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Woodward’s New Haven Rx: Take A Cut

by Paul Bass | Jun 6, 2014 2:15 pm

(18) Comments | Commenting has been closed | E-mail the Author

Posted to: Business/ Economic Development

Christopher Bockstael/ Svigals + Partners

The next time New Haven helps a developer build a new project in town, it should take an equity stake, in the view of a prominent journalist who recently spent some time here.

That journalist is Bob Woodward (pictured at left), the Washington Post reporter better known for bringing down a U.S. president and sneaking into a hospital room for a death-bed interview with a CIA chief.

Woodward taught a journalism seminar at Yale this spring. As part of his preparation, in a wide-ranging informal discussion at JoJo’s Coffee Roasters & Tea Merchants at Park and Chapel streets, he asked probing questions about the city his students would write about—and offered a solution of his own.

Cities like New Haven have to start sharing in the wealth they are helping developers accumulate, beyond just collecting taxes, he argued.

Woodward elaborated on his idea in a subsequent email message. He stated the he knows of no other city “doing this. [T]he idea came from talking with you about New Haven, which is a city coming back.”

“It just seems logical that public ... development or sale of public land or facilities should have long-term benefit to the city,” he argued. “Why not give the city an equity stake in such projects? It could provide a revenue source beyond property and other taxes. Cities are providing value to private owners.”

Woodward added that “the increased value of property (think Manhattan for example) is so off the charts that the public should benefit, just not the real estate barons. Probably would be only a few percentage points of equity with a maximum of 5 points. Also it could be sold because it would reduce property taxes. Why should these barons get rich beyond imagination and the cities get poorer? This is not socialism but pure capitalism—make the cities investors.”

Landino: “I Would Go For That”

That idea sounded good to one capitalist busy building projects in New Haven, Robert Landino (pictured).

Landino’s company, Centerplan, is currently building a $50 million assortment of 200 luxury apartments and 20,000 square feet of retail space at the corner of Crown and College streets. It recently won approvals to build another $50 million mixed-use project on 5.39 acres of land it bought from the city on Legion Avenue across from Career High School.

“Yeah, I think I would go for that,” Landino said when told of Woodward’s idea. He said he had never heard of the idea before. “We certainly would think about it.”

Landino said a limited partnership would need to be structured in a way that restricts the city’s role in decision-making. Otherwise, the company’s decisions—“every time you hire a vendor or negotiate a lease”—would become available to the public through the Freedom of Information Act, which could hurt its competitive position, he said.

Such restrictions are already common, he said. His company will sometimes take on an equity partner who has a minority stake along with a “limit [on] their ability to make uninformed decisions that would adversely impact” a project, he said.

The advantage to the developer in taking on a city partner, he said, would come in cost savings. “If we buy a piece of land and it’s $5 million, and they want a 10 percent equity position, we take 10 percent off the purchase price,” he said. Also, “it aligns their interests with ours.”

Perez: “It’s Complicated”

Thomas MacMillan Photo A key New Haven lawmaker who’d have to sign off on such deals, Board of Alders President Jorge Perez, said he, too, had not heard the idea before. He said he’s not sure how he feels about it.

“It’s an idea. Maybe it has merit to look into. I don’t get excited over it,” Perez said. “On the face of it seems like a simple question. It’s actually more complicated.”

If the city owns a portion of a development project, what happens if someone slips and falls on the property and wins a half-million-dollar judgment in court? Perez asked. “Do we pay 10 percent of it? What happens if one of the contractors [illegally] dumps asbestos? Are we legally liable?” Back in the 1990s the city arranged the sale of a Temple Street building to a developer who was indeed later convicted of having workers (hired illegally) dump asbestos in the West River.

In regulating a development, the city would also potentially face the question of how aggressively to enforce, say, building codes on a project in which it has a financial stake.

Ultimately the question of whether to pursue such deals comes down to the question of government’s proper role, Perez said: Is it to facilitate development? Generate and collect more taxes?

