Since I don't watch City of Salem Urban Renewal meetings on You Tube (got to save my time for Succession), until today I wasn't aware that the Urban Renewal board, which is the City Council under another name, had approved paying $3.5 million for 1.14 acres of property near the riverfront.
The property is marked with a red star. The triangular Park Front building is above it. The South Park apartments are below it. Riverfront Park is to the left of it.
As I'll describe below, this seems like a questionable thing to do. In fact, it strikes me as irresponsible.
A Statesman Journal story clued me in: On the agenda: Salem to consider moving $1.81 million to buy downtown property.
City officials are set to consider reallocating $1.81 million to help buy a downtown property during the Salem City Council and Urban Renewal Agency meeting Monday.
...During its April 10 meeting, Urban Renewal Agency members, which includes the City Council, voted to authorize the city manager to execute a purchase and sale agreement with Salem LTC Properties, LLC, for the vacant land at Commercial and Front Street SE for $3.5 million.
The property being bought is owned by the Marquis Company, which operates rehabilitation facilities. In December 2021 Marquis filed an application with the city to build a four-story mixed use building with a 72 bed rehabilitation facility on the upper floors and about 3,940 square feet of ground floor commercial space.
But Marquis determined that the project was infeasible and put it back on the market, according to the Statesman Journal story.
They found a willing buyer: the taxpayers of Salem, who fund the Urban Renewal Agency through a property tax mechanism. An Urban Renewal FAQ describes how it works.
What is urban renewal?
Urban renewal is a public financing tool. Using a mechanism called Tax Increment Financing (or TIF), urban renewal directs property taxes on growth in assessed value within an established urban renewal area toward projects that will improve conditions in that area. The driving idea behind urban renewal is that the extra investment, and the expectation of investment, in the urban renewal area generates growth that would not have occurred but for that investment. This extra growth is what funds urban renewal projects, and ultimately provides additional tax revenues to the city as a whole.
Note the mention of "growth that would not have occurred but for that investment." But in the past this isn't how the City of Salem uses urban renewal, as I argued in a 2016 post, "Urban renewal crony capitalism is alive and well in Salem (may it die soon)."
The object of my ire was a $749,000 Urban Renewal grant given to T.J. Sullivan, a former Salem city councilor, for his Park Front building. Sullivan said he didn't need the grant to construct a building. He needed the grant because he couldn't get a bank to give him a loan to construct the larger building that he wanted. I wrote:
T.J. Sullivan admitted that the only reason he needs the $749,000 is to be able to build two extra floors on his four-story building.
In his testimony, Sullivan went into considerable detail about the problems he encountered in getting a construction loan from Pioneer Trust Bank.
Given that Sullivan and his partners would only have a million dollars in equity invested in this $8.9 million building, and that only two floors had committed tenants, he said that it wouldn't be possible to get loan approval for the four story building he wants without a $749,000 grant from City of Salem urban renewal funds.
Sullivan admitted that he could have built a two-story building on his own. But Pioneer Trust wasn't happy with the appraisal, debt to income level, or occupancy percentage of his four-story project.
Well, for most businesspeople that's a problem they'd have to deal with on their own. Find more equity/investors. Work harder at recruiting tenants. Reduce the cost of construction.
But in Salem, urban renewal money isn't being used for the main intended purpose -- spurring private development that wouldn't have occurred without the leverage of public funds. Rather, Sullivan got a gift from the City of Salem that helps him construct a building that he said definitely was going to be built eight months before he applied for the urban renewal grant.
Basically, this is a public bail-out of a poorly-planned private project. Which is a pretty damn good definition of crony capitalism.
I also noted in the 2016 post that the Marquis property which the Urban Renewal Agency is buying already had received several $749,000 grants.
Calling the current condition of the old Boise Cascade property blighted is absurd.
Urban renewal money is supposed to be used on redevelopment projects in "blighted" areas. Years ago, when nothing was happening with the Boise Cascade site, that word would have fitted the property.
But after Mountain West Investment got a generous 10-year tax break to build the South Park complex, I've heard those apartments are fully occupied and commanding pretty high prices. Further, Marquis Companies got a similar $749,000 urban renewal grant for a rehab center as part of the deal Mountain West made when it sold part of the Boise Cascade property to the City of Salem for an expansion of Riverfront Park.
So that's two major de-blighting investments of public funds already made on the Boise Cascade property. Further, as I said in my testimony T.J. Sullivan's Park Front building is on a site bought from Marquis Companies. So the same piece of property now is going to get two $749,000 urban renewal grants.
This is ridiculous.
So is the Urban Renewal Agency buying the Marquis property for $3.5 million. The 1.14 acres obviously isn't blighted, since Marquis had bought it, and T.J. Sullivan had purchased the property his Park Front building sits on from Marquis. That's a lot of recent commercial activity on the site.
Yet after Marquis determined that a mixed use development isn't feasible for the 1.14 acres, Salem's Urban Renewal Agency decided to buy it from Marquis for.... (take a guess)... a mixed use development.
This is called an "opportunity" purchase by the Urban Renewal Agency. Question is, what does the opportunity consist of? This evening I watched a video of the April 10, 2023 Urban Renewal Agency meeting where the $3.5 million purchase was approved by the city councilors.
The agenda item was on the consent calendar where routine business like minutes of the previous meeting is approved on a single vote. That's what happened on April 10. There was no discussion of spending the $3.5 million. There was no mention of what the City of Salem planned to do with the property after it was acquired.
Councilor Nordyke did ask Kristin Retherford, director of the Urban Development department, about what was happening with the downtown property formerly occupied by the Union Gospel Mission and several private businesses. It also was bought by the Urban Renewal Agency.
Retherford said that criteria for assessing development proposals are being developed, and a list of potential developers made. When asked what the property would be used for, Retherford was vague. Mixed use, with housing required to have 15% affordable housing units. She said that it will be up to the developers to decide what is feasible given current market conditions.
So it looks to me like Marquis is the one who got the main benefit from this opportunity purchase. They were able to sell their 1.14 acres that was unfeasible for them as a mixed-use development. Now the City of Salem, not Marquis, will have to find a buyer willing to purchase that property for a mixed-use development.
Not only that, but tomorrow, Monday, May 8, the Urban Renewal Agency has an agenda item proposing that $1,812,090 from Future Projects, Pringle Creek Trail Improvements, and Project Coordination in the South Waterfront Urban Renewal Area be shifted to pay for the Marquis property.
Thus say goodbye to the future projects and improvements to the Pringle Creek Trail.
And say hello to the use of $3.5 million in public funds to pay for 1.14 acres that will then have to be sold to a developer, even though private development in that area already is obviously evident: the South Park apartments and the Park Front building currently exist, with both having gotten Urban Renewal money in the past, just as the 1.14 acres got a previous Urban Renewal grant.
The only reason I can think of why more Urban Renewal money should be poured into the same Marquis property is that now city officials can require that some housing be built there, instead of just office space or another commercial use.
Otherwise, this seems like a poor use of Urban Renewal funds, especially since interest rates are so high and the economy could be headed for a recession -- which might make that property worth quite a bit less than $3.5 million.
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