Wednesday, June 03, 2009

Welcome To Fantasyland

It's called the Metropolitan Development Commission, but it could just as easily and more accurately be called "Fantasyland." It's a place where a young man with a shell of a company, an idea for "redeveloping downtown" and the right connections can walk away an instant multi-millionaire without speaking a word. That's exactly what happened this afternoon when the MDC voted 7-2 to approve an $18.5 million investment in a downtown parking garage and 10-year tax abatement deal worth $6.6 million to spice it up so the young Tadd Miller can assemble a team of equity investors and line up financing for a $30-$35 million, mixed use development on the site of the old Bank One operations center adjacent to the abandoned MSA site. [Update: Chairman Randy Snyder and James Curtiss were the two commission members voting against the resolution].

Now that Miller has a commitment of more than $20 million in hand from the City of Indianapolis, he'll have no trouble finding equity partners to invest in his venture and line up the necessary financing to build a mid-rise building for 650 apartments and retail space. MDC members didn't ask a single question of Miller, and he wasn't asked to offer any testimony to explain why the 9 unelected commission members and the public should entrust him with such a large public investment. According to press accounts, this will be the first such development project that Miller has set out on his own to accomplish.

The general public only learned of this deal 48 hours ago. The MDC heard from only one city official, Deputy Mayor Nick Weber, who said the City couldn't pass up an opportunity to transform the dilapidated property. The deal he says will "level the playing field" and "ensure a robust downtown." "Level the playing field?" You've got to be kidding? It's more like stacking the deck. He says the City is protected in two ways. If Miller can't line up financing within 90 days, the City will take ownership of the two parcels of land, including the garage. If Miller fails to start construction within 9 months, the ownership will revert to the City. Some deal, eh? We get a grossly under-utilized parking garage and a vacant piece of property for $18.5 million and lose $184,000 a year in property taxes currently being paid on the property under private ownership.

The MDC appeared satisfied that the under-utilized parking garage is a steal at $18.5 million. Want to bet there isn't a parking garage operator in the entire U.S. who would pay that much for that parking garage at this point in time? One commission member seemed impressed that the developer might be paying $1.2 million a year in property taxes after the 10-year abatement expires, notwithstanding at least $2 million in revenues local governments will lose over the next 10 years from those abated taxes and the costly installment payments on the note that will finance the purchase of the parking garage, which magically will match the developer's payments to its lender. Another commission member seemed satisfied that the developer's annual payments to the City would be at least $600,000; however, the City is giving the developer 600 spaces in that garage that a market rate indicator would tell me is worth at least $1.1 million a year.

One of my favorite movies is "Back To School" starring the late Rodney Dangerfield in which he plays a multi-millionaire businessman, Thornton Mellon, who decides to attend college as a way of reconnecting with his distant son after his latest marriage failed. Dangerfield's character has a great exchange with the stuffy professor of his business class, who he says is leaving a lot out of a business plan for a mock company the professor utilized for demonstrative purposes that goes as follows:

Oh, you left out a bunch of stuff.

Oh, really?

Like what, for instance?

First of all, you have to grease the local politicians for the sudden zoning problems that always come up.

Then there's the kickbacks to the carpenters.

And if you plan on using any cement in this building, I'm sure the teamsters would like to have a little chat with you, and that'll cost you.

Don't forget a little something for the building inspectors.

There's the long-term costs, such as waste disposal. I don't know if you're familiar with who runs that business, but I assure you it's not the boy scouts.

That will be quite enough, Mr. Melon. Maybe bribes and kickbacks and Mafia payoffs are how you do business, but they are not part of the legitimate business world, and they're certainly not part of anything I'm teaching in this class. Do I make myself clear?

Sorry. Just trying to help. That's all.

Now, notwithstanding Mr. Melon's input, the next question for us is where to build our factory.

How about Fantasyland? Mellon quips.

