Downtown Development: RAM’s VP Cummings’ Smackdown

Wednesday, December 6th, 2006

Ouch! Obviously stung by Council member Jim Wards comment about “switch-n-baiting”, RAM Development’s VP Casey Cummings delivered a death blow to Council’s request for affordable condo fees for the affordable housing units and a commitment to energy efficiency.


Both requests seem quite reasonable.

What use is it for the Land Trust to “sell” a condo to an affordable housing applicant just to have them priced out by condo and parking fees?

On the energy front, as former OWASA board member Terri Buckner notes over on OrangePolitics

Not a single citizen speaking at last night’s hearing or at the first public hearing on Lot 5 challenged the Council to ensure energy efficiency. There seemed to be an assumption that “LEED certified” means the development will be energy efficient. However, LEED certified is the lowest level of LEED and even at Platinum status there is no assurance that a LEED building will be energy efficient. To get around that problem, the state of North Carolina has adopted ASHRAE 90.1 for all state constructed buildings.

Chapel Hill is not willing to meet the same requirements as NC State? Dang, we usually lead the State in environmental initiative.

As far as “bait-n-switch”, RAM was challenged last year on their original rosy financial projections. Were they knowingly over promising expecting to under deliver to get the deal?

In the most stark example, Grubb’s financing model would produce a 21.77 percent return on its $10.5 million investment in condominiums on the Wallace Deck site. Ram sees only a 2.98 percent return on its $23 million investment there.

“If they’re willing to do it for that,” Harris said, “God bless ‘em.”

Even if the company wanted to, Grubb couldn’t make a counteroffer, Stainback said, explaining that the proposals are considered “best and final offers.”

Two council members asked Cummings whether Ram’s financial model was too good to be true.

He said no projection ever is exactly right but that his company hopes to ride the growing trend of people returning to downtown.

After the meeting, Ivy Greaner, Ram’s managing partner, said the profit margins are healthy enough to sustain the project.

But Ram also is seeking a foothold in North Carolina. The company is willing to make less money in Chapel Hill to get a centerpiece project in the Triangle.

“This is a special town,” Greaner said, in a suitor’s tone. “We love Chapel Hill.”


Town investment up 15-fold. Value of the property discounted. Property moving from public to private hands. I understand Jim Wards sentiments.

Downtown Initiative: $500,000 here, $7.3 Million there, pretty soon we’re talking real money…

Monday, November 20th, 2006

A quick reminder of this evening’s public forum [Mon., Nov. 20th] on the failing Downtown Initiative.

Tonight’s agenda starts with this gem

The 2000 Comprehensive Plan’s goal for downtown is to “enhance the downtown’s role as the center of the community, with a pedestrian orientation and a human scale.”

I consider the 104′ multi-building development on lot #5 to be a stake through downtown’s heart. I’m not alone. Many residents find the scale of this development anything but “human”.

Former Council member David R. Godschalk, the Stephen Baxter Professor Emeritus in UNC’s City and Regional Planning department, waved the redflag in 2005 claiming

The developer has put too much building on these two small parcels. The nine-story building on lot 5 is out of scale with the existing downtown streetscape and soars above the 90-foot height allowed in the town center 2 district of the Chapel Hill zoning ordinance.

Scale aside, why else is the Downtown Initiative failing?

