Chapel Hill speaks out on the Downtown Development Initiative.

The Chapel Town Council has a big meeting tonight. I meant to blog about it in advance, but since I didn't I will start this thread and hope to post live comments as it goes along.

Here's the agenda. I'll stick with this at least through the Public Forum on the Downtown Development Initiative.

  1. Ceremonies:
    1. None.
  2. Public Forums and Hearings:
    1. Public Forum: Draft Chapel Hill 2035 Long Range Transportation Plan Socio-Economic Projections. (Staff Presenter: David Bonk, Long Range and Transportation Coordinator) [Estimated Time: 15 minutes]
    2. Public Forum: To Consider a Potential Change in Cablevision Public Access Fees Paid by Cable Television Customers. (Staff Presenter: Catherine Lazorko, Town Information Officer) [Estimated Time: 10 minutes]
    3. Public Forum: Downtown Development Initiative.(Presenter: Mayor pro tem Bill Strom, Negotiating Team Chair) [Estimated Time: 30 minutes]
  3. Petitions by citizens and announcements by Council members. [Estimated Time: 10 Minutes]
    1. Petitions by citizens on items not on the agenda.
      1. Inclusionary Zoning Task Force regarding the Task Force Report.
      2. Petition from Citizens for the Preservation of Lincoln Arts Center.
      3. Petition regarding the Completion and Priority of Widening Shoulders on Particular Roads.
    2. Petitions by citizens on items on the agenda.
    3. Announcements by Council members.
  4. Consent agenda: action items (R-1). (Any item may be removed for separate discussion at the end of the Council meeting.) [Estimated Time: 5 minutes]
    1. Nominations to various boards and committees (R-2).
    2. Resolution Amending Council Calendar (R-3).
    3. Telephone Franchise for BellSouth – First Reading (O-1).
    4. Resolution to Accept SAFER Grant Award and Amendment to 2006-2007 Budget (R-4) (O-2).
    5. Adoption of Composite Countywide Plan for Parks and Trails (R-5).
    6. Report on Developing Public Information Sign Program and Improving Street Name and Directional/Information Signs (R-6) (O-3).
    7. Clarification to the 2006-2007 Community Development Program (R-7).
    8. Request for Expedited Processing of a Concept Plan Proposal and a Special Use Permit Application for the Bradley Ridge Development (R-8).
    9. *Process to Appoint Members to the Hollow Rock/Erwin Road Property Park Planning Advisory Committee (R-8.1).
  5. Information items. (Any item may be removed for separate discussion at the end of the Council meeting.) [Estimated Time: 5 minutes]
    1. Quarterly Report.
    2. Report on Budget Process.
    3. The Peoples Channel 2006-06 Annual Report.
    4. Response to Petition requesting Bicycle and Parking Overlay Zones on Several Streets in Meadowmont Area.
    5. Report on the Operations of the Street Scene Teen Center.
    6. Orange Water and Sewer Authority Quarterly Report. (Continued from November 6, 2006 Meeting)
    7. Follow-up Report on Merritt’s Pasture Maintenance. (Continued from November 6, 2006 Meeting).
    8. *Update on Wireless Initiative.

Main Discussion

  1. Comprehensive Annual Financial Report. (Staff Presenter: Kay Johnson, Finance Department Director) [Estimated Time: 20 minutes]
  2. Fairway Hill Subdivision: Application for Preliminary Plat Approval (Staff Presenter: Gene Poveromo, Development Coordinator) [Estimated Time: 30 minutes]
    1. Continuation of a Public Hearing for a Preliminary Plat Approval at Fairway Hill Subdivision
      1. Swearing of persons wishing to present evidence
      2. Introduction of recommendation by the Manager
      3. Presentation of evidence by the applicant
      4. Presentation of evidence by citizens
      5. Comments and questions from the Mayor and Town Council
      6. Applicant statement regarding proposed conditions
      7. Motion to adjourn hearing.
    2. Consideration of resolution to approve a Preliminary Plat Application for Fairway Hill Subdivision (R-9a, b, c; d, e, R-9f would deny).
  3. Acceptance of Bid for Homestead Park Aquatics
    Center
    (R-10). (Staff Presenter: Bruce Heflin, Assistant Town Manager) [Estimated Time: 15 minutes]
  4. Southeast Chapel Hill/Southwest Durham Collector Plan (R-11). (Staff Presenter: David Bonk, Long Range and Transportation Coordinator) [Estimated Time: 20 minutes]
  5. Process for Revision of the Comprehensive Plan
    (R-12). (Staff Presenter: Gordon Sutherland, Principal Long Range Planner) [Estimated Time: 20 minutes]
  6. Appointments: [Estimated Time: 5 minutes]
    1. Orange Water and Sewer Authority Board of Directors.
  7. Petitions:
    1. By the Mayor and Council Members.
    2. By the Manager and Attorney.
  8. Reserved for discussion of consent agenda items if necessary.
  9. Request for closed session to discuss property acquisition, personnel, and litigation
    matters.

Issues: 

Comments

I was at the council meeting last night and am trying to figure out the sense (nonsense) of this recent version of parking lot 5 development. all aesthetics aside (8-stories) the numbers just do not add up.

now the town is expected to invest 14 times the original agreement- $ 7.2M up from $500,000- and the "new deal" cuts out about 1/3 of the project (wallace deck). developer has the option of outright buying everything above ground (not below ground parking lot) in 50 years for $2M.

it seems the town is buying parking spaces -- 161 at $45,000 each.

timing of the vote is questionable- rushed rushed- in 2 weeks mid-holidays after Major Revisions to the deal.

as the "costs" increased for the first version so dramatically within a short few months, I am expecting the first cuts in the project to be the "affordable housing" units (21) and $700,000 for public art-- which of course, act as the "bait and switch" routine in this deal. get the support of the kind hearted social advocates and then makes cuts due to "unexpected cost increases."

another detail- the parking spaces for the affordable housing units are in the wallace parking deck- quite a hike with groceries and young children in tow. another assumption is that the folks living in these housing units will have discretionary money to support the local businesses. in reality, it seems a perfect opportunity for investors to buy for student housing to me.

so many flaws and rosy assumptions. again, not even to mention the precedent this sets for additional 8-story development on franklin street.

laura shmania

Thanks Dan.

We know that under this deal RAM gets to purchase the property free and clear in 50 years. 50 years seems like a long time but, then again, we're currently debating the decades long consequences of Carolina North.

Someone asked me if RAM could sell that right to purchase prior to that 50 year date.

It's an interesting point because if they can leverage the future value of that piece of property NOW you can just imagine the financial windfall - millions and millions of instant profits - and the taxpayer picking up a larger and larger bite (and shouldering more and more of the risk).

What's the future "value" of that lot?

The economic value 50 years out might be tens of millions but that is almost incidental to the community continuing to "own" some part of our downtown.

As Kevin apparently championed 9 years ago, as Joyce alluded to last night, there's an intrinsic value to this location beyond the economics.

To bend an adage "aa fool knows the price of everything, and the value of nothing"...

Kind of sad to see folks poo-pooing those qualities - as on speaker said last night - that make Chapel Hill different (better?) than any other small "city" in NC.

Laura, reminds me of another adage - "burn me once, shame on you. burn me twice,..."