Nemerson: Wait 6 Months, Then We Can Talk

Thomas MacMillan Photo To the city’s economic development chief, Matthew Nemerson, the general concept behind Woodward’s idea hearkens back to the early 1800s.

“In the 1830s and ‘40s, when states were going bankrupt, why did they go bankrupt? Because they invested in bonds in canal lines,” Nemerson said. “They were like, ‘We’re going to invest in America.’ They invested in canal systems in the 1820s and ‘30s. They thought, ‘We want to get a piece of this.’ Well, the railroad got investments, and the canals went out of business. ...

“Now we get to the modern era. Sometimes cities are throwing incentives to developers to come [like with the federal Urban Development Action Grants New Haven obtained in the 1980s to help build projects like Whitney-Grove, the Ninth Square, and the Long Wharf Maritime Center].  Right now developers are buying parcels. They’re not asking for subsidies.”

For Woodward’s idea to be relevant, developers would need to be competing to buy city land, Nemerson said. Then the city would have the leverage to levy an additional “tax” on a project by demanding a small equity stake if it chose. New Haven’s not at that stage now, he said; given the increased interest in development in New Haven, “we might be there in six months.”

Like Perez, Nemerson sounded some cautionary notes. Just as the city would share as a partner in a project’s financial successes, it would also share in its losses. He cited government-backed projects from the past generation—the Chase office tower, the Konover project at Grove and Church, 55 Whitney Ave.—that added to the tax rolls but went bankrupt. 

Also, having an equity stake could change the way the city defines the public good in negotiating a project, Nemerson noted. Whereas affordable housing might have once seemed like an important goal, officials might start seeing luxury apartments as a better alternative because they can produce higher returns. “Do we want only Tiffany? Or a grocery store?”

On the other hand, cities across the country are concerned about gentrification pricing people out of their neighborhoods. “Does the city deserve a piece of this changing value that it can redistribute to people who are losing out?” Nemerson asked.

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posted by: jim1 on June 6, 2014  2:23pm

5% of all the good deals {and bad ones} would help lower taxes or pay for a lot of other things.  360 State St. land sale $1.00   5% would be 5 cents.  Now Yale deals would be a few $ more.

posted by: anonymous on June 6, 2014  2:31pm

Why not just use tax increment financing districts? Then the city captures a portion of the additional value created by any developer, in the form of tax revenue. Simple, tried and true solution to the need for cities to recapture a portion of their initial capital and labor investments.

posted by: shadesofzero on June 6, 2014  2:59pm

The question is, would the added revenue of a stake in equity give a greater benefit than whatever loss is caused by making development less attractive by taking more money off the top? Given the lack of concrete evidence either way, I’d say it’s all speculative.

posted by: webblog on June 6, 2014  3:33pm

There is always another side of the story to that being spun by Perez and Nemerson.

Apparently both Perez and Nemerson have confidently forgotten their most recent practice of just giving away the New Haven’s equity without thought to an equity share in the future growth of a development project.

Are their memories so short that they have forgotten the sale of 360 State St. subsidized by tax payers for 30 years, while parceling the land to Becker LLC for $1.00. The deal was supposed to create permanent jobs for residents and expand the grand list by millions through the property assessment in 2011. Neither Happened. Becker won the appeal and the assessment was reduced.

Then there was the parking lot at Broadway, leased away to Yale for 100 years in exchange for a tax bailout payment, resulting in NHPA employees getting laid off, while the city remained in yearend tax deficit.

Or, the street sale to Yale for $3M, after taxpayer’s subsidy since 1824.

Or, the recent coliseum deal, where the city sells the land, relinquishes parking revenue, NHPA employees laid off, contributes $10M in bond debt, receives more promises of jobs for residents, which will not happen, all for zero equity.

Nemerson believes “Right now developers are buying parcels. They’re not asking for subsidies.” Incorrect, Ninth square who is near bankrupt is now begging Nemerson for a renewal of its expired tax subsidy.

