OK, A Guy Walks into a Bank…

Maybe not a bank, but what is to become office space for one of the nation’s biggest banks that has several new structures around town. But let’s call it a bank.

So the guy finds out that the bank was once a department store that was part of a strategy to make a city’s downtown area a hub of retail activity by having not just that department store but at least four department stores, including a really new one. Through a complicated financial arrangement the agency in charge of redevelopment basically gave the parent company of the department store a gift of a loan because the terms of repayment were based on the store achieving sales activity that were well in excess of the norm for the company.

Then the guy learns that before the stylish old building was a department store it was a real genuine bank with architectural character and had to be completely gutted to accommodate the store. The store was around for five years and has sat vacant since then (one local real estate expert opined in 2003 "that’s not a corner you would want to have empty for long") although another developer bought it for $2.5 million in 2005 and hoped to do something with it.

As a kicker, the guy finds out that the new owner-the one that wants to make it back into offices for banking operations and have employees in it by 2013 or 2014-won’t "make any alterations to the building which would in any way affect its historical significance or exterior architecture", even though the building was made over for its department store debut.

So the guy says "wouldn’t it have been preferable to save the character of the building and spare the city from another intervention in the marketplace in the name of urban planning"?

Free Trolley Rides? More Expensive Than You Might Think

As the North Shore Connector moves closer to completion and light rail cars are set to make their maiden voyage under the Allegheny River in March of 2012, Downtown boosters are angling to make the area around the Golden Triangle-from Station Square to the North Shore-a free travel zone with trolleys running with much greater frequency. A consultant who studied the idea produced a figure of $1.5 million in additional costs should the recommendation be implemented.

It is unclear how that number was derived since the frequency of operation and fare amount have yet to be determined officially by Port Authority officials. For close to a year there have been inklings that the Port Authority would be receptive to the plan if private/foundation support could be found in the form of station or zone naming rights and sponsorships.

According to the National Transit Database, PAT’s light rail operating expenses in 2009 were $51 million while fare revenues on light rail were $7.8 million, and the number of unlinked trips was 7.3 million. Thus, the subsidy required to cover operating expense per unlinked trip on PAT’s light rail system was $6.01. And this does not include the very large capital expense of the light rail system!

Leaving logistics of trolley operations and station arrival intervals aside for the moment, we have to question whether it is good policy for a transit agency in severe financial straits to be providing free service. Clearly, running the trolleys with much greater frequency in the Downtown area will substantially increase operating costs, and not collecting fare revenue means the agency is leaving money on the table. It is doubtful that sponsorship or naming rights will recover the combined costs that could run into several millions of dollars each year.

Reaction to Saks Closing Announcement Will Be Telling

"Based on the current circumstances, we cannot justify such an investment since it is unlikely that we could achieve a reasonable return on the investment due to declining sales volume". This comment from a Saks Fifth Avenue spokesperson during an announcement the upscale store will be closing its Downtown location when its lease expires next September because it failed to gain a commitment for $10 million in improvements from the store’s landlord and the City. Perhaps this was too much honesty from the spokesperson in terms of trying to solicit taxpayer help.

The failure of heavily subsidized Lazarus and Lord and Taylor’s stores in Downtown during the past seven years has substantially lowered competition for Saks. The fact that the store still cannot make a go of it is very instructive about the shopping patterns in southwestern Pennsylvania.

How the City, the County and the state, react to the Saks announcement will be very telling. As short as a dozen years ago the development "vision" for Downtown was as a retail destination. In pursuit of that vision, several publicly funded schemes were put together to promote Downtown retail establishments. Should Saks close, Macy’s will be the lone downtown department store, a company that is reacting to economic conditions by downsizing its footprint, not asking for a subsidy.

If the owner of the building is not willing to meet Saks’ terms, why should taxpayers be on the hook? The apparently honest statement by the spokesperson that future sales will not justify Saks undertaking the needed investment is a clear signal to elected officials: they would be ill advised in putting tax dollars into this situation. In light of previous bad experiences with subsidizing retail, they would be incredibly tone deaf if they spend $10 million to prop up a store that caters to high income shoppers.

