Archive for June, 2009
Wake Up Tucson and Tucson Electric Power teamed up to promote TEP’s new Bright Solutions. The new program which launches today encourages Tucsonans to put forward thier ‘bright solutions’ to save energy. View videos from Mayor Walkup, Bishop Kicanas, Congresswoman Gabby Giffords and other local political, entertainment and business leaders – HERE.
The hits just keep on coming over in California. We’ve blogged about it many times before. California is in a mess and working hard to drive out high net worth individuals and businesses of all sizes. Hope those fleeing California are taking a look at Arizona.
From Real Clear Politics, Carol Platt Liebau California’s sales and gas taxes are the highest in the country – and it has the highest vehicle license fees and the second-highest top-bracket income tax, too. Its corporate tax rates are the highest of all Western states, and for the fourth year in a row, a survey of 543 CEO’s found that California’s toxic combination of high taxes and intrusive regulations made it the worst place in the nation to do business. In fact, at the real root of California’s fiscal misery is the profligacy of arrogant, big-spending, left-wing legislators, who have treated taxpayers as if they exist only to support the government.
In fact, at the real root of California’s fiscal misery is the profligacy of arrogant, big-spending, left-wing legislators, who have treated taxpayers as if they exist only to support the government. Their attitude was exemplified in a recent statement from state assemblywoman Noreen Evans (D-Santa Rosa), chairman of the state Budget Conference Committee, repudiating the governor’s call for the state to “live within its means”:
Well, there is this mantra out there – “live within our means” – and while that sounds really nice . . . and it sounds really responsible, it’s meaningless. Our means are completely within our control . . . We have just given away huge corporate subsidies in February; we have given away other tax reductions over many, many years; we’ve created tax loopholes; in good times, we routinely give away taxes, and then in lean times we never replace those tax deductions or close those loopholes. . . . So “live within our means” doesn’t mean anything. The fact is, we have a state with a population that have [sic] needs that we have a moral obligation to provide.
June 29th, 2009 by downtown
The DTDC/Rialto saga has taken another bizarre turn, as the developers of Downtown Tucson Development Company-Don Martin and Scott Stiteler-have demanded the payment of back rent for a small building on Broadway behind the Rialto Theatre used as a “green room” by visiting performers. The amount of back rent that DTDC is demanding approaches $40,000.
Don Martin told the Arizona Daily Star’s Rob O’Dell last week, just days after the City Council voted to delay approval of the Development Agreement with DTDC, and DTDC said that it was pulling out of further negotiations, that he figured the deal he and his partner have offered the Rialto-$15 per square foot-is generous because it is only 75% of “fair market value” of $20/sq.ft.
For a professional opinion on Martin’s estimate of fair market value, O’Dell sought the input of “Mr. Downtown”-Buzz Isaacson, who has put more downtown property under lease than anyone else in the last 25 years. Now a first vice-president at CB Richard Ellis, Isaacson is quoted in last Tuesday’s article by O’Dell, saying that there is much variability in downtown retail rents.
Isaacson said that antiquated retail space downtown can rent for as little as $8 or $9 a square foot, while lease rates for newer and more functional space can be $23-$25 per square foot. Think Café Poca Cosa-type space on the upscale end. Think “Downtown Wigs” on Broadway on the other end.
Which end of the downtown retail spectrum do YOU think the Green Room is closer to, in terms of real market conditions-$8/sq.ft., or $23-$25/sq.ft.?
While the impact of the DTDC deal on the operations and sustainability of the Rialto Theatre has grabbed the headlines, other aspects of the deal deserve even more scrutiny and suggest important policy questions:
- Is offering free land to be developed at an unspecified time in the future the best way to incentivize current development?
- Is the value-for-value tradeoff realistic? Is the City getting equal value to what it is giving away? Is it important that the City get equal value?
- What assurance is there that DTDC will actually develop the properties it is being given-rather than sit on them indefinitely or flip them for a profit?
- Is there legal recourse for the City to take back the land it gives to the developers if they don’t perform in a reasonable period of time? The last thing we need is a repeat of the Thrifty Block debacle.
In a Sunday afternoon email to his fellow Downtown Tucson Partnership Board members, attorney Michael Crawford, the president of the Rialto Theatre Foundation, asked that the DTP consider approving a resolution requesting the City of Tucson/Rio Nuevo to “attempt to purchase the 4,000 square feet the Theatre needs to perform its essential functions and if those discussions do not result in the purchase of the property or if during those discussions the owners of that property take action against the Theatre that threaten its existence, then the City should move for immediate condemnation of the property.”