  • Redevelopment of the blighted Wallace Deck and adjacent lot – off the table
    • “As a result of these material economic changes, the Town Negotiating Committee and the Developer have reevaluated the proposed Lot 5 and Wallace Deck projects.
    • Reevaluated? The Wallace Deck improvements, the real honey for this bee, are GONE.
  • Lease amount dropping from $7.9 million TO $1 (ONE) DOLLAR per year
  • Taxpayer contribution increasing 14.6 times, %1360 – from $500,000 to $7.3 million
  • Moving from a manageable $500K out of “on-hand” funds to $7.3 million
    • supposedly borrowed at %5
    • sum added to our Town’s current debt
    • impacts our debt ratio, bond rating and forward ability to borrow
    • “the Town would incur an estimated annual debt service cost of $725,000 in the first year, decreasing annually by about $18,000”
  • RAM’s original equity investment of $23 million has dropped to $12.5 million – nearly %50 drop in equity investment, though, on the plus-side, it’s upfront money.
  • Borrowed monies using COPs financing mechanism – a secured debt normally reserved for essential building
    • COPS (“certificates of participation” [PDF]) are usually used to finance essential buildings and projects (sewer, water, schools, etc.)
    • My research to-date indicates the dominant private-public partnership using or proposing COPs in NC are prisons, coliseums. convention centers, etc.
    • Town income directly affected – “Revenues to pay the debt service on the proposed borrowing would be property taxes, sales taxes, and parking revenues above those we are currently receiving.”
  • Shrinking PUBLIC SPACE – from 31,000′ in the original proposal, to 27,215′ (no published usage patterns – Are we accepting RAM’s restrictive idea of “public”?).
  • Missed opportunity for internal space for public use – arts facilities, museum, etc.
  • Commitment to provide affordable commercial space for local economic development is missing.
  • No commercial space for an integrative tenant, like a grocery store, that reduces off-site travel by the condo-residents and draws folks in from surrounding neighborhoods.
  • After 50 years, the developer gets a “sweetheart” deal to acquire the land and air rights for $2 million (imagine the value of that property 50 years hence).
  • Developer is supposed to find 10-15 additional on-street parking spaces (the incredible difficulty of doing the Downtown Parking Task force, of which I’m a member, just discussed).
  • “Owners” of affordable housing units HAVE TO LEASE OFFSITE PARKING, 21 spaces rented at below market rates.

The deal with RAM Development was never very good, at least for the Town. RAM’s payment of $7.9 million ($4,750,000 to lease Lot 5, a one time lease payment of $3,150,000 for the air rights over the Wallace Deck and the Rosemary/Henderson street lot) was a steal of a deal.

$7.9 million for 99 years of use of citizen-owned, prime downtown real-estate? Incredible.

$99 for 99 years? Impossible!

Several folks pointed out that RAM’s original projected rate of return, less than %3, was financially infeasible and would have to be “re-traded”. Last year I publicly stated that RAM had over-promised and would under-deliver – that dramatic renegotiation upwards, more inline with Grubb’s competing bid, was an inevitable result.

For instance, I work on the corner across Church St. and remember well the Devil’s own time the construction crew had digging my building’s basement. I never bought into the idea the Town would only pony up $500,000 to build underground parking structures in the granite ladened Lot #5 – and I sure as heck found it difficult to believe that RAM, our Council members or any other longtime residents would buy this malarkey.

When I brought this and similar issues up with our leadership, both then and since, I was told “not to worry” and “the deal is the deal”.

Why should the citizens of Chapel Hill pay the piper? Remember how “thrilled” RAM was to get a piece of Chapel Hill’s action?

In the most stark example, Grubb’s financing model would produce a 21.77 percent return on its $10.5 million investment in condominiums on the Wallace Deck site. Ram sees only a 2.98 percent return on its $23 million investment there.

“If they’re willing to do it for that,” Harris said, “God bless ’em.”

Even if the company wanted to, Grubb couldn’t make a counteroffer, Stainback said, explaining that the proposals are considered “best and final offers.”

Two council members asked Cummings whether Ram’s financial model was too good to be true.

He said no projection ever is exactly right but that his company hopes to ride the growing trend of people returning to downtown.

After the meeting, Ivy Greaner, Ram’s managing partner, said the profit margins are healthy enough to sustain the project.

But Ram also is seeking a foothold in North Carolina. The company is willing to make less money in Chapel Hill to get a centerpiece project in the Triangle.

“This is a special town,” Greaner said, in a suitor’s tone. “We love Chapel Hill.”


Guess the Chapel Thrill has worn off for RAM. We’re special, just not $7.3 million special.