Jorge Perez should not fear law suits if someone falls on a property which the city has equity. Currently the majority of law suits against the city are now pursued by our city employees and they are suing and winning suits big time. Just review the depleted self insurance fund the city is now bonding $8M to satisfy.

In the final analysis any new approach over the current policy of lost equity, would be an improvement.

posted by: wendy1 on June 6, 2014  7:36pm

Why is it this city bleeds money and resources and is going the way of Detroit with more empty storefronts and homes???  Why is it a black city is being run by white people who dont live here???  Why is it that at least 2 multi-billion dollar corporations are located in a town that is still a ghetto???with lousy schools???and poor city services???

WTF!!!!!  Read the June Atlantic magazine…....and The American Way of Poverty.

The city goes begging and scraping for white business/development while we fill up with homeless and hungry humans who are ignored.  These folks cant afford the basics let alone the rents.  I wrote a letter to MN in cityhall yesterday because our focus has to change.  The city will have to create jobs itself using New Havenites of all stripes and build housing and clinics for the homeless and the damaged that populate much of this city.

Like Spike Lee said,  “Do the right thing”.

posted by: Threefifths on June 6, 2014  8:40pm

The next time New Haven helps a developer build a new project in town, it should take an equity stake, in the view of a prominent journalist who recently spent some time here.

There is equity stake.It is call back room deals,Graft and bribes.

Read this book.The same is next for New Haven.

City for Sale: Ed Koch and the Betrayal of New York

  By Wayne Barrett

http://www.nationinstitute.org/featuredwork/books/1287/city_for_sale:_ed_koch_and_the_betrayal_of_new_york/

posted by: Bradley on June 7, 2014  7:05am

Landino is a good guy and an astute developer. But having the city take an equity position in a development exposes the city to economic and political risks.

Webblog, let’s say your brother-in-law is an insurance agent who is a really good cook. Would you invest $10,000 in his first restaurant. Maybe, maybe not.  What would have happened if the city had taken an equity stake in the Ninth Square project? BTW, 360 State is currently assessed at $82 million, substantially less than its initial assessment, but way more than its value as a parking lot.

Anonymous, TIF can be a useful financing mechanism and should be considered going forward. But it is predicated on the ability to estimate how much additional tax revenue a development will bring over twenty to thirty years. Development agencies are inherently tempted to overestimate the revenue, and bond holders will typically look to the city to cover any shortfall.

posted by: webblog on June 7, 2014  12:06pm

@ Bradley.

I do not understand your question about a ficticous brother-in- law and what that has to do with ninth Sq. or 360 state st.

Ninth Square is well documented for it’s inability to pay back debt, while continuing to beg for more bail out subsities delinated in this NHI story;

http://www.newhavenindependent.org/index.php/archives/entry/9th_square_develpoer_wants_a_bail-out/

As for 360 State St. they have not paid taxes since 2009, at that time the taxes @70% of assessment was:

Account ID:  13754  
Owner Name:  MEPT CHAPEL STREET LLC  
Address:  360 STATE  
  NEW HAVEN ,  CT   06510  
Parcel ID:  240-0256-00101  
 
Tax Year:  2009  
Total Amount Billed:  $96,206.50
Total Amount Paid:  $96,206.50
Total Amount Unapplied:  $0.00
Total Amount Due:  $0.00



Parcel Value Item Gross Assessed Value 2012 Grand List     Gross Assessed Value 2011 Grand List
Buildings 109,810,820 109,810,820
Extra Building Features 3,646,300 3,646,300
Outbuildings 0 0
Land 0 0
Total: 113,457,120 113,457,120


Owner of Record
MEPT CHAPEL STREET LLC

C/O PROPERT TAX ADVISOR BK # 269


360 state st is currently not paying tax while in court challenge over the 2011 assessment.

