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Powell
heard over and over that the project would never work, that he’d never find the money. Were it not
for the unwavering support of a handful of people --
Gary Beller, the master developer; William Harrell,
the deputy city manager; and Edwin Gaskin, the
city’s project manager – he never would have
pulled it off. Fortunately, he says, investors in New York and Chicago
could see the potential for Richmond’s
downtown that the city’s own financial leaders
could not.
The
Broad
Street
project fills what Powell describes as the “hole
in the doughnut” of
Richmond’s
downtown. To the north, the Virginia
Biotechnology
Research
Park
has converted an urban-renewal wasteland into a
cluster of biomedical-related businesses, labs and
government agencies. To the south, developers have
begun building along the city’s canal and
riverfront. To the west, Virginia
Commonwealth
University
has transformed swaths of blight into dormitories
and other campus facilities. And to the east, the
state has negotiated a multi-million dollar
renovation of government buildings around Capitol
Square.
But
the old retail core remains an eyesore. The closing
of the Thalhimers and Miller & Rhoads department
stores in the late 1980s sucked the 6th
Street Marketplace and nearby shops into the abyss
along with them. A decade later, the city cavalierly
sank $160 million into expanding its convention
center, creating a world-class conference facility
– lacking, incredibly, any concrete plans to
address the external conditions necessary for the facility’s
success. Its financial projections assumed, for
instance, the existence of two to four hotels
nearby, but there was only one: the Marriott.
Even
if the hotel rooms existed to house the convention
traffic, attracting conventioneers from outside the
state would be a dicey proposition. The Greater Richmond
Convention Center stands like a seawall battered by
a heaving sea of urban decay. Stepping outside the
facility, conventioneers seeking restaurants,
shopping or entertainment find nothing inviting
within eyesight. “I saw vacant buildings that
looked like they were burned out,” the Richmond Times-Dispatch quoted Theresa Moran with the National
Business Incubation Association as saying. “[Broad
Street]was overwhelmingly dirty, unsavory, desolate and
threatening. … I was embarrassed as an American to
be showcasing Richmond to my international attendees.”
Broad
Street stores targeted for demolition
Thanks
to the Broad Street CDA, the Convention Center now
has the potential to become the magnet for economic
activity that its backers originally envisioned. As
the largest convention center in Virginia,
and one of the largest in the Mid-Atlantic, the
facility will draw conference attendees from all
around the country. Visitors will patronize not only
the hotels but the Carpenter
Center
and the planned Performing
Arts
Center.
They’ll dine at upscale restaurants and shop at
chi-chi shops and stores. The Convention Center will
underpin a vibrant high-end entertainment district
that the Richmond market, arguably, could never
support by itself.
As
a direct consequence of the Broad
Street funding, the new owner of the Marriott Hotel is
investing $30 million in renovations. Gary Beller
will invest another $28 million to $30 million in
building a new hotel at the old Miller & Rhoads
site. As investors regain confidence in the
Broad
Street
corridor, these investments will cascade: about $30
million in Carpenter
Center
renovations, $105 million in the Performing Arts
Center, $100 million in a new federal courthouse.
Beller
predicts that investment will radiate west down Broad
Street
as entrepreneurs start snatching up and renovating
run-down properties. And Powell envisions stepped up
investment in Jackson Ward, a neighborhood that was
one of the most dynamic African-American business
and cultural centers in the country before World War
II. As a nightclub
and entertainment district,
Jackson Ward would be a fantastic draw for any
convention, he observes.
Rendering
of Broad St. intersection
at
Gary Beller's proposed hotel
The
Broad
Street financing nearly collapsed three different times,
but Powell never gave up because he saw so much
potential. “This is my city,” he says. “This
is my neighborhood,” he adds with only slight
exaggeration – he lives on Monument
Avenue
in the Fan about two miles away and often jobs
downtown. If he didn’t find
the money, he told himself, no one else would step
up to the plate. The deal would never get done. But
now, Powell says proudly, “this community can become a showcase.”
The
inspiration for the
Broad
Street
project came from Gary Beller, a Chicago
developer who’d visited
Richmond
several years ago at the behest of a friend. The Richmond
market was somewhat small, he thought at the time,
but it possessed an incredible stock of old
buildings and fine architecture. If the city could
ever get the convention center built, he promised,
he’d come back and take another look.
Beller
returned in 1999, just after the convention center
deal had been put together. It was immediately
apparent that the facility needed another hotel. To
get a hotel, the entire area needed a face lift. But
the city didn’t have the millions of dollars it
took to create the street-level environment that a
hotel would require.
It
was a chance encounter with Ken Powell, whom Beller
had known from a previous business transaction, that
provided the solution: Wrap the project around a
community development authority. Powell, a former
attorney, had shepherded Virginia’s
CDA legislation through the General Assembly and
knew the law better than anyone. Now he was working
in Legg Mason’s bond department.