The Town and Ram claim costs have unforeseeably skyrocketed in the last year

In the time that has elapsed since the Developer formulated the development plan for Lot 5 and the Wallace Deck sites and the Town negotiated the October 24, 2005 MOU with the Developer, construction costs have increased by as much as 30 percent and interest rates have increased significantly.

yet we’re supposed to accept that the other rosy projections, like a %5 borrowing rate and an above average return on parking fees, retail and property taxes will pan out?

Since the original deal was inked, the national average cost of building materials hasn’t exceeded %11, with a recent flattening (due to lower energy, aggregate and raw material costs) of an annualized increase between %5 and %7.

Worse, last October, after closing the deal (N&O), Keith Cummings, president of Ram,

…personally guaranteed with his own money that the project will be completed as planned, according to the document signed Monday. Any increased costs — because of issues such as the rising price of construction materials — are to be borne by Ram.

Personally guaranteed.

Come on, I feel like the Town’s citizens are being taken to the cleaners on this deal.

Until I see the specifics of the %30 increase, I must assume it was part of the “shell game” of under-bidding to win the contract.

If this turns out to be the case, what must we expect of RAM’s projections (“guarantees”) concerning their luxury, mega-condo development – the largest in Town’s history – at 425 Hillsborough Street?

And once we’re hip deep into this development, what restricts RAM from coming back to the well? Quite frankly, while I’d hate to “throw away” any taxpayer investment, it certainly would be easier to back out of a $500K losing proposition than a $7.3 million boondoggle. The modest protections of paying on delivery don’t seem sufficient.

The return of the public’s investment better be phenomenal to justify this private-public partnership. With this project’s current fiscal track record, financial prudence, above all, should steer our leader’s decision, especially when we go against our Town’s tradition of letting the voters decide to take on such massive financial obligations.

Speaking of prudence, beyond the $7.3 million demanded by RAM, the Council is supposed to approve a major chunk of debt tonight for the Homestead Park Aquatic Center. As today’s HeraldSun reports

The next key step comes tonight, when the Town Council will consider approving a contract with the Resolute Building Co. to build the Homestead Park Aquatic Center. The contract on the table is for $5,238,000, although the town manager would be authorized to approve up to $530,000 in change orders if necessary, as the work proceeded.

In the town’s 2006-07 budget, the council authorized borrowing another $750,000 for the Homestead project. That’s in addition to the bond funds the town and Orange County both are allocating for it.

Orange County is putting about $4.3 million into the project in bond funds approved by voters across the county, and Chapel Hill is contributing about $1.2 million in bond funds.

That’s nearly $2 million of debt we’re taking on – with a possible upward tick already projected. Strange that the citizenry had a voice in taking on that $2 million obligation, but we’re left out of directly approving an amount 4 times as large.

I’m going this evening with my concerns, fully expecting Council to answer each issue fully before moving forward. Hopefully the missing issues of public access, accommodations and facilities will be covered.

Here’s the “new deal” being proposed this evening.