Young Tadd Miller's speechless moment before this MDC's hearing this afternoon looked a lot like Fantasyland to some of us in the audience. Hats off to Miller for turning a big profit today without investing a dime of his own money. I look foward to learning the names of the people who will jump into this deal now that Miller has a huge public subsidy in hand for his private development. Today's resolution adopted by the MDC was prepared by Barnes & Thornburg's Bruce Donaldson, who the Corporation Counsel's office has retained to represent the City's interests in this transaction.

UPDATE: Brendan O'Shaughnessy's online story at late this afternoon captures my sentiments that I shared with MDC members at this afternoon's hearing:

But opponents included the Marion County Alliance of Neighborhood Associations, which questioned the zoning and why an abatement would be allowed before a plan is in place.

And Indianapolis lawyer Gary R. Welsh, who operates the blog Advance Indiana and earlier this week called the plan "yet another multi-million dollar give-away to a politically-connected developer at a time the City is struggling so much financially" today questioned whether a single person would have the wherewithal to get a deal done.

Weber responded that once this deal closes, he's confident that equity partners and debt financiers will emerge to do the deal.


Downtown Indy said...

Can anyone explain how these projects, which are always spoken of with a long string of superlatives about the downtown vibrancy, can't fly on their own without taxpayper subsidy?

I would venture to say there are excellent reasons why no private developer jumped on the property before now which, as was reported today, is a steal at $18M (worth 'north of $30M'). But that's not a sweet enough deal, we have to kick in 10 years of tax-free living, too.

Indianapolis (and we're not alone) has done a fantastic job over the years of culturing a mindeset where no private investor will move on anything without taxpayer-funded welfare.

When the Bank One tower was built, I clearly remember the big placards along the street touting the project financing was through some large insurance company's investment.

In twenty years' time that all turned around and it's the taxpayer who foots the bill for everything. Without any rights to vote for or against it.

A Fantasyland, indeed!

Downtown Indy said...

I was rather amused by the person speaking about the 'gateway' from the east.

He even included a prideful reference to the Washington St offramp that was build to replace the Market St ramp.

Go check out the now-closed street the new ramp cut into, Pine St. For reference, that runs south from Washington, between the Hardees and the interstate.

There is a railroad overpass a few hundred yards south, which is where Pine St now deadends.

The place is already a shantytown for hobos and the homeless. It's becoming a dumping ground for garbage and looks like prime realestate for rats and other vermin.

Oh, and it's just a few blocks from these planned new apartments.

jabberdoodle said...

At an earlier meeting today, in response to a question by Scott Keller, Nick Weber disclosed that the two appraisals for the garage were not cost-based or income-based appraisals. The two appraisals are for the anticipated value of the garage once the full development is completed across the street, which would cause more customers for the garage. He mentioned that to replace the garage would cost about $30M. But, obviously, the garage is a business concern and not just a building.

Thus, the City is headed toward signing an agreement to buy a building using a 'fantasyland' appraised value. What could go wrong?

The abatement hearing is in two weeks - July 17, 1:00 pm, Public Assembly Room, City-County Building.

Gary R. Welsh said...

It's funny that the proposed high-end parking garage next to the Lucas Oil Stadium was projected to cost much less than $30 million.

Downtown Indy said...

Gary, that one never has been resolved, has it? Haven't heard a word about it in a long time. Does that mean we're simply paying Irsay per the 'short' parking clause of the lease?

Citizen Kane said...

And of course, the revenue stream (?) will not cover maintaining this garage. Does anyone know how old it is?

In my hometown, a city-owned garage collapsed due to lack of maintenance. Luckily no one was hurt besides a dozen or so vehicles (it happened during the night). So, contrary to people calling this an city asset; it will more likely be a city liability.

Gary R. Welsh said...

Downtown Indy, I thought there was some compromise reached over the use of parking space controlled by the state.

M Theory said...

Gary...THANK YOU for being there. I had contracts and proposal going today going at the office that I could not walk away from to be there in the middle of my business day.

You do the lions' share of unpaid citizen work in this town. God Bless You!