OG&E Energy Center

[David]

The $9M TIF mentioned in the article is for the south residential tower, the money is vapor unless it is built at all.

[SoonerFP]

Looks like they picked Clayco officially!

Renewal Authority chooses two-tower plan for development near Stage Center site
By: Molly M. Fleming The Journal Record

OKLAHOMA CITY – The Oklahoma City Urban Renewal Authority has chosen Clayco Inc.’s proposal for the area south of the former Stage Center site. The development will be south of the new OGE Energy Corp. headquarters, which will sit at the southwest corner of Sheridan and Hudson avenues.
Clayco proposed two towers: a 25-story commercial building and a 26-story, 253-unit residential apartment tower, with structured parking in between. The project is estimated to cost $280 million.
The company requested a tax increment financing allocation equal to approximately 89% of the ad valorem taxes generated on the proposed project.
The OCURA agenda stated that the TIF request is significantly higher than what the city allocates to projects.
“Therefore, significant negotiations will be necessary before the financial structure and feasibility of these projects are determined,” stated the agenda.
Clayco is also building the OGE headquarters and was the first to inquire about purchasing the adjacent 3.15 acres. The site is now home to several buildings, including La Luna Mexican Café, and an office building that houses the Arts Council of Oklahoma City and other organizations.
Redeveloping the site will mean a location change for the council’s Festival of the Arts. The council is looking at moving the festival to the Civic Center’s Centennial Park or the north corner of Myriad Gardens, at the intersection of W. Sheridan Avenue and Ron Norick Boulevard.
Milhaus development had offered a competing proposal for the area.


Read more: Renewal Authority chooses two-tower plan for development near Stage Center site | The Journal Record

[Pete]

Good.

Time to nail down the incentive details and get this thing rolling.

[Motley]

Is the TIF money a one time allocation based on the initial ad valorem tax for building? Does Clayco still pay the annual property taxes for the development? What would those annual taxes amount to?

[Pete]

Is the TIF money a one time allocation based on the initial ad valorem tax for building? Does Clayco still pay the annual property taxes for the development? What would those annual taxes amount to?

The money would come from the increased property taxes (and likely sales taxes) from developing the property.

They basically take all these incremental tax dollars over a 25-year span and just give them back to the developer, rather than them going into the general City/County budget.

[Motley]

Thanks for the explanation. I expected it to be only the taxes/fees for the initial construction, not taxes over the 25 yrs. That is not insignificant, but then what this development will do for downtown will not be insignificant either.

[hoya]

I'm of mixed opinions on the TIF thing. On the one hand, the developer should pay taxes just like everyone else. It's not like the city is drowning in extra tax revenue that they just don't know how to spend. On the other hand, if this doesn't get built, we don't get any extra tax revenue from the thing. We are no worse off by letting them build it essentially tax-free. We get a new building, but not the associated tax revenue.

This is a big financial gamble for them, so I'm okay with some amount of support. This is one of the biggest developments to come to this city in a long time, arguably bigger than Devon.

The Quarterback has just asked us to the prom. How many sexual favors we have to give afterwards depends on how secure we are that we can get a guy like that.

[Just the facts]

I don't think the way OKC is operating their TIF is the way other cities are doing it. My understanding is that normally TIF dollars were to be spent on public facilities and infrastructure within the TIF district, not as a direct payment to developers building within the TIF district to spur development. I'm pretty sure I don't like the way OKC is doing this. These building require improvements to infrastructure and in many cases new infrastructure. If we just give away all the new tax revenue to the developer where are the tax dollars going to come from to pay for infrastructure maintenance and eventual replacement? This is why urban sprawl isn't financially sustainable and now they are applying that same failed model to urban development. It won't end well when 20,000 people are living downtown and all the tax revenue has been given to the developers.

Remember when Peggy Bundy started selling cosmetics, and then became her own biggest customer so she would be get the big commission checks? Even Al figured out that wasn't sustainable.

[warreng88]

The Full Journal Record article:

Coming up: Authority chooses downtown developer, plans negotiations over TIF

OKLAHOMA CITY – The Oklahoma City Urban Renewal Authority is prepared to work with the city to bring the Clayco Inc.’s design to the southern half of a site at W. Reno and S. Hudson avenues.

OCURA chose Clayco as the conditional redeveloper for the 3.15 acre property during its meeting Monday morning. The company plans to build two towers: a 25-story commercial building and a 26-story, 253-unit residential tower, with structured parking in between. Executive Director Cathy O’Connor gave high praise to Clayco and Milhaus Development, which submitted a proposal for a 20-story mixed-use building.