  • Town leases building pad to Developer under Ground Lease for a term of 99 years (the “Ground Lease”). Rent under the Ground Lease will be $1 per year plus the various benefits the Town will realize from the development of the Lot 5 Project, including but not limited to public space to be developed by the Developer at its cost but owned and operated by the Town, public art corresponding to 1% of the total cost of the project, affordable housing that will be required to be subsidized by the Developer, LEEDs certification of the project, the additional cost of placing the Condominium Parking underground, the enhanced tax base, and the general economic developments that will be generated for the entire downtown area.
  • The Developer shall have the right, which shall be assigned to the condominium association upon turn-over, to terminate the ground lease and acquire fee simple title to the land and/or air rights on the date that is 50 years after the commencement of the ground lease. The termination fee shall be $2 million.
  • The Developer will construct approximately 137 for sale condominium units (15% of which shall be affordable for a total of 21 affordable units) and approximately 28,540 square feet of retail.
  • The Developer will construct, pursuant to plans and specifications approved by the Town, the public plaza/public space aggregating approximately 27,215 square feet. All of such public space will be owned and operated by the Town.
  • The improvements on Lot 5 will be LEEDs certified.
  • Developer will construct an underground parking garage below the condominium/retail building containing approximately 161 parking spaces (the “Town Parking”) that will be available to the general public including retail patrons (i.e. no monthly rentals). The remaining parking spaces aggregating approximately 169 will be allocated to the owners of the condominium units (the “Condominium Parking”).
  • Developer and the Town will seek to secure appropriate permission for an additional ten (10) to fifteen (15) on-street parking spaces that will be allocated to the Town.
  • The Town Parking would be located on the first level of the underground parking garage and the Condominium Parking would be located on the level below the Town Parking.
  • Upon completion of the parking garage, the Developer will convey to the Town, fee simple unencumbered title to the Town Parking at a purchase price equal to $7,245,000, which represents Developer’s current estimate of the cost to design, permit, finance, plan, supervise, and construct the Town Parking (“Town Parking Costs”). Developer agrees to provide documentation as may reasonably be required by the Town and the Local Government Commission to assist with the financing of the purchase of the Town Parking. The Town may, at its option, elect to audit the Town Parking Costs and in the event said costs are less than $7,245,000, the Developer shall refund the excess amount within 30 days of demand thereof. In the event the audit indicates that a refund is due, the Developer shall also reimburse the Town for the cost of the audit not to exceed $20,000
  • Parking for the affordable housing units will be provided by the Town at the Wallace Deck or other Town-owned property. A below market rental rate would be charged for such parking.

Carolina North: Housing from UNC’s perspective

Wednesday, November 1st, 2006

From Jack Evans concerning housing at Carolina North.

At the LAC meeting on October 19, we agreed that the University would draft some thoughts for the continuation of our discussion regarding housing at Carolina North. The attached file is our response to that request. As you will see, we found a number of issues and questions that we think are worthy of further discussion within the LAC. We don’t believe that our discussions to this point have reached a stage that
would permit the formulation of consensus principles, but we hope our discussion tomorrow afternoon will move us in the direction.

This follows on Mayor Mark Chilton’s (Carrboro) discussion of Oct. 19th (documented on OrangePolitics)

The Leadership Advisory Committee on Carolina North had an interesting discussion about housing as a part of Carolina North this afternoon.

Here are some prepared comments that I presented as a way of launching the discussion:

The housing problem at Carolina North is, in short, that the new workers at Carolina North will either live at Carolina North or they will live elsewhere and need to commute to the campus. There is not a great deal of vacant housing currently available within the Chapel Hill Transit service area (although there is some), so new employees will either have to occupy housing that is to be built in the Chapel Hill Transit service area, or they will have to live outside that service area and commute. Let’s take a look at the scale of the problem…

I suggest you read the extended discussion. UNC’s issues and discussion follow:

Discussion Issues and Questions Related to
Housing at Carolina North

Prepared for the LAC discussion on November 2, 2006

We believe that housing at Carolina North is a critical aspect of attracting employees, both faculty and staff, to the University, and helping existing employees find housing closer to campus. However, we believe that many issues will require further discussion within the LAC in the process of formulating specific planning principles that will be used to guide planning related to housing.

We envision the housing at Carolina North as a mixed-income community. That is, the housing will be a mixture of market, work force, and affordable housing. We need clear understandings regarding the definitions of these three categories. And we do not yet have enough information to set percentages for these three categories, but we will commit to study the issues.

The housing planned for Carolina North must be financially feasible, financially sustainable, and market driven. Although the University will likely retain ownership of the land, we anticipate that a large portion of the housing will be privately developed, thus adding values to local tax rolls. On that premise, the housing must provide opportunities for a reasonable return to prospective developers.

While housing at Carolina North will not solve all of the housing problems of the Chapel Hill/Carrboro community, UNC-Chapel Hill has a commitment to finding the right mix of market, work force, and affordable housing that will avoid making those problems worse. In this regard the University will maintain the goal that each stage of development at Carolina North will contain some level of each of the three types of housing. It may be appropriate to think of the first stage (approximately 10 years) as a test market that will provide valuable information about housing and will inform planning for subsequent stages.