Current tax:

Account ID:  13754  
Owner Name:  MEPT CHAPEL STREET LLC  
Address:  360 STATE  
  NEW HAVEN ,  CT   06510  
Parcel ID:  240-0256-00101  
Second Owner Name:   
Plat Book Page:  8298/259
Ward:   
 
Assessed Value:  $0
Exemptions:  $0
Taxable Value:  $0
 
Current Year Taxes Billed 2012    
Billed taxes:  $0.00
Current and Back Tax Principle Due:  $0.00
Total Interest, Penalties, and Collections Fees:  $0.00
Total Amount Due:

posted by: Bradley on June 7, 2014  7:57pm

Webblog, let me try again. All investments in real estate are subject to economic risk. Your fictitious brother-in-law might be a good guy and and great cook, but you wouldn’t necessarily want to invest your hard-earned money in his business property. If you did, you might very well lose your money. Similarly, had the city taken an equity stake in the Ninth Square project, it may well have received no return and be hard-pressed to get its investment back.

There is no statutory authority for the city requiring developers to provide a equity share (pace Woodward, that would be a taking). A voluntary agreement where the city takes an equity position may make sense in some cases. But as Matt Nemerson suggests, it also opens the city up to political risks.

posted by: Bradley on June 8, 2014  6:43am

Webblog, after submitting my last post, I realized we may be addressing two different types of scenarios. When the city sells property it owns, as was the case with 360 State, it has every right to insist on retaining an equity position. Presumably, this will reduce what the developer is willing to pay for the parcel, but it still make sense in some cases.

On the other hand, when the developer owns the land, as is the case in the project going up across from Co-Op High School, the city cannot demand an equity position. It could invest its money in the project,hence the brother-in-law analogy.

3/5ths is right that the city’s retention or acquisition of an equity position runs the risk of back room deals.

posted by: robn on June 8, 2014  10:40am

No. Too many entanglements.

W1,

Census says NH is…
42.6% White
35.4% African American
0.5% Native American
4.6% Asian
0.1% Pacific Islander
12.9% from other races
3.9% from two or more races
27.4% Hispanic or Latino residents of any race

posted by: wendy1 on June 8, 2014  5:24pm

Robn———exactly my point.

Also the census has a margin of error due to homeless people in hiding.  Ask the United Way who went on the hunt for them at 4AM

posted by: cttaxpayer on June 9, 2014  9:34am

While I know I have heard dumber things- one doesn’t come to mind this minute.

Developers take risks and pay taxes- cities don’t.

Why would a city take any percentage of the property value off the tax roles?

posted by: Edward Whalley, H.C.J. on June 10, 2014  2:24pm

Webblog

I’m not sure what you looked up.  But 360 State was converted into a condominium with about four pieces (The garage, the residential tower, the retail portions and the as-yet unbuilt adjacent parcel)

Here is the Tax Bill for the residential tower portion alone, Over 900,000 dollars, with the as-of right assessment deferral exemptions,and after the assessment appeal. 

Account ID:    32325
Owner Name:    MEPT CHAPEL STREET LLC C/O PRO
Address:    360 STATE ST RES RES
    NEW HAVEN ,  CT   06511
Parcel ID:    240-0256-00102
Second Owner Name:   
Plat Book Page:    8594/38
Ward:   

Assessed Value:  $50,512,000
Exemptions:    $29,192,514
Taxable Value:    $21,319,486

Current Year Taxes Billed 2012    
Billed taxes:    $909,915.68
Current and Back Tax Principle Due:    $0.00
Total Interest, Penalties, and Collections Fees:    $0.00
Total Amount Due:    $0.00

Roll Code:    REAL ESTATE .

As for the sale price of the land, the developer took it “As-Is”.  The discounted price accounted for the 3.5 Million in environmental clean-up costs and Liability, assumed by the developer, not the City.