“We think the level of the development proposed by Clayco will create a catalytic project for downtown Oklahoma City and hopefully spur other development,” she said. “But both of these proposals requested amounts of tax increment financing that are well beyond what the city of Oklahoma City typically allocates to projects.”

She said the city and OCURA will have a lot of work to do to negotiate a TIF package. Clayco partner Larry Chapman said he’s not concerned about having to negotiate the TIF package. The company requested TIF allocation equal to approximately 89 percent of the ad valorem taxes generated on the proposed project. The redevelopment is expected to cost $280 million.

“We have a lot of work to do, clearly,” Chapman said. “But up until now, there was no ability to sit around a table and negotiate anything. Now we’ll sit around the table and talk through the details so we can understand what the tradeoffs are. Why is (the project) a good idea? What is the city really going to get? That’s what we’ll do now. That’s what I love to do. I’m looking forward to that part.”

O’Connor said there are also some design concerns with Clayco’s proposal. She said she recommended the Alliance have the RTKL architecture firm give a third-party opinion on the design. She said the Alliance has the authority to approve the design, but the city will have to approve the TIF.

“I don’t think either of these issues are insurmountable and can’t be solved and worked through,” she said. “I do want everyone to know there’s work to be done and it’s going to take a little bit of time to get all those things resolved.”

But the Alliance plans to resolve the issues in 90 days.

Clayco is developing the OGE Energy headquarters building at the southwest corner of Sheridan and Hudson avenues. The site is owned by Kestrel Investments. Chapman said at an OCURA meeting earlier this month that the OGE building should have started two months ago. Kestrel Investments President Rainey Williams said the south property proposal process has delayed the work because Clayco had a bigger project goal. The company was the first to ask about developing the south property.

“Now that we’ve been chosen as the conditional redeveloper, we can start to do what we really do for a living, which is to implement our plans,” Chapman said. “We can start to market the property. We can really drill down on what the entire project looks like and feels like, the financing around it, and those kinds of things.”

We’ve always believed that this project is better together,” he said.

“OGE is fantastic on its own, but it’s better if you can plan the two-block area in a significant and powerful way.”

The project would require the development of a new TIF district, which would ultimately have to be approved by the Oklahoma City Council, said Brent Bryant, economic development program manager. Bryant said a new TIF district is needed because the amount of financing Clayco’s project would require is over a longer period of time than downtown/MAPS Increment District.

He said he and city staff are evaluating the feasibility of Clayco’s project. The last time the City Council created a district inside the downtown area was for the Devon Energy Corp. headquarters in 2008.

Redeveloping the site will mean a location change for the council’s Festival of the Arts. The council is looking at moving the festival to the Civic Center’s Centennial Park or the north corner of Myriad Gardens, at the intersection of W. Sheridan Avenue and Ron Norick Boulevard.

[Motley]

Does anyone remember what the TIF % of ad valorem taxes were for the Devon? I think almost everyone would agree that investment of TIF money was well worth it. Also, wonder what the design concerns are from the Authority? Maybe they are wanting the residential on the park side or more height!

[mugofbeer]

I don't think the way OKC is operating their TIF is the way other cities are doing it. My understanding is that normally TIF dollars were to be spent on public facilities and infrastructure within the TIF district, not as a direct payment to developers building within the TIF district to spur development. I'm pretty sure I don't like the way OKC is doing this. These building require improvements to infrastructure and in many cases new infrastructure. If we just give away all the new tax revenue to the developer where are the tax dollars going to come from to pay for infrastructure maintenance and eventual replacement? This is why urban sprawl isn't financially sustainable and now they are applying that same failed model to urban development. It won't end well when 20,000 people are living downtown and all the tax revenue has been given to the developers.

Remember when Peggy Bundy started selling cosmetics, and then became her own biggest customer so she would be get the big commission checks? Even Al figured out that wasn't sustainable.

JTF, I don't know how these things work and I may be way off base, but if the TIF returns the money back to the developer in return for reconstruction of portions of streets, sidewalks, lighting, waterlines, sewer lines and sanitation lines to handle the larger use and capacity needs, isn't this the same as the city doing it at direct taxpayer expense? Devon and Project 180 seemed to be special cases from a corporation making extreme profits. OG&E isn't quite in that boat. It seems to me the taxes paid back to the city long-term will be far more than the TIF "investment." Is it known if these improvements are part of the project?

[Motley]

To me, TIF is more akin to the way restaurants and bars comp celebrities than the Peg Bundy ploy. Even though celebrities are more than able to pay for an expensive dinners, they get it free because their presence is a giant advertisement and endorsement of the restaurant. Clayco is a signature development that will entice a lot of other investments, so it is worth the investment of TIF money. If Clayco didn't happen, OKC would be setback a 1/2 decade or more. I am sure the Clayco development is what is making Preftakes and others think of even bolder plans.

