NOB/Navy Hill: Are these “Private Investment” projects what we need?
This post is part of a series on the NOB/Navy Hill downtown development plan.
So far I’ve been discussing a lot of the numbers thrown around by supporters of the Navy Hill/North of Broad development project - housing, jobs and contracts, etc. - and how they don’t add up. But this week I want to look at what will actually be built downtown as part of the project, particularly what will be funded through “private” investment. The developers and Mayor rightly claim that we should generate more tax revenue from our downtown area. But will the projects they plan to build actually deliver the goods?
Just to be clear: I am NOT talking about the “public” projects, funded without any direct private investment. Taxpayer funds will pay for a new coliseum, a renovated Blues Armory, a bus transfer station, and the regrading of Leigh Street, among other improvements. These will cost the city at least $600M, using a loan — officially, a “bond” — from a bank.
How can the city afford to borrow that much? They expect to pay it back using property tax revenue from the widely drawn “TIF district” – so, basically, all of downtown. (More on that in a future post.) But these revenues are supposed to be high enough to pay back the bond because there of all the NEW properties developed in the area immediately surrounding the coliseum. These new properties — hotels, apartments, and office buildings — will be built on land that is currently city-owned. But they will be funded by private investors, and constructed by the Navy Hill developers and their subcontractors.
So let’s look at each of the four types of projects the developers want to pursue: apartments, office space, retail & restaurant, and a hotel.
The developer’s website suggests they will build over 2500 market-rate apartments over the next decade, while the Hunden consultant report commissioned by the Mayor suggests that there might be as many as 2900. Hunden also notes that average rents will start at $1700, so these will clearly be marketed for young professionals. With most rent calculators suggesting that you need to make at least $75k/year to afford that rate, it’s unclear how this new “diverse” neighborhood will include “homes where our citizens – like teachers, nurses and firefighters – can afford to live,” as the developers promise. Still, these would likely bring in considerable tax revenue over what is currently downtown.
2. OFFICE SPACE
Hunden’s report projects that almost 800,000 square feet of “Class A” office space will be added downtown in new buildings. (Office space is typically classified into 3 categories, with “A” referring to the newest, highest quality stuff.) According to Hunden, occupancy rates in downtown RVA are pretty healthy, with vacancy rates across the country at a ten-year low. So more office space might also offer a good opportunity for raising revenue.
Still, two big warnings should go along with this plan for new office buildings. First, Class A offices tend to displace older, Class B & C buildings. There’s currently no telling how many companies may just move from other downtown buildings that are within the TIF area, with no net benefit for tax revenues overall.
More importantly, the Hunden report indicates that a majority of this “office” space, 500,000 square feet, is given over to VCU for offices and research labs. That is, IF the university decides it wants to use it; at least in July, a spokesman for VCU said they had not yet committed to build anything. (VCU’s role in this entire project is currently murky at best.)
3. COMMERCIAL ACTIVITY
Project plans, again according to Hunden, include almost 275,000 square feet of retail, restaurant and other commercial space. Hunden admits that these properties will not generate as much revenue as some of the other project components, but that “without these amenities, it will be difficult to lease up the office and residential elements” (Ch. 8, page 11). So these commercial developments are needed to support the other stuff, not because they will bring in a ton of tax money.
Hunden also projects that half the sales would be “new to Richmond.” Setting aside where that estimate comes from, that suggests that the other half would – what, exactly? Normally be spent in another part of the city? When promoting the project, the developers and Mayor often imply that all of the money spent by customers in this region of town would be newly minted. But as with the office space, I’m not so sure that we won’t “cannibalize” from restaurants and shops in other neighborhoods. So instead of the property tax from a Scott’s Addition brewery going to schools, the same money is instead paid by a new downtown restaurant – only it goes directly to the Coliseum.
Finally, the plan calls for a 500-room Hyatt Regency, with 40,000 square feet of convention space, that will act as a new convention headquarters for the city. The rationale for this is wildly optimistic at best. Some data suggests that building a new convention center is like investing in VHS tapes. In 2018.
On the one hand, demand is dwindling. A 2005 Brookings report argued that convention attendance is in a long-term free-fall, driven by advances in communication technology and smaller corporate travel budgets. The industry offers some more positive statistics to counter these trends, but there’s also a supply problem. It seems like every city has built or is building convention space, and there’s not enough business to go around.
Over at NoColiseum.com, Justin Griffin has a look at both the troubling history of the current convention center (big shocker here, but it hasn’t delivered on its builders’ promises) and just how much better we will have to do to meet the optimistic projections in the Hunden report. (250 more conventions a year, according to Justin – no problem!)
These four types of development offer a very mixed bag. Some of them might even make financial and social sense, but they need to be evaluated on their own. Are the added tax revenues from fancy apartments worth the cost of gentrification? How will new office space affect older downtown buildings? What the heck is VCU doing? Since all of these projects are wrapped up with the arena and not proposed separately, it’s hard to evaluate their worth.
Besides the specific concerns I raised above, some other questions remain:
Couldn’t some of these development projects happen without the arena? Justin’s NoColiseum page on the hotels cited a 2007 Style Weekly article in which, 15 years ago, a principal of Shahmin Hotels said he wanted to build a new hotel downtown. More recently, new restaurants and apartments were just announced right down the street from the development area. What if downtown is just the next neighborhood in the natural progression of the “Richmond Renaissance?” Couldn’t the city incentivize similar development without risking over $600M in public spending?
The City will presumably either sell or lease the project blocks to the Navy Hill group for development. Since that group was the sole respondent to the Mayor’s call for proposals, there won’t be an open bid for the land, as the group supposedly is putting together the investors for the private projects. How do we know if the city is getting the market rate for their land if there's no other bidders? How much is this land actually worth?
Finally, we should remember that these private developments won’t be built all at once. The office buildings, hotel, etc. are actually a series of separate projects, all supposedly coming on line in the next few years; for example, the Hunden report claims that all the apartments will be built by 2024, just five or six years from now. Revenue from these projects will be the biggest factor in paying back the $600M debt the city will owe on the bond. But what if there are delays in construction? Weather slowdowns? Investor money falling through? If anything at all happens to disrupt this building bonanza, then suddenly all this property tax revenue won’t be there to pay back the public bond. Guess who will have to come up with the rest? Don’t believe the Mayor when he says it’s not you.
Next up: the centerpiece of the deal: the coliseum. (A.k.a. Tom Farrell’s white whale.)