The trajectory this private-public deal is following is well-understood. RAM secured the deal with some very rosy projections, promised fiscal restraint and a PROMISE to adhere to their obligations even if it meant eating the costs.

I've looked at a number of studies of these kinds of deals, maybe a couple hundred news reports covering both RAM's developments in Florida (quite interesting) and other similar efforts.

These deals DO take on certain archetypal characters. As Godschalk and others pointed out last evening, the path or trajectory we're following here is well-understood - Laura, you've unfortunately sketched out one probable quite well...

Why Ruby, Tom are you so hellbent on this particular deal?

Can anyone lay out how the financing of this deal would work? In Chicago, TIFs diverted property taxes into slush funds for the city to subsidize already-wealthy developers, which is what it sounds like is happening here.

I believe it is what is considered a "synthetic" TIF; it acts like a TIF in that the financing is based on incremental increases in tax revenues, but the debt would still be funded by a financing instrument (like a lease or COPs), and still be subject to Local Government Commission approval (still, less jumping-thru-hoops on the front end than a regular TIF)

This business of the parking fund covering the cashflows for 4 years is questionable. I wouldn't want to leverage those funds. The project should be free and clear of other revenues (as others have pointed out, what if you need to finance something else down the road?)

Godschalk said it all: the financial model underlying the project is broken and humpty-dumpty is being taped together for a 12/4 vote. Strom's monster-ego will twist the arms of most of the others.

If the project were financially viable, it still would not solve downtown's fundamental problem: the quaint buildings and infrastructure are obsolete, and will not support modern businesses of most kinds, businesses that will in turn support in-fill living.

$7.5 million would go a long way as financial incentives to stimulate absentee landlords to modernize their real estate along Franklin Street. (In the 80's, Mayor Koch used tax abatements to transform Manhatten's Upper West Side from drug-infested slums to a vital, thriving self-contained village for actors, journalists, musicians and academics.) If old-timers can't do without the quaint streetscape, let there be a Potemkin Village of traditional facades fronting new, modern infrastructure.

I live three blocks from East Franklin Street downtown. I never shop there. I don't need T-shirts and don't hang around in bars. I cross Franklin Street en route to Hill and Memorial Halls and Playmakers. I drive to the restaurants on West Franklin because I don't feel safe walking after dark (I'm over 70).

I don't visit here too often; it will be interesting to see if my thoughts are included. The message from the editor should be clearly distinguishable from Spam.

I question the notion of planning fifty years out. Two generations from now, the proposed covenant could haunt people who haven't even been born yet. In the meantime, the developers probably could sell their right to purchase. They wouldn't design it without an exit strategy.

Carolina North is also a fifty-year proposition, similarly hung up already by several years' worth of "what if."

Fred and those of you who support this project,

What impact do you see this deal in conjunction with the planned (already sold!) 9-story Greenbridge development having on the low-income residents of Northside?

I think it will be good for the community. With the Northside neighborhood conservation district, the effort will have to be made to keep the property values there divorsed from those two properties to the north of the neighborhood. Do you think that is feasible/managable?

"divorced"

I don't think it is possible, Fred. I know the Greenbridge developers are doing a Herculean effort to integrate their project into the community. But ultimately, property tax values are based on new development, not good intentions. And while the town's development assures 15% of the units are affordable, it stills leaves 85% that aren't. And it's those 85% that will be used to base new assessments on, according to the tax assessors office.

I'm in general favor of greater density downtown, but I'm new here, and I'm all for getting a good deal vis the developers, so I'm interested in the analysis supplied by WillR, etc.

I don't think the things raised on this discussion thread are to be glossed over.

However, I do think that the realistic costs of a project this big would be much more than 500k, and I also think that we will see significant positive returns on those projections. I think that the earlier developments WillR mentioned here suffered from a more top-down and bare-bones moment in history across US cities... if you look at that period in history, just about every city has tremendous boondoggles (like the stadium projects that would come after, and like the ''world renounded architect'' designed boondoggles of our current age). This sort of mixed use, highly vetted project is one of the success stories of new urban design. It actually works.

By the way, at the meeting they noted that it took Madison 40 years to build the convention center designed by Frank Lloyd Wright, but they did. This was a gesture to connect this Ram project to that one, positively.

But everyone in Madison recognizes that the convention center is largely a boondoggle. And it is a boondoggle because it was a top down prestige piece for our mayor at the time, and she undersold the costs, rammed through the design, and undercut the entire intent of the original design - FLW wanted it to be a COMMUNITY center, not a CONVENTION center. Well, it's a convention center that currently costs the community about a million dollars a year to keep afloat. It's a great example of what happens when you do a prestige piece without (some would say, against) community support and input.

So, this is just to say, critics and supporters of the Ram project might find Madison to be a bit of a dappled example in some regards...

BTW, I live in the northside community. I think that there are plusses and negatives to greater valuations and assessments. Greater valuation means more money to borrow to make the housing stock better, etc. Greater tax assessment means harming fixed income owners. It's a basic gentrification connundrum, but I think it is wisest to realize that African-Americans, like all other people, would like to see their property values increase, and I think they would oppose efforts to artifically dampen the value of their homes.

But I'm not familiar with the particulars of this topic, and could use a primer. Anyone?

Tol or anyone looking for a primer:

I think the best place to start is with the agenda item and attachments Ruby has provided at the beginning of this post.

Read those - and read b/w the lines of gov-speak - and you get a pretty good idea of the history of this project.

I disagree with Terri about new development being the key leading to gentrification. In a hot property market like Chapel Hill with very limited amounts of new development occurring, the resale of existing properties raises real estate comps and subsequently, valuations on longtime residents. You don't need new development for gentrification to occur.

To stop the phenomenon Terri is talking about, you have to prevent people in Northside and surrounding areas from selling their homes. This seems both impossible and undesirable, and it limits the property rights of Northside homeowners.

As to the buildings, some Benefits to Northside residents:

1. More residents in the area puts more "eyes on the street" and the natural surveillance may assist in crime deterrence.

2. More residents means more local purchasing power in the neighborhood, strengthening existing business's potential income in their local catchment areas, as well as the potential to attract new goods/services to the neighborhood.

3. Additional public gathering spaces in/near the neighborhood.

I think the concerns voiced about the public financing mechanisms are important, and should be looked at carefully. As to the project, it's the right building type in the right place at the right time.

Patrick, you keep a pretty sharp eye on the public components, especially transit, of local developments, so I wonder how closely you've examined this "right building"?

We've dropped the public accessible square footage by over 4000 square feet (enough for a pocket playground, some free-standing bathrooms, maybe a water fountain ;-) ) in just the last increment. Nearl 5500 decrease in the last year. About a %20 reduction overall. And the lame idea of excusing this decrease by highlighting existing sidewalks, etc. was pretty lame. This is a substantial decrease.

We're spending $45+ K per parking space and we're requiring affordable housing tenants to trundle over to off-site parking (several blocks away).

We're looking at 10-15 on-street parking spots. Transit center not designed in (I overheard one of the boosters say they were concerned about homeless folks "ruining" this project - wonder if they want to keep folks waiting on the bus away?).

The site plans have been reworked - can you really tell from the published specifications that pedestrian flow has improved? Sans specifics on public access to the arcade and "alley way", how can we tell? Same can be said for the roof top garden, public usable? Probably not.