[ljbab728]

It would be interesting to know what this means from the article.

O’Connor said there are also some design concerns with Clayco’s proposal. She said she recommended the Alliance have the RTKL architecture firm give a third-party opinion on the design. She said the Alliance has the authority to approve the design, but the city will have to approve the TIF.

[soonerguru]

I'm not thrilled with giving them 25 years tax free. That's just me.

[Pete]

Here's the way this breaks down (in millions):

North parcel (OG&E):
Officer Tower $200
Apartments $67.5
Total: $267.5
TIF request: $62.1

South Parcel:
Office Tower $216
Apartments $70
Total: $286
TIF Request $80.5


Total Investment: $553.5
Total TIF Request: $142.6

[Pete]

For reference, the Devon TIF was about $170 million on a $750 million investment but of course, not of that money went back to them.

$20 million went back into the general tax fund (like all property and sales tax)
$40 million went into an incentive fund to lure other companies downtown (like OPUBCO)
$115 million went into Project 180, of which $42 million was spent on the Myriad Gardens

[DoctorTaco]

Pete, I, like others, am still really confused on this. So Devon's TIF money went to all sorts off things. Most (all?) not Devon but rather downtown improvements. But Clayco wants their TIF money to just go right back into their pockets? Is this normal? Or was the Devon situation normal? Was Devon just totally magnanimous in not pocketing the money?

Also I thought that the downtown TIF was district -wide, had a term of 25 years, and had been in place for quite a while. But now they are acting like Clayco will be initiating a brand new 25 year TIF district?

If TIF moneys are just being paid back to developers, then how does the Downtown TIF District find the money to keep paying for things like John Rex Elementery, improvements to Emerson High School, alley improvements in SOSA, etc.?

Or is it like this: Clayco wants a big check, today, out of the existing TIF money pool. Then they will pay into that pool for 25 years. Is that more like it?

Sooooooo confused.

[Pete]

Okay, let's first define TIF.

It's a tool to redirect tax money (usually property and sales taxes) away from the general City and County coffers and to a special purpose. Every property owner pays property taxes, generally about 1% of the property value every year. And that money, along with sales tax, is what funds schools, police, fire, roads, etc.

There are two big TIF's downtown. One is TIF #2, which is generally the entire CBD. All sales tax created in these boundaries gets redirected into this TIF fund, which then gets paid out in lots of ways, mostly to developers. For example, 21c is to get $5.1 million, the proposed Journal Record re-do is $4.7 million, etc. Also, the City itself has used TIF funds to build Regatta Park and other civic improvements. But mostly TIF #2 dollars are paid out to developers, usually in $1-5 million increments. Almost every single development in the CBD, Film Row, Deep Deuce, Midtown and Bricktown has received $1 million or more from this TIF.

The Devon TIF (TIF #8) is a TIF within a TIF. As part of their agreement with the City when they bought the land for their complex and before they built, they specified that this special TIF be created only for their development. All property tax for the next 25 years would go directly into this TIF, plus the sales tax generated from buying all the materials and furniture and equipment would go into the same fund. And then, they worked with the City to allocate those TIF dollars for Project 180 and a smaller fund to help lure companies downtown.

The math on property tax is pretty simple: 1% of the assessed improvements for 25 years (the max life of a TIF). Devon actually didn't get built and assessed until about the 5th year after their TIF started, so TIF #8 will receive 20 years of property taxes. 1% of $750 million is $7.5 million per year, times 20 years equals $150 million. They also estimated about another $20 million for sales tax, which turned out to be too high, which is the "shortfall" you always hear about with Project 180 (it's actually bull because P180 had other funding sources which led to an increased budget, but that's a whole other story).

So the math for Clayco would be the same: 1% of $553 million is $5.53 million times 22 years (if they hurry up and build) equals $121.7 million. Plus another $10 million in sales tax gets you to $131.7 million. Not sure how they are getting to the $142.6 but may also be seeking money from TIF #2.

[BoulderSooner]

Pete, I, like others, am still really confused on this. So Devon's TIF money went to all sorts off things. Most (all?) not Devon but rather downtown improvements. But Clayco wants their TIF money to just go right back into their pockets? Is this normal? Or was the Devon situation normal? Was Devon just totally magnanimous in not pocketing the money?

Also I thought that the downtown TIF was district -wide, had a term of 25 years, and had been in place for quite a while. But now they are acting like Clayco will be initiating a brand new 25 year TIF district?

