I used to support him but I've changed my view based on myopic decisions like this one.  Nucleus is the kind of development that could increase property values citywide. 

 

I am actually thinking this whole deal is a shell game.  Pulling tenants from one building to put them in another, with little actual "ADD" to the city other than a new addition to the skyline.

 

I don't see it that way, especially since the office component is such a small piece to the overall project.  The added residential and retail more than make up for any tenant shuffle. 

I used to support him but I've changed my view based on myopic decisions like this one.  Nucleus is the kind of development that could increase property values citywide. 

 

I am actually thinking this whole deal is a shell game.  Pulling tenants from one building to put them in another, with little actual "ADD" to the city other than a new addition to the skyline.

 

 

I don't see it that way, especially since the office component is such a small piece to the overall project.  The added residential and retail more than makes up for any tenant shuffle.

 

Its not a shell game.  The magic number fro downtown population is 20,000.  At that number, retailers become more interested.  Number now is about 14K.  Only way to get to 20K is to add units.  That means more conversions AND new construction.  6K more people will require at least 3K more units

Office-wise, it may well be a shell game. But one of those tenants moving will be Stark Enterprises itself. Moving it out of the northeast corner of the Superblock in the Warehouse District will will help finalize putting that entire block under one ownership and hopefully advance its redevelopment.

^I am curious how any negotiations between Stark and Weston are going (I would imagine there have had to have been some contact since Weston owns the rest of the block and Stark owns just a small portions of the block and is looking to move) for the Stark headquarters on West 3rd. and if there any mindless hang ups.  The Stark property has been for sale for quite some time and really, who would want to buy it other than Weston.

^I am curious how any negotiations between Stark and Weston are going (I would imagine there have had to have been some contact since Weston owns the rest of the block and Stark owns just a small portions of the block and is looking to move) for the Stark headquarters on West 3rd. and if there any mindless hang ups.  The Stark property has been for sale for quite some time and really, who would want to buy it other than Weston.

Maybe by not selling it to Weston, Stark can hinder a large competitor and keep its hundreds of units from hitting the market before nuCLEus opens its doors.

I don't think Weston is anywhere near ready to go with its residential component of the Superblock. My theory is that the new Justice Center and CPD HQ ends up on the Superblock. Weston, through its ownership of the Marion Building, can heavily influence the timeline for the movement of county offices (and therefore, the movement of the CPD HQ) and can offer the highest scoring development option for the CPD HQ.

 

BTW, the Stark HQ was up for auction in July 2016 but there were no takers at their starting price of $850,000:

http://www.cleveland.com/business/index.ssf/2016/06/stark_enterprises_explores_auc.html

Office-wise, it may well be a shell game. But one of those tenants moving will be Stark Enterprises itself. Moving it out of the northeast corner of the Superblock in the Warehouse District will will help finalize putting that entire block under one ownership and hopefully advance its redevelopment.

 

 

Even if it is a "shell game" office-wise there is still a residential and retail component to nuCLEus that should benefit the area / downtown, etc.

Jeff Johnson just tweeted a bit ago that he will be opposing the nuCLEus TIF when it comes before Council:

 

Does anyone know where he got this $100M figure from?

 

This is the $121M figure that is being quoted in the presentation, representing the amount of property tax the schools would collect over 30 years if the development goes up without the TIF.  This is approximately $4M per year for 30 years.  Jeff Johnson is playing an obfuscation game with these numbers, playing "$121M for the schools" vs the $18M being offered.  He doesn't understand (or doesn't believe) that if he gets his way, the project will be dead without the TIF, resulting in a net gain of $0M for the schools.  He's either stupid, or calling Stark a liar. 

Johnson also doesn't seem to want to acknowledge that the $18M being offered translates into $56M after you add the State's contribution (assuming the funds are used toward school construction/renovation as CMSD has implied they would be). When you consider the time value of money, you would need to assume a somewhat low discount rate to make $121M over 30 years equivalent to $56M today (about 5.9% if it's a flat $4M/year and likely closer to 5.0% as the $121M number probably assumes that the project's taxes increase over the 30-year period). I haven't personally seen the numbers or the presentation, but I would guess that this is the way that Stark's team came up with the $18M offer to begin with (some sort of NPV calc on the $121M and then rounding up to make the offer enticing enough to be accepted).

 

I don't think the project would die entirely without the school portion of the TIF (purely guessing here), but it would likely be drastically different, much smaller, much less valuable, and would therefore produce much less than $121M for the schools.