The Parking Authority does not operate the current Coliseum surface lot.  And if you meant the garage that was demolished along with the Coliseum, I’m not sure how preserving a few Parking Authority jobs in a decaying and obsolete structure which would have costs additional tens of missions to rehabilitate is remotely defensible compared with the current proposal

The answer is making New Haven a desirable place to invest and to do business.  Let’s set clear rules that attract development and ensure that the tax base is growing rather than looking to every project as a shakedown.

posted by: webblog on June 10, 2014  4:19pm

@ EDWARD WHALLEY:

You have referenced account #240/ 0256/ 00101, in your findings. That information may be from the tax office, but 360 state has four properties and four accounts.

According to visions appraisal associates they did not assess account # ending in 101.

Visions assessed 4 accounts and account # 102 is registered as the condo whose 70% value is: $113,457,120. Not the Assessed Value of:  $50,512,000, you presented.

From Visions:

Location Owner Account Number

1. View This Property 360 STATE ST #COM MEPT CHAPEL STREET QALICB LLC 240025600103

2. View This Property 360 STATE ST #D.R. MEPT CHAPEL STREET LLC 240025600105

3. View This Property 360 STATE ST #PRK MEPT CHAPEL STREET QALICB LLC 240025600104

4. View This Property 360 STATE ST #RES MEPT CHAPEL STREET LLC 240025600102


360 STATE ST #RES acct # ending in 102

  MBLU : 240/ 0256/ 00102/ / /
Location: 360 STATE ST #RES
Owner Name: MEPT CHAPEL STREET LLC
Account Number: 240025600102

Parcel Value Item Gross Assessed Value 2012 Grand List    
Gross Assessed Value 2011 Grand List

Buildings 109,810,820 109,810,820

Extra Building Features 3,646,300 3,646,300

Total: 113,457,120 113,457,120

The tax collector would have to explain how 70% of assessment was reduced from $113,457,120, to a 70% tax value of :  $50,512,000, as you wrote below.( there is no indication this # was reduced thru court challenge.

You further said:

“The answer is making New Haven a desirable place to invest and to do business.  Let’s set clear rules that attract development and ensure that the tax base is growing rather than looking to every project as a shakedown”.

Your answer is in direct contradiction with what Woodward is suggesting in the article:

“Cities like New Haven have to start sharing in the wealth they are helping developers accumulate, beyond just collecting taxes, he argued”. “Or sale of public land or facilities should have long-term benefit to the city he argued”

posted by: Edward Whalley, H.C.J. on June 10, 2014  5:47pm

Webblog

Yes, there are four properties associated with the building (That’s how a condominium works for taxation purposes).  I think you will also find that the original single owner account you cited is no longer active.

You claimed that property paid zero tax in 2012. I was merely pointing out that one of the four ownership units/entities actually paid almost a million dollars in taxes in 2012.

And as to Woodward’s idea, you are correct.  I disagree with him completely.

His proposal is bad policy.

posted by: webblog on June 10, 2014  6:44pm

@ Ed Whalley: you supplied the tax year 2012 balance for Acct# 102.

Here is the Up dated -Parcel ID:  240-0256-00102  
 
Plat Book Page:  8594/38

360 State St. 2013 taxes outstanding

Total Amount Due:  $785,184.32


Account ID:  32325  
Owner Name:  MEPT CHAPEL STREET LLC C/O PRO  
Address:  360 STATE ST RES RES  
  NEW HAVEN ,  CT   06511  
Parcel ID:  240-0256-00102  
 
Tax Year:  2013
Total Amount Billed:  $1,351,931.10
Total Amount Paid:  $566,746.78
Total Amount Unapplied:  $0.00
Total Amount Due:  $785,184.32
 
I’m Just saying,

WHAT!

posted by: Bradley on June 11, 2014  6:55am

Webblog, while property tax law is not my field, I think there are two simple answers to your issues. First, state law allows municipalities to phase in the full assessment of large commercial developments (I believe this is what Edward Whalley means by the as of right deferral exemption). This exemption applies to all eligible properties in the city and other participating municipalities.

Second, as you probably know, a property’s 2013 tax bill is payable in January and July 2014. Presumably the owner of 360 State has paid the first installment, but not the second (since it is not yet due).

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