Shartenberg Deal Approved Despite $1M Appraisal Spike

by Melissa Bailey | September 5, 2007 8:40 AM | | Comments (13)

Final-02.jpgAn agreement paving the way for the largest private development project in New Haven’s history passed with a wide margin of support as it came to a final vote before the Board of Aldermen Tuesday.

By an 18 to 8 vote, board members approved of a deal between the city and the firm Becker and Becker to develop the Shartenberg site. The developers propose to build a 31-story, 338-foot building on the lot bounded by Orange, State, and Chapel Streets, where the Shartenberg department store once stood. The 400,000-square-foot building would contain street-level retail, an early childhood center, a grocery store, 500 parking spaces and 475 apartments. (Click here, here and here to read background on the project.)

IMG_9705.JPG“I’m glad to see we had strong support for the overall project,” said developer Bruce Becker (pictured) before shaking aldermen’s hands after the meeting. Two last-minute developments —a newly negotiated deal to give the city a larger slice of possible state tax credits, and a new appraisal stating the land was more valuable than previously thought — spurred a round of late-game haggling on the aldermanic floor. Becker watched from the wings of the aldermanic chambers as the board considered, but failed to pass, last-minute changes.

At a three-and-half-hour public hearing in July, the two agreements on the table — the Development Agreement and Land Disposition Agreement — met wide public support. (Click here to read the former; click here to read the latter. [Caveat: the agreement has since been amended in one way described below].)

Tuesday, the items gained support from both factions of the aldermanic board, including Hill Alderman Jorge Perez and Aldermanic President Carl Goldfield. Both hailed the project for bringing new jobs, tax revenue, and 50 units of affordable housing downtown. They argued Tuesday over one part of the $160 million project — how quickly building permits would get paid.

A New Appraisal

Last Friday, a new appraisal was submitted to the board pegging the value of the land at $4.4 million — at least $1.4 million higher than previous estimates done by the office of economic development. The appraisal was done by the certified appraisers Machoud at the request of aldermen.

In light of the new appraisal, some aldermen walked into Tuesday’s meeting looking for Becker and Becker to give a little more on the developer’s agreement.

The agreement includes between $4 million and $6 million in public subsidies, including that new appraisal and funding for 28 of the 50 affordable housing units. The developer, who’s buying the land for $1, has in exchange agreed to be on the hook for the other 22 affordable housing units, conduct environmental clean-up to the tune of $1.8 million, and take care of the city’s lingering commitment to take on a 175 parking space burden left by the Chase agreement (at the cost of $6 million, by city estimates).

IMG_9699.JPGBefore the meeting, Alderman Perez (pictured at right) said he thought the board should consider a possible amendment by East Shore Alderman Al Paolillo (pictured at left) to change the sale price of the land from $1 to $1 million in light of the appraisal. (That amendment never saw the light of day.) The two agreed an appraisal should have been done much earlier in the game, before the city sat down at the negotiating table.

Having an outside assessment of the land value was “crucial” to negotiating “from a position of knowledge and strength,” Perez said. Deputy economic development chief Chrissy Bonanno countered that the city hadn’t felt an outside appraisal was necessary, because they were aware of comparable sales in the area.

Why did Machoud’s figure come in higher? The firm included one sale the city did not — the College Street lot sold to make way for the (stalled) Landino condo tower, said Bonanno. The city did not include that figure because Landino’s was a far denser project, she said.

Other aldermen said the new appraisal didn’t shake their confidence in the Shartenberg deal, because they trusted the city’s players at the negotiation table to do what was best for the city.

A Bigger Slice For The City

Those players — Bonanno, economic development chief Kelly Murphy, and Alders Ed Mattison and Sergio Rodriguez, co-chairs of the joint aldermanic Community Development/Finance Committee — sat down last week with Becker and Becker for some late-game negotiations concerning the payment of an estimated $3.1 million in building permit fees.

Back at its initial stages of conversations with the city, Becker and Becker had sought to waive the fees entirely. The city rejected that idea. Becker and Becker then agreed to pay the fees, but only over the course of three decades, starting at year 12 — a timetable that East Rock Alderman Roland Lemar pointed out would leave the city with less than half of the due sum, because of inflation.