 

Take the deal, CMSD, so we can keep the City's momentum going!

Jeff Johnson just tweeted a bit ago that he will be opposing the nuCLEus TIF when it comes before Council:

 

Does anyone know where he got this $100M figure from?

 

This is the $121M figure that is being quoted in the presentation, representing the amount of property tax the schools would collect over 30 years if the development goes up without the TIF.  This is approximately $4M per year for 30 years.  Jeff Johnson is playing an obfuscation game with these numbers, playing "$121M for the schools" vs the $18M being offered.  He doesn't understand (or doesn't believe) that if he gets his way, the project will be dead without the TIF, resulting in a net gain of $0M for the schools.  He's either stupid, or calling Stark a liar.

Stupid

^ There's a third option I think: seeing a political opportunity to make this a wedge issue between him and the mayor. It fits the downtown vs neighborhoods narrative well.

 

That being said, I would be curious to see Stark's financials, to see whether or not this truly would not be able to be financed without the school portion of the TIF.

The third option essentially requires one of the other two. Politics is politics but for him to go to people and claim this is a diversion of $121 million in tax dollars from the school to the developer requires him to basically say "Stark is lying, he doesn't need this TIF."

 

The third option is actually that he believes it will partially be developed and is fine with whatever net taxes that adds. Which is pretty silly considering cle[/member] 's comment above about the time value of money, etc.  Also I'm not sure if that $121M considers inflation. They calculated that the schools would get $121M over 30 years if the thing was built with no TIF.  Factoring in inflation it may only actually be something like $85M over the 30 years in today's dollars.

The retail component is the least valuable part of the deal.  If there's a big demand for retail space, then go ahead & tear down the crap stores along Prospect or the lame Harry Buffalo, etc.  Put something in the backside of the May Co.  There's not a big demand but they are building it in anyhow. 

 

The residential units will be hard to fill.  I understand the need to get to 20k residents for national retail exposure but this building will be the most expensive yet in Cleveland and it will be slow to fill, IMO.

 

If the project were scaled back in design somehow to lessen the required rents, scratch the hotel, maybe it lessens the need for so much public assistance.  Maybe it would've been financed & under construction by now.

 

Great point also about Jeff Johnson's math.  Opposing the deal means $0 added money for the schools.  Then again, that's why Cleveland is so starved for these deals.  Developers come flashing shiny deals & drawings, and get everyone excited and saying "WE MUST HAVE THIS DEAL!!!"  Then when it's built, it's much less grand, and still requires a handout on the operating expenses, and doesn't deliver the spinoff everyone hoped.  Been there, done that, got the tshirt

 

Yes, I get it. And if it doesn't get built it will be the end of the world. And if does get built it will be the end of the world. And if the sun comes up tomorrow, it will be the end of the world. Yes, yes, the horror of it all.

People are freaking out. This will be built

"The best argument against democracy is a five-minute conversation with the average voter." - Winston Churchil

 

This whole thing is people praying into the fears of a largely uneducated populace.  It's not the best of choices, but essentially it could be boiled down to a) no new money or b) some new money now with potential for more later. 

 

And while I'm quoting people:

 

Yes, I get it. And if it doesn't get built it will be the end of the world. And if does get built it will be the end of the world. And if the sun comes up tomorrow, it will be the end of the world. Yes, yes, the horror of it all.

 

"In the beginning the Universe was created. This has made a lot of people very angry and been widely regarded as a bad move." - DOuglas Adams

tj111[/member] I love that Churchill quote.

 

There's also the story that Socrates uses in "The Republic" against direct democracy... If you had to take a ship on a transcontinental journey, and you were not allowed to choose your captain, would you rather have the general populace vote on who should captain your ship, or rather a panel of nautical experts?

 

Johnson himself isn't the brightest, hearing him speak next to Zone, Reed, McCormick, and Kelly really makes that apparent. However, he is a tremendous manipulator, he knows how to play to feelings. That's all this is and that's really all his opposition to the Q amounts to. Opposition to a local billionaire will score big points in most neighborhoods in Cleveland, even in instances when it will benefit locally owned business.

Venturing away from talking about the actual project again.

Venturing away from talking about the actual project again.

 

As of right now, NuCLEus is mythical. It would be like engaging in a discussion about the Loch Ness Monster or Big Foot and not discussing the human psyche that feeds the belief and disbelief.

Venturing away from talking about the actual project again.

