Monday, September 03, 2007
Posted by Michael Earl Patton
One of the problems with the City of Cincinnati heavily subsidizing a few favored developments is that it may hinder other projects as their backers realize that they are not competing on a level playing field. An example of a development that is favored is Baldwin 300, which is getting up to $30 million to build a parking garage for a new office building and hotel. This is a heavy subsidy and may have been a factor in the cancellation of the Encenter project in Madisonville.
The September 2, 2007 Sunday Enquirer ran a story on recent changes on Red Bank Road. From the story:
The only big setback occurred recently when the Miller-Valentine Group pulled out of the $70 million project planned for the 30-acre former NuTone site near Madison and Red Bank.
That project called for 200,000 square feet of office space, more than 32,000 square feet of retail space, and possibly a hotel, creating an estimated 800 jobs.
Cincinnati had approved a tax-increment-financing plan that would have produced about $8 million for public infrastructure and demolition.
“We couldn’t satisfy all the contingencies,” said Brian Copfer, a partner with Miller-Valentine. He declined to elaborate.
This project is comparable in size to the Baldwin 300 project, for which Corporex intends to build 250,000 square feet of office space and a 70,000 square foot hotel. But one project gets $30 million and the other just $8 million.
On a per square foot basis that difference is even more stark. The actual development agreement with Cincinnati for the Encenter project states that the intention is for 200,000 square feet of office, 32,000 of retail, and 40,000 of residential for 272,000 square feet total. An $8 million subsidy comes to $29 per square foot. The Baldwin 300 project subsidy comes to $93 per square foot. The difference is $64 per square foot. To compete against the Baldwin 300 project and keep the rents comparable, the Encenter project would have to reduce construction costs by that much.
Put another way, this $64 per square foot advantage represents about 3 years worth of rent.
Incidentally, although the Enquirer story mentions just tax-increment financing (TIF), the actual ordinances for the subsidies (300- and 301-2007) specify a general property tax increase in case there is not enough money through TIF. In the case of the Corporex subsidy this is virtually certain.
Clearly this large subsidy to Corporex represents a huge hurdle for any other office project to overcome. No one else could compete unless they had a similar subsidy or a large advantage other than cost. So instead of creating business in Cincinnati, city council’s policy of heavily subsidizing a select few winners (and making the rest of us pay for the subsidies) may well have the opposite effect and stifle further development here.
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