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08 April 2007

4400 - A Magic Number

No, this post is not about the sci-fi series on the USA Network which is entering its fourth season.

Details about the SJSU/Quakes project have given hints about how the A's-Cisco Field deal will be structured. Before I explain further, take a look at the following table:

First off, it's utterly amazing that the A's stadium, which will hold only 5,000 or so additional people, will cost over six times as much. The ballpark is considerably more complex thanks to additional amenities and MLB stadium requirements, but I'll cover the details of that another day because it can be explained.

The real curiosity is the number of housing units being pitched to help finance each project. For the ballpark it's 2,900. For the stadium it's 1,500. Cisco Field will have over 100 acres of ancillary development to assist (housing, retail, commercial), while no such development is possible at SJSU's South Campus. Included in the SJSU stadium deal will be the creation of public soccer fields nearby (albeit off campus and with some city funds).

Why would the stadium project need 1,500 units? And why would the ballpark, which costs over six times as much, need only 2,900? It's difficult to quantify the impact of the ballpark village portion, but it can't be that much. The volatility of the housing market could make estimating the entitlements' impact difficult as well. Somehow each project has to add up, right? So this leaves me with one possibility:

The San Jose housing sales may help fund the ballpark.

I've been wrong before, and when the details finally emerge I may well be proven wrong on this hypothesis. Right now, the numbers don't add up unless both projects are put together - at least when compared side-by-side. It's likely that Wolff is courting the same investors for both projects, and that moving funds around to get the bills paid may be the only way to get the ballpark (the main project) built. Even if it's true, it may not be considered a big deal since in the end both deals may be viewed as fair - at least on their own terms. Still, it remains something of an eyebrow-raiser, and makes the stadium effort appear less altruistic than how it's currently perceived by some.

All the more reason to get the details out in the open, no?

20 comments:

The Cactus Leaguer said...

ML - great questions. I have a theoretical answer:

The ability to mark up the housing units (beyond FMV and/or sufficient rate of return to please the investors) is much lower at the SJSU facility than it is at Cisco Field.

Which might also explain why details are kept secret --- homebuilders aren't exactly candid in sharing their P&L statements (I can hear it now - "My condo got marked up HOW MUCH extra to pay for the ballpark? That's nuts!!!").

It is weird though. If anything I'd push for more housing at Cisco because, as any downtown resident knows, you have to reach a "tipping point" in order to make the full spectrum of neighborhood amenities available (grocery stores, normal shopping, etc.). 1,500 units seems a little thin but I'm not familiar with the area's overall footprint.

Marine Layer said...

I've considered a possible delta in the acquisition costs of the two properties. It would make sense if Cisco were providing the land to the A's at a huge discount. However, the price of the land is undisclosed while Cisco is paying $4 million per year in naming rights. That leads me to believe that the A's are paying straight up for the land option instead of getting a discount.

Other than that the two pieces of land are rather similar. Both are undeveloped parcels within industrial zones. Both had well-publicized development plans in place - Cisco's mid-rise office park campus, mixed use on the old IBM/Hitachi campus. Both would have townhomes or condos, not single family residences. And both have similar price points for such housing in the current market. Rezoning was completed for the San Jose property, but only to commercial/industrial. Retail is already lacking in that part of South San Jose even without the planned shopping center, BTW. I can't imagine there's that big a difference in price per acre between the two properties, considering that Wolff's desired zoning changes to residential/mixed are the linchpin for a windfall on either property.

It's also possible that the Fremont townhomes will have a substantial premium when they finally start selling because of the nearby amenities, but I expect the market to dictate much of that.

Bleacher Dave said...

As I've always said, I think it is now and always has been fairly obvious. The Fremont development won't fly without significant public subsidies.

Marine Layer said...

Actually it hasn't been fairly obvious. Care to elaborate, BD?

The Cactus Leaguer said...

I guess what I'm implying is that buyers will be willing to pay a higher premium to be able to walk to 81 A's games as opposed to a few football/soccer matches, so the "stadium markup" is higher at Cisco. Maybe they have research to back this up... bottom line, like you said, is that the market will dictate it.

Heck, I just want to see the details on it because the concept is unique and more or less unprecedented... if they can pull it off, it may kick off a new era in stadium construction.

Anonymous said...

If the San Jose housing site helps fund the ballpark at Pacific Commons, then it is a complete 100% lock that the team will be known as the SAN JOSE A'S of Fremont (no question about it).

