In a few months, Orlando Weekly will vacate the West Jefferson Street office we've called home for the last four years. It's a nice place, formerly the ABC Liquor warehouse, but the rent's outrageous. When we moved down here the office market was booming and the price didn't seem bad, considering the building's charm. Today vacancies are up and rents are down, and we can do better.
Why do I mention that? Because it goes to the point the city council glossed over June 21 when it approved $22 million in incentives for Cameron Kuhn – our landlord, by the way – to redevelop the Jaymont block. You may remember that in December, moments after the council reached a tentative agreement on the incentive package, Kuhn's bulldozers began leveling the block, to the dismay of preservationists.
On June 21, some of the most prominent owners of downtown office space – including Scott Stahley of Lincoln Property Co. and Mike Beale of Highwoods Properties – pleaded with Mayor Buddy Dyer and the city commission not to roll over on Kuhn's behalf. These folks collectively pay millions each year in property taxes, and have built – with little or no help from the city – the Lincoln Plaza, Signature Plaza and many of the other high rises that dot downtown.
The problem, according to these folks, is that there's already a glut of vacant office space; by year's end, downtown will not so proudly boast a 17 percent vacancy rate. Not good. Kuhn's 389,000 square feet of new office space will only add to the inventory. More importantly, city subsidies give Kuhn an unfair advantage.
Let's call this deal as it is: The city is using the tax dollars Stahley, Beale and others generated – while suffering through the bad times – to fund Kuhn, who will use those tax dollars to add more office space and lure away their tenants.
This is good government?
"It's a matter of fairness," Stahley told the council. "All these owners of existing office buildings believed in downtown. We understood the risk. What we didn't expect was that the city would subsidize an office building to compete with us."
Kuhn's argument is that he is going to bring in new business, which hasn't been happening for the rest of downtown's landlords. We'll see.
The property owners weren't asking the city council to kill the deal. All they wanted was for the city to attach restrictions to the incentives, requiring the office space to be owner-occupied for 10 years. It's the same type of restriction the city typically applies to residential projects when they get public dollars.
But Kuhn wasn't going for that, saying it would screw up his financing at the last moment, and he wants to break ground in September. So city commissioners were left wondering why they hadn't heard concerns about the vacancy rate sooner in the game.
Since his project's inception, Kuhn has marketed the space as "office condos," which led people to believe, wrongly, that they'd be owner-occupied. Condos, they later found out, can be leased as well, rendering the terminology moot.
As in December, when the Jaymont deal went from announcement to demolition in five days, the incentive package was rushed and shrouded in secrecy. (Beale said in a Downtown Development Board meeting the week earlier that he'd tried repeatedly to get his message to City Hall, but no one was listening.)
As DDB vice chairman Bob McClelland pointed out: "This is a very real problem. I would be willing to bet there would be more people sitting next to them commenting on this if this was a broader – if everybody knew this was happening today."
But secrecy is Dyer's MO. And you might understand why Kuhn's baby was rushed through (compared to the 55 West development, which was also approved – albeit with more modest incentives – Monday, after being thoroughly vetted for more than a year) if you crunch numbers. Kuhn is getting $22 million. As he pointed out, $14 million of that are loans he'll have to repay the city.
But then there's the rest, including a $3.5 million cash payment that so troubled commissioner Phil Diamond that he cast the lone dissenting vote against the deal. (The Community Redevelopment Agency, which technically is giving out most of the incentives, is broke; it will have to borrow the $3.5 million from a city banking fund.)
Kuhn stands to make between $28 million and $40 million on this deal, according to the information that can be gleaned from the city's due diligence report. Kuhn estimates it will cost $97 million to build the project, yet the total cost of the project is estimated at $140 million, which apparently leaves him a tidy $43 million profit. It's impossible to calculate his exact profit margin because he's refused to make his side of the deal public, telling the city that's proprietary information.
Not a bad deal for Kuhn, considering he's not investing a dime of his own money in the project. The city, through its loans and handouts, has taken care of all of his risk for him. A friend of mine, Mike Synan at 580 WDBO-AM, asked Kuhn if it could possibly be true: zero investment, millions in profit.
"From your mouth to God's ears," Kuhn replied.
Put it all together and whaddya got? Subsidies that could prove ruinous for the office-leasing market and incentives that give one of the mayor's pals a zero-risk windfall worth millions. All this for a guy whose track record is, shall we say, spotty? (According to the city's due diligence, two of Kuhn's companies have had some trouble making credit payments on time.)
No denying: The project itself is beautiful, and if all goes according to plan it could breathe life into downtown. But giddily playing up that fact – as Kuhn and Dyer do relentlessly – misses the bigger point.
Is this the best deal the city could have gotten? Is it in the best interests of Orlando taxpayers? No, on both counts. It smells of desperation, favoritism and secrecy, which is what we've come to expect from Dyer.