 

As of right now, NuCLEus is mythical. It would be like engaging in a discussion about the Loch Ness Monster or Big Foot and not discussing the human psyche that feeds the belief and disbelief.

 

I'm definitely with you on this.  Stark has proven himself to be little more than a big ideas guy and a big talker when it comes to these mega-projects... I'm somewhat hopeful he can pull off 515/Beacon which, though large and significant, it seems more to scale and doable than nuCLEus or that Pesht thing he was talking about a decade ago.

Meanwhile the high school newspaper "Cleveland Scene" is slamming this deal citing that it would set a precedent of the schools being a TIF ATM for future projects.  I don't understand the logic by the naysayers.  Continue as a surface lot, collecting $360k a year or transform into a vibrant city center with thousands of construction jobs and hundreds of permanent jobs - oh and wait - an upfront payment of $18 million. 

 

https://www.clevescene.com/scene-and-heard/archives/2017/08/04/nucleus-developer-seeks-tax-financing-deal-with-cleveland-metropolitan-school-district-and-the-city

 

^ And they still continue to collect $360K per year on top of the upfront payment.

Well said!!  "Meanwhile the high school newspaper "Cleveland Scene" is slamming this deal citing that it would set a precedent of the schools being a TIF ATM for future projects.  I don't understand the logic by the naysayers.  Continue as a surface lot, collecting $360k a year or transform into a vibrant city center with thousands of construction jobs and hundreds of permanent jobs - oh and wait - an upfront payment of $18 million."

Cleveland Scene's long-standing agenda of butt hurt for anything that MAY represent a corporate interest is exhausting. I will never forget two days after the RNC was completed, Sam Allard running a "RNC is alleged as success, but Cleveland is still terrible city to live in" twitter rant.

^ I think Scene's problem, in part, is that their writers focus almost entirely on social issues, save some food and sport. They need to add a couple finance/economics writers to the mix, as the writers on hand clearly aren't the most well-versed in economics.

Well said!!  "Meanwhile the high school newspaper "Cleveland Scene" is slamming this deal citing that it would set a precedent of the schools being a TIF ATM for future projects.  I don't understand the logic by the naysayers.  Continue as a surface lot, collecting $360k a year or transform into a vibrant city center with thousands of construction jobs and hundreds of permanent jobs - oh and wait - an upfront payment of $18 million."

 

+ 50/50 split on taxes associated with valuation increases. 

 

 

I haven't heard it discussed, but what about taxes from residents, hotel tax, and any tax generated by businesses housed by this project?  My understanding is that the TIF is for the mortgage of the project, has the spin off taxes been discussed?  Just curious.

 

I haven't heard it discussed, but what about taxes from residents, hotel tax, and any tax generated by businesses housed by this project?  My understanding is that the TIF is for the mortgage of the project, has the spin off taxes been discussed?  Just curious.

 

This is a good point, the discussed TIF is only related to construction costs and property value as I understand it.  I'd imagine a project of this size would bring in millions in a) Income Taxes on employees, b) Bed Taxes on Hotel Rooms and c) Income Taxes on hundreds (maybe thousands) of new residents.  There's a lot of potential new revenue for city coffers there, unless I'm misunderstanding how these TIFs work.

^ that is exactly right. The TIF only involves the property taxes.  All other taxes will be collected.  I don't think the schools receive any taxes other than property taxes though.

Which is why I'm surprised there's been no discussion about the city making a payment to the school district to make it whole.

Which is why I'm surprised there's been no discussion about the city making a payment to the school district to make it whole.

 

What is the school district losing from this deal? Aren't they still going to get $360,000 in annual property taxes on the land? Those aren't subject to tax abatements.

They will still continue to receive the $360,000 annually.  That could actually increase too if the value of the land increases - I think.

They will still continue to receive the $360,000 annually.  That could actually increase too if the value of the land increases - I think.

 

That's correct.

Meanwhile the high school newspaper "Cleveland Scene" is slamming this deal citing that it would set a precedent of the schools being a TIF ATM for future projects.  I don't understand the logic by the naysayers.  Continue as a surface lot, collecting $360k a year or transform into a vibrant city center with thousands of construction jobs and hundreds of permanent jobs - oh and wait - an upfront payment of $18 million. 

