consultants are sandburs

Friday, April 05, 2013

RAMSEY RETROSPECTION ON TOWN CENTER: "It won a slew of awards, including a national honor from the American Institute of Architects and the community impact award in the Minneapolis/St. Paul Business Journal's Best in Real Estate Awards." Will history repeat itself in yet another hasty dead-end, or will the current city council display an upward sloping learning curve?

Rephrasing the headline question - it really is the same question - How many gallons of gas have you pumped and how many drive-thru Big Macs have you eaten, since we received just-before-the-election promised land announcements by Landform and those then on council?

I remember first hearing of deals to be announced, Town Center, Wiser Choice, McDonalds, and Super America from Matt Look, in the milling-about period after the LWV candidate forum for the County Board seats [where the Board chairperson did not even bother to attend]. That was in the County Admin Building, I looked it up, Sept. 25, 2012.

Half a year later, what's on the ground besides grass?

As argued more than once previously, you cannot push on a rope.

So, to the retrospective, BizJournal - May 6, 2007, source of the headline quote, here, also reporting:

Now, a myriad of stakeholders, including the bank, the city, residential developers and others, are left trying to salvage the $1 billion mixed-use development in Ramsey, an outlying northwest suburb. In all likelihood, Nedegaard's stake in the project will be put up for public auction later this year, according to the attorney for Minnetonka-based Minnwest Bank, the largest creditor.

A new buyer would either have to take up Nedegaard's development agreement with the city or negotiate a new one.

[...] Nedegaard launched the Ramsey Town Center project in 2003, and the 322-acre, mixed-used village was hailed as innovative and a model for high-density suburban development that would serve as the soul of the bedroom community. The plans included 700,000 square feet of retail, 2,400 housing units, office space, entertainment, restaurants, a school, parks and a new City Hall.

But we all know that. Yet background is background, BizJ. continues:

[,,,] the project wasn't moving along as planned, with only a few buildings opening and the roads and infrastructure behind schedule.

By late 2006, with 125 developable acres left under his control, RTCLLC was in default on a $35 million loan for the project with Minnwest Bank. Nedegaard had a personal stake in the deal, so he was on the hook, too.

On Nov. 28, Minnwest filed a petition to force Nedegaard into involuntary bankruptcy. Two days later, at age 58, Bruce Nedegaard died. His wife Claudia died two weeks earlier, which meant his three children would be left to sort out his business dealings.

Who will take over?

Nedegaard's interest in RTCLLC is not worth the $42.3 million in debt it owes to Minnwest Bank and a slew of other creditors, so the U.S. Bankruptcy Court-appointed trustee overseeing Nedegaard's bankruptcy has opted to abandon his interest in RTCLLC.

Minnwest Bank has taken preliminary steps to foreclose on its loan covering the RTCLLC real estate, said Frederick Dudderer Jr., Minnwest's attorney.

[..] Whoever buys the land will have to assume Nedegaard's agreements with the city to pay for tens of millions of dollars for parks and infrastructure.

If the new developer wants to renegotiate those agreements, it could be an uphill battle as a majority of City Council members want to keep the plan as is.

[...] Whoever buys the land will have to assume Nedegaard's agreements with the city to pay for tens of millions of dollars for parks and infrastructure.

If the new developer wants to renegotiate those agreements, it could be an uphill battle as a majority of [mid-2007] City Council members want to keep the plan as is.

However, Matt Look, a new council member, thinks the project will have to be changed to lure developers. "The project has to be completed," he said. "If that means we need to change the plan when the bankruptcy is resolved, I'd be in favor of making a more financially feasible plan."

That last quoting is from about two-thirds through the report, and we could stop there. Instead, note the "need to adapt - the project has to be completed" localized and impatient worldview, the opposite of patience and time cures all ills.

BizJ. continued - with an optimistic animus attributed to "some observers," who proved pessimism has its place:

Some observers say that the project will be well-positioned for a quick rebound when the market picks up.

Of the 2,400 proposed residential units, only 250 have been built.

Part of the problem is that the retail and housing portions of the project are dependent upon each other, said Patrick Trudgeon, community development director for the city of Ramsey. "Retailers say they want the rooftops, and the homeowners say they want the retail."

Bill Oelkers, a real estate agent with Re/Max Results in Plymouth, is trying to market 12 townhomes in Ramsey Town Center. Even after dropping the price of the homes by $50,000 per unit (they now range between $159,000 and $240,000 per unit), none have sold. Other builders in the development, K. Hovnanian Homes and DR Horton, also cut their prices.

