The city may have negotiated a good deal for a good development, but it’s still being used by a corporation to boost its profit. And in the process, who gets penalized? The rest of us who play by the rules — or who don’t have the money to curb the rules in our favor.
Last week, the city brokered a deal with Georgia developer Flournoy, reviving a deal said to be “on life support.” According to Flournoy, the proposed $56-million, 270-unit apartment and commercial-space project, apparently became financially unfeasible due to a city requirement that 18 apartments be offered at a reduced, “workforce rate.”
This never sounded like the whole story, but rather a gambit for a renegotiation.
Now, I know I was right… and why.
Recently, I wrote about the developers’ illogical argument, saying: This is corporate entitlement in America. Instead of the company revising its model, it’s much more cost-effective to just pay off the politicians to change the rules.
Since then, I’ve talked to local developers, and those familiar with projects that enjoy city support. Each of them told me that, in their opinion, the reason reduced-rate units were a threat to the deal was because they would lower the resale value of the project if Flournoy wanted to sell.
In other words, the difference in annual revenue because of the lower rents on 18 apartments may have been $75,600, but the existence of those units would hurt the market-value significantly more. That’s right. For Flournoy, it’s entirely possible this is a glorified, $56-million flip.
Efforts to reach Flournoy for comment were unsuccessful.
This much is clear: The city enticed this development through a tax rebate, which means that Flournoy would have to pay only a portion of the property taxes it owes — in this case, 20 percent of the bill, for up to $5 million in tax rebates over 20 years. And yes, the city would presumably benefit from some increased economic activity — from more downtown residents, as well as taxes from an increase in surrounding property values.
Hey, maybe it will work. This might be a good deal all around — but Flournoy still is getting a tax break that nobody else in the neighborhood gets.
The problem is that there are ripple effects from these splashy, government-supported projects… some hurting the longtime residents of the neighborhood.
Say for instance, you own a (comparatively) small apartment complex or commercial space in Butchertown, East Main Street or NuLu neighborhoods. And then 270 brand new apartments, with amenities, modern appliances, lower maintenance costs, etc., move in next door. Since the city is helping to finance the project with $5 million in tax rebates, the developer has the flexibility to: offer apartments at lower rents, or spend a few million dollars more on enhancing the development. Either way, as a competitor, that’s a $5 million advantage you never had.
Now, the good news is, because of this new neighbor, the property value of your house or apartment complex could increase. This is good from the standpoint that everyone wants their property to be worth more. However, it also means you pay more in property taxes. So if you are renting out your units, in theory, you have to raise your rates to absorb that increase — while Flournoy is able to offer subsidized, below-market rates.
On the other hand, even though your property value has increased, the effective value of your property could have weakened… because who wants to pay more to compete against Flournoy with an older, more expensive product?
After renegotiating the deal, Flournoy will keep six workforce-rate units and make a $634,000 donation to the city’s Affordable Housing Trust Fund. In doing so, it increases its annual revenue by about $50,000 and can write off the charitable donation.
And maybe this is a flip… maybe not. Regardless, Flournoy isn’t an evil company for doing any of this… like with Donald Trump’s tax dodging and habitual bankrupting, this is how the game is played at that level — capitalism and the free-market facade for corporate oligarchy.
If the city’s goal is attracting new developments, fine. But strategic planning long ago identified a need for more affordable housing downtown. The city needs to stay true to its long-term vision and not be distracted by every potential developer that comes knocking.