This request will undoubtedly put the Partnership’s leadership group-Steve Lynn, Larry Hecker, and Glenn Lyons-in the awkward position of having to decide whether or not to honor Crawford’s request to ask the DTP board to either support the City’s intervention on behalf of the Rialto, a Rio Nuevo asset, or hold out hope that a development agreement with DTDC that might involve a resolution with the Rialto can still be salvaged. The decision hits closer to home for DTP than just choosing between Doug Biggers, Michael Crawford, and the Rialto on the one hand, and Don Martin and Scott Stiteler on the other, however.
In effect, the decision to agendize this issue would force DTP to either support the Rialto’s position, or support the position of Council Member Nina Trasoff, which is essentially that the development agreement with DTDC as presented two weeks ago is fair and should have been approved. Trasoff said subsequently that the Rialto Foundation was being “selfish” with its demands of DTDC.
The awkwardness for DTP goes beyond not wishing to antagonize an elected official. Trasoff is a non-voting member of the DTP Board of Directors and was one of the founders of the organization in 2007, and has close ties with incoming Board President Larry Hecker.
My guess is that DTP CEO Glenn Lyons will be asked to broker some kind of deal.
Antenori and Farley were on Arizona Illustrated back in March (at 9:29) talking about the State Budget. Farley relayed a story about his young daughter coming home one day from school sad over a favorite teacher that had been let go due to budget layoffs. Antenori responded that state cuts to education to date have been minuscule and the real reason for TUSD’s layoffs were caused by 1600 less students choosing charter schools or moving away. The drama was in full swing from the Farley camp.
It appears that Farley’s up to it the high drama again. This time Scarpinato took a swipe at him.
Better than the big summer blockbuster.
Early this week state House Democrats sought to put the Republican’s proposed budget cuts in context by highlighting a young Arizona woman’s emotional life story.
But one Tucson Democrat apparently thought the story needed a little early helium when recalling it to his constituents.
At the Democrat’s regular Monday morning press briefing this week, Capitol reporters heard from a 16-year-old Phoenix high school student named Becca. Becca has suffered from a congenital heart defect nearly since birth and said she is served through a state program called Children’s Rehabilitative Services.
Democrats suggested that the program and Becca’s care could be at risk if the Republican’s cuts are passed — although they admitted it’s unclear at this point what programs in the Department of Health Services would be cut.
Well, in Rep. Steve Farley‘s latest “Farley Report” that he emails to constituents and supporters, the Tucson Democrat recalls the incident. But most of the reporters saw one glaring fabrication in his retelling.
“As she told her story, even hardened Capitol reporters were brought to tears,” Farley wrote.
Farley is away in Ireland for a week and has not yet responded to an email asking for details. But no one — including this reporter — remember reporters turning on the waterworks, although Becca’s compelling story clearly did move many of the lawmakers in the room.
Both the “hardened” reporters — and those of us of softy sorts — stayed composed from what we remember.
Just northeast of Charlotte, N.C., John Q. Hammons Hotels & Resorts LLC is putting the finishing touches on its Embassy Suites Hotel Charlotte-Concord Resort and Spa set to open this month.
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The 308-room hotel, which will adjoin a 42,000 sq. ft. convention center that’s also built by Hammons, is about half a mile from Lowe’s Motor Speedway, the site of five major NASCAR races each year.
This particular Embassy Suites property, which Hammons also will manage, is the speedway’s official hotel. First-year occupancy is projected at 65%, with an average daily room rate of $131. The figures compare favorably with the estimated national average of 67.6% occupancy and an average daily rate of $114.92 for 2006, according to PKF Consulting Inc. All together, the developer is investing about $80 million in the Concord project, for which the city provided land.
A little northwest of Concord, the company also is developing a Marriott hotel with more than 250 rooms and a convention center in excess of 45,000 sq. ft. in Mooresville, N.C. The town is the headquarters of the Lowe’s home improvement chain and a NASCAR mecca known as “Race City USA.”
Ahead of the curve
Hammons is a leader in the revved-up race to develop convention center hotels in cities like Concord and Mooresville. In second- and third-tier cities across the country, the Springfield, Mo.-based company has built or is developing dozens of convention center hotels.
Convention and conference properties make up at least 85% of its portfolio. CEO and Chairman John Q. Hammons says that years ago, he “saw the handwriting on the wall” for potential hotel profit in smaller communities along interstate highways.
Given that most top-tier markets already boast a full complement of full-service convention center hotels, and the land and construction costs in large metropolitan areas are considerably higher than in second- and third-tier markets, Hammons and other hotel developers are targeting cities from Erie, Pa. to Boise, Idaho.