Malecha echoed this concern

The proposed through arcade connecting Franklin and Rosemary Streets adds strength to the project by making the project more pedestrian friendly but also by increasing the exposure of retail space.
The schematic design leaves many details of importance yet unresolved. This includes a greater understanding of window and façade mmaterials, the detailing of and quality of materials is particularly important at the pedestrian level.

Commercial space is divvied up in 4400, 10000, 13000+ sq/ft. chunks (28,540 in all) with no integrative anchoring tenant (grocery store), no "affordable business" commitment (leases of commercial space wide open to the market - where's our public return on that?) and based on the "ghostly" facade sketches probably going to be used for "boutique shoppes". Is that the "right" mix for this "right building"?

I was disappointed that Janet Kagan was so effusive in her praise partially because it seemed to undercut her prior support for an "affordable business" galleria.

Oh, and the trees they show sprinkling the lot - I don't believe they're part of the end product. And where's the benches?

I'll be exploring these issues and more over Thanksgiving, but so I'll try to leave it at that...

I'm troubled by your echoing of other boosters statements that this is the "right building" at the "right time" when it's basic layout has gone through such a major revision, the financing has gone kerflooey, this reduces our forward fiscal flexibility for other projects within town and many other of the basic elements, as Malacha notes, need to be sharpened up.

I mentioned some of these changes to some of the boosters - they were unaware of the major modifications, hadn't done a comparison/contrast or, really, any detailed evaluation of the "new deal" (as detailed, that is, as the current rather vague proposal allows). Details, smee-tails. They were quite comfortable in their "faith" that their cause was "right".

Strange idea, as only by assessing the details can one determine if the probable outcome matches the putative goals.

So, Patrick, was it faith that drove you to claim it "right" or a cold, hard assessment of the chimera before us?

I'm not so concerned about whether the Lot 5 project
will "fit in" with the current downtown, whatever "fit in"
means. I'll leave that decision to the council members,
which is what we elected them to decide.

I am concerned deeply however about the financing,
especially its complexity. If a town council member
cannot understand the financing well enough to explain
it to me in a coherent fashion --
and so far none of the councilmembers that I have
contacted can -- and if the project is large and important
-- and this one certainly is -- then this is a risky,
possibly even dangerous
financial situation for our town.

We have just seen one major cost overrun. Since
every agency that is building large buildings
is screaming bloody murder about cost overruns, it
is reasonable to expect that this cost overrun is only the
first of many.

From my teaching experience, I believe that my test
of understanding something is whether I can explain
it coherently to someone else.
I for one would feel a whole lot more comfortable if one
of our elected officials would write a one-page explanation
of how this project is financed, how the town is protected
from future cost overruns, and exactly where the
property tax revenues that stem from its residents and
business owners would be spent. If they are not spent
to provide the usual town services for the project's
residents and businesses, then who pays for those
services?

It is the responsibility of our elected leaders to understand
what they are voting on. Unfortunately, in this case,
I doubt if they do.

Joe, thanks for putting the request out there...

This project is going to "stress" other services, require added new services, etc. for downtown.

The revenues that could be used to defray those cost are off the table 4-5 years if you believe in the %5 Santa Claus rate and we don't see another increase (how likely?) and other rosy projections hold. Those monies stay off the table longer, maybe much longer, if Bush economics catches up with Chapel Hill.

Until then, those added costs will have to be financed out of our general revenues - which will probably put a dent in our ability to finance more progressive causes (like doubling the human services outlay - something the increased debt service on this "synthetic TIF'' [love that JohnA] would've done over the projected time range).

Even the basics, like how much more does shifting payment from RAM to the Town (taxpayer) for consultancies to further this project, have not been addressed.

Lot and lots of hand-waving on the finances going on here...

these are good, thoughtful criticisms. And WillR, I was puzzled by the off site parking for the affordable housing units too. My experience with these in Madison is that the (optimal) residents for those slots are often disabled, making it most practical for their parking slots to be in the building. It smacks of a sort of second class citizen thing built into the plan.

I also didn't see any information on how those affordable housing slots would be prioritized (again, long time resident, downtown worker, disabled, etc.) nor the terms of those units (fixed sell-back to the city land trust, etc.?).

oh, and with the primer comment, I was referencing any particular market manipulations on the northside, not on this project. I read the report from the town council. I was just wondering if Chapel Hill has some sort of development or covent controls over the northside to preserve black ownership (perhaps through the historic district designation?). Is that neighborhood regulated somewhat differently than other neighborhoods?

Yes there are some restrictions, Tol. Northside is designated as a Neighborhood Conservation District. Read more here:

http://townhall.townofchapelhill.org/planning/HCD/Neighborhood%20Initiat...
http://townofchapelhill.org/index.asp?NID=809
http://orangepolitics.org/?s=northside+NCD

Joe, I read in the paper this morning that Lex Alexander didn't understand the financial model either. If you guys doin't understand it, then I don't feel too bad for not understanding it either. I like what the project is trying to accomplish; we need to have a full underrstanding of the economics before moving forward.

Can someone point us to the details of the financing. I'm suddenly realising that all I've seen is the cash flows: is that it?

It's been 20 years since I took financial planning at UNC Business School so I'm a bit rusty. Like others, I don't know all the particulars of this question, partly because I am not as interested, but I was nonetheless curious.

I went here to calculate a net present value on this investment. I assumed, with modest pessimism, that there was an $8 million year one investment, an interest rate of 5%, no income for 6 years (also modest pessimism), and $1 million/year income for the remainder of a 30 year period.

The calculator showed an NPV of $18.2 million. Not too shabby particularly given the other benefits (to those who agree with them) of the project.

Perhaps Dave Hartzell (or some other biz wiz) will correct my math or my interpretation; or perhaps the Chapel Hill will share its own calculations on this.

John, what we "know" is in the agenda. A lot of the Council talks and all the negotiations were shielded, so we don't know the specifics covered. When the negotiations are over I plan to ask for every shielded document, notes, etc. to try to understand how we arrived at this "deal".

I've asked for more detail to be posted ASAP but as of this afternoon, the site is light...(heck, it's still talking about issues 9-10 months old).

Not really looking forward to spending my Thanksgiving reviewing the deal, but given the shortened time frames I was planning to review the substantive details of finance, public usage, etc. over the holiday. Nuts, right?

A silver-lining, I guess, is the Council's tardiness lets me off the hook for the break.

BTW, I've since been told that the $2M, 50 year conversion of this property from public to private hands can be flipped earlier for substantial profits. A real sweetener if that's the case (considering the probable future value). Once the property is substantially in private hands - under "normal" property rights the public's leverage approaches nil.

I'd love to see an official ruling of this issue and some documentation on whether the Council discussed it...

Dan, of course you would posit that the "value" of lot #5 is more than monetary, right?

Some factors to consider:

1) Additional costs of borrowing due to debt ratio, bond rating issues for non-related activities.
2) I assume your NPV is a gross distribution and doesn't account for the Town's contribution, as a tenant, to the upkeep, etc.
2a) The return om the investment can decrease sharply over time - especially factoring in foreseeable macro-economic issues (energy, etc.)

