The is the
list Mayor read to council on 5/22/02as reasons for opposing Palladium tax
"On a nationwide basis the retail
sector had a very challenging 2001 and is currently experiencing a weaker
performance across the board, with only a few exceptions in the discount
Five of the original nine tenants announced last year by Victory have pulled out of the project (DMN, April 6, 2002)
Three other potential tenants listed in Palladium?s Pro forma said this week that they had never considered, nor would they in the future, going to Palladium.
Two companies, Wolford and Jacadi, have never even been contacted by Palladium and stated that Victory?s location and demographics would not be right for their product. Wolford ?s current location at Highland Park Village is slated to close by year?s end due to low sales volume, and its second, newer location at The Shops at Willow Bend is not doing enough sales volume to cover the store?s electric bills.
The third potential tenant - a well-known national retail chain that is less high-end than Wolford or Jacadi - stated that Victory?s demographics are not right for their product, and that projected rental rates at Victory are far higher than the company?s other Dallas locations.
If anecdotal evidence provided by Palladium?s own list of potential tenants holds true for the rest of the tenants listed on the Pro forma, Palladium would be hard-pressed to fill its 450,000 square feet of retail, especially at the above-market rental rates sited in the pro forma.
3. If Palladium cannot produce the revenue stream it is projecting, it will build a less expensive development, resulting in a disproportionate participation level on the part of the city.
Currently, the city?s $43 million participation is 7.2 percent of the total project cost of $600 million.
If Palladium builds a $385 million project, the city?s $43 million participation becomes 11.2 percent.
If Palladium builds a $385 million project, and sells $150 million worth of condominiums immediately upon completion (as currently planned), Palladium?s financial commitment drops to $235 million, resulting in a city participation level of 18.5 percent.
At the very least, City Staff and the City Attorney?s office should have negotiated a sliding scale formula for the city?s participation that would have been tied to Palladium?s overall project dollars.
4. The City Staff and City Attorney?s office negotiated away the best leverage City of Dallas taxpayers ever had in the current proposal - that $600 million would be built and open for business before one penny of taxpayer money was given to Palladium.
On May 5, 2002, the City Staff and City Attorney?s office negotiated with teams of lawyers from Hillwood and Palladium and inexplicably agreed to drop the required minimum improvements that Palladium would have to build from $600 million to $385 million.
Worse, upon reducing Palladium?s commitment, the City Staff and City Attorney?s office did not reduce the taxpayers? required participation accordingly.
If they had done so, the taxpayers? required participation would have been reduced from $43 million to $26.9 million.
5. Palladium?s insistence that there will not be enough incremental tax revenue to issue the full $43 million in PID bonds that will be required to reimburse them in full is based on faulty assumptions.
Schedule 7B of the "Amended and Restated Project Plan and Financing Plan," which was drafted by Palladium, shows that projected tax revenues are based on two unrealistic assumptions: 1) That there will be NO property tax rate increases for 20 years by the City of Dallas, Dallas County, and the Parkland Hospital District. 2) That there will be no more than a 2 percent annual growth rate in the assessed value of the Palladium project. (According to the Dallas Central Appraisal District, commercial property has increased as much as 22 percent in one year over the past 20 years.)
6. Palladium would likely go forward with the project if the City of Dallas taxpayers did not participate.
Palladium?s Pro forma reflects that the company has already spent $7.9 million in pre-development costs on the project.
If the development did not go forward, Palladium?s investment of four years of time spent (Hillwood/Hicks hired Palladium shortly after the January 1998 sports arena subsidy vote) and $7.9 million in "dead deal costs" would make it unlikely that they would abandon the project.
If the Dallas City Council today approves a badly negotiated, overly generous tax subsidy on a financially shaky deal, city taxpayers will never have the benefit of knowing if the project would have proceeded without their assistance.
7. Ross Perot Jr. and Tom Hicks would likely go forward with the project if the City of Dallas taxpayers did not participate.
Perot/Hicks have already expended millions in remediation, pre-development and other carrying costs and stand to benefit greatly by the commencement of the proposed development because, among other things:
a) Perot/Hicks? remaining 40 acres will be greatly increased in value by a successful development.
b) Perot/Hicks will participate financially in the proposed development as equity players.
c) Perot/Hicks will get reimbursed more quickly the $30 million currently owed to them by the City of Dallas if a successful development is built.
d) Perot/Hicks will benefit by presumed increased revenues from the American Airlines Center if an adjacent development is built.
8. Palladium refuses to release its partnership agreements with its equity investors, including CALPERS, Perot and Hicks.
Palladium was asked on May 17, 2002 to provide copies of its equity and financing commitment provisions and partnership arrangements with its equity partners.
This prevents the City of Dallas from examining the requirements and concerns of developers, lenders and partners in the deal. The proposed tax subsidy by the City of Dallas is analogous to a loan and the disclosure of these arrangements are routinely required and disclosed by developers to lenders.
9. They didn?t do what they told the voters they?d do.
One of the primary reasons Dallas voters approved the original $125 million subsidy to build the American Airlines Center was because Perot/Hicks promised to build an adjacent, mixed-use, entertainment district - a "Times Square" for Dallas - if the tax subsidy was approved.
"From the arena to the West End will be one giant construction site," Perot told the Dallas Morning News in April 1999. "The arena opens Summer 2001. Our first office buildings will open at the end of 2001. And our entertainment and multifamily housing areas start opening in the first or second quarter of 2002."
The voters never envisioned that they would be asked to contribute tax dollars to that development.
At the time of the 1998 arena vote, Perot/Hicks requested that the City of Dallas create a Tax Increment Financing Reinvestment Zone for the sole purpose of reimbursing Perot/Hicks for $7 million worth of street improvements above and beyond the city?s $12.5 million bond allocation for road work around the arena.
Two years later, Perot/Hicks requested that an additional $23 million be reimbursed to them through the TIF - which the voters did not anticipate but that the Dallas City Council approved.
Now Perot/Hicks/Palladium is requesting an additional $43 million in TIF increment financing ? or $67 million over 20 years if PID bonds are issued at 5.8 percent interest - making the unanticipated voter participation in the project an additional $90 million.
10. They?ll be back. Ross Perot Jr. has stated that he will be asking for additional taxpayer participation on the next, 40-acre phase of his Victory development.