Natinsky 9-22-09 Letter(2)

22 September, 2009

Mr. Ron Natinsky, Chairman, Economic Development Committee City of Dallas 1500 Marilla Street Dallas, Texas 75201 Re:

The Continental Building, 1810 Commerce Street, Dallas, Texas 75201

Dear Mr. Natinsky: I read with interest the item on the Agenda from Wednesday’s Downtown Connection TIF District/Downtown Dallas Development Authority Board of Directors Meeting, “5. Review and approval of Supplemental Agreement #4 to the development agreement among the City of Dallas, ………….to: (1) decrease the required minimum…..(a) retail square footage…..(b) number of parking spaces…….(2) extend the completion date….for redevelopment of the Continental Building from June 30, 2011 to December 31, 2011: (3) decrease the amount of Bonds to $2,500,000: and (4) increase the aggregate limit on City funding from $10,000,000 to $22,528,288. Recommend acceptance and Approval to Dallas City Council.”, and “6. Review and approval of a development agreement with FC Continental Complex, LP for the redevelopment of 1810 Commerce Street…of an amount not to exceed $18,305,700…plus interest in an amount not to exceed $4,222,588 for a total incentive amount not to exceed $22,528,288. Recommend acceptance and Approval to Dallas City Council.” I understand that both of these items were approved at the 9/16/09 Joint Board of Directors Meeting, and will now be sent to your Economic Development Committee for approval or denial. It seems that the “institutional memory” at City Hall is lacking. The original Development Agreement with Forest City included the development of three major real estate assets in the downtown Dallas market: The Mercantile Block, the Continental Building, and the Atmos (Lonestar) Gas Complex. As you may remember, Forest City was specifically precluded (by contract) from requesting a TIF Grant for the Atmos Complex (presumably, because the real estate, worth somewhere in the neighborhood of $7MM, was “given” to Forest City by the City of Dallas, via the conduit of Downtown Dallas Development Authority; by doing so, the City avoided a public auction and sale of the Atmos Complex). The City, during September and October of 2008, took actions on the Atmos Complex that virtually eradicated all of Forest City’s obligations under the original development agreement, and rewarded a new developer with a handsome $23MM TIF Grant and $9MM in Section 108 Funding (plus $7MM worth of “free” real estate, plus Historic Investment Tax Credits, plus…), and achieved a new “high water mark”

for subsidies (on a per unit basis) for any redevelopment project ever, including the Merc, in the City’s core. The original development agreement with Forest City provided for a $10MM grant for the redevelopment of the Continental Building. However, the bond sale that would have provided the $10MM in liquidity for the reimbursement was required to have been purchased by Forest City. The sole source for repayment of the $10MM was the “increment” in ad valorem taxes that would be generated by the redeveloped property, and the City of Dallas had no obligation to repay the bonds or the interest to Forest City. So, the original contract between the City of Dallas and Forest City for Continental would have cost the Downtown Connection TIF District $0.…ZERO……nothing………zilch…….nada. It was a rather elaborate scheme, but it was really nothing more than a tax abatement. Now, based on Wednesday’s approval, the “new deal”, a TIF Grant for the Continental project of $22,528,288, with Forest City’s obligation (their obligation looks like it may be watered down to an option) to buy only $2.5MM in bonds, will drain another $20MM from a TIF District which, we were told only ninety days ago, has extremely limited resources. On top of a new TIF Grant which provides for reimbursement of $113,207.47 per residential unit ($22,528,288, divided by 199 residential units), Forest City is also receiving $7.6MM in Section 108 Funding for the project, at the rate of $190,000 per affordable unit (Does this number ring a bell? It’s actually about the same amount, on a per unit basis, that Forest City received for redeveloping the Mercantile Block), PLUS a Dallas Housing Department Grant of another $2,000,000. The principal amount of the TIF Grant, $18,305,700, is 34.2% of the $53,522,800 project budget approved by Economic Development Department staff, exceeding the 25% maximum TIF Board policy by $4,925,000. Once the Housing Dept. $2MM Grant is calculated into the subsidy equation, Forest City will be receiving $24,528,288 in total subsidies for a $53.5MM project, with subsidies at a whopping 45.83% of total project cost (and that does NOT include the Historic Investment Tax Credits and the TOD/Sustainable Development Grant they may receive). Oh, and now Forest City doesn’t want to provide all of the retail space and the parking that they originally agreed to?, and they need an extension of time in order to get the project completed? No Problem! Compared to the 13 months that it took the City to process my 1600 Pacific project, the new plan for the Continental has only taken a few months, much like the torrid, record-setting pace for the approval of the Hamilton Atmos project last fall. The City’s Economic Development Staff has approved a Budget for the Continental Building at $53,522,800. With 212,704 net rentable residential square feet, the approved budget is $251.63 per nrsf. The budget I submitted for my 1600 Pacific project was right at $225 per nrsf, but (even though my costs were significantly below what has now been approved for Continental) City staff felt the 1600 Pacific costs were too high, so they reduced the budget for the project to what “they” felt was reasonable. In light of the current actions on Continental,

