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October 24, 2014

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CITY HALL:

Complicated deal, powerful partner

Forest City Enterprises is accomplished, but hit by torrent of bad news

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COURTESY CITY OF LAS VEGAS

The elaborate deal for a new city hall, rendered above, between Las Vegas and Forest City includes a land swap and a construction project to be named later.

At a City Council meeting last year, several councilmen went out of their way to praise Forest City Enterprises, the primary developer in the deal to build a new Las Vegas city hall.

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The vaunted Cleveland-based company, with massive development projects in the works from Brooklyn to Albuquerque, is known to be progressive-minded, they boasted, shepherding projects that support job creation, environmental sustainability and affordable housing.

“We’re betting on the right horse,” said one councilman, as a beaming Mayor Oscar Goodman looked on.

Since then, Forest City has been hit by a torrent of bad news, both in Las Vegas and nationally.

In December, the developer announced $18.5 million in quarterly losses, leading some analysts to conclude it was facing potential bankruptcy. The next month, the developer was embarrassed when its six-figure campaign donations to New Mexico Gov. Bill Richardson were mentioned in stories about his stepping aside as President Barack Obama’s choice for a Cabinet post.

And locally, the Culinary Union, locked in a battle royale with the city over new city hall plans, has accused Las Vegas of lavishing Forest City, a $9.2 billion company, with millions of dollars in unnecessary financial incentives to take on the project.

As the city hall project moves forward, Forest City’s record — both positive and negative — is coming into better focus.

Though the developer is rightly known for building high-quality projects, observers say, it also routinely and effectively uses the strength of its name to gain huge subsidies and tax breaks from local governments.

Las Vegas is the latest example, claims the Culinary, which is pushing for two ballot measures that have enraged city leaders — including one designed to stop the city hall project by requiring voter approval of “lease-purchase” construction projects, and another to put clamps on the city’s redevelopment agency.

One of the company’s ongoing projects in Albuquerque, called Mesa del Sol, may hold lessons for Las Vegas. The project ultimately will comprise a 12,900-acre tract of land, four town centers and 100,000 residents.

Forest City has been extolled for concentrating on bringing a wide array of businesses to the area.

“They’re pretty accomplished. They’re putting the jobs first and the homes second, which is pretty phenomenal,” said Gabriel Nims, former executive director of 1,000 Friends of New Mexico, which monitored the project as a sustainable-growth advocate. He credits Forest City with helping to bring 12,000 jobs to the area.

And yet there has been a serious downside to dealing with Forest City, he said — its bulldozer approach to taxpayer financing. Forest City demanded it, and got it. The company pulled together a powerful team of lobbyists to get a new tax increment law passed, which allows future gains in tax revenues to finance the improvements that will create those gains.

Tax increment financing allows developers to profit as communities underwrite the costs of new development projects. It’s often used to reward developers who agree to build in low-income or blighted areas.

By winning approval to float $500 million in infrastructure bonds — backed by the revenue from significant shares of future state and local taxes — Forest City will make hundreds of millions of dollars over a 25-year period, Nims said.

Forest City lobbyists “rewrote the law to favor themselves entirely,” Nims said. “We’re now struggling to close some loopholes and reform the legislation.”

(That Forest City subsidiary, called Forest City Covington, plus its officials and members of their families, donated almost $300,000 to New Mexico Gov. Richardson’s campaign committees over a six-year period, according to news reports. Richardson later supported the Forest City bond deal.)

Forest City spokesman Jeff Linton said his company is proud of its record. Ultimately, he said, the company has found a way to support communities through such projects and the benefits they bring — including jobs and new life to blighted areas — while making money.

“We’re a for-profit company,” he said. “The numbers have to make sense to us. But when we become involved in a community, it becomes a win-win.”

Linton said that despite the recession and its effect on the company, Forest City is committed to its Las Vegas project.