Saks Salvo Smacks of Past

Downtown Pittsburgh, September 24, 2010. The department store Saks Fifth Avenue has intimated that it needs help for renovation of its store, preferably from its landlord, but it would not turn down assistance from the City or its agencies, either.

"If it is important to the community for us to remain a viable retail presence in Downtown, it is necessary that the city and/or the landlord provide Saks an economic incentive for us to continue to operate" said the store’s spokesperson.

She also noted that "we are not looking to expand, but to comprehensively remodel both the interior and exterior of the store to meet the standards of both our customers and our design partners". The chain does not want to invest much in the building "because it’s unlikely there would be a reasonable return on investment because of reduced sales".

Downtown Pittsburgh, October 12, 1995. In a proposal outlining projects that would comprise the Center Triangle Tax Increment Financing District in Downtown, the Urban Redevelopment Authority (URA) noted that "the retention of a major department store in the downtown is considered to be very important" and a tax increment finance arrangement was critical to make the project viable. The development costs of that store totaled $78 million. Five years later the URA’s chairman noted that "…this store will become one of the most popular places to shop in a revitalized Downtown". Four years later it was gone.

It probably won’t come as much of a surprise that the store was Lazarus and is now a condominium project, which itself has received a fair share of public subsidy to help with its conversion. Is history repeating in Downtown?

A Golden Opportunity for Pittsburgh

News came today that Robert Morris University is planning to put its Downtown center on the selling block so as to better prioritize its existing resources. Currently exempt from paying property taxes as it is owned by a university, the County’s website shows a value of $6.4 million. If it were taxable, the building would generate a combined $188k for the City, County, and Pittsburgh Schools.

Now is the time for the City-who for years has complained about the burden of tax-exempt property within its borders-to mobilize its economic development machinery and capitalize on all of the good press the City has achieved to find a private and taxable enterprise that would seek the 5th Avenue location right across from Bank of NY Mellon’s operations center. The City does not own the site, and the University will decide to whom to sell, but one would think that the City could let its friends in the development community know that there is a prime parcel up for grabs. Consider it akin to finding a suitor for the site: that would be a lot less offensive than the usual depth of intervention in economic development by the city government and its related agencies.

And though it is in the shadow of the BNY center-which needed a tax increment finance package to get it built in 1998-the City could make it known that a prospective development should be able to stand on its own merits and without subsidy.

In so doing the City could recoup what it felt it "lost" when Robert Morris’ Uptown neighbor Duquesne University bought Citiline Towers in 2004. That structure is on the books with a $5.1 million assessed value and would generate $149 million for the three taxing bodies. Getting a taxable buyer for the Robert Morris building-without extending a subsidy-would be a net positive in terms of tax collections.

G-20: Pre-Emptive Disruption

For all the advance work that the City and County are doing for the G-20 conference in terms of beautification, site visits, and trying to keep Downtown functioning as normal come late September, there are a string of closures occurring in anticipation of the inconvenience and possible chaos that could occur in and around the City. To wit:

  • All community college campuses are closing
  • The symphony has moved concerts from that weekend to June of 2010
  • Duquesne University is cancelling classes and make them up the week of Thanksgiving
  • The Port Authority noted "in all likelihood, we will not have very much service, if any, in Downtown Pittsburgh"
  • The Penguins are rescheduling a game that they were set to play on the 25th to the 15th of September

Even the City’s public safety director, who has noted that the City will be open, but with inconveniences, has acknowledged "many restrictions and road closings, we may not know until days before".

These are just the ones mentioned at the outset: who knows what else will be closed near the convention center when the conference actually arrives? Or what will happen to businesses that remain open but suffer from the residual effect of people staying away from the City? How can visiting dignitaries see the rebound Pittsburgh has made if their gathering causes enough inconveniences that the City is a ghost town?