If TIF moneys are just being paid back to developers, then how does the Downtown TIF District find the money to keep paying for things like John Rex Elementery, improvements to Emerson High School, alley improvements in SOSA, etc.?

Or is it like this: Clayco wants a big check, today, out of the existing TIF money pool. Then they will pay into that pool for 25 years. Is that more like it?

Sooooooo confused.

Devon was very much the exception. Not the rule. Usually tif dollars are used for on site utility/garage/(in the case of suburban tif streets). Remember is just the request not the final decision. I would expect lost of negotition to go on and the final tif amount to be very close to the 10% range that has been the norm for lots of downtown projects. Of course the dollar figure will be much larger because this is also a 500+ million dollar project. Not a 30 mil apt complex

[BoulderSooner]

Also remember the tif doesn't redirect all taxes. It redirects the difference from what was already their (current tax rates). To what the taxable improvement is. Ie the schools county ect get what they were already getting from a site. They just don't benifit from the emprovemnt (at least not directly in property tax the first 25 years)

[Pete]

Also remember the tif doesn't redirect all taxes. It redirects the difference from what was already their (current tax rates). To what the taxable improvement is. Ie the schools county ect get what they were already getting from a site. They just don't benifit from the emprovemnt (at least not directly in property tax the first 25 years)

Right.

This is why in my calculations above, I don't include the value of the land, just the proposed improvements.

[Just the facts]

This is why this is all screwed up and the 'growth model' doesn't work - the bonds and everything that pay for schools and roads were all passed based on future developments generating the tax dollars to repay the bonds, but if we give away all those future tax dollars to the developer where are we going to get the tax dollars to repay the bonds that were originally taken out based on the growing tax base? We can't apply the failed suburban sprawl finance model to urban development.

[BoulderSooner]

Good thing that this is not the "failed suburban sprawl model". And Okc is one of the most fiscally conservative cities in America. See our credit rating.

[DoctorTaco]

Okay, let's first define TIF.

It's a tool to redirect tax money (usually property and sales taxes) away from the general City and County coffers and to a special purpose. Every property owner pays property taxes, generally about 1% of the property value every year. And that money, along with sales tax, is what funds schools, police, fire, roads, etc.

There are two big TIF's downtown. One is TIF #2, which is generally the entire CBD. All sales tax created in these boundaries gets redirected into this TIF fund, which then gets paid out in lots of ways, mostly to developers. For example, 21c is to get $5.1 million, the proposed Journal Record re-do is $4.7 million, etc. Also, the City itself has used TIF funds to build Regatta Park and other civic improvements. But mostly TIF #2 dollars are paid out to developers, usually in $1-5 million increments. Almost every single development in the CBD, Film Row, Deep Deuce, Midtown and Bricktown has received $1 million or more from this TIF.

The Devon TIF (TIF #8) is a TIF within a TIF. As part of their agreement with the City when they bought the land for their complex and before they built, they specified that this special TIF be created only for their development. All property tax for the next 25 years would go directly into this TIF, plus the sales tax generated from buying all the materials and furniture and equipment would go into the same fund. And then, they worked with the City to allocate those TIF dollars for Project 180 and a smaller fund to help lure companies downtown.

The math on property tax is pretty simple: 1% of the assessed improvements for 25 years. Devon actually didn't get built and assessed until about the 5th year after their TIF started, so TIF #8 will receive 20 years of property taxes. 1% of $750 million is $7.5 million per year, times 20 years equals $150 million. They also estimated about another $20 million for sales tax, which turned out to be too high, which is the "shortfall" you always hear about with Project 180 (it's actually bull because P180 had other funding sources which actually led to an increased budget, but that's a whole other story).

So the math for Clayco would be the same: 1% of $553 million is $5.53 million times 22 years (if they hurry up and build) equals $121.7 million. Plus another $10 million in sales tax gets you to $131.7 million. Not sure how they are getting to the $142.6 but may also be seeking money from TIF #2.

Thanks Pete!

So The Devon "development-specific" TIF district was unique in OKC. This went, at Devon's insistence, to DT improvements and incentives. But now Clayco wants to replicate this but just pocket the money? This seems like a pretty bold ask, considering the local precedent.

Are we moving into an era where every large ($100 Million+) development is going to try to create their own made-to-order TIF district?

[warreng88]

I would like to know what cities like Austin, Raleigh, San Antonio (Josh, this is on you) and Charlotte have done in the way of incentives. I bring up those cities because they have experienced a lot of growth lately more recently but are around OKC in regards to size. Was there a time where they were handing out incentives? Do they still hand them out? If not, at what point did they stop?