And then there's the base assumption that $8M is it... Kind of hard to justify that given the 15-fold increase over 5 months of negotiations, the continued assertion that construction costs increased %30 because of construction materials (when the Fed's Commerce Dept. claim %5-7 , Turner reports peak %11 since Sept. 05 with declines and stabilization, etc.) and RAM's VP pretty much walking away from his PROMISE to eat construction cost increases.

It's funny that East-West's Perry was so enthusiastic promoting this version when his group had been fairly harsh on the original, much lower, numbers.

We haven't even come close to Grubb's numbers (the only other group in the running). I thought Grubb's numbers were pretty darn rosy in themselves - so to think of them as an upper limit, well, that's sad...

As I said before, this project, especially with its finances, is following a well-understood, well-traversed trajectory of other failed and failing public-private partnerships where citizens are over-promised results and when the final details are hashed out, the contractor under-delivers.

Look at Raleigh's recent mega-projects, NC State's Centennial campus, etc. - the pitfalls are many, the successes few....

But there are successes...and I think we can have one here...but not with a deal characterized by such huge modifications and an unwillingness by the private partner to live up to their PROMISE made so short a time ago....

I imagine Council thinks they'll go with this cruddy plan and work to fix it later... Won't happen. We either start this off on the right foot (for the "right building at the right time") and work for a win or we go with this broken mess and look forward to a taxpayer bailout several years hence (and maybe not even that long...).

Someone needs to get the Town's legal debt limit before and after the deal, and what the Town is proposing to use to collateralize the project.

JohnA, Kay Johnson told me the entire debt of this COPs (certificates of participation) is secured by the parking level the Town is buying.

I'd like to see that in black-n-white. As the Town's contribution increases to $9, 10, 12 million, the underlying asset's value is not sufficient to secure the obligation. Further, while the project looks solid now, there's risk, possibly substantial, that will affect the interest rate we can get... A solid agreement from a lending institution for $X dollars at %Y interest rate would go a long way to mitigating that concern. I saw one project, I think in Washington state, where the developer of the project actually was the prime lender for a COPs equivalent instrument. Weird.

BTW, I love your coined term "synthetic TIF" and plan to use it widely - hope that's OK.

More general info on COPS HERE

This from the 06-07 Budget:

The Town's annual general obligation debt service cost
for 2006-07 is estimated to be about $5 million, or about 10.2% of the General Fund budget. A general guideline by bond rating agencies is that annual debt service is considered to be low to moderate if it is less than 10% of its annual General Fund budget. We are aware that we have exceeded our own debt guidelines by increasing debt service
to over 10% of the estimated budget. Our projections show that we will continue to have debt between 10% and 12% of budget for the next five years. We will continue to monitor this indicator because it is one of numerous factors used to determine the Town's credit rating.

An additional seven million would push this well beyond 12%.

Patrick missed the point of my concern about current Northside residents. Property taxes are assessed using comparables, or the most recently sold properties in the neighborhood with similar square footage and number of bedrooms. During the re-assessment review last year, Northside homes were compared to Rosemary Village condos, effectively increases property values but also property taxes. So while I agree with Patrick that this new construction will be wealth producing for those who can afford to pay the escalating property taxes, those who can't afford it (+40% last year as I recall) will be pushed out. As Patrick also correctly notes, it is those on fixed incomes, especially the elderly, who will be most harshly impacted.

Properties assigned to the Community Land Trust are not used as comparables as they are assessed using an entirely different model. So while new affordable units will be created, I keep wondering whether there is a net increase or net loss in total units.

As for the debt, does anyone know what will be deferred from the current CIP as a result of this financing program?

JohnA, two "dirty little secrets" in last year's budget were NC's loosening of our reserve requirements and some unanticipated revenue flows. I wouldn't be counting on these "windfalls" going forward.

From last year's budget:

Revenues in the current year are expected to be about $46,313,000, about $1,260,000 higher than budgeted. As we reported on January 12, the primary reason for the higher projection is the overall increase in sales tax estimates. The sales tax estimates for 2005-06 were based on the information available in spring of 2005. We underestimated the receipts for the 2004-05 year, and as a result used a base that was too low in estimating the 2005-06 receipts. Current projections show sales tax growth of 7.6% for 2005-06. As a result, we have increased our estimate of sales tax in excess of budget to $918,000.

As reported in January, interest earnings are anticipated to be higher than budgeted by about $200,000 because of interest rate increases. We received a better banking agreement when Central Carolina Bank changed to SunTrust, and we received over $4 million in property tax from a single mortgage company two months early, providing additional interest earnings. Other taxes and licenses are anticipated to be $90,000 greater than originally estimated because cable franchise fees increased substantially in 2005-06, as reported in January.

Hotel and motel occupancy has been greater than anticipated, and we estimate that receipts from this source will exceed the $600,000 budget estimate by about $100,000. Utility franchise fees are based on a 3% tax on utility company gross receipts. As such, the fees are affected by changes in the weather. We estimate that we will receive the full budgeted amount for 2005-06 of $2,056,000.

We could have set aside more of those funds in our reserves - and folks, like myself, asked for us to show some restraint and "pretend", so to speak, those funds weren't available ( or at least limit the use of this one-time windfall to a fraction of the whole). The good side is part of the windfall is ear-marked for future debt service:

There is an additional $2 million in one-time funds that we have recommended for use over the next three years to help reduce the effects of increasing debt from the Town Operations Center and from new General Obligation bonds.
....
The recommended budget including priority options for the General Fund totals $49.2 million and can be funded at the current tax rate of 47.4 cents. With a budget of $49.2 million, we would recommend a normal fund balance reserve of 12% to 13% of the budget, or about $6.3 million.

At the end of fiscal year 2005, we had undesignated fund balance of $8.3 million. We recommend that the Council retain $6.3 for normal reserves. We recommend holding the remaining $2 million of currently available fund balance to reduce the effect of increased debt service requirements in 2007-08 through 2009-10.

The bad side is we had an opportunity of carrying greater reserves that would've reduced our borrow costs and insulated us from unanticipated "involuntary" expenditures (I'd class the $7.5 as somewhat voluntary).

We can also continue being conservative in our revenue projections - though don't see that fitting with the Downtown Development increases.

Also, we deferred bond sales, the revenue which we'll need over the next 3-5 years we'll be paying off the new $7.5M

Bond Sale. Per the Council's proposed schedule, we would issue bonds in the fall of 2006-07. We have reexamined the timing of proposed bond-funded projects and recommend reducing the total borrowing in 2006-07 to $4.95 million and increasing the borrowing in a later sale, based on expected needs and timing of projects.

though we still have a good chunk of projected debt sans the new Downtown Development

A transfer from the General Fund of approximately $4,827,000 would be required to make scheduled payments for principal and interest on the Town's current long-term debt obligations for next year. The debt payments include about $2,661,000 for on-going debt and an estimated $2,166,000 for the debt service payments related to the Town Operations Center. Total base debt service would be about level between 2005-06 and 2006-07, because the planned increase in the Town Operations Center debt is almost entirely offset by the decrease in other preexistent debt for a total base budget debt service of $4.8 million.

The planned issuance of $4.95 million in General Obligation bonds in the fall of 2006 would require an interest-only payment of about $137,000 in 2006-07 and an additional debt service payment of about $495,000 in 2007-08.

....

