Tuesday, June 9, 2009

DeKalb: Don't give in to Sembler

I haven't yet commented on Sembler's recent request to the DeKalb Development Authority for help with the Town:Brookhaven. Sembler wants the DDA to give them a 20-year property tax abatement via a lease-purchase agreement. Sembler's argument is pretty much the same argument that developers always use for these sorts of subsidies:
We simply and realistically put on the table the possible consequences of not proceeding with this project as initially envisioned. As we laid out the financial benefits of our proposal, we also emphasized that Sembler’s proposed abatement would not take away any taxes that the county or the school board presently collect. We seek an abatement of future taxes; taxes that do not exist today because the property is not developed; taxes that will not exist if the project is not built.
I have in the past generally supported development incentives like TADs, because they have proven to be rather useful tools to spur investment in undeveloped areas like downtown. Is this Sembler deal the same sort of situation?

Not really. Town:Brookhaven is not the sort of project where public involvement should have been necessary for the development to happen. Typically, these sorts of subsidies are given out along a "but for" criteria - the developments would not get built but for the public subsidy. Sometimes this criteria is more of an unwritten rule, but the general idea is to preserve subsidies for projects that serve a public good and are really needed. Affordable housing developments, for example, often have difficulty making the numbers work, so a subsidy like this can help make the project possible.

Town:Brookhaven was underwritten and construction began a long time ago, in a nice part of town. Sembler's problems are a result of not forseeing the real estate crash. Generally speaking, Town:Brookhaven isn't the kind of development you expect to get a subsidy like this.

Still, Sembler is correct that as an investment, DeKalb won't see the tax revenues for Town:Brookhaven as soon without the subsidy. I doubt it will take 20 years for them to build out the project though, and their argument doesn't necessarily separate Town:Brookhaven from any other development deal - if their logic holds, then ANY development should qualify for public subsidies. Basically, Sembler is trying to assume that DeKalb will see Town:Brookhaven as being too big to fail (have we heard that before?).

For the most part, I agree with the neighborhood opposition in this case. However, what about an alternative? Sembler could let the DDA take a look at their books, and make them a development partner. Make them an equity partner or get a low-interest construction loan. If Sembler really needs the extra money to keep the deal afloat, they'll be interested. This way, DeKalb would prevent a large development site from sitting empty, without feeling like they are giving the farm away.

If, and this is more likely, the issue is that Sembler is trying to boost their IRR because they made a bad investment decision... well, DeKalb would be setting a pretty awful precadent if they helped them out. The project won't tank, and Sembler will build it out over 5-8 years instead of 3-5 years (these numbers are purely conjection on my part). It probably isn't worth giving up 20 years of tax revenue to jump start the project a few years.

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