the previous action taken by City staff on my 1600 Pacific project seems grossly unfair and extremely inconsistent. Wouldn’t you agree? Clearly, it was the City’s intent to get the Mercantile Block, and the Continental Building, and the Atmos Complex redeveloped as a part of the $68MM in subsidies provided to Forest City under the original development agreement, with no further subsidies, and the City has failed miserably, further depleting valuable limited resources that should be deployed on other projects like 1600 Pacific Avenue. The City will now be spending more than $117MM to get what Forest City contractually committed to perform for $68MM, depleting about $49.5MM of the City and TIF Districts’ precious resources. The $49.5MM in additional cost to the City is dangerously close to the $48.9MM that Economic Development had recommended for 1600 Pacific; said differently, if the City had insisted on Forest City’s performance under the original development agreement, the City could have easily received all of the benefits of a redeveloped LTV Tower and still had ample money in the TIF District for numerous other projects. Between the Atmos and Continental projects, the city will gain another 425+/- residential units for a total public investment of about $55.5MM, or about $130,600 per residential unit. For the $16.6MM in Section 108 Loan Funds, coupled with the $4MM in City of Dallas Housing Department Grants, the City will receive about 85 affordable housing units at a cost of more than $242,353 per affordable unit (at this rate, reaching the City’s goal of creating 1,000 affordable housing units may cost the City upwards of $242.353MM, so I doubt the 1,000 affordable residential units will ever come to pass). By comparison, a $48.9MM investment in 1600 Pacific would have created 590 residential units at a cost to the city of about $82,880 per residential unit. Our request for $19.5MM in Section 108 Loan Funds would have created 236 affordable housing units at a cost of $82,627 per affordable unit. From every possible perspective, the benefits to the City for investing in 1600 Pacific would have easily eclipsed the much larger investment being made in Atmos and Continental. So, let’s go back and look at what it is costing the City for the Mercantile, Atmos, and Continental Buildings combined. With TIF Grant reimbursements, tax abatements, interest, land and building contribution, Dallas Housing Department Grants, and bondholder interest, I estimate the total City investment in these three projects to be $142,000,000. The combination of the three will produce an estimated 790 residential units, at an average cost to the City of $179,747 per residential unit. And the $17,600,000 Section 108 Funding will help to generate about 85 affordable housing units. I realize I have been cautioned many times about trying to compare my 1600 Pacific project to these other projects, but if 1600 Pacific would have been provided subsidies on the same basis as the Mercantile/Atmos/Continental projects, in a fair and equitable way, the City would have approved a TIF Grant for 1600 Pacific for $106.051MM, not the staff recommended amount of $48.9MM. And, at $242,353 per affordable unit, 1600 Pacific should have received Section 108 Funding/Dallas Housing Department Grant in the

amount of $57.195MM instead of $0, for the creation of 236 affordable housing units within the project. Another peculiar item I picked up from the 9/16/09 Meeting handout materials. It seems that the Economic Development Department is now projecting an availability of funding for the Downtown Connection TIF District at $125,459,592 (after accounting for all “existing commitments”). You will no doubt recall that the same projection, just a few short months ago, showed an availability of only $77,994,322. Isn’t it interesting that Economic Development Department’s projection for the Downtown Connection TIF District has increased by more than $47,465,000 (a 61% increase in total funding available) in just 90 days, since the $48,928,000 TIF Grant for my 1600 Pacific Redevelopment Project was unanimously rejected by the TIF Board and also your Economic Development Committee back in June, largely on the basis that the project was so large that it sapped the limited resources of the City. Almost by coincidence, the projected availability of funding has risen by almost an amount that would have equaled the TIF Grant that had been recommended by the City’s Economic Development Department for 1600 Pacific. It is my belief that everything was intentionally manipulated by the City to ensure a negative outcome for me and my project, because the math just doesn’t make sense. Ron, I can only conclude that the City is continuing in its pattern of inconsistent dealings. It is becoming increasingly obvious that the City is involved in favoritism, discrimination, and preferential treatment, at the very least. At the very worst, it may be something much more dark and sinister. Should your name be “Hamilton” or “Forest City”, it looks like the City of Dallas is “ready to serve”, and previous commitments and obligations can just be modified/discarded to suit the current desires of City politicos. And, the City will do all of this in a “Public Forum”, in order to portray the illusion that its dealings are transparent and in the best interest of the citizens of Dallas. I would be interested in receiving your thoughts and comments regarding the above.

Best Regards,

Curtis Lockey P.S. I just now learned that your Economic Development Committee, this afternoon, voted unanimously to approve the recommendations of city staff for the Continental Building. Please share this letter with the people within City Hall that would deserve this critical information.

Cc: Myron Mims, Chairman, Downtown Connection TIF District Board of Directors, and President, Downtown Dallas Development Authority