The Council adopted a schedule with General Obligation bond issuances in 2006-07, 2008-09 and 2009-10. Debt financing will increase in each of the years following a bond issuance when debt repayment begins. While we have recommended allocating one-time fund balance of $2 million over 2007-08 to 2009-10, we have not been able to eliminate entirely the effect of increased debt service on the budget requirements.

This is part of the background or context we need to judge the acquisition of new debt against.

As a member of the Town's negotiating committee (along with Sally and Bill) I am well versed in the deal we are considering making and how we arrived at it. I hope my comments will be helpful.

The financing is simple. Essentially we are paying to have our parking moved underground. We will pay a maximum of $45,000 per space for this. At the end of the project we have the right to audit Ram's costs and will pay less if it costs less, in no case will we pay more. We do not put any money into the deal until a Certificate of Occupancy has been issued.
The town will borrow the money to do this and will pay it back from the parking revenues and increased property tax and sales tax receipts. A positive cash flow is projected after three years which almost any one would be happy with. We were very concerned that this borrowing not affect our bond rating and we have been satisfied that it will not. Ram is putting up $12.5mm in equity and is supplying us with performance and payment bonds to insure completion, additionally we get a personal guarantee from Casey Cummings, Ram's owner.

The two million dollar purchase price at year fifty seemed low to me at first. We suggested that it be $2mm or the appraised value whichever was higher. We were told that the appraised value would be almost nothing, so the $2mm looked much better in that light.
The reason for this is simple. Ram is buying the air rights over lot 5, these will be divided into multiple condominiums. These will be sold with 99 year leases. At year 50 the condo association will have the option to buy the land beneath the condos (so condo ownership will continue in perpetuity). Since owning the land will only be of value to the condo association the value of the land will be quite small.
This property will have condos on it until some future redevelopment opportunity is proposed and debated by our great grand children.

All human activity contains risk. We have done our best to minimize the risk involved in this project. The town's exposure here and the effect on its financial standing is far less than some of the large capital projects that we have undertaken lately.

The affordable housing parking at the Wallace Deck is a place holder. We expect to find a better solution in the near term.

I have concerns about this project but I am quite comfortable with the finances……….

Cam, thank you for jumping in...

The audit sounds good on the face of it but, as a fellow construction guy, you got to know teasing out where the monies went could be difficult. Are we paying just for the materials - concrete, rebar, conduit, lights - and labor used to build one level of the deck or will the cost of digging, building the foundations, support infrastructure, etc. be factored in? In other words, are the conditions of the audit established now or will the Council make them four years hence?

The Town will borrow the monies now and pay them back with tax receipts - so, tax-wise, the development itself is neutral over the course of the payback period.

JohnA coined the term "synthetic TIF", which is an accurate description of what we have in this finance plan. You guys were quite vocal in your disdain for this approach. Bill Strom made a big deal recently about TIFs - saying they would NOT be used. But, for all practical purposes, we have a TIF (a COP in sheeps clothing [unless you consider 1-floor of a private development "essential public infrastructure"]).

What changed? Was it there was no other palatable financing mechanism? We make folks vote on much smaller acquisitions of debt for much larger projects, the Aquatics Center being a notable example. You must of know sometime prior to this years election that we needed the money. Why not float a bond? Was RAM or Council worried the voters would turn it down?

A few followup questions here:

1) How does this impact the financing of related, anticipated associated developments, street improvements for instance, that these "missing" tax monies would've contributed to?

2) What satisfied you that the bond ratings and debt ratios would not be negatively impacted? I imagine there's specifics, could we please see them? Who did the analysis? Did we ask an independent entity to review the analysis?

3) As a corollary, did the town get any independent financial advice on any of part of the "new" deal?

4) Following that, in my review of the financing of a few projects similar to ours, the interest rate was North of %5. In each of these cases, the COP (or COP equivalent) was secured by a fairly complete structure. Do we have a firm financing deal for the %5? I assume not. Given that, and given that we're securing the debt with one floor of the deck, what is the confidence level in the %5? Where does that confidence flow from?

5) As JohnA pointed out, we're bumping up against a AA/AAA rating ceiling now - that's why I'm concerned about the ratings.

I published the planned schedules for taking on bond-related and other types of debt. How does the new COPs fit into this schedule? Besides the Aquatics Center, other CIPs and bond-related expenditures are anticipated over the next 4-5 years, how close can we skirt the edge?

6) How does this affect the current reserves?

7) You mention performance and payment bonds, where are the details? Fundamentally, is the $8.2M we're committing IT? If so, given the huge jump, what's the confidence level? How's it derived?

8) Again, as a fellow construction guy, did you follow, how the costs increased %30 in 7 months of discussions? National trends are flattening at around an annualized %7-10 increase - at worse. Did you ever see the analysis? Can we see the analysis?

9) You mention Cummings, who seems to really want to deal. Seems like a nice guy to have a beer with...

Can you explain how he went from PROMISING to eat the construction cost increases, a promise he made in securing the deal, to us contributing millions?

10) As a corollary, since RAM has apparently done such a poor job of estimating costs since the deal was sealed, what confidence does the public have in their further projections? How do you have confidence in their projections?

11) If the value of the air rights is so piddly, why sell them? Why sell any of the rights to either the land or the air? Yeah, we'll all be dead 50 years from now, so why fret? Still, I imagine the combined value of the land and the air rights to be significant - and combining the two is perfectly allowable under this plan.

I have many more questions which I have or could ask but I'll end with one more:

When will the public get the complete financial details, the complete financial impact analysis (including non-associated debt acquisition), the justifications, the whys and wherefores of all these modifications?

Monday's agenda and its supporting detail were not available on-line until close of business Friday. I would greatly appreciate at least a full week or more to review what I hope is hundreds of pages of documentation. Not only that, there's probably hundreds of answers to hundreds of questions in those pages.

Please publish the details now....

Finally, Cam, Bill, Sally, the staff that worked on this plan, I appreciate your efforts. I salute your intent.

Yet I'm absolutely flummoxed that we went from a deal that folks said was "solid" to this mess. I had earlier concerns, as you guys well know. I was concerned with all the shielded negotiations the public would have few, if any, checkpoints to measure the progress of this deal - that we'd have a deal thrust upon the citizenry with little or no time to properly evaluate it.

Worries, yes. But I had great confidence and trust that all that back room dealing would put reality to the original plan. For those reasons (and more) I promised to wait and see how the "new deal" panned out. I'd stop banging the drum. I'd trust that the deal would smell sweeter on this end.

Please, do not rush this deal through without adequate time for the public to DIGEST the consequences.

Thanks Cam, once again, for publishing your perspective as a key member of the Downtown Initiative. I do support development downtown, just not development at any cost.

And thanks for taking my questions. Over the next couple weeks I'll try to ask fewer than 100 more ;-)

According to the expressed philosophy driving this project, more housing in the downtown area will invigorate downtown businesses. In other words, it's an urban development plan with a wink at economic development. In theory, I agree with that philosophy. Where I do not agree is that I don't believe a retail-based economy is sustainable. So while I think the financial questions expressed by others are important, my concerns are more conceptual.

Where are the people in these new developments going to work? In the absence of local employment, we should assume that those who can afford to purchase the 'non-affordable' units will be either independently wealthy (retired or with rich parents) or will work out of town. The affordable housing will go to those who qualify through the Land Trust, individuals for whom there are job opportunities locally.