Small to mid-size cities are eager to build convention centers and adjacent hotels as a way to revitalize downtown districts, pump up economic development and “put them on the map,” says Patrick Ford, president of Lodging Econometrics Inc., a lodging research firm based in Portsmouth, N.H.
Robert Canton, a director in the convention and tourism practice at PricewaterhouseCoopers LLP, says that when meeting planners are scouting sites, a convention center hotel is “less of a differentiator these days and just as much of a requirement as the ballroom or exhibition hall in the convention center. It’s part of the package now.”
Proliferation of properties
Lured in many cases by public subsidies such as free land and tax breaks, hotel developers are gravitating toward second- and third-tier cities. But while lower costs might make the financial payoff higher for convention center hotels in smaller markets vs. major cities, the risk of failure also is greater, experts say.
Smaller cities are less likely to be hot destinations than their major-league counterparts, experts say, and are more likely to attract small-scale regional or local conferences than higher-dollar national meetings.
As more second- and third-tier convention center hotels come on line, those cities will be vying for the same pool of meetings, contributing even further to an oversupply of hotel rooms, says Rick Swig, president of San Francisco hotel advisory firm RSBA & Associates Inc.
“Several years ago, it seemed that every secondary and tertiary city bought the same research reports that recommended building a convention center and hotel to stimulate their economies,” he says. “As a result, there was a proliferation of new small-market convention centers and hotels.”
Swig does give a nod to John Q. Hammons Hotels & Resorts, though. He says the company’s solid track record, strong relationships with lenders and powerful ties to hotel chains enable it to build second- and third-tier hotels en masse. “Hammons doesn’t have to go through a learning curve,” he says.
Still, many small cities fail to maximize the use of convention centers because they treat them more like civic centers, says John Keeling, senior vice president of lodging advisory firm PKF Consulting in Houston.
These convention centers regularly host events such as bridal fairs, flea markets, wine festivals, gun shows and concerts, he says — events that don’t result in many guests staying at the adjacent hotels.
Whether it’s in a big or small market, a convention center hotel is a costly proposition. These properties frequently feature big-ticket amenities such as expansive ballrooms, underground parking and spas.
That’s why few convention center hotels can be built without some sort of public aid, including tax breaks or revenue guarantees. And debates over that aid can generate substantial political heat.
Over the past few years, the cost per room to build a John Q. Hammons hotel has risen more than 40%. A few years ago, the cost to build per room ranged from $100,000 to $130,000, and now that range is dramatically higher, between $150,000 and $250,000.
Those development costs are in line with industry averages, according to Canton of PricewaterhouseCoopers. However, he says some hotels can be pricier, with Baltimore’s 757-room Hilton Baltimore Convention Center Hotel coming in at well more than $300,000 per room. The $305 million hotel is set to open in 2008.
Factors contributing to the high costs of convention center hotels include prime downtown land, high ceilings and building features such as a pedestrian bridge. Hammons says his company obtains municipal assistance for its convention center hotels about 40% of the time, but that it doesn’t rely on municipal funding for convention centers.
The role of local government
John Q. Hammons Hotels & Resorts is in the minority when it comes to financing convention or conference center hotels. Observers say the vast majority of these properties are developed with some sort of public subsidy, particularly tax-exempt bonds.
“Direct municipal contributions are important to the success of these projects, especially in markets with a lower demand,” according to a recent hotel report from ratings agency Standard & Poor’s. “It reduces the level of debt service the project must support from net operating revenues, especially if the city support is from a non-project source.” One source of non-project revenue is a citywide hotel occupancy tax.
Government subsidies come in various forms. For instance, empowerment zone bonds issued for San Antonio’s Grand Hyatt convention center hotel, scheduled to open in 2008, are backed by a mix of hotel tax revenue and non-hotel tax revenue from the city.
A 6% state hotel occupancy tax, a 6.25% state sales tax collected from businesses at the hotel for the first 10 years of operation, and a 7% local hotel occupancy tax collected at the Hilton will be in place for the term of the bonds, according to Standard & Poor’s.
A citywide 2% special hotel occupancy tax for all San Antonio hotels will be imposed while the bonds are outstanding. The Grand Hyatt also benefits from $77 million in private equity.
The amount of public subsidies for convention center hotels can vary greatly. In the case of Baltimore, a 25% public debt guarantee was promised, in contrast with 40% for the convention center hotel in Denver and 100% for the convention center hotel in Houston, says Drew Masterson, managing director of First Southwest Co. in Houston. The investment bank has participated in financing deals for five convention center hotels.
