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PUBLIC-PRIVATE MARRIAGE CAN TAKE A LOT OF WORK

BY DONNA MITCHELL

Breslin Realty fought to get property taxes reduced on The Hub, Long Island.

To hear developers and public officials talk about public-private relationship, one would think the two make an ideal pairing. In many respects they do, given their natural interdependence. But any marriage can have rocky moments — and public-private unions are no exception.

Retail developers will generally shy away from discussing a project that has been stymied or killed by a public-private partnership gone wrong. No one wants to risk sullying a potential business relationship, after all. But there are certainly examples out there.

Take the time Houston-based Weingarten Realty Investors planned to build a grocery-anchored shopping center in upstate New York. (The company wouldn’t say where.) Those plans fell apart, thanks to the stalling of the city council. One council member in particular was unwilling to grant approval, demanding instead the renovation of an old Kmart store on the site. Weingarten offered to buy the building, but Kmart rejected the offer. It was months before Weingarten could get back on the council’s hearing agenda to present its case anew, only to find that nothing had changed; the council wouldn’t budge. There would be no new shopping center apart from a renovation of the old Kmart. Weingarten dropped the project.

Weingarten President and CEO Drew Alexander expresses mixed feelings about New Urbanism because of the extent of municipal involvement it entails.

“We think that [concept] has a lot of long-term operational headaches,” said Alexander. The idea of combining retail and residential uses may charm municipalities, he points out, but if the project is not in an in-fill location, has poor visibility, insufficient parking and too many entrances, and then the municipality is unable or unwilling to address those problems, it’s not worth the effort.

Then there’s Breslin Realty Development Corp. This Garden City, N.Y.-based firm was turned down when it requested a reduction of property taxes on a site it owned in Long Island’s Village of Hempstead, N.Y., where it planned to build a 300,000-square-foot neighborhood and community shopping center called The Hub. In 1999, when Breslin Realty first approached local officials about redeveloping the site, the combined local and county taxes amounted to $13 per square foot. Tenants would only be able to afford about $6 per square foot (the average for Long Island), insisted company President Wilbur Breslin. He tried to get the county to lower the taxes, all to no avail.

“They gave us a lot of lip service,” Breslin recalls. Undeterred, he went to local officials to explain how Hempstead could benefit from lower taxes.

At the time, the 21 parcels of derelict property, including an old Abraham & Strauss department store that had been closed for about 10 years, were generating some $800,000 in annual property taxes, at most. If the assessment were lowered and redevelopment encouraged, Breslin argued, the site could eventually generate $14 million in combined local and county real estate taxes, plus sales taxes. Hempstead officials listened with interest. They wrote to the county’s tax assessors, and this time the county relented, agreeing to halve the tax to $6 per square foot, says Glen Spiritis, Hempstead’s commissioner of community development. The Hub opened in February 2001. “They were skeptical, but we as developers had to educate them,” said Breslin.

Nicholas J. Pirro

Developers often have to deal with multiple levels of government that don’t all look at projects the same way. Such is the case with The Pyramid Cos.’ Destiny USA. This retail-entertainment center, which would be built around Pyramid’s existing Carousel Center mall in Syracuse, N.Y., enjoys support on the county and city levels. Onondaga County and the city of Syracuse approved a “payment in lieu of taxes” financial package that would help Pyramid pay for the project, which is estimated to cost about $2 billion. For its part, the state agreed to reimburse Pyramid, through its Empire Zone Program, the $52 million a year in taxes that the property is worth. That would allow the developer to use those funds as collateral for debt service, says Onondaga County Executive Nicholas J. Pirro. But so far the state has failed to pass a bill to keep the Empire Zone Program in place for as long as it would take the developer to repay any debt secured through the reimbursements (about 12 years).

Pyramid officials did not return calls seeking comment, but they and the project’s county government supporters have said that without the extra funding, Destiny USA might not happen.

Government officials and developers are not the only ones who can mess up a private-public relationship, though. Citizen groups, worried about environmental, zoning and other issues, can too.

The best way to win such groups over, developers say, is to be forthright and patient. A little generosity doesn’t hurt either. Newman Development Group, a Vestal, N.Y.-based developer, says it is practicing all three virtues to help counter citizen resistance to North Coventry (Pa.) Town Square, a planned 260,000-square-foot power center. It would sit on a 63-acre site that had ostensibly been zoned industrial — despite being occupied by, among other businesses, a horse farm.

“It took a long period of glad-handing and generosity to help persuade three of the five supervisors that this was in the best interest of the town,” said Kenneth Kamlet, Newman Development’s director of legal affairs.

Many residents, wanting to preserve the open space, were opposed, so company officials met with them to discuss the plans and show how the project would create jobs and generate tax revenue, says Marc Newman, a Newman Development managing member.

“It is just a matter of being honest [and] forthright and letting them put a face to a name,” said Newman. “You have to take a personal role in these projects.”

Meanwhile, the company had to persuade the Pennsylvania Department of Transportation to modify a stipulation limiting access to a state highway that runs alongside the property. It took the developer two years to prove that the project would benefit the community, Newman says.

The town still made Newman Development pay, heavily, for approval. The company agreed to help fund the expansion of the town’s public water system and also underwrote the salary of a new police officer, as well as a road through the site allowing motorists from surrounding areas access to the highway, Newman says. All of this has tacked $3 million onto the $45 million project. In addition, Newman Development had to donate 21 acres of the site to the town, which designated it as permanent open space for public use.

Thus, relationships between the public and private sectors can be tricky — especially complicated ones, involving multiple governmental partners. Sometimes the problems can be worked out with a little persistence. Other times it’s best to just walk away, as Weingarten Realty did. Said Weingarten’s Alexander: “Typically, they are nicest in the beginning. But if the first date is bad, then you probably don’t want to get married.”

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