In effort to get the fees paid quicker, the city suggested Becker and Becker apply for $9.9 million in state Urban Act funds to finance the fees. To incentivize the painful application process, the city agreed to let the developers keep 50 percent of whatever tax credits they are awarded (if they get any; no New Haven project ever has), after Perez suggested pushing that 50/50 split more towards the city’s favor.

In a meeting last week, Rodriguez, Mattison and the economic development team pushed that ratio to 60/40 in the city’s favor. That means whatever state tax credits are awarded to the developer, the city will get 60 percent, up to the amount of the building permit fees. The difference could turn out to be a few hundred thousand dollars.

Perez, who wasn’t invited to those negotiations, attempted to make some of his own on the aldermanic floor Tuesday. How about 70/30? he offered in an amendment.

Several aldermen rebuked the effort, saying the appropriate time to negotiate had passed.

“It’s important for us to have the kind of working relationship with our development partner” that lets the city negotiate further as more questions pop up along the course of development, said Mattison. On a $160 million project that’s bound to have more kinks to work out as construction proceeds, “we don’t want to sweat every dime at this point,” Mattison said.

Ward 1 Alderman Nick Shalek dismissed the proposal as “making a unilateral decision” without giving developers the chance to participate. “That’s not a negotiation that I want to enter into,” he said. East Shore Alderman Alex Rhodeen argued the developer might just decide not to apply to the tax credit program if the city pushed too far — if developers decided the cost of applying the program wasn’t worth its while, the city would lose out.

Perez’s 70/30 amendment failed by a vote of 11 to 16, leaving the proportion at 60/40.

Phew, said Becker after the vote — “it’s in the city’s interest not to reduce the incentive too much.”

IMG_9695.JPGAn amendment from Paolillo, hotly debated in pre-game planning sessions across the hallway, passed. The amendment said any further changes in subsidies or city financing for the project had to come back to aldermen for approval. In a public meeting before the board met, Murphy (pictured) called the idea redundant, because language in the developer’s agreement already implied “we couldn’t give a nickel more of city money” to developers without asking the board.

If a little clarification of language would put an end to “bickering,” what’s the harm? argued Newhallville Alderman Charles Blango, supporting the effort. The amendment passed unanimously.

The big ticket vote — on the two items, the Developer’s Agreement and Land Disposition Agreement — passed by a margin of 2 to 1. Eight alders — Jackie James, Andrea Jackson-Brooks, Michael Smart, Robert Lee, Gerald Antunes, Al Paolillo, Arlene DePino and Alfreda Edwards — voted against the proposal. Maria Reyes-Rivera, Migdalia Castro and Joyce Chen were absent; Michelle Edmonds-Sepulveda stepped out of the room.

After the vote, Goldfield applauded the majority support of the project, despite what he described as minor differences over the deal.

“We get a project that reflects what we want to be as a community,” said Goldfield, pointing to affordable housing, green building practices and jobs. “That doesn’t come for free.”

Developers have one more city hoop to jump through before they’re in the clear: Site Plan approval by the City Plan Commission, scheduled for this month.







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Comments

Posted by: THREEFIFTHS | September 5, 2007 9:44 AM

Like I Said Check To See Who On The Board Got A Brand New Hot Tub!!!

Posted by: charlie | September 5, 2007 10:50 AM

Why can't the approval process be more streamlined? We need to incentivize developers to come here and work, not make them "jump through hoops." There should be a fast-track for projects like this that are clearly so beneficial for the city. Imagine how much the development team is losing each day when $160 million is at stake?

Also, the permit fees in New Haven are absurdly high in relation to anywhere else. I guess they help keep taxes a bit lower, but they are an enormous disincentive for any developer (or for Yale to expand). We maybe save a bit in the short term but in the long term we are all going to be paying for it, because we're going to be sitting on land that is not developed to the extent that it could be, and Yale is going to increasingly continue to build new facilities out in West Haven, Hamden and Orange instead of building nice buildings downtown.

Posted by: WEBbloger 1 | September 5, 2007 12:45 PM

No surprises here.

The BOA committee Chairman Marttison and Rodriquez, failed to obtain a valid property assessment and market analysis from Becker in order to make an informed decision.
Apparently who needs an informed decision.