As
a senior executive in Sam Zell’s enterprise,
Beller had worked in an organization that developed billions
of dollars of office-parking-mixed use projects
around the United
States.
He’d visited every top-tier city and nearly every
second-tier city in the country sniffing out urban
investment opportunities. Now on his own, he was
doing business as ECI Investment Advisors.
Beller
and Powell made a formidable team, and they received
tremendous support from the city administration. The
Bond Street CDA went through innumerable
permutations, but in its final form, it looked like
this:
-
Demolish
two-thirds of the 6th
Street
Marketplace, the old Woolworth’s store, the
Atlantic
Life
Building,
and a row of smaller, ramshackle buildings on
Broad Street;
-
Build
or renovate three parking garages and two lots
with a total of 2,341 parking spaces;
-
Reopen
6th
Street,
construct utilities and install streetscape
improvements.
Revenues
would come from a variety of sources:
-
Parking
lot revenue
-
An
annual assessment on property owners of $.29 to
$.35 per square foot.
-
A
$2.50 per room-night surcharge on the two hotels
in the CDA district
-
A
$1 surcharge on ticket sales at the Carpenter
Center
and Coliseum.
The
original plan was to build five parking decks, but
two were stripped out of the deal to bring down the
project cost by $30 million. The CDA will go back to
the bond market when demand for the last two parking
garages materializes in approximately 24 months.
While
cleaning up the neighborhood, Beller will convert
the old Miller & Rhoads building into a 216-room
hotel. He anticipates that this hotel, with
oversized rooms and higher rates, will appeal to
business travelers as well as the higher end of the
convention market. He sees the facility as
complementary to the Marriott across the street, not
in competition with it. Indeed, he would fully
expect a third hotel to move into the area, serving
a different price point. “I’m hoping there will
be additional hotel product coming in,” he says.
“If there were more hotel product around the
convention center, people would use it.”
The
city of Richmond
doesn’t have the most promising track record in
urban redevelopment, so skeptics might be forgiven
for suspecting that anything that looks too good to
be true must, somehow, be transferring a load of
risk onto the city.
Edwin
Gaskin insists that’s not so. “The out-of-town
funds did not take our word for it,” he says.
“They sent in their own due diligence teams –
they picked this apart. It passed the
creditworthiness test. Some [investors] even wanted
to do more – they wanted to be aware of other projects in
Richmond.”
Powell
sees the Broad Street
project as a great deal for the city, with very
little risk. First, demolishing the 6th
Street
Marketplace relieves the city of the burden of
maintaining and operating the facility. Second, the
city is relieved of financial obligations associated
with the Marriott parking lot. All told, the city
will save about two million dollars a year – and
that doesn’t include increased property tax
revenue from Beller’s new hotel, the Marriott
renovations or other property upgrades. In all
likelihood, says Powell, the project will be a
tremendous boon to city finances.
To
protect against unanticipated events, the bond
covenant requires the CDA to pile up millions of
dollars in a reserve fund, which acts as a buffer
against any shortfall in revenue projections.
Investors purchased bonds based on a “worst
case” financial scenario which bases bond payments
on existing
levels of economic activity – no federal
courthouse, no Performing
Arts
Center,
no influx of investment stimulated by the $67.5
million in public improvements.
“I
gotta tell, you,” agrees Beller, “I know these
numbers better than anyone else, I’ve studied this
deal. It would take total failure of the convention
center to draw people, and the hotel market would
have to tank … It would have to be a long-term
economic downturn for this model not to work.”
Under
a worse-than-the-worst-case scenario, the CDA
draws down the reserve fund. If there still weren't enough cash to cover the bond payments, city council
would be obliged to formally consider bailing out the
project and put a proposal to a yes or
no vote. Powell acknowledges that the provision is
controversial. But, he hastens to add, “This is
not an agreement to pay [the bond payment]. It’s
an agreement to consider it.”
The
fact is, there are risks associated both with action
and inaction. The
greater risk, in the humble judgment of Bacon's
Rebellion, is not
financing the project. What’s the city’s
exposure to the Convention Center if the budgeted
traffic never materializes? What’s the city’s
exposure if the cancer on Broad
Street
continues
metastasizing decay and destroying property
values? The skeptics don't
consider such scenarios.
Although
he dreams of bringing Queen Elizabeth to
Richmond,
Powell draws his inspiration from another
Englishman, one known for his perseverance through
trying times. He quotes Winston Churchill's shortest
speech, delivered during a college commencement
following a particularly long-winded oratory by a school official. The speech,
consisting of only 10 words, could well stand as the
Broad Street motto: “Never give up. Never
give up. Never ever give up.”
--
July
16, 2003
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