a house there, and the land is assessed at a much higher value, and I pay taxes on that value, creating more tax revenues for the city and county. But I would never sit here and suggest that the county ought to kick me back the money to compensate me for the taxes I paid, because that’s not now taxes work. That’s the money we use to pay for schools, transportation, public safety, parks, libraries, and much money. Requesting kickbacks from the public for a project based on the added tax revenue it generates is just a wheeze to ensure that as much of the benefit of this project as possible would go to a very small number of very rich people, and the community would receive as small of a benefit as possible.

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If this is the basis for your “build the stadium” stance, then I actually think we are pretty close to being on the same page (however I still think the city ‘owning the stadium’ is a risky idea with or without MLS). My entire argument is based on the fact that this money needs to be contingent on landing that franchise.

I think the disconnect is coming from Malik’s statements that they want to build the stadium with or without MLS. Maybe he was mistakenly saying that, or maybe he thought it was a wise starting point for negotiations…or maybe it’s actually true. Whatever, the case, I think they need to be a lot more clear with the public on their intent. If they money were ‘contingent’ on being awarded a franchise, I think you’d have a lot more people in their corner.

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