Anonymous said...

... looks like wolff the con-artist is up to his old bag of tricks.

Beware Fremont taxpayers ... a con-artist is on the loose and he's after your wallet.

Anonymous said...

bad dog, 1158, bad dog....back to your own back yard...

www.oaklandfans.com

be sure to take your tinfoil hat with you, so you can properly receive your marching orders from shril.

Jeffrey said...

Where was it that WOlf's old bag of tricks involved conning city governments again?

Bleacher Dave said...

C'mon ML,

I think you're aware of my position. Diverting the increase in taxes created by the Pacific Commons development to Wolff is a public subsidy of the project. In addition to that public subsidy, the services (police, fire, school, infrastructure) that those taxes would normally fund will have to be financed by other means. Either further public subsidy, or as you suggest, Mello-Roos. Can you imagine homeowners paying property taxes that go to Wolff, then paying Mello-Roos for the services that their property taxes would otherwise fund? Double taxation?! I'm guessing that would have a negative impact on property values.

Given all that, I still don't think it pencils out. My guess is that further indirect subsidies will be needed. The Merc is hinting at such in its article about the closed door maneuverings that SJ is engaging in with respect to the former IBM property.

Sunshine is the best disinfectant.

Marine Layer said...

Subsidies have to be measured in degrees, not absolutes. Otherwise nothing would get built.

Exactly what situation would incur property taxes going to Wolff? Again, a TIF mechanism only works if there's a bond behind it, and Wolff has said no bond issue will be necessary. So where's the disconnect? One other thing - there are already TIF bonds for the nearby highway interchanges. Pols would have to deal with the gauntlet of extending and repurposing TIF funds as the bonds mature in 6 years.

However, a Mello-Roos situation makes sense for ongoing services. If the area requires extra police and emergency services, an extra assessment works. $200 a year X 2900 homes = more than half a million. That breaks down to $16 per month per household. Should the public quake in their boots over that, considering that potential homebuyers should expect the extra cost if they're considering the area? I haven't even included a possible levy on business owners in the area. Best of all, Mello-Roos only requires approval of the affected landowners - and in all likelihood there will only be one.

And there's still the issue of the entertainment gross receipts tax. Combined with the MR assessment, it's well over $1 million in tax revenue.

If you think that's still not enough, let's start throwing around numbers. I'm happy to debate this.

Anonymous said...

PROFIT FROM A REZONING DOES NOT EQUATE TO A "PUBLIC SUBSIDY!" For crying out loud people, Lew Wolff is proposing to build two stadiums, which thousands will enjoy, without raising city taxes or raiding general funds! And don't listen to anything that the Merc's Barry "I have no wit" Witt scribbles on newsprint; Barry is completely anti-sports who shouldn't have a forum such as the Merc to express his ludicrous "absolutely no money for sports" viewpoint!

Bleacher Dave said...

ML,

My understanding of Wolff's concept is that the city/county will return to Wolff the incremental increase in tax receipts that are due to the Pacific Commons developmet as a means of subsidizing the construction costs of the ballpark. That would be a massive public subsidy.

In addition, if the residents of Pacific Commons only contribute $16/month toward city services, they would be receiving a massive subsidy from the rest of Fremont's and Alameda County's residents who contribute significantly more through their property taxes.

Marine Layer said...

I can't see how TIF would take care of a significant amount of the financial burden. The numbers don't add up.

Wolff isn't asking for a bond, so we can cross that off the list. You might think that TIF could be used to service debt on privately raised bonds, but as I understand it that practice is illegal since state law requires public bond issuance for municipalities to receive tax increment. Even if it were legal, all of the deductions through pass-throughs and allocations for affordable housing and such would make the actual proceeds rather low.

An increase in sales tax is out of the question because that would require a vote.

Where can the A's take advantage of rebates or refunds? The gross receipts tax I cited is one but it's a drop in the bucket. In that regard I haven't seen any low hanging fruit. I think this is where Mello-Roos comes in, but that will only go so far.

Residents would not be paying $16/month for public services. I was simply illustrating the impact of a such a fee on funds that would be used to cover enhanced services. The residents/landlords would have to pay regular property taxes just like everybody else.

Bleacher Dave said...

ML,

I may have completely misinterpreted Wolff's statements. I'm pretty sure there's a quote from him that says that he wants the value he creates returned to him; that's not unusual - every developer reaps the profits from his develoment.