 

https://www.clevescene.com/scene-and-heard/archives/2017/08/04/nucleus-developer-seeks-tax-financing-deal-with-cleveland-metropolitan-school-district-and-the-city

 

 

I didn't see Scene's article as being totally negative on the project.  Somewhat in places, but pretty balanced overall.  The article didn't slam the project as being a precedent for CMSD being a future TIF ATM, but rather reported that a questioner from the audience asked whether such a precedent could be created.  I'm as much for downtown development as anyone, but it's undeniable the schools are going to take a hit under this project.  The article noted that, if the City or the City and the School board reject the proposal, it didn't say the project is dead but, rather, that Stark would have to seek the $18M elsewhere. 

 

I’m as pro downtown development as anyone, but I also have a social justice streak that hates seeing an already weak school district being financially drained even more.  Cleveland, despite its renaissance in downtown and several neighborhoods, is still an economically depressed city in terms of its residence, and, of major cities, the percentage of residents hold a college degree is among the lowest in the country – only Detroit is worse.  Robbing the schools of cash for the sake of a downtown project is asking a lot, especially when residents have paid for a new limited-use Browns football stadium as well as its renovation, renovated Progressive Field and are now being asked to fork over $140M for the Q.  I love pro sports and especially Cleveland’s teams, but … All this for economically-stressed city of under 400K residents could be seen as a bit much.  I’m not, per se, saying I’m against the proposed financing proposal, but we cannot simply dismiss those who question it.

 

Again, what is the school district losing in this proposal vs. status quo? Nothing.

 

What is the school district gaining? A new high school building and the added property tax revenue from more valuable downtown land.

... it's undeniable the schools are going to take a hit under this project....

 

Uh, what? You're gonna have to back up that claim.

... it's undeniable the schools are going to take a hit under this project....

 

Uh, what? You're gonna have to back up that claim.

 

Ah, maybe waiving 30 years of the ability to commercially tax this property in exchange for an $18M lump sum from Stark.  The article estimates nuCLEus to annually generate $4.2 in taxes to CMSD over 30 years which calculates to $126M (the article says it is $121M).  By leaving the surface parking lot as is, CSMD would collect about $10.8M over the same period -- as such, Stark's lump sum concession to CMSD would net an $8M bump over taxes from the current parking lot... but that's a hell of a lot less than a $116M bump CMSD would get from taxing nuCLEus. ...

 

I definitely get the concept of TIF and, yes, a big project like this portends to generate much more future revenue, and have a much greater positive impact on downtown, than the current surface parking lot.  It would seem, though creatively, the parties could meet somewhere in between -- not necessarily the middle -- but in between. 

The schools will collect will still receive the 10.8 million over 30 years.  The TIF only exists on the new improvements.  The 18 million is in addition to the 10.8 and it is 18 million today rather than a potential $126MM over 30 years.

They would be exempting the tax on the structures proposed to be built on the land -- the tax millage on the land itself would remain. Without the exemption, the structures don't get built.

 

FYI: Stark proposed a similar TIF for Pesht and never even got this far. He was laughed out of the room by the then-elected school board. The mayor-appointed school board is at least listening this time around.

^As I said, I get it... I realize TIF is an important tool to have to stimulate development in a still underdeveloped downtown market.  And I'm not dead set against it for this particular project which clearly is a game changer for downtown and, on some levels, for the entire city... But I'm just saying our generally income-strapped residents (and the schools are a critical infrastructure for residents) are being asked to bear a burden, especially given what our sports teams have demanded and are demanding of them in terms of public financial support.

The other factor here is time value of money.  $1 is worth a hell of a lot more today than it is in 30 years. 

 

So you have that, taking a present value sum of $18m instead of future income, the $10.8m in property taxes on the land (wonder if this could go up if the land value increases or if this will be fixed), AND 50% taxes of future valuation increases. 

 

The alternative is Stark maintaining probably a profitable  parking lot and the schools can just get the $10.8m over the next 30 years.

^ Plus CMSD can get additional funding from the state to match the $18MM.  I see this as a true win-win. Getting a TIF is not zero sum.

... it's undeniable the schools are going to take a hit under this project....

 

Uh, what? You're gonna have to back up that claim.

 

Look at it this way:  If the school system wasn't taking a hit, why would there be a controversy?  And why would Stark push an arrangement that involves him paying the schools more?  He wouldn't. 

^it is only a controversy to somebody with weak math skills or a political opportunist who takes advantage of people with weak math skills.

^That seems a little harsh.  The school district is foregoing any property tax take above $360k per year for a few decades. It's true that the nominal value of the tax break is irrelevant if you don't think this particular project will happen without (which seems fair), but it's also true that $360k per year and nothing more (2017 conditions) isn't really the right baseline to judge whether this is a "win". There is a lot of property tax upside to this lot that the schools are selling. Whether you think it's a good or bad deal really depends on how you value that upside.