Alan Chazin's townhomes were completed in the fall of 2005, through there wasn't a road to them until last July.

Some of the blame for the project's struggles belongs to Nedegaard, who lacked the capital and experience necessary for this type of project, Oelkers said. His illness also was a factor.

Okay that sets the scene for what happened next and what the present council, made up as it is from Jan. 1, 2013, and running to the next held election, faces.

We know that Look, Mayor Ramsey, McGlone, and Wise on council favored pushing on that rope and had those rose colored prosperity is around the corner glasses on, and gave Lazan/Landform a million and a half of city money, so that Lazan sidekick Ryan Cronk of the Flaherty firm could patch together one super deal - for the Flaherty firm.

And that ran through the pre-election Big Mac/pump gas presentations, and now, no Big Mac, pump gas in Town Center as always, at Coborns.

But the unstated change, the awarded perspective of a walkable transit oriented mini-community within the general Ramsey town but clustered to the Highway and rail morphing into yet another shopping center schlock idea where quick commissions could be pulled down via gas mart and fast food auto-oriented same old, same old.

And it failed too, costing a whopping consulting amount that I have yet to see justified to any substantial measure. Some might call that failure. Except, not a failure for the Cronk-Flaherty plannings; they made out like the James gang [before Northfield].

The big question, then, is whether the best plan is to sit tight until the Armstrong interchange gets done and then see where the market is, or something else more aggressive and more akin to still pushing on a string.

Opinions can differ, but I continue to believe what I suggested in a Crabgrass post paralleling the BizJ. item's publishing titled, "250 out of 2400 is 10.4 %, and now the market's bad. But stay-the-course seems best." This link, this excerpt:


The Second Big Question - Stay the course, be patient as "a majority" of the council is said to favor; or do as Matt Look says, cave in, cut-and-run to lessen the most immediate tax impact but possibly have a worse ultimate citizen subsidization worry?

Hey, I agree with my friends. Don't we all?

Actually, here, I think that patience and prudence is the best course. Do not renegotiate - and give that notice clearly up front before the bankruptcy sale. That way, you guard your turf, and if the primary lender and the participants get a lesser foreclosure sale price because notice has been given, that's how Capitalism works, and it's best that any potential buyer will have notice and no cause to say, "Well, I paid thinking it was a clean slate ...".

Giving notice before the foreclosure sale is the important thing. It is fairness to potential buyers; fairness and transparency in the market. Making things clear to those who the city will have to work with in the future. Let the bankers accept it if that's what the city wants. Do not let anyone's potential future dealings with the same lender, if at all a factor, poison what is objectively seen as best for the citizen-taxpayers.

It would be wrong to waffle. My call, and it's a guess, it would be wrong to act as if there's a "distress sale" mentality. It the entire thing sits for years, ultimately, then the market teaches its lesson.

[...] A bad deal up front should not get worse because the land speculators reaped a big profit and the risk-taking entrepreneurial developer-interest lost on a market downturn and a liquidity trap. That's the nature of entrepreneurial risk.

Next batter up, take your swings, hit a home run or strike out.

In terms of "giving notice" the objective of "notice" was to be toward potential buyers from the banks' foreclosure sale that city official opinion should be to continue the original conceptualizations, those which architects loved and lavished awards on, a course of planning and action which might be best rather than a haste-makes-waste reversal toward yet another ho-hum, ho-hum.

Nedegaard tried the original conceptualizations, went broke and died in a bad market [the land speculators who sold him the acreage did okay, back in 2003, however], and surely if the Lazan/Landform/Look pretensions are to have any lable, haste-makes-waste can be argued for it, so, where is that wonderful middle ground this present set of council members and staff officials should be aiming at? Good luck on answering that, folks at city hall. They seem a more level council than other earlier ones - dating back to having a highly self-interested land speculator on council pushing the deal at that site - and by electing this council we have placed faith in their collective judgment. Cut them slack, let the Armstrong interchange be completed as a safety and emergency response need independent of the effect, if any, on the future prospects for the moribund project, and have the simple, decent patience to wait and see.

Impatience, and choice of a consultancy having Ryan Cronk on board pushing foremost the Flaherty interests, scuttled the intervening meanderings between the Nedegaard and market crash, and the present. Now, with Tossey on council being the chief voice, the roadwork improvement is being pushed as town [and county] priority numero uno -- but it has yet to be funded, and it only can happen after funding has been negotiated and the money found.

