March 18, 2008

Show me the money: Market flux could leave Museum Plaza developers flustered, but it’s too soon to tell

If you’re new to town, you probably have no memory of the Kingfish restaurant on River Road near Sixth Street. If things had gone as planned, the site would now be awash with a fancy corkscrew high-rise, the corporate headquarters of the healthcare company Vencor.
 
But you know how those things go. Vencor ran into numerous problems, and the skyscraper, which was to open in 1999, was scrapped. The site now houses the Muhammad Ali Center, which opened in late 2005.
 
Similar doubts have arisen recently about another big project only a block away. Construction began in January on Museum Plaza, the planned 61-story mixed use tower whose price tag approaches a half-billion dollars, but it stopped shortly thereafter because of excessive vibrations from core drilling.
 
And then, no sooner than local media started asking why they removed construction cranes from the site, the developers announced they’d cool their heels until the melting credit market calms down and coagulates into some recognizable form.

This sort of thing, of course, gets people talking.
 
Do we have another Vencor on our hands? (Good riddance.)
 
Don’t worry. (We have to build this sucker to put Louisville on the map!)
 
Can they scale it down? (It’s Laura Lee Brown’s money anyway. What’s she think about it?)
 
How long is too long to wait?
 
The developers — Steve Poe, Steve Wilson and Craig Greenberg — have already spent about $20 million, and so it’s no shock they’ve kept a stiff upper lip and insisted there is no reason to worry.
 
In an interview Friday, Greenberg acknowledged that removing the cranes is costly, but he said other facets of the project would keep the developers busy while they wait.
 
There is reason to assume the situation will get worse before it gets better. This week, the massive investment firm Bear Stearns, which went too far down the rabbit hole with irrational subprime mortgage investments, announced it would be acquired by J.P. Morgan for a mere $2 a share. Bear Stearns shares were worth $170 per less than a year ago.
 
And on Tuesday, the Federal Reserve, which has already taken a number of significant steps in an effort to mitigate the financial disaster, was set to whack its key federal funds rate by up to a full point.
 
Recession is on the minds of many economists. Some have even suggested that had Bear Stearns been left to fend for itself, we might have confronted an actual depression. It’s clearly bad timing for a project that’s been in the works for a few years. But there’s no way around it.
 
There are varied official opinions about whether Museum Plaza will come to pass, but there is general agreement between the Mayor’s office and the Metro Council about the prudence of delaying a $47 million bond issue to pay for public improvements related to the project. The council officially took that step last week.
 
Downtown Louisville has seen its share of ebb-and-flow development. The late Al Schneider, of Galt House fame, was notorious for starting and stopping projects. Somehow he got them done. More recently, Waterfront Park Place came along in fits and starts.
 
Greenberg said it’s pointless to speculate about when the markets will loosen because no one can say for sure. Asked whether the project could withstand an extended delay, say two years, he said yes.
 
The mayor believes the project will be built, and Democratic council members Jim King (District 10) and David Tandy (4) are of similar opinion. Republicans Kelly Downard (16) and Hal Heiner (19) are more dubious.
 
In an interview last week, Downard pointed out that the last big skyscraper built in Louisville, the Aegon tower, was completed without public funds. He also believes lenders may conclude that Museum Plaza, which will include office space among its mixed uses, faces too much competition from other office projects downtown.
 
Heiner was not quite as doubtful, but he said the city should see guarantees before the project moves forward. Last week, the developers signed a “completion agreement” which guarantees they will compensate the city with their own funds if the project fails. (The council members had not seen the agreement as of this week, but Chad Carlton, a spokesman for Mayor Abramson, confirmed it had been signed.)
 
King, a banker, said the city is more concerned with seeing a guarantee that the developers have secured a construction loan. That’s the big piece in limbo with the market in turmoil.
 
To be sure, Museum Plaza represents an extreme effort to create something monumental in Louisville. Some say the scale is too large, but Tandy, whose district includes Museum Plaza, thinks the city is ready for something grand. He believes Museum Plaza will eventually draw white-collar jobs to the city.
 
Whether Museum Plaza is the right thing to do — whether you can or should generate attention through ostentation, and whether this particular flavor of ostentation is sustainable in 50, 100 or 200 years — is unknowable.
 
But time will tell. And that’s as good answer as you’re going to get right now.

Contact the writer at cstemle@leoweekly.com