Nate Monroe: Concerns about Lot J are not the fringe, they are the consensus

COMMENTARY | To better understand the complexities of Mayor Lenny Curry's proposal to provide more than $200 million in taxpayer cash and other incentives to Jaguars owner Shad Khan for a mixed-use development next to TIAA Bank Field, I've spent the past week talking on background to people with experience in real estate investment, development, capital markets, land use, downtown planning and government — all with on-the-ground experience in Jacksonville — for their candid thoughts on this remarkable plan.

Admittedly, some were more optimistic or less skeptical of certain aspects of Curry's Lot J proposal than others (and me), but my conversations convinced me of this: Criticism over the terms and structure of the deal the city is offering to Khan is not limited to a fringe group of naysayers. To the contrary, I believe much of the city's civic and business leadership harbors doubts about the wisdom of this plan as currently written. 

And to be sure, not everyone keeps their concerns private. In a sign of the precarious politics of this deal, Curry's Lot J proposal has attracted attention from Americans for Prosperity, a conservative think tank that is ordinarily a natural ally for the right-leaning city government and a fan of Curry's leadership.

"We believe with incentive programs it leads to government picking winners and losers in the market place," said Skylar R. Zander, the group's Florida director. His organization believes broad-based tax cuts are a more effective way of revving up economic development. 

"People right now are hurting, small businesses are closing, they need more relief right now than the Jaguars, although the Jaguars defense might disagree with me on that point," he said.

Still, in Jacksonville, like most major cities across the United States, taxpayer incentives for development have been a long-standing policy, far predating Curry, although the Lot J deal is unusual and generous by almost any standard.

A few general themes emerged in my conversations with experts, with remarkable consistency, that undermine the rosy case Curry and Khan have made about the long-planned development on Lot J.

This is not an exhaustive list of concerns I've encountered — there are many elements of this deal I've seen credibly scrutinized — but it represents a synthesized list of the most basic and common questions and criticism:

• There is a broad and irresponsible lack of information necessary for City Council members to weigh this proposal.

This has already bitten Curry's administration and caused a small delay in the deal. The council refused to introduce the actual Lot J legislation this past week because it lacked a parking agreement, and the body's rules require all elements of a bill to be included before its legislative lifecycle can begin. 

Beyond that, however there is a blackhole of credible information. 

For starters, the city would provide $50 million for an entertainment center, half its total cost, and will own the structure, but there are no financial projections, nor is there a realistic construction budget, to justify that large taxpayer subsidy. Curry has cited some economic impacts the project will bring, which are apparently based on a market analysis, but his office has yet to turn it over.

Beyond a basic rendering shown the day Curry and Khan announced the deal, there appear to be no construction budgets or specific, minimum design standards for any aspect of the development. 

That makes it hard to evaluate Khan's claim the development represents more than $400 million in total investment. One of the most experienced people I've spoken to, who has been on multiple sides of complex mixed-use developments like Lot J, told me the entire proposal — the entertainment center, hotel and residential units — realistically could cost only $200 million or slightly more. Not everyone I spoke to agreed with that assessment, but the variation illustrates the need for more concrete information that can be used to hold Khan and his business partner, Cordish Companies, accountable for the claims they are making and to justify the massive taxpayer subsidies. Right now, all we know is what the two say they'll spend. That's not good enough.

Another example: Lot J is a little over 9 acres — not a big space — but the city wants to commit to paying $77.7 million for public infrastructure: Things like sidewalks, green space, utility connections and environmental remediation. That's an astronomically high figure for such a compact space. There might be a justification for it — there are environmental issues with the property and existing utility infrastructure that might need to be moved — but what is it? After several years discussing this development on Lot J, city and Jaguars officials should have specific knowledge about this. As it stands now, Khan, according to the term sheet, gets to pocket any savings if the infrastructure doesn't cost that much.

In addition, Khan and Cordish should disclose what types of fees they will extract from the project. There are many possibilities: Development fees from the construction budget, asset and property management fees, financing fees and leasing commissions. What kind of profits are taxpayers underwriting? Generally, incentives are only supposed to help make a project feasible — not juice the margins on projects that are profitable on their own.

• The Lot J proposal is risky, and in more ways than one. It's risky for the city to invest so much direct cash into a speculative development, and the development itself is a risky proposition as a supposed catalyst for downtown revitalization. 

