News: CJ Exclusives

Public Dollars Key to Downtown Plans

Capital city to spend hundreds of millions of local, state dollars on projects

Civic leaders in Wake County are full of ideas about redeveloping downtown Raleigh, and these ideas are rapidly approaching reality. Daniel Douglas, director of the Raleigh Urban Design Center, calls the various items being planned “one big project to revitalize the heart of our downtown.” The purpose, Douglas said, is “leveraging private development” in Raleigh.

Projects to improve and renovate downtown Raleigh include:

• A 506,000-square-foot convention center, which it is hoped will attract more visitors than the current, smaller convention center. The new convention center, scheduled to be completed by early 2008, is designed to include a 150,000-square-foot exhibit hall, as well as a ballroom with a capacity of 4,600 people. The cost is estimated at $192 million.

• A parking deck and a private hotel, scheduled to be completed in 2006. The parking deck is meant to have 988 spaces, to be ultimately increased to 1,600.

• Renovation of the Fayetteville Street Mall, including reopening it to motor traffic.

• Turning some of Raleigh’s one-way streets into two-way streets.
The projects are being underwritten by local-government taxing power. Some of the property is being acquired by eminent domain proceedings or the threat thereof.

The city of Raleigh is trying to sell six parcels of downtown property it owns to private developers. Douglas said he thinks the city will be able to sell four of these parcels, for a total of $100 million, plus the tax revenue from the new owners.

In 1991, the General Assembly authorized Wake County to levy taxes on hotel stays and restaurant meals in order to finance development. There is now a 6 percent hotel tax and a 1 percent meal tax. The intent is that the revenue from the levies will be sufficient for supporting the various downtown redevelopment projects. As Douglas put it: “If you don’t go out to eat and you don’t stay in a hotel room in Wake County, you won’t pay taxes for these projects.”

In 2003, local officials increased their estimates of how much revenue would be brought in by the hotel and restaurant taxes in the next three decades from $792 million to $877 million, thus improving the picture of how the convention center would be paid for.

Perry James, Raleigh, finance director, told the News & Observer of Raleigh: “There was no intent to change the numbers to make it come out better. We wanted accurate numbers, and this is the reality of that. Now, it turned out to be a good correction. But if it had been a bad correction, we’d have had to deal with that.”

Financing with funny money

To finance the new convention center, the hotel, the Fayetteville Street Mall renovations, and the parking deck, Raleigh is using certificates of participation. The certificates are local bonds issued without voter approval, with government property being pledged as security. The revenue from the meal tax and the occupancy tax is expected to pay off the certificates. The taxes are collected by the county, but the use of the taxes is governed by an “interlocal agreement” between Wake County and Raleigh.

The plans for the convention center, Douglas said, were developed through an “open, public iterative process.” Brainstorming sessions were held in 2002 with the public participating, and another such “charrette” was held this year. Policymakers supposedly got some of their inspiration from the public input at the sessions. Such methods have earlier preceded the building of Exploris and the BTI Center.

Final plans for the convention center were not approved until Oct. 15, when both the County Commission and the City Council signed off on the plans. Mayor Charles Meeker called this “the last of the preliminary steps.” “We’re ready to move to the construction phase,” he said to the N&O. Raleigh has contracted with Skanska USA Building (the American affiliate of the Swedish construction firm Skanska AB) and with Barnhill Contracting Co. (a Tarboro company) to build the convention center.

On Nov. 16, the City Council considered approval of a design contract for the proposed parking deck. Ann-Cabell Baum Anderson, marketing and sales manager of White Oak Properties, said that currently parking is not available downtown at night. Parking facilities are designed for an earlier time, when it was mainly government workers who came downtown. But, now that people want to come downtown to eat and engage in cultural activities, more parking is essential, Baum Anderson said.

Public money for hotel

The planned Marriott hotel next to the new convention center is being built by Stormont-Noble Development with the help of $20 million provided by the city, some land Raleigh owns under the hotel, and 100 free parking spots. The hotel will carry $25 million worth of indebtedness. Mitesh Shah, president of Noble Investment Group, which put private capital into the project, told the journal Lodging Hospitality why he thought the hotel to be a good investment: “[P]rice-sensitive carriers, such as AirTran, Southwest Airlines, and Jet Blue, which use secondary airports, are creating new markets for smaller city conference centers and hotels,” he said.

“Regional conference centers are expected to be a growth market for some time,” he said.

Lodging Hospitality reported on a presentation given by Shah in Raleigh. Shah quoted from a report by PKF Consulting, an international firm that, according to its Web site, provides analysis to the “hospitality, real estate, and tourism industries.” The PKF report said that “the five hotel markets most likely to register the strongest value increases include Austin, Raleigh, Nashville, Cleveland and Atlanta… and Raleigh has the strongest appreciation prospects.”

Jim Hobbs, president of the North Carolina Hotel and Lodging Association, says that people in the state’s lodging industry are divided over Wake County’s downtown redevelopment program. The local 6 percent lodging tax, which (together with a 1 percent meal tax impacting restaurants) is supposed to pay for the convention center and other projects, greatly affects the lodging industry.

Hobbs points out that the Wake lodging industry collects the lodging tax on top of a pre-existing 7 percent state sales tax. He says that the association doesn’t oppose the lodging tax (and similar taxes elsewhere in North Carolina) so long as the proceeds are applied in an appropriate manner to promote travel and tourism.

Hobbs cites Raleigh’s RBC center as an example of a lodging-tax-financed project that benefited the community. On the other hand, Hobbs says that Exploris, also financed through the lodging tax, “never achieved its intended purpose,” thus furnishing a cautionary tale.

Raleigh’s assistance to a private hotel, Hobbs said, would set a precedent that might be copied throughout the state, putting government into the position of supporting a competitor of private businesses. It is this aspect of Raleigh’s redevelopment that divides the association, and Hobbs said that “[t]he [lodging] industry has not determined a course of action” on the “hotel project.”

The Fayetteville Street Mall was closed to motor traffic in an urban planning scheme in the 1970s. The effort to keep Fayetteville Street solely pedestrian has been abandoned. Now the city wants to reopen the mall to motor traffic and generally to beautify the area. While wishing to add many artistic features and the like to the mall, city officials have been forced to whittle down their wish list in response to budgetary considerations.

Another project being pursued by the city in conjunction with the mall is The Hudson, the former Hudson Belk department store building next to the mall. There are plans to establish apartments and businesses in this building.

Plans for The Hudson building have met delays. Belk sold the building to Raleigh, which in turn sold it to the Boston firm Modern Continental. When that firm proved unable to develop the building, the latter passed into the hands of developer Vaughn King, who has also had difficulties developing the property. The City Council had to give King an extension to avoid having the city exercise an option to get back the building. King has posted a $1 million bond that he will have the site developed by the new year.