Apparently, Forest City recognizes the threat from the Culinary Union’s challenge to the city hall project. Linton said he’ll be in Las Vegas on Monday and Tuesday to interview local public relations companies, one of which soon will mount an effort to support the city and its deal with Forest City.

The city hall deal, involving a land swap with the city, is intricate. If one piece stalls, the whole project is put at risk, city officials say.

In July 2007, Forest City announced that it, along with another developer, LiveWork Las Vegas, had purchased a 12.7-acre site downtown, near First Street and Clark Avenue, for $136 million. Forest City acquired a 60 percent stake in the site; LiveWork has the remaining 40 percent.

The plans for that site include not only the new city hall, but a regional transportation terminal and several commercial properties that will include retail and office space.

Forest City will earn a 5 percent “construction fee” for its work on the project, according to the city. That’s 5 percent of the city hall project, which is pegged at $150 million but could run up to $267 million with possible additional construction costs.

If and when the city hall building is completed, the city would swap 6.5 acres of the adjacent Union Park, “Parcel P-Q,” worth $40 million, to Forest City in return for the 2.7 acres beneath the new city hall, which the city values at $33 million.

According to Scott Adams, head of the city’s business development office, Forest City would be obligated to make up the $7 million difference by constructing something of benefit to the city — possibly a fire station — at Union Park.

Forest City will not own the P-Q site and cannot begin developing it until the new city hall is completed, which the developer noted recently wouldn’t be until 2011 at the earliest.

Whatever the date, the company plans to build a 47-story hotel/casino on the Union Park site, the first new casino downtown since 1979. The resort would be 1.6 million square feet and include up to 1,000 hotel rooms and 120,000 square feet of casino space.

The Culinary claims that, like other cities before it, Las Vegas has given up far too much to Forest City for what it’s not getting in return — wage and benefits guarantees for workers in the future developments that other cities often have been able to procure from prominent developers like Forest City.

For starters, the union claims the city agreed to sell the P-Q site for far less than it’s worth. It points to the Master Development Agreement between the city and the developers, which says that a recent “high” appraisal found the land was worth $62.5 million — more than the $40 million the city agreed to.

Perhaps more substantively, the city has agreed to a tax increment subsidy of $3 million-$4 million per year for 19 years. This annual tax refund would funnel tax money back to Forest City, which in turn would use it for street and neighborhood improvements for the area surrounding the new city hall.

Through the tax increment, the city would be returning about $37 million to Forest City over 19 years after various obligations are deducted from these annual tax increment subsidies, including a portion for affordable housing, Adams said.

“There’s no need for a tax increment,” said Chris Bohner, research director with the Culinary. “We think this deal can be done in a much more taxpayer-friendly way.”

Bohner also said the claims coming from the city and Forest City regarding the number of jobs and other benefits the deal would produce — including projections of 1 million square feet of new office space — are “unrealistic and utterly trumped-up.”

These benefits include a predicted 13,000-plus new jobs and $4.1 billion in private investment. That’s what the city thinks it will be getting not just from the Parcel P-Q and city hall-area developments, but from the other projects tied to them — including a proposed arena for the vacated city hall site, as well as refurbishment of the shuttered Lady Luck.

Adams said the Culinary’s claims are off-target, and the city’s deal with Forest City clearly benefits Las Vegas, not just because of the jobs and investment money that will be funneled into a long-struggling downtown.

He said the $40 million price for the P-Q parcel is fair, given that the three most recent appraisals of the land prior to the 2007 agreement averaged $43.3 million. So for what the city knew at the time regarding the land’s worth, it got a good deal, he said. The $62 million appraisal came afterward, Adams said.

The tax increment, he said, is contingent on developers making sufficient progress.

In a broader sense, the new city hall and surrounding office buildings will have a “catalytic impact” on the surrounding area, Adams said.

“We’re transforming a very blighted area into a mixed-use development,” Adams said. “We have one of America’s great developers going into a bombed-out area. This is a very good thing.”

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