Sunday, July 06, 2014

Downtown Development: Competing for Capital or Historical Mandate?

City Council's decision to go forward with Phase II of the Downtown Master Development agreement with Catalyst Urban Development surfaced a divide between downtown development advocates.

In one corner is the City of San Angelo and its appointed Downtown Development Commission.  The other has Downtown San Angelo which works to revive downtown through restoration of historic buildings, 70 of which sit unoccupied downtown.  

In 2010 the San Angelo Health Foundation and City of San Angelo effectively partnered for North Concho River development.  The Standard Times reported in August of that year:

Tom Early, the foundation’s president, said the foundation has about $500,000 set aside to invest in the river development project when the time is right.

“We’ve been involved in the development of the river area downtown since our inception in 1995,” Early said. “We’re a private philanthropic organization, so we’re not buying (the land) to make money; we’re just buying it to preserve it.”

Early said the foundation is “fully behind” the city’s plans to hire a master developer to coordinate downtown redevelopment and river development efforts. The foundation also paid for a large portion of the updated comprehensive river plan cost.

The City Council approved $920,000 for the purchase of the Edgewater Property at its last meeting. As a financial safeguard of sorts, the contract says the Health Foundation will purchase the property from the city if it hasn’t sold it in five years.

City Manager Harold Dominguez said the purchase was necessary so the city can “fully engage” in the river development discussion. The funds for the purchase will come from $4 million in half-cent sales tax revenue that previously was allocated to the river rehabilitation project.
In October 2010 the city established the Downtown Development Commission with seven board members, one from the San Angelo Health Foundation Board.  The Downtown Development Commission began meeting regularly in July 2011.

Harold's leaving for the Colorado Rockies set back city efforts to engage a  downtown master developer.  It took until December 2012 for council to approve hiring Catalyst Urban Development, which proposed:

Phase 1: Implementation Action Plan - $68,000 (plus expenses) and up to $22,000 for outside groups. 

It took another year for Catalyst to complete Phase 1 and present the results to City Council.  Council gave Catalyst 180 days to generate interest on three pieces of city owned land, including the Edgewater property.

A walk back in time shows Paris Rutherford, consultant from Dallas-based development company Catalyst Urban Development, telling council in late 2012:

Rutherford said the key is to match up specific investments with specific users. The local investors and the commission would need to help the group identify those investors. He then brought Andre Nicholas, with partner NE Construction, for further comment.

"We have the ability to bring investors. We feel San Angelo has what it takes and we are ready to put our money there," Nicholas said.
Not ready enough to bite on three pieces of riverfront property, thus the need to go to Phase II.  Council heard the city spent $11,496 less than the budgeted $90,000 (plus expenses) on Phase I.  That equals $78,504.

Months before approving Catalyst's proposal City Council cut funding for its immunization and sexually transmitted disease clinics.  I found it odd city leaders eliminated public health services due to lack of funds, but were able to later find funds for downtown master development.

CFO Michael Dane said when he knows what the scope for the entire project would be then he would know where the money would come from and put together a packet to set money aside.

Does anyone else find it odd or disturbing that the city cut health services to make downtown healthier?

The 180 day period passed for Catalyst to sell land backstopped by the Health Foundation City Council.  I'd venture Catalyst did nothing with the city's three parcels.  Thus, after six months the subject returned.  City Council approved moving to Phase II in their July 1st meeting.

Phase 2: Horizontal Development Positioning - $10,000 per month for the life of this phase, estimated at six months.  Fee of 3% of purchase price.
City Councilwoman Elizabeth Grindstaff spoke to the city's partnership with the San Angelo Health Foundation.

"But this is a subject that was decided many years ago, I see Tom Early out there, with the purchase of a piece of land and how the city would move forward.  How long have you been working on this?  Three, four years now.  And to change our direction is, is, is bad government, actually." 
Council did not educate the public on the decision Grindstaff described.  Each City Council has to make the best decision they can under the circumstances.  The current Council decided to go forward with Phase II, at least in part due to Catalyst's inability to generate interest in the Edgewater property.  We'll see what happens in six months and $60,000 later (plus 3% fees on any city owned land sales).

Also, would Catalyst will earn 3% on the sale of the land back to the Health Foundation, should that provision be enacted over time?  That seems worth exploring. 

Previewing future Downtown Development Phases (per Catalyst's original proposal):

Phase 3: Vertical Development Positioning - Public-private partnership stake would identify compensation.  Firm will submit a fee proposal for direct sale to outside investor

Phase 4: Construction Management / Project Oversight - 1.5% of improvements

Other On-Going Tasks - Fees developed as services are needed outside the scope above

It appears these fees might be borne by a public-private partnership.  If it's like the West Texas Water Partnership, those fees will make their way back to the city coffers.  Watch for how much.

I detected two versions of "available capital" in City Council's discussion.  First, capital funding is scarce and there's lots of competition.  That's why the city needs Catalyst  Urban Development's knowledge and connections.  Second, there's plenty of capital funding so Downtown San Angelo should not look at this as a competing situation.  Frankly, these two memes are impossible to reconcile.

I would've felt better if Council said we made a promise years ago to the Health Foundation and we're sticking with it.  That at least makes sense

Update 2-21-15:  Phase 2 is complete.  The presentation identified significant subsidies the city would need to provide private investors.

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