My understanding is that he also wants the difference in property taxes collected caused by the increase in assessed value due to his development returned to him to pay for the stadium. Isn't this proposed project in a redevelopment zone? My understanding is that increases in property taxes due to development in a redevelopment zone are segregated and retained for redevelopment usages; as such, they are not available to the general fund.

Without this tax subsidy, this project has no ROI. The development profit goes to fund stadium construction costs and there is no profit for investors, or interest for lenders. The gain would be to the value of the franchise, which would surely show a healthy appreciation if they were playing in a new techno park.

Maybe someone can help find that quote. It was either in connection with articles surrounding the Cisco field announcement, the Fremont council meeting, or the Ronn Owens interview.

Marine Layer said...

The redevelopment zone sunsets in 2014 as the bonds on the highway upgrades are paid off. I recall a one-year extension approved some time ago because of forecasting problems or something related. To approve another extension for something completely unrelated would be highly controversial - and if it were to service private financing, illegal.

I think this is the quote you're looking for:

"...we're not asking for any taxes to be levied on anybody. The generation of what we do at the village, if - and it is a low density urban village - if it's something the community wants - will generate its own revenue to pay for schools, taxes..."

He didn't say the revenue would pay for the ballpark, it would pay for the community infrastructure. The traditional mechanisms are a Mello-Roos assessment and a set amount ($20-40K) built into each housing unit. These are common to just about every new development these days, so I don't think this will be any different.

Bleacher Dave said...

ML,

1) If Fremont owns the stadium, is that a way to subvert the restriction on using public financing to finance private projects?

2) No, that's not the quote I'm referring to. Isn't that one from the Maury Brown interview?

3)Those are the traditional mechanisms. This project is untraditional in that it needs to fund a $500 million stadium, in addition to providing ROI. Unconventional conditions call for unconventional measures.

Bleacher Dave said...

"Project Goals (quoted in its entirety):

It is our desire to create a new home for the Athletics that significantly enhances the quality of life in the surrounding local community as well as the fan experience at the ballpark. Additionally, we seek to have a significant portion of the project funded through the development of the remaining vacant areas surrounding the ballpark. It is our intent to have the majority of this support funded by revenues and resources generated directly from the Ballpark Village development as opposed to receiving substantial direct subsidies outside of the project area (i.e. taxes) typically associated with new ballpark development projects."

http://newballpark.blogspot.com/2006_12_12_archive.html


This isn't the quote - Wolff stated it more explicitly and forcefully somewhere else - but this is the idea. While opposing direct subsidies from outside the development area, he seems to leave open subsidies generated from tax revenues within the development area.

Bleacher Dave said...

I'm thinking the quote I'm looking for is buried in the Argus archives. I did find this nugget in an article....

"Also included in the documents are e-mails to Fremont officials from 14 members of the public, nearly all of them Fremont residents. Eleven residents urged city officials to reject the A's proposed move to Fremont, and two enthusiastically supported the idea. One was on the fence."

http://www.insidebayarea.com/fremontas/ci_4928489

The public is skeptical. Al Davis casts a big shadow.....

Marine Layer said...

The letters were skeptical, yet the public meetings for the project so far have been overwhelmingly pro-A's. Either way the sample size is too small.
Let's just say the jury's out.

BD, the intentionally vague yet wordy quote you snipped could lead some to think TIF. I know that Neil deMause thinks that's the idea, but specifically for the private financing issue I described, I don't think TIF is available. The words "revenues and resources" open up a lot of different possibilities.

The problem is that describing the funding mix is inherently complex. What percentages of certain revenues will be applied? Here are some obvious follow-up questions:

1. Will it all be townhomes, or will there some leased apartments? Or condos? Revenue generation for any of those three could be different.

2. How much impact will affordable housing requirements have on the project's profitability and housing prices?

3. Would the developer get the standard credit/dispensation for affordable housing or something greater/less? What if the developer chose to pay a fee to the city not to build affordable housing instead?

4. How much impact will the commercial development have on ballpark debt service?

5. What is the proposed Mello-Roos assessment, if any?

6. Will there be a method of funneling non-property taxes revenues back to the city directly?

There are any number of permutations for revenue generation that make it difficult to assess. I haven't even gone into my "San Jose pays for some of it" theory. Even though I'm not an accountant, I'd prefer to have all the numbers.