A substantial risk
Skeptics say publicly subsidized convention center hotels are a waste of taxpayer money and don’t live up to advanced billing. A chief critic is Heywood Sanders, a professor of public administration at the University of Texas at San Antonio. Consultants who work on these projects typically argue that to make a convention center viable, a so-called headquarters hotel must be located next door.
“That message has been quite common, over time and over place. But as the financial performance has become clearer, the bond market has been less enthusiastic about financing them,” Sanders says. He points to convention center hotels in Denver and Phoenix as examples of projects that have been subject to tougher requirements from bond-rating agencies.
Sanders maintains that convention center hotels represent “a very substantial risk,” particularly based on their performance.
“In general, they’re performing well below their pre-opening feasibility study forecasts. There’s almost no evidence that they generate increased convention business,” says Sanders, citing the St. Louis convention center hotel’s previous bond woes in the face of less-than-projected occupancy rates.
In 2005, occupancy at the St. Louis hotel was 61.7%, according to Sanders, and the average daily room rate was $117.69. That’s far below the 73.3% occupancy and $139.24 room rate that had been forecast five years earlier.
One of Sanders’ many critics, Steven Hacker, president of the International Association of Exhibitions and Events, dismisses the professor’s arguments as flawed and biased “hogwash.”
Weighing the options
PKF’s Keeling wonders whether it might be smarter for an investor to diversify risk by spreading, say, $120 million in equity among 20 Courtyard by Marriott properties rather than plunking all that money down on one 1,000-room convention center hotel.
Ross Woods, principal of Hotel Investment Strategies LLC in New York, says convention center hotels enrich contractors and operators, but “they wouldn’t be the first port of call for developers, in my view.”
For developers who are going to pursue a convention center hotel, the view is clearly better in smaller markets, according to Woods. Second-tier hotels will outperform first-tier hotels for the remainder of this decade, Woods’ lodging investment advisory firm predicts.
The projection is based on the notion that second-tier hotels outperform top-tier hotels in the middle to latter stages of an upcycle, while top-tier hotels outperform second-tier hotels during economic contractions, recessions and early stages of an upcycle.
Top-tier hotels generated annual growth in revenue per room (RevPAR) of 3.5% from 1992 to 2005, according to Hotel Investment Strategies, compared with 3.2% for second-tier hotels. Through 2010, the top-tier portfolio is likely to yield higher growth in RevPAR, but will be burdened by higher risk, tipping the balance toward second-tier hotels, according to Hotel Investment Strategies.
Roger Zampell, senior vice president of development at Atlanta-based real estate developer Portman Holdings LLC, is monitoring the second- and third-tier market for convention center hotels. With fewer opportunities for big convention center hotels available now than in the past six or seven years, Zampell says, “we’re keeping our eyes open” for opportunities across the entire spectrum of convention center hotels.
Portman’s architectural group designed the new 500-room Renaissance convention center hotel in Schaumburg, Ill. Zampell says that’s an example of an “edge city” — in this case, a suburb of Chicago — that can support a full-service hotel as an alternative to higher-priced lodging in a larger downtown area.
Portman developed the Westin convention center hotel in Charlotte, N.C., and is building the Hilton San Diego Convention Center, the largest privately financed and owned convention center hotel currently under construction in the United States.
For his part, Hammons anticipates that not every convention center project planned for a second- or third-tier market will prove to be a success. His company typically acquires the land about three years ahead of pulling the trigger on a development. If the project doesn’t come to fruition, Hammons says, “then sell the damn land at a profit and go on down the road.”
John Egan is an Austin-based writer.
Looks like the city of Tucson’s 2% increase in utility taxes is causing hardships in other government entities. It has reported that the cost to Pima County is $600k plus. The article below shows the TUSD hit is $650k plus (directly from the same budget that teachers get paid from).
We haven’t found direct data on the cost to the UofA, Pima College, Federal Government and the State of Arizona facilities but you can imagine it’s not chump change.
Where does Pima County, TUSD the UofA and the State of Arizona get their revenues to pay for the increased utility taxes imposed by the City of Tucson?