Unlike Zygi's stadium, this one is not so big that it can be carried via smoke and mirrors and huckersterism, it will require real money and not Bitcoins, but a personal opinion is that this council is sufficiently diverse and balanced and patient, that something avoiding backsliding and/or spending a ton of cash on consultancies will result. At present, there is a limited consultancy afoot, looking at procedural improvements beyond ad hoc from the council table developer play; not the open-ticket Lazan/Landform largesse, and the hope is that, as Ludwig Mies van der Rohe said, "Less is more."

____________UPDATE_____________
If I had to choose a new and separate retrospection related to Town Center policy and things afoot before the last election such as publicizing Big Mac and fuel stop executory contracts as if closed and already with groundbreakings, it would be headlined, "LWV Boycott Backfires."

See, this earlier Crabgrass post.

One paticipatory example: Matt LOok declined to participate in a LWV candidate forum when, years ago, he first attained office running for the Ramsey council seat then held by Todd Cook. Last cycle, Look, as an incumbent, faced a strong candidacy from Allison Lister, and DID take part in the County Board LWV candidate forum, doing quite well, and winning the election.

One counterexample: Those adopting the Ramsey city candidacy bloc boycott; Mayor, Wise, Field, and Buchholz - not so well.

There may be a lesson. Even when philosophically differing on some policy matters with LWV positions (such as on the recently defeated vote-disenfranchisement amendment), don't stand them up when you have a chance to make a positive impression and to outshine opponents.

Doing other than attending LWV forum sessions and participating as a candidate to let people see differences and strong points, especially when a collective bloc boycott action is taken, is something that might work in the abstract and elsewhere than Ramsey (and is part of an ALEC approach Republicans elsewhere have favored), but this instance, in Ramsey, with a record in office to defend and declining to do so, backfired as a strategy. I admit, I am glad it did, with Look's example of changing from a challenger who declined in years past, to an incumbent who participated, being instructive.

I hold a strong belief that the LWV forum approach is "as good as it gets" even while I, well in the past, participated in Ramsey candidate forums when I ran against Gamec, and lost; and ran against Elvig, and lost.

Whether the forum participation cut against me or a confluence of other factors applied, I do not regret having been a participating candidate. Not at all. The LWV does much that is good. The candidate forums are but one such thing. But they are major, deserving full candidate respect, and maximum public attention. Last time, next time, and times afterwards. Levels of attendance at sessions I have attended have always been encouraging.

I was disappointed that at the county board level, the Sivarajah, LeDoux and West seats went to election without candidate forum vetting. Yet three of the six county board contests were represented - there was a forum, unlike in Ramsey, where the collective boycott action resulted in the forum being cancelled.

__________FURTHER UPDATE__________
A third and final retrospection: this link, and any related worry seems, for Ramsey, unfounded.

The Flaherty thing in Ramsey will be big, and it will be ugly, indeed it is both already.

But it will be completed, and from an inexpert viewpoint, it appears soundly and solidly built.

Whether it rents out, and what manner of new people it might attract to Ramsey are open questions, but as Randy Backous while sitting as the current HRA chair noted at a meeting's end, he toured the site and is optimistic it will work out, despite his own past misgivings about the fiscal direction the deal took in terms of city participation in entrepreneurial risk. The situation in Orland Park, Chicago area, seems parallel in the likelihood of completion without mishap and without any structural compromise or anticipated tenant dissatisfaction over workmanship.

Since the linked item created worry that appears bypassed at present, no quote, but at the time the city was putting millions at risk, that item did create cause to worry.

I would not choose to live in the Flaherty project, once built, even if rent were discounted from rates mentioned as expected to survive in today's rental market without discount.

Others may like the concept and be willing to pay presently anticipated rental rates. Minds and preferences differ.

Who rents, and at what occupancy-rate mix that maximizes cash flow, and what that level will be in terms of the city's risk money being paid back remain open questions, but with the project as far along as it is, the risks hopefully, are lessened. If Flaherty and his people can rent that big ugly thing out to full capacity at high rental rates, bless them as the better he and folks do, the better the likelihood of Ramsey being paid what it is owed in having bonded for a multi-million dollar share of the risk.

I spoke with Mark Kuzma after the last Abeler Town Hall session ended and we agreed that whatever doubts and dislikes may have been, at this point you have to hope Flaherty's Ramsey adventure works out well because consequences for the city if it does work are far more promising than if it ends up a big splat with the current rental building binge in the Twin Cities metro-wide area possibly resulting in rental overcapacity.