 

Personally, I worry more about the ripples through the rest of downtown's underdeveloped lots. It's incredible how quickly a special deal becomes the new developer expectation when they bid for land. Pretty sure the historic preservation credits are already doing that to the value of old buildings, meaning a big chunk of the subsidy is essentially wasted on land owners, instead of being spent on development.

 

In any case, *purely on a political level,* the city could add to the payment due to the schools under this plan, given that it's income and sales tax take would be pretty sizable. That's what I meant above about being surprised the city wasn't offering something to make the school district whole.

... it's undeniable the schools are going to take a hit under this project....

 

Uh, what? You're gonna have to back up that claim.

 

Look at it this way:  If the school system wasn't taking a hit, why would there be a controversy?  And why would Stark push an arrangement that involves him paying the schools more?  He wouldn't.

 

I don't think it's that clear that the school system is taking any kind of hit. Sometimes controversies exist just because people bring a lot of other baggage to an issue or just don't understand an issue. Nucleus in its current iteration is not getting built without the full TIF. It's just not.

 

So the only way the school system takes a hit is if we think Stark will proceed with a much more modest project on that site instead of Nucleus and we think that the 30-year tax revenue to the school system from that more modest project will be a greater sum than $54 million (+ the time value of that $54 million) or if we think the school system won't be able to get the matching grants from the state in which case if we think its a greater sum than $18  million (+ the time value of that $18 million).

 

I actually don't know what kind of tax revenue we could expect from a more modest project on that site so I don't know the answer to that for certain but it seems unlikely the school takes a hit by receiving the $54 million today rather than accepting the 30-year tax revenue from a more modest project.

 

^it is only a controversy to somebody with weak math skills or a political opportunist who takes advantage of people with weak math skills.

 

What a Trumptastic argument you've got there.

 

I don't believe Stark's math skills are weak.  If he wants this deal, one can safely presume it favors him.  He didn't get where he is by handing out money. 

 

TIF's are broadly controversial.  To be clear, I generally support them but there are always complexities.  It's definitely not a smart vs stupid issue.  That's not helpful.  You know what is helpful?  Reading.

 

http://www.governing.com/columns/urban-notebook/gov-tax-increment-financing.html

 

http://www.gfoa.org/sites/default/files/EOGTIF.pdf

 

https://urbanland.uli.org/economy-markets-trends/tax-increment-financing-tweaking-tif-21st-century/

To me, this is a no-brainer - there are real needs, real students in Cleveland now who will benefit very soon from a Nucleus which actually rises. There are almost no  deals that come along that generate anywhere close to the  $60 or so million dollars that the schools will receive should Nucleus happen. We can talk about the next 30 years and what could've been or take a creative deal  which actually results in Clevelands new mega project. Today's  school budgets are increasingly burdened. This deal produces money now.  The scope of nucleus' impact on downtown and the region in general is understood by everyone. Maybe this deal is a compromise of sorts  but that doesn't mean it's not a big win-win.

^That seems a little harsh.  The school district is foregoing any property tax take above $360k per year for a few decades. It's true that the nominal value of the tax break is irrelevant if you don't think this particular project will happen without (which seems fair), but it's also true that $360k per year and nothing more (2017 conditions) isn't really the right baseline to judge whether this is a "win". There is a lot of property tax upside to this lot that the schools are selling. Whether you think it's a good or bad deal really depends on how you value that upside.

 

Personally, I worry more about the ripples through the rest of downtown's underdeveloped lots. It's incredible how quickly a special deal becomes the new developer expectation when they bid for land. Pretty sure the historic preservation credits are already doing that to the value of old buildings, meaning a big chunk of the subsidy is essentially wasted on land owners, instead of being spent on development.

 

In any case, *purely on a political level,* the city could add to the payment due to the schools under this plan, given that it's income and sales tax take would be pretty sizable. That's what I meant above about being surprised the city wasn't offering something to make the school district whole.

 

The property tax revenues from the value of the land with a new building on that land will go up compared to now with no buildings on it, even with tax abatement that will affect the buildings.

 

And if this policy gets expanded to cause buildings to be built on the other downtown lots (such as in the Warehouse District that have been barren for 30-60 years), then hallelujah! Then Stark is a freakin' genius for finding a financial mechanism for overcoming this long-standing and so far impenetrable barrier to their development. I don't want to wait another 30-60 years for them to be developed.

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