To put it another way, if downtown redevelopment was the primary driver of this project, there are less risky options for so much taxpayer money to prop up. One person I spoke with noted that $200 million in development could subsidize the construction of thousands of new residential units in the actual downtown core, where there is already existing density. City leaders have long said attracting 10,000 residents to downtown would help it reach a critical mass that would attract class-A amenities like a high-quality grocer. The money City Hall wants to put into Lot J could unquestionably get the downtown core there. These alternatives should at least be considered.

City officials have said taxpayers are protected, but it's not clear how they've come to this conclusion (this is also not the first time the administration has claimed, in defiance of all available evidence and common sense, that one of its proposals is risk-free).

By owning some of the infrastructure, for example, like the entertainment center, the city is left with a giant white elephant if for whatever reason things don't work out, and it exempts Khan from ever paying property taxes.

Ask yourself: How valuable was The Jacksonville Landing once all the tenants left? It was apparently such a goose egg Curry rushed to demolish it. 

• The failure to secure an extension on the Jaguars stadium lease as part of this deal is a key weakness. This has been a unanimous issue in every conversation I've had.

Jaguars officials will claim the stadium lease and Lot J are unrelated, but in the same breath they argue deals like Lot J are necessary to generate local revenue and "stabilize" the NFL franchise. These are, on their face, conflicting claims.

Khan needs to be upfront about what Lot J represents to him: Is it a make-or-break deal? Will he look to other cities if his proposal is not accepted? Is this merely the purchase price Jacksonville has to pay to stay in the front of the line?

There is no evidence Lot J will reinforce Khan's commitment to Jacksonville without a legal guarantee in hand. Consider: The city just financed half the cost of an amphitheater and practice field for Khan's benefit, the former of which is a new and lucrative revenue source for Khan, and yet he was still ready to rip a second Jaguars home game away to London. 

If the city is going to provide Khan $65 million on a 50-year, interest free loan — one of several generous terms — then he can commit at least a fifth of that time onto the stadium lease. 

Allowing Khan to hold onto this leverage will make upcoming and more complex negotiations over stadium renovations and other business developments more costly for taxpayers than necessary.

• Similar developments in other cities, which city and Jaguars officials point to as favorable examples, differ in important ways from what Jacksonville is getting. Generally speaking, those developments are larger than Lot J, required significant but still less direct assistance from taxpayers or greater concessions from the team owners, and often were built in denser areas with multiple major sports facilities nearby. 

Ballpark Village in St. Louis, for example, was built around Busch Stadium, home to the Cardinals. Major League Baseball teams play 81 home games in a season. The Jaguars? Ordinarily, NFL teams play eight home games, but of course if Khan had his way, Jacksonville would only get seven — or six. 

It's true, the sports complex does host hundreds of other events each year, including Florida-Georgia, concerts and Jumbo Shrimp games (although the economics of minor league baseball typically rely upon cheap tickets to get people into the baseball grounds to spend money, rather than doing so at a nearby entertainment center; that's why the Shrimp have promotions like "thirsty Thursdays").

The hope is these other events will have spillover benefit for Lot J. Will that happen? Maybe. Again, the proposition is risky. 

• As proposed, Khan does not have enough skin in the game. 

The incentives should be backloaded so that Khan must first put up his own money — before a dime of taxpayer money is spent. As it stands, the city has absorbed so much potential risk, is frontloading so much equity, offsetting so many routine costs like property taxes, and has agreed to such vague timelines and design standards, it's not clear Khan and Cordish have much of an incentive to do anything other than coast. The deal should be structured in such a way that Khan and Cordish's interests are deeply tied to the success or failure of the project, so they are incentivized to fight and make the necessary investments and adjustments down the road to make Lot J successful.

• What is the overall vision for downtown? Curry seems to have some larger plan in mind that shifts the central hub of activity east toward the stadium, but it's locked away in a desk somewhere. This breeds suspicion and raises the potential that privileged insiders and friends get advanced insight into future plans for public land in downtown. This perception has already done some damage to the city's reputation. 

Believe it or not, one person told me, there are developers in the world who are happy to build a quality mid-rise apartment complex, take their standard 20 percent profit and go home — but not if the developer next door is getting a 40-60 percent profit margin, thanks to the generosity of city officials, on the same type of project.

Downtown needs a sensible, community-developed, politically supported and detailed plan for downtown development 

There will be larger asks from Khan down the road. A stadium renovation is coming. So too are plans for a second phase of his development on Met Park. These will make what is already a generational investment even larger. Jacksonville needs to get this first step right.

Nate Monroe's City column appears every Thursday and Sunday.

nmonroe@jacksonville.com