As discussed in the LAC meeting on October19, we do not anticipate undergraduate instruction at Carolina North. Consequently, we do not foresee the need to build undergraduate housing at Carolina North. We do, however, anticipate some level of housing at Carolina North for graduate students and post-doctoral fellows. These groups of residents are likely to be married with children. Since housing at Carolina North is likely to be multi-family construction, this could also assist the University’s efforts to attract the best graduate students and post-doctoral fellows. For this type of housing it is possible, though not necessarily certain, that the University would be the developer and operator of the housing.

The discussion of housing during the LAC meeting of October 19 explored linking overall employment at Carolina North and the planned supply of housing. We consider it to be difficult to define and implement a linkage of this sort in advance. A number of questions deserve consideration. For example, what restrictions should apply to housing at Carolina North?. Should CN housing be primarily or exclusively for employees of the University or UNC Health Care System, or should it serve a broader population? What issues related to social and cultural diversity in CN housing should we consider? If work force and affordable housing involve some form of subsidy or constrained appreciation in the form of price caps or restrictions on sale, what issues are raised if some of this housing is occupied by non-University employees?

To the extent that University employees occupy housing at Carolina North, use of SOVs would be favorably affected. Similarly, to the extent that University employees living anywhere make use of transit (whether within the service area of the Chapel Hill transit system or not) use of SOVs would be favorably affected.

One of the inputs that we need for this and subsequent discussions is information that incorporates our best estimates, stage by stage, of the level of employment to be anticipated at Carolina North. Although we will not be able to formulate these estimates with great precision, it is important to get the order of magnitude approximately correct so that our discussions about housing, transportation, and fiscal impact will be as realistic as we can be at this stage or our work.


BTW, here’s Mr. Evan’s contact information:

John P. Evans
Executive Director, Carolina North

Hettleman Professor of Business
304 South Building, CB 4000
Chapel Hill, NC 27599

Shell Game? Transfer Development Rights

Tuesday, May 9th, 2006

[UPDATE:] Some good coverage of the initial steps towards TDRs in today’s soon-to-be-paywalled HeraldSun.

6:30pm Tuesday, May 9th, Battle Courtroom on Margaret Lane, Hillsborough, NC

The county is starting a dialogue on a transfer of development rights program (TDR) for Orange County.

Last year, the county recruited local citizens to the TDR taskforce. The membership is comprised of a who’s who of folk interested in local development.

Overly touted by some, the program essentially trades your right to develop one piece of property (say your farm) for the right to (over?) develop another.

The real estate industry has prepared a summary that covers TDRs fairly well from their perspective.

Locally, Nick Tennyson,executive vice president for the Home Builders Association of Durham, Orange and Chatham Counties weighed in observing “TDR is a concept that in the abstract people find interesting, but when you really start working on where it’s going to apply, it has fizzled many times in the past.” (via today’s HeraldSun).

Though troubled a bit by the eminent domain issues around TDRs, I’m interested in the concept as a potentially valuable planning and zoning tool.

Tonight Orange County will present their first pass analysis of using TDRs – I look forward to seeing the proposal.

Affordable Downtown Housing? Pfah!

Friday, May 5th, 2006

Just heard the local Chamber of Commerce’s executive director Aaron Nelson on WCHL 1360AM describe, in jubilant terms , how soon-to-open Rosemary Village is ” the impetus for a downtown renaissance”.

Aaron further proclaimed this development would give us “great downtown living we haven’t had in a long time.”

Really? I know folk living downtown that might disagree with that sentiment.

Further, while the Chamber’s Nelson has gone to bat on behalf of this project several times, this latest praise for:

Rosemary Village…38 luxury condominiums within a short walk of UNC’s campus…from $350s – $700,000

rings a bit discordant along-side Nelson’s recent observation on Habitat’s fight with local neighbors, Chandler Green:

“The character of our community is to build unaffordable homes,” said Nelson, who reported that the chamber board of directors unanimously endorsed the project. “[Habitat is] building affordable homes. That is out of character.”

Aaron’s right, our community tends towards expensive housing.

The lesson of Rosemary Village, I think, is that the planned downtown developments whether private or public, in spite of the best intentions, will follow that trend.



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