They had already passing the matter at the committee level without these two important pieces of documentation. Therefore, it was highly unlikely that this motely crew would even think of reversing itself at the full board meeting.
When faced with the evidence that the BOA is giving away an additional 1.4M in land value, they dismissed that as if it were an just oversight.

This current Board of aldermen are the most controlled, near sighted, lack of vision idiots, ever in the history of The New Haven Boards of Aldermen.

Posted by: king james v | September 5, 2007 6:55 PM

i paid over $150 in permit fees to build my backyard shed. now i think its a pretty darn nice shed. it's not quite a garage, but it's a firmly built outside storage thingy i'm o.k. with paying the fees because the city needs them. but one freaking dollar for the biggest building in new haven?
i am outraged. i will be voting against my alderwoman (silverman) mayor (destefano) and anyone else who is an incumbent on the ticket as soon as i get into the booth. this is why we've got mafia towtrucks towing minorities, overzealous meter maids and phantom street sweeping. ridiculous. i'd like back $240 in fees for my shed please (i'm o.k. with $10) or i'm going to build a treehouse without proper papers and fees.
just out of curiosity, what did the "flip this house" guys pay for fees on their new building? maybe we can have them rehab some of our "blighted" properties and help out the city.

Posted by: charlie | September 5, 2007 9:27 PM

Hey King James -- Are you serious? In fact, I'd gladly pay you the $240 myself if you were willing to put up $160,000,000 to rebuild this part of the city, including paying $8,000,000 to cover the city's parking arrangement with the CTFC and to clean up the parking lot first. Please, let me know. I have $240 in my pocket right now. Give me a break!

Posted by: mickelrogers | September 6, 2007 2:36 AM

I think it is a shame that the alderwoman from the 30 ward left the room when a vote was taken place. No wonder why her community have no faith in her as an alderperson.

When are the alderpeople going to stand up and vote for important issues and not giving away property as a favor because of a vote.

Posted by: LAFAYETTE | September 6, 2007 11:55 AM

I was initially skeptical, but the data indicates this is a good deal. The $1 has to be put in the context of the City not being on the hook for the environmental and parking liabilities. That's $7.8 million of taxpayer liabilities gone. Would people have preferred that the City charge the assesed price but the developer not have picked up the remediation and parking tab? In that case the City would get $4 million but then turn around and have to shell out $8 million. Between plus $1 and negative $4 million, I'd take the dollar.

Griping about residential fees or the process seems out of place. When one fixes up one's home, one usually doesn't have to pick up environmental and parking liabilities from the City. Simply not comparable.

I also don't understand what people's alternative is...to not do the project? I guess there could be more bidding, but if you read the RFP responses, these guys clearly were the best. All of the respondents wanted subsidies. Where is that mystery bidder that would do the project without subsidies?

Finally, it's odd to believe that professonial real estate developers and their capital providers are somehow going to be poor negotiators. The belief that somehow the pros are going to get their lunch taken by a tiny economic development team and a group of aldermen elected by a few hundred votes seems out of touch with reality. Capital rules the day - especially in this case, where there wasn't a viable competitor. Maybe we don't like the power capital has, but to transpose our unhappiness with that fact by attacking the competency of the economic development staff or the volunteer elected officials seems to me a bad diagnosis of the situation. Maybe fewer, more professional aldermen would make a slight difference, but not much.


Posted by: Gary Doyens | September 6, 2007 12:09 PM

Charlie: I know you are super pro development - but let's not let your enthusiasm get in the way of facts.

1. Becker is not putting up $160 million to "re-build" anything. It's a business deal -- they're investing and they hope to max out the investment and make large returns front and back end. If their projections are correct, they will. But let's be clear - they're not doing us any favors. The city perks simply make the return that much sweeter. The problem with City Hall is that its executives suffer from low self esteem which is why this deal has so many developer perks. They think we have to "induce" developers to come here. In fact, we don't. I still think Becker would have come here with or without the welfare. The property taxes the city will collect are good - phased in such as they are - but that too, is part of the routine expenses associated with development and certainly nothing special or extraordinary.

2. Becker is not "paying $8 million to cover our parking obligation to CTFC." Becker had to build a parking garage anyway, and will be reserving parking spaces to meet that agreement with CTFC. Becker will also be paid to do do that - about $240,000 or more each year for those 175 spaces.