What mechanisms will be put in place to protect against the loss of currently affordable housing units in the downtown areas? Based on the reading I have done, the best, and perhaps only, strategy for avoiding gentrification is to ensure a wide range of housing prices. With Greenbridge, Rosemary Village, and Lot 5, we'll see opportunities for the moderately wealthy and the low-income, but what about the much larger middle-income population? (Thank goodness for Shortbread Lofts.)

I don't object to this new development or to the financing plan, but I firmly believe that an economic development plan should have been developed in advance of the town's decision to undertake this redevelopment project. More housing and more retail, regardless of how green the construction, is not sustainable. Grocery stores and places to buy socks are just as important as housing, but jobs should come first or at least concurrently. My guess, based on having lived in dynamic downtowns in Virginia and Georgia, is that if regular people could work locally, the market for downtown housing would not need as much local government intervention.

Housing prices in Northside are already higher than I can afford, and I'm a poster child for middle-income. Do we want a downtown where only the wealthy can afford to live? Is that a viable long-term economic development vision? I know this is a chicken and egg issue. And perhaps Council has a vision. But if they do, I wish they would make it public.

It is Thanksgiving and I can only type, like, 17 words a minute. I also don't know how to make formatting distinctions like boxes and bold faced type in my reply; but I will try to answer Will's questions. To make this fair in the future, Will, all future questions have to be submitted in a hand written format.

WillR asks:Cam, thank you for jumping in…
The audit sounds good on the face of it but, as a fellow construction guy, you got to know teasing out where the monies went could be difficult. Are we paying just for the materials - concrete, rebar, conduit, lights - and labor used to build one level of the deck or will the cost of digging, building the foundations, support infrastructure, etc. be factored in? In other words, are the conditions of the audit established now or will the Council make them four years hence?

I reply: They will be established prior to the final deal.

WillR asks:The Town will borrow the monies now and pay them back with tax receipts - so, tax-wise, the development itself is neutral over the course of the payback period.
JohnA coined the term “synthetic TIF”, which is an accurate description of what we have in this finance plan. You guys were quite vocal in your disdain for this approach. Bill Strom made a big deal recently about TIFs - saying they would NOT be used. But, for all practical purposes, we have a TIF (a COP in sheeps clothing [unless you consider 1-floor of a private development “essential public infrastructure”]).

I reply: Calling this deal a TIF is just inflammatory. This deal develops its own revenue stream-parking and new property and sales taxes. A TIF would earmark new revenues from a wide area to pay for a single project. For instance using the increased property taxes from an increase in property values (caused by a project) in nearby neighborhoods to pay for the project.

WillR asks:What changed? Was it there was no other palatable financing mechanism? We make folks vote on much smaller acquisitions of debt for much larger projects, the Aquatics Center being a notable example. You must of know sometime prior to this years election that we needed the money. Why not float a bond? Was RAM or Council worried the voters would turn it down?

I reply: At one point we considered leasing (with an option to purchase) the parking. This would have changed the appearance of this deal in the same way private business leases instead of purchasing. Since this type of financing would be more expensive and would impact our credit rating just as much we decided to pursue purchasing the parking. Given the dramatic increases in the last year further delay would expose us to more problems. The mayor and council were elected by the voters to make decisions.
The Town's budget is one of my biggest concerns. A .05% decrease in operating expenses would almost pay for this.

WillR asks:A few followup questions here:
1) How does this impact the financing of related, anticipated associated developments, street improvements for instance, that these “missing” tax monies would've contributed to?

I reply: This is a “stupid” question designed for “controversy”. If you spend money on “one” thing you can't spend it on “another”. This is an economic development initiative. This project and the future ones that it spawns will generate much more money than is currently available for street improvements and such.

2) What satisfied you that the bond ratings and debt ratios would not be negatively impacted? I imagine there's specifics, could we please see them? Who did the analysis? Did we ask an independent entity to review the analysis?

I reply: We were advised throughout the process by the staff and two outside consultants: John Stainback of Spree who you have seen many times and Glen Hardymon an attorney with a great deal of expertise in public/private projects. Glen is most impressive (he can type 120 words a minute,how many lawyers in their 60s can do that?). When Cal told us about him (Ralph Karpinos found him) he described him as our opportunity to “take a gun to a knife fight”. These two gentleman have been involved every step of the way.

3) As a corollary, did the town get any independent financial advice on any of part of the “new” deal?

I reply: Any “deal”, “new” or “otherwise”, that the “town” “pursues” is reviewed by the “local government commission”. This is a “commission” charged with “overseeing” “deals” made by municipalities. We have been assured that we are being appropriately “prudent”.

4) Following that, in my review of the financing of a few projects similar to ours, the interest rate was North of %5. In each of these cases, the COP (or COP equivalent) was secured by a fairly complete structure. Do we have a firm financing deal for the %5? I assume not. Given that, and given that we're securing the debt with one floor of the deck, what is the confidence level in the %5? Where does that confidence flow from?

I reply: We have been told by Kay Johnson, the finance director, that we can expect 5% for the COPS. We have been borrowing in the low 4s.
5) As JohnA pointed out, we're bumping up against a AA/AAA rating ceiling now - that's why I'm concerned about the ratings.

I reply: Our reserves increased in the last year and our rating recently increased. We are cognizant of the implications and take them seriously. We recently committed to one million dollars over five years for additional firefighters with no increase in revenue to match. Where was the scrutiny on that deal?

I published the planned schedules for taking on bond-related and other types of debt. How does the new COPs fit into this schedule? Besides the Aquatics Center, other CIPs and bond-related expenditures are anticipated over the next 4-5 years, how close can we skirt the edge?

I reply: Closer still.

6) How does this affect the current reserves?

I reply: As previously stated we increased our reserves last year and will maintain a comfortable level.

7) You mention performance and payment bonds, where are the details? Fundamentally, is the $8.2M we're committing IT? If so, given the huge jump, what's the confidence level? How's it derived?

I reply: Performance and payment bonds are standard construction stuff. An independent bonding company guarantees that Ram will complete the project; if Ram fails, the bonding company completes the job. $7,245,000 is it. I am confident in the financials of this deal for all the reasons previously stated.

8) Again, as a fellow construction guy, did you follow, how the costs increased %30 in 7 months of discussions? National trends are flattening at around an annualized %7-10 increase - at worse. Did you ever see the analysis? Can we see the analysis?

I reply: Construction cost increases have flattened (If 7-10% increases can be considered flat) after a period of the largest increases in history. Increases that were especially great in the areas of concrete and steel which effect this project significantly. No version of this contract has ever been designed beyond the concept stage. All cost figures are conceptual. This is the way this stuff is done. Developers and builders have gotten quite comfortable with design/build. I don't know if the analysis is public or not……Again it doesn't matter beyond the parking we do not participate on the financials of this deal. Simplicity……

9) You mention Cummings, who seems to really want to deal. Seems like a nice guy to have a beer with…

I reply: I have no idea what Casey's drinking habits are.

WillR asks:Can you explain how he went from PROMISING to eat the construction cost increases, a promise he made in securing the deal, to us contributing millions?

I reply: That was one iteration of the deal that time made obsolete. If you remember the only other deal we were offered was going to cost the town $18,000,000. So we could say we are saving over ten million (more if you count the inevitable cost increases).

