BY TOM MULLINS AND PETER KENT
*Originally published in Tampa Times
The recent guest column from local developer Jay Miller about the value of the Historic Gas Plant site asks readers to stretch their imagination more than a visit to Disney World. His column claims that our remarkable 86-acre site in the heart of downtown St. Petersburg is worth only $174 million, when actual land sales in the immediate vicinity of the site are going for $12 million to $31 million per acre.
The NoHomeRun.com citizens group stands by our earlier published estimate of $700 million in value for the 86-acre property, current home to Tropicana Field, where the Tampa Bay Rays play home games. Some of the disparity between our views and Miller’s are due to what we believe are his tortured analyses, but some are due to honest differences in assumptions. As for our key assumptions, our $700 million figure assumes the current proposed Rays-Hines deal is rejected. Instead, the city markets the land itself in an orderly and patient fashion on a parcel-by-parcel basis to independent builders (which could still include the Rays for their stadium). We assume that community benefit obligations imposed on new parcel owners follow historical precedent, unlike the Rays-Hines deal, which requires the developer to make mandatory charitable contributions, deliver day care and apprenticeship programs, fund a rental assistance program and submit to other off-market obligations. We assume the city develops the needed infrastructure in stages relevant for the parcels being transacted, and the city protects taxpayers’ interests by selling the parcels for proper market value. We also assume the city retains the same general levels of residential and commercial development density, green space and infrastructure seen in the Rays-Hines deal.
Miller’s analysis confuses the responsibilities of the land developer and the builder. Under normal trade practice, the land developer is responsible for the purchase of the block of raw land, designing, permitting and installing the road, water, sewer, storm water and other infrastructure, selling buildable parcels to builders, and taking the financial risks if the parcels don’t sell. But Rays-Hines are doing little of that. In this case, it is the city that is paying for $142 million of infrastructure.
Rays-Hines have the city paying for the costliest of the land developer’s responsibilities — land acquisition and infrastructure — while Rays-Hines take the full land developer’s profit opportunity, as well as the full builder’s profit opportunity. With this setup, it would take major incompetence on the part of Rays-Hines for them not to clear well over $1 billion in development profits, despite only putting a tiny amount of its own capital truly at risk. (And those profits are over and above the benefits the Rays baseball business will receive from $600 million of taxpayer money going toward stadium construction, in exchange for which taxpayers will receive exactly $0 in rent.)
Amazingly, Rays-Hines are not just getting giveaway bargain prices on the land, but Rays-Hines get to buy most of their parcels over the next 20 to 30 years at today’s prices. This is like you having agreed to sell your home to someone 30 years ago at the price it was worth 30 years ago, and giving the buyer 30 years to close the sale at that ancient price. Who would ever agree to a deal like that?
Under the current deal, the city is not delivering raw land to Rays-Hines, as Miller’s column implies. Instead, the city is paying for the infrastructure and delivering to Rays-Hines buildable parcels surrounded by finished infrastructure. That type of improved land is worth a lot more than raw acreage.
The best indicators of value are real-world, arm’s-length transactions for comparable buildable parcels near the Gas Plant site. We are puzzled that Miller did not consider three of the most recent and directly comparable transactions:
155 17th St. S., a 0.77-acre lot bought for $9.1 million, or the equivalent of $11.8 million per acre, despite its location in the shadow of noisy Interstate 275.
226 Sixth St. S., a 0.92 acre lot purchased for $20.2 million, which translates to $22 million per acre.
275 First Ave. S., a 0.653-acre lot bought for $20.45 million, or about $31.3 million an acre.
Seems a proper appraisal’s valuation of the Historic Gas Plant site would be more in the $12 million to $31 million per acre range, with parcel valuations within that range fluctuating primarily based on their allowed development densities. The higher the density, generally the more the property is worth. Multiply the midrange of that $12 million to $31 million by at least 49 buildable acres per current city reports, and the Gas Plant site valuation easily gets to at least $700 million. That figure is many times what Rays-Hines are offering: $105 million to buy 36 acres outright plus a paltry $1 million per year to use the 22-acre stadium site, with the remaining 28 acres consumed by roads and green space.
If the city were to go the “Do it ourselves” route and not use a master developer like Hines, Miller’s assertion that St. Petersburg city staff would be uninterested or unable to perform land developer functions is unfair to those city workers. They are already overseeing more than $1 billion of in-progress construction around the city, and they had a big hand in the planning and improvements for such high-performing downtown neighborhoods as Beach Drive, Edge, Grand Central and Warehouse Arts.
In light of the recent suspension of a major Hines development in San Diego, it might be timely to point out one more glaringly obvious advantage of “Do it ourselves”: Regardless of what the contract says, in the real world, work on the Gas Plant project will come to a crashing halt any time over the next 30 years that Hines gets anxiety about interest rates, office occupancy trends, retail sector softness, choppy conditions in the debt or equity capital markets, absorption of new residential units, recession risks, etc. And at that point they likely will come back to the city looking to re-trade terms of the deal.
Peter Kent and Tom Mullins both live in St. Petersburg and are affiliated with NoHomeRun.com, a local group opposed to the current Gas Plant deal that City Council and the Pinellas commission could vote on in coming weeks. Kent is a retired engineer and public official in New York state with extensive development and infrastructure experience. Mullins is a retired Raymond James investment banker.