3. Remediation of contaminated soil is always part of any deal like this - In this case Becker gets a piece of property worth $4.4 million; will spend $1 million or so to clean it up netting $3.4 million in the process. Paying for remediation is not that extraordinary - selling it for $1 is, especially when combined with the rest of the menu.

Posted by: LAFAYETTE | September 6, 2007 3:06 PM

I don't think it's "low self-esteem" or the incompetence others alluded to.

It seems that Becker had a strong hand in that he was the sole respondent with the capital and expertise. Also Becker's capital can find another deal or invest in a different asset; capital can move quickly and there is relatively high transparency for his funders on alternative investment options. Sure, there is a sunk cost on setting up the transaction, but it's a very small part relative to the overall investment.

On the other hand the City administrators and elected officials don't have the equivalent positive alternative if they do not do the deal. They know that nobody has shown up until now to do the deal without subsidies and that a structured RFP did not yield real competition. Let's not assume that because something is appraised a price X by a sampling of past transactions that are somewhat similar that such price is what the market will give. If this plot is so hot, then why such few and mild responses to the development opportunity?

It's true that the development would entail a garage and remediation. But absent a deal, those are costs on the City's balance sheet. Getting rid of them is of economic value to the City. If the true economics is that the land is of such value and the economics of parking provision so beneficial, don't you think the market would have already bid the for the land and absorbed the parking from the City to turn a profit? That this hasn't happened probably suggests how horrible these two endeavors are as stand alone businesses and why the City was happy to sell the problem.

Posted by: Esbe | September 7, 2007 11:49 AM

Gary -- I don't think you understand how capitalism works. You say

Becker is not putting up $160 million to "re-build" anything. It's a business deal
whereas in fact it is building the city and it's a business deal. Just like when you buy food at the grocery store: it is true that the store makes a profit, but you actually do get the food. If you harass grocers to the point that they don't make money, then it is hard to buy food. If you harass developers to the point that the don't make money, then you don't rebuild the city. The city made all kinds of demands on potential developers of this project, most costly was the demand to use the most expensive union construction labor. But also: design restrictions, provision of first-floor retails, low-income apartments, etc.

Posted by: charlie | September 7, 2007 3:31 PM

I think you hit the nail on the head, ESBE. And I might point out, carrying your analogy a bit further, you know what happens to people who don't get food? They die. Keep instituting costly demands and trying to discourage developers, like the BOA has already done by raising permitting fees on them (and on Yale), and that garage repair in your backyard is going to cost you $20,000 in fees, not $200. Pretty soon after that there won't be any garages or any houses left so it won't matter. We can just add Shartenberg to the West River preserve or build another new Walgreen's drive thru on top of it.

Posted by: Gary Doyens | September 9, 2007 7:45 PM

You misunderstand my point. Nobody said anything about "harassing anybody." This case was put together by city executives who did not know the value of what they had - classic mistake. Trust me, Becker did. All I'm saying is that if we didn't act so grateful -- and bargained from what we knew the value of the property to be, the deal points could have been stronger. If in fact, Becker didn't or wasn't willing to meet our baseline deal points -- then we should have kept it as is, and kept looking for developers. This deal cried to be "sold" - we didn't sell it. We posted an RFP, and out of the responses, Becker was the best. We closed it. Would it not have been possible to limit the full menu of welfare? Or predetermined what our baseline was before we again launched an ambitious, monster contruction project, that taxpayers in this city are being asked to support? I think development is important. I think this project has potential to be beneficial. It could have been beneficial without our tax dollars - and it could have been beneficial faster.

If you're just being "grateful" -- you're not going to look too hard at the details.

Posted by: Your Tax Dollars at Work | September 10, 2007 11:02 AM

Dream on, folks!

The absolute reality is we're already in a real estate recession which will last for several years. If the Federal Reserve Open Market Committee does not come out of its Ivory Tower and cut (the Fed Fund) interest rate by at least a half point next week, we'll be in a general recession!

Lenders and investors are and will be very conservative about putting money out for speculative real estate projects for a long time.

And this is one really speculative project. A development with 400 plus "luxury" residential units just isn't viable in downtown New Haven at the present time and will not be for at least five years.

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