Novus' proposed Sunset Hills development can't occur without TIF aid, consultant says
February 16, 2005 - By SCOTT MILLER
A proposed $163.9 million development in Sunset Hills cannot occur without $42 million in tax-increment financing assistance, according to a city planning consultant.
"There are clearly certain costs associated with this project that cannot be recovered through leasing or other revenues at today's retail market rents," planning consultant John Brancaglione of Peckham Guyton Albers & Viets wrote in a recent letter to the city's TIF Commission.
Brancaglione's letter is a response to a written list of questions from TIF Commission member Pat Lanane, Lindbergh School District's assistant superintendent for finance and chief financial officer.
Novus Development Co. President John Browne asked Sunset Hills for $42 million in TIF assistance to offset "extraordinary" costs associated with the proposed development at Watson Road, Interstate 44 and South Lindbergh Boulevard. Main Street at Sunset, as Browne calls it, would in-clude high-end retail stores with restaurants and office space.
Lanane questioned whether $42 million is too much TIF assistance. It's roughly 25 percent of the project's total cost.
"As in all such cases, attributing some of the cost items to TIF may be debatable. However, we don't believe that the amount of TIF assistance can be reduced by a significant amount and still allow this project to be financially viable for Novus or any other developer," Brancaglione replied.
Extraordinary costs of the project, he said, include land acquisition and relocation — several businesses and 255 homes in the Sunset Manor subdivision — demolition and utility relocation and public road improvements.
Responding to Lanane's question, Browne said the project could not meet a 10 percent rate of return, which is expressed as a rate of net operating income, without TIF assistance.
"No project would be attempted if the effort was rewarded with a loss or only a rate of return that could be 'purchased' — buy an existing, leased commercial property — without the headache and risk of development ... When the project can produce the proper return on its own, the project goes forward without assistance... If, however, the project cannot meet the target rate of return and is in an area that qualifies it for assistance such as TIF, the project is reviewed with the possibility of the assistance plugging the shortfall,'' Browne wrote.
The land to be redeveloped by Novus does not qualify as blighted, a typical justification for TIF, Brancaglione said at the commission's last meeting.
But given the historical lack of growth and enterprise, it does meet the qualities of a conservation district and therefore qualifies for TIF assistance, he said.
To increase Novus' accountability, the Lindbergh assistant superintendent suggested the city cap each specific category for TIF assistance so funds designated for land acquisition, for example, couldn't be used for road improvements.
If costs exceeded the allocated assistance, Novus would cover the difference, not Sunset Hills.
To gauge a possible categorical cap, Lanane asked how TIF funds would be utilized.
Brancaglione broke down the eligible TIF costs for the site: land costs, $29,975,800; construction costs, $9,274,628; and such soft costs as architecture, engineering and legal fees, $2,611,261. In total, Novus is eligible for $41,861,689, according to Brancaglione's information.
Browne's figures suggest a much larger eligibility.
"Although our project has $78,000,000 in 'qualifying' reimbursable cost, we have only asked the 'extraordinary,' or those costs beyond what might normally be en-countered, to be covered by the TIF. With-out this reimbursement, this project, even with its premium rent, could not produce a reasonable rate of return on its cost," Browne wrote.
The TIF Commission was scheduled to meet Monday night — after the Call went to press — and Brancaglione's and Browne's answers to Lanane's questions were set to be fleshed out in more detail at that time.
Referring to the responses, Lanane told the Call, "I thought I got pretty complete answers. I think they made a good-faith effort to give me answers."
The commission also will have a public hearing at 7:30 p.m. Monday, March 21, in Salon A at the Holiday Inn Southwest/Vi-king Conference Center, 10709 Watson Road.
The public hearing originally was scheduled to be conducted at the Sunset Hills City Hall.