We are stuck with having to hope for the best, and within a year we should know of the short-term outcome. Long term remains a worry, whether "upscale" and "market rate" remain in the vocabulary vs. having a deterioration of the rental market and subsequent tenancy compromise.

Whether any part of the Flaherty housing was TIF, and if so how long we must wait until the general fund sees any tax base increment is unclear to me, but the sooner the better in terms of general fund tax base increasing to meet the demands for services that new rental folks will expect.

Also, it seems Tossey is pushing in the right direction in suggesting and wanting a vote to decertify the Town Center TIF district altogether. Why the voted-out council ever pushed for that is a mystery, Lazan probably liking and advocating the step, however, a good yardstick is if the unsubsidized market does not favor it, why subsidize it to make it look like a pig with lipstick, vs. being just a pig?

Jim Deal will continue to push his private sector hopes, and he should do so without expecting any subsidy or special consideration. The market, free of intervening intervention should be allowed a course of time to prove itself, one way or the other.

Why the free market Republican outlook did not prevail with the recent Republican majority on council will remain a mystery to me, but consultancy objectives related to the short term, and impatience may well have trumped faith in the unimpeded and unaided market determining, with time, where things should stand - in terms of those embracing the belief that an unimpeded and unbiased-unaided market results in an optimal allocation of resources. Not that I am an advocate of that mindset, but dumping tons of money into a money sink-hole is also something toward which I hold rational skepticism.

Be patient, don't subsidize, let Jim Deal work without governmental aid or impediment, and see what collateral harm or benefit accrues to the safety-emergency response step of building the Armstrong interchange. If that is not an optimal policy, I have problems imagining any other approach as optimal, and less problematic.

In effect, an earlier council bought. For now, why deviate from buy and hold? At least why be impatient when a new staff person heading the financing end of planning is yet to be hired? And while a procedural-reform based limited consultancy effort is pending? That still ongoing, as well as the hiring and the interchange improvement hanging fire; suggests why would any sane person, even a public official, get antsy?

The sky is not falling, etc.

3 comments:

Ryan said...

The flaw in your argument is your utopian view that bridges will be built on the back of a public safety pitch and that the city can continue to hold assets that don't make them any money.

The bridges, (which should start back at Fairoak by the way) should be built to assist transit (if this has a public safety element to it fantastic) and economic development and the city/county need to push those aspects of the project if they want to get state and federal funding. Although the recent video presented to our local political bobo's was concerning, it won't lead to $30M in infrastructure funding let alone the real needs of over $300M for Hwy 10.

As far as hold and wait...how long can we really wait? The city can't fund their own road projects, they can't pay for their municipal center, they struggle to afford the maintenance/development of city parks so how long can they hold a large land asset that should be generating tax revenue? This project needs to continue moving and it needs to be turned back to the private market so the city can focus on what the city should be focusing on (streets, parks, engineering/planning).

Ryan said...

The flaw in your argument is your utopian view that bridges will be built on the back of a public safety pitch and that the city can continue to hold assets that don't make them any money.

The bridges, (which should start back at Fairoak by the way) should be built to assist transit (if this has a public safety element to it fantastic) and economic development and the city/county need to push those aspects of the project if they want to get state and federal funding. Although the recent video presented to our local political bobo's was concerning, it won't lead to $30M in infrastructure funding let alone the real needs of over $300M for Hwy 10.

As far as hold and wait...how long can we really wait? The city can't fund their own road projects, they can't pay for their municipal center, they struggle to afford the maintenance/development of city parks so how long can they hold a large land asset that should be generating tax revenue? This project needs to continue moving and it needs to be turned back to the private market so the city can focus on what the city should be focusing on (streets, parks, engineering/planning).

eric zaetsch said...

Ryan - Thanks.

Despite further updating past the timestamp of your comment, it remains a counterargument.

As a hope great; as a reality, who'd buy, and should the city sell at a loss?

Any specific thinking that way?

Remember the banks did not foreclose because the concern they had was - who'd buy?

Well a chump did step up, etc., but now, who'd buy from the chump; and on what terms and conditions do you say deal, or no deal?

Selling in distress seldom yields a profit, and most often yields a maximal loss.

So, two solutions suggested for now, buy and hold with patience; or liquidate on the best terms feasible, but on a relatively immediate timeframe.

Ryan, any further thoughts are truly welcome.

And whether money from other governmental units plays a deciding role, it IS all tax money being spent for road upgrade, which IS a public good, etc.