From RobO’Dell at the Arizona Daily Star
The Tucson Unified School District will have to pay an extra $655,000 a year in higher water bills, garbage bills and with the 2 percent utility tax on electric bills and gas bills. Those increases do not include the 2 percent extra it will pay on all its landline phones and cell phones, which hasn’t yet been calculated.The added utility costs come at a time when school districts are struggling to balance their own budgets after the Legislature cut $133 million from K-12 school funding earlier this year, and the state budget for the next fiscal year, which has not been approved by the governor, would take another $220 million from public education statewide.Bonnie Betz, chief financial officer for Tucson Unified School District, said the extra costs to the district will affect district operations.“We’ve planned for the increases,” she said. “But every time we have an increase in utility cost we have to take it out of the organization somewhere.”Still, Betz sympathized with the position the city finds itself in. “It’s a bad time. We’re all having trouble,” she said.
Someone with a video production experience put up a post on AZ Starnet that’s worth a read. The story is on the City of Tucson’s $820,000 journey into movie business. Apparently based on stock footage, video production market rates both locally and from national firms and video editing techniques we could have got the same 15 minute film from local access Channel 12 for just under a grand.
Nothing really surprises me anymore about Tucson’s leadership.
229. Comment by Don M. (saffronbindy) — June 17,2009 @ 4:37PM
Ratings: -1 +10
The more I look at this video clip the madder I get. It is horrible. I’ll get into more technical details just later.
I’m most PO’d that the city spends taxpayer money for the Tucson Film Office every year to bring films here. We OWN them. Why not use them? Same for Tucson 12. Nobody watches them, but they do produce very pretty video and win awards for it. We pay for every cent of them. We OWN them. Same for whoever shoots the videos for the Desert Museum. Some of those are nothing short of spectacular. Why not find out who that is? Strangely, someone told me it was really Tucson 12 who shoots the Desert Museum videos, which doesn’t surprise me.
Next, the cost. I spent some time today calling around. Produced locally a 15 minute promotional video runs between $30,000 and $50,000. From the national companies it runs between $200,000 and $300,000. Not $820,000. We got took, big time.
Then there is the $70,000 “oversight fee.” I mentioned this to one of the national companies and the person just laughed and said I was being “milked.” If you contract a video with any money behind it the video company gives you a full-time person to oversee your project. You and your employees have to do nothing. Even the smaller local companies will do this, but they will be part-time. Then there is the time deal. I asked all how long it would be before I got my video. Five years? Three? Two? Our video project has taken five. They all work on about the same schedule. Forty-five to 60 days for the first edit to be delivered, and about 90 days for the final product.
Now the technical part. Being born and raised in Tucson I was annoyed that so much of the video (most of it, actually) was shot in Cochise and Santa Cruz counties. As I looked at the video it hit me. This was stock footage spliced together. I knew this because of the edits, and the fact that some of the cactus pictures had types of cactus we don’t have within 200 miles of here, and the cow herding picture had black cows in it. We don’t have black ones. Ours are brown.
This is the technical part. Splicing stock footage together is hard. Takes a good video company to do it. You can see this yourself. When a scene shifts, from one clip to another, the video editor makes sure the colors in the first few seconds of the clip just shifted to more or less match the colors in the clip just shifted away from. This makes the transition easy on the eye. This video for Tucson is almost a tutorial in how not to do do scene shifts. One scene shifts from a man on horseback which is 85% pure white to another shot at night which is 90% pure black. Your eye cannot adjust that fast, and you will miss the first part of the second scene. Sloppy editing. Go to a new-release Hollywood movie and look at nothing other than the scene-shift colors. They will be perfect. They are perfect because they now use software to manage colors across scene shifts. If it shifts abruptly, it’s because the director wants you to notice it.
I started looking for where the stock video might have come from. I found some of it. The black cows live in Colorado. You can buy your own video of the black cows. Same cows, same cowboy, same meadow, same mountains in the background. But is will cost you $500 to license it.
We’ve been ripped off. For only $100,000 I would have been willing to put together a video just as good as the one the city bought. I would buy stock footage and download it. Stuff it into my movie maker software which can write broadcast-quality output, and deliver it. I would never leave my house.
We’ve covered the California – Texas differences (HERE, HERE, HERE, HERE and HERE) on this blog quit a bit. As California continues to raise taxes, regulate industries and put in roadblocks to business, Texas took a right turn in the early 2000’s. Texas did did crazy things like tort reform, reduced regulatory requirements and upgraded their tax system. As California loses business Texas is adding them.
The Wall Street Journal ran an opinion peice today about trial lawyers attempt to push back on tort reform gains. After spending $9 million and introducing 900 bills into this years legislature the lawyers haven’t been too successful.
The best line in the article is:
Speaking of the economy, it’s notable that Texas created more new jobs last year than the other 49 states combined. Texas’s low tax burden is one reason. But also important is a fairer legal environment in which companies are less likely than they were a generation ago to face jackpot justice.
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