10) As a corollary, since RAM has apparently done such a poor job of estimating costs since the deal was sealed, what confidence does the public have in their further projections? How do you have confidence in their projections?

I reply: Again an inflammatory question. You could say Ram has done a great job of estimating costs since they are aware of the cost increases. We are not concerned about what the project costs them, we have a fixed price deal on our portion and the right to seek any actual savings.

11) If the value of the air rights is so piddly, why sell them? Why sell any of the rights to either the land or the air? Yeah, we'll all be dead 50 years from now, so why fret? Still, I imagine the combined value of the land and the air rights to be significant - and combining the two is perfectly allowable under this plan.

I reply: Would you buy a condo that you really didn't own? Whatever the legal mechanism used to define these units people in this country (and this town) are not comfortable without some level of certainty that they have a right to their property forever.

WILLR asks:When will the public get the complete financial details, the complete financial impact analysis (including non-associated debt acquisition), the justifications, the whys and wherefores of all these modifications?

I reply: Just because you can type a million words a minute doesn't mean you should ask every question that comes in your head.
I have read this question many times and it makes my head hurt (what does “non-associated debt acquisition” mean?). Kay Johnson can give you anything you want. This is as transparent a deal and process as is possible.

The areas of concern that I have with this deal are not financial. The nay sayers on finance were all academics, there were several actual businessmen who spoke in favor of the deal.
Terri's questions are good. I would like to see more office space downtown too. When a developer sees a need it will happen. I do not know how we ensure a range of housing in all price ranges. A previous poster noted that in Madison a glut on the market caused condo prices to drop, maybe that will happen here.

My fingers are hurting. Happy Thanksgiving!

Thanks Cam for answering questions both stupid and inflammatory, especially on the holiday.

Maybe my entrepreneurial business background differs from Roger Perry's or Lex Alexander's but that doesn't make me less observant.

To wit, not every criticism is academic.

Any elected official who takes a big chunk out of time on a holiday to answer tough questions from a constituent gets major points in my book. We are very lucky to have Cam Hill on the Council.

Happy Thanksgiving everyone!

Cam,

Could you elaborate on the decision to defer the Wallace Deck part of the DDI.

I also want to thank you for taking time to provide insight and background on the current plan, especially on a day that should be devoted to spending time with family and friends.

During a 2004 meeting between the council and consultant John Stainback, Stainback called TIF "free money."

Council member Mark Kleinschmidt bristled at the characterization, and he's still concerned.

Tax money generated by a new project, he said this week, is supposed to pay for the services demanded by the development: police and fire protection, for example. Under TIF, most, if not all, of the tax money is sunk back into the project.

"We're going to dig deeper in our existing pockets" to pay for the other services, Kleinschmidt said. "It's like smoke and mirrors with debt. I think that's a problem."

N&

I also would like to thank Cam for spending so much time on his holiday to provide such thorough answers. And Cam, take heart, as a one-finger hunt & peck typist I think I may be even slower than you.

Andrea
I thhought the prospect of redoing the Wallace Deck was the least ambiguous aspect of the whole project. Unfortunately, Ram's final proposal for its remodeling was terribly underwhelming and we decided not to proceed.
The way I see it after the success of the lot 5 project we have at least three more potential redevelopment opportunities on town lots downtown. With our increased experience we will be able to explore other options with more confidence.........maybe using some local developers.
George, we can have type off to see who is the slowest typist.

I echo the other's appreciation for your participation Cam and especially for your acknowledgement that questions of gentrification are important.

From today's N&O:
"From 1990 to 2000, Northside's African-American population declined by 11 percent, while the white population grew by 26 percent. The neighborhood had been half black and half white in 1990, but by 2000 whites constituted 56 percent of the neighborhood and blacks 39 percent.

Northside is still a relatively low-income neighborhood, in part because of a growing population of students and other transient renters. Fewer than a third of residents in 2000 lived in the same house as they had in 1995.

But the neighborhood is getting whiter and wealthier."
http://www.newsobserver.com/161/story/514026.html

I know the NCD is supposed to act as a damper on the exodus, but it can't act alone. There is so much we don't know and aren't trying to learn. What impact is gentrification having on homelessness? Is the NCD working as intended? Aside from housing costs, what factors are contributing to out-migration of the African-American community within Northside (is it all economic or is aging out playing a role, how many sales are purely voluntary)?

I've been told that some of this discussion is taking place in the inclusionary zoning advisory board. How unfortunate that the local press isn't reporting on this discussion and that board members aren't championing a broader, more inclusive public discussion.

Cam,
I echo the appreciation that others have expressed for your time and consideration (and humor!) in participating in this forum and the clarifications you have made. In your response, you said, "The areas of concern that I have with this deal are not financial." I wonder if you would please share the areas of concern you do have regarding the parking lot 5 project as it now looks?

Laura Shmania

As someone who has watched downtown for my entire life, I am confident that this will be good for Chapel Hill. We need the increased residential development downtown although, like Terri, I would like to see more commercial (offices). The public space is tremendous. This project has already spawned others that will lead to a transformation downtown.
Essentially, I worry about aesthetics. I like so few new buildings.If you analyze what we have downtown now, it is hard to be too picky although I will be.....
I also worry that we will end up building student housing. We have negotiated for covenants that should encourage owner occupancy but it is very difficult to legally restrict what an owner can do with his/her unit. I wanted to go co-op and have a co-op board like New York City co-ops but no one went for it.
I worry that the retail won't lease but Ram seems very confident.
This is a big damn deal and I take it seriously, I am gonna have to live with it for the rest of my life. If I wasn't worried there would be something wrong with me. I have, however, become comfortable that we should go forward and it will be great.

Cam,

If you want to see more office space, what's the barrier to having it included in the Lot 5 plan?

Cam, I also wish that there was more of an affordable commercial aspect to this development - it's been discussed for for over a year.

And if this is about economic development, why play strictly to the retail sector? Bodies but no jobs? Come on.

I believe a dearth of quality jobs downtown is more of a problem than a lack of housing. Office space and affordable commercial space would help bring jobs. Sure, my view is slightly skewed because I work and spend downtown but jobs, jobs, jobs, I think, would boost the economy more than expensive residences (and parking spaces) on Lot #5, at least as the project is currently configured.

I know you, Sally and Bill don't want to be forever tied to a new NCNB Plaza disaster - that I get.

But I think it's hard to visualize the size of this beast, at least in the abstract,so I'm putting together another GoogleEarth demo that shows the comparable dimensions of both Lot #5 and NCNB - and underlines my concern about scale.

What I still don't get is how the financial consequences don't loom as large.... I've once again re-read all the currently available documentation and the numbers are just not adding up. Or, more accurately, the risk and reward don't align.

I'll be asking Kay, as you suggested, for all the analysis so maybe I can see what's obvious to you...that we can pay for the initial $7.3M and do it without creating an additional tax burden that drives folks out of their homes (or further gentrifies Northside, Pine Knolls, etc.)

And, sorry, but I respectfully disagree with your assertion that private development wouldn't have happened without Lot #5 - the timings and public statements of the developers don't line up.

There could be future effects, as this development's unfortunate scale might give developers the hutzpah to also build large, using this building as an "acceptable" example (the domino effect of NCNB leading to University Towers leading to...).

I'd argue that RAM's "courage" to forge ahead with mega-development has already been bolstered. Look at the 5-6 story, 335 luxury condo-units they're proposing for Hillsborough St. A project that'll drive out affordable housing stock and is an interesting one shot example of Terri's gentrification concerns.

Will,

The addition of $7.3 million debt isn't going to have much of an effect on gentrification. It might have a slight impact on city tax structure, but I imagine if the Local Government Commission authorizes the additional debt load, it means they think the town can afford it, after looking at all the other pertinent criteria (current debt, bond rating, etc.).

Have you looked at the town's CIP to see what debt service is being paid off when this debt would take effect? If the town has reached its debt ceiling, it means they will have to take other planned items off the table. With a new town manager, I think you should expect that this deal has been combed through and reviewed very carefully. He's certainly not going to want one of his first high profile actions with the town to be a boondoggle.

Will says:Cam, I also wish that there was more of an affordable commercial aspect to this development - it's been discussed for for over a year.
And if this is about economic development, why play strictly to the retail sector? Bodies but no jobs? Come on.
I believe a dearth of quality jobs downtown is more of a problem than a lack of housing. Office space and affordable commercial space would help bring jobs. Sure, my view is slightly skewed because I work and spend downtown but jobs, jobs, jobs, I think, would boost the economy more than expensive residences (and parking spaces) on Lot #5, at least as the project is currently configured.

I reply: We have told Ram that we would be open to office space instead of retail and they don't feel the demand is there. This could change. The “affordable retail” that was suggested was just smaller market rate retail. I don't know how you go about “affordable” retail in any real way.

Will says:But I think it's hard to visualize the size of this beast, at least in the abstract,so I'm putting together another GoogleEarth demo that shows the comparable dimensions of both Lot #5 and NCNB - and underlines my concern about scale.

I reply: Big is not bad, ugly is bad. You said before the council that this was not human scale or pedestrian friendly. You mean like Times Square is not pedestrian friendly? Big does not necessarily drive away people on foot. Last time I looked people walk by the NCNB building without getting vertigo.

Will says:What I still don't get is how the financial consequences don't loom as large…. I've once again re-read all the currently available documentation and the numbers are just not adding up. Or, more accurately, the risk and reward don't align.

I reply: Add up to what? The financials are simple and have been explained thoroughly to you. Would you like to see us attract some new business by offering tax abatement deals like the state did for Dell in G'boro (or some such)?

Will says:I'll be asking Kay, as you suggested, for all the analysis so maybe I can see what's obvious to you…that we can pay for the initial $7.3M and do it without creating an additional tax burden that drives folks out of their homes (or further gentrifies Northside, Pine Knolls, etc.)

I reply: Why don't you see if this project contributes to the spread of AIDS as well. Do you honestly think that this project (as opposed to a shorter cheaper one) will have a measurable effect on what is already a huge problem? Why don't you blame the school system for attracting all the people to CH who drive up the cost of housing?

Will says:And, sorry, but I respectfully disagree with your assertion that private development wouldn't have happened without Lot #5 - the timings and public statements of the developers don't line up.

I reply: I didn't say it wouldn't have happened. This project sets a floor in many areas-affordable housing, LEEDs, etc.
Will says:There could be future effects, as this development's unfortunate scale might give developers the hutzpah to also build large, using this building as an “acceptable” example (the domino effect of NCNB leading to University Towers leading to…).
I'd argue that RAM's “courage” to forge ahead with mega-development has already been bolstered. Look at the 5-6 story, 335 luxury condo-units they're proposing for Hillsborough St. A project that'll drive out affordable housing stock and is an interesting one shot example of Terri's gentrification concerns.

I reply: Our community is attractive and growing and unless we want property values to become more obscene we have to allow some residential development. We are also committed to the rural buffer. The equation is: no land+high demand=higher prices OR higher density.
The prevailing land use approach to future growth in our community is higher density. This can be accomplished with taller buildings.
YOU KNOW ALL THIS STUFF. If you don't like it, fine. Quit acting like you don't understand the approach. The Town House Apartments are GOING to get redeveloped whether I like it or not. We, hopefully, can insist that it is done in a way that benefits the town.

I answer your questions. Why don't you tell me how to format my posts so I don't have to repeat all of yours?

Cam, thanks also for taking the time to help us better understand this proposal. I read Dave Hartzel's column in the CHN this morning. I've known Dave for a while and knowing him and that he teaches real estate in the Business School, he has a lot of credibility with me. What is it that the Council knows and understands that Dave doesn't know and understand?

I heard Hartzell speak at the public hearing last week and his concerns registered, but not to the same extent as today's column. The combinatIon of that column and the parking situation for the affordable units is causing me to rethink my earlier statements about not questioning the financials of this deal. At the very least parking spaces for condo dwellers should be leased on a first-come, first-serve basis rather than automatically assigned through ownership.

One other thing. The town, citizens and elected officials, have been very vocal about their demands on the university to ensure that all CN development is energy efficient. I'm surprised no one is making the same demands on this development. Hopefully, everyone knows that LEED Silver, an admirable standard, does NOT ensure energy efficiency. At the very least, the town should make sure they demand efficiencies of at least 40% higher than the typical multifamily development, and at best, net-zero on energy and stormwater.

I've spent the day outside and didn't read either Fred's post or Hartzell's column until just now………
Fred, I don't know that we (the council) know anything that David doesn't know. The first thing that Dave is concerned about is the difference between some #s in 2004 and the current #s. The #s in 2004 were from SPREE and were totally conceptual. The current #s are from RAM and are what the deal is based on. He seems to think that it is odd that a consultant's concept figures turn out to be inaccurate after two years of record breaking construction cost increases. SPREES estimates did not commit the town to anything they just gave us some idea of what we might expect. Essentially this comparison is irrelevant.

He quotes John Stainback as saying: "he was“100 percent confident that the numbers were correct.” If he was 100 percent confident, why have the numbers changed so much? "The #s were correct, they were a conceptual estimate for the project as he then envisioned it. Again an irrelevant concern.

Then he disses the consultant for having a conflict of interest. Which he does, as do most consultants, as do most professionals. During the negotiations John Stainback was extremely hard on RAM's #s. So much so that RAM wanted him gone. I found John to be very willing to be negative about a deal that would benefit him greatly if he had been positive. As someone who has observed him closely for two years I think he is a consummate professional who has pursued the town's interest at the expense of his own.

So then Hartzell complains that the deal takes 3 years to develop a positive cash flow. I would expect a “real estate professional” of Dave's experience to realize that this is a good thing. That after adding the shortfall to the town's basis the town will still realize a great return on our investment (totally discounting the public good associated with the public space and putting the parking below ground).

Hartzell's main objection appears to be that the deal has changed. Well, of course it has. The town is now shielded from the risks associated with being an investment partner in the whole deal. We do not have to put up any money until the project is complete. Yes, the cost has risen but as I have stated previously we are still coming out at least $11million ahead of the offer that RAM beat out. He thinks we should wait for a better deal. Given the way things are trending I think that ship sailed.

One point that Dave Hartzell is dead wrong about. I don't want to be a real estate developer. I have zero zeal for it.

Thanks, Cam. Guess that I'm still not sure what I'm not understanding in all of this. I'll keep working on it.

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