Why Navy Hill?

The most controversial issue facing Richmond City Council these days is the proposed Navy Hill project, a $1.5 billion urban renovation project in downtown Richmond backed by the NH District Corp., Dominion Energy CEO Tom Farrell, and Mayor Levar Stoney. Backers argue that transforming under-utilized land, much of it surface parking lots, into mixed use development will generate $1 billion in incremental new revenue for the city over 30 years and support 9,300 permanent jobs. The key sticking points are whether to build a new Coliseum, adding hundreds of millions of dollars to the project cost, and whether to extend the special tax district, which would generate tax revenue to pay off the project bonds, far beyond the boundaries of the project itself. — JAB

by Brian Glass

I’ve been  a Commercial Real Estate Broker in Richmond since 1986. I’ve seen the failure of the 6th Street Marketplace, The Farmer’s Market makeover, and the restoration of Main Street Station and train shed — the latter two with buckets of federal money — none of which have worked out financially for the city. These fiascos show that the City of Richmond needs the private sector when it comes to re-development projects. NH District Corp. fits the bill. Here’s why:

Blight. The area proposed by NH District Corp. for re-development is blighted, with the Coliseum, built in 1971, at the epicenter. We refer to the Coliseum as “functionally obsolete.” The City has an opportunity not only to replace the Coliseum but to provide approximately 2,000 apartments, a percentage of which would be dedicated to “workforce housing,” a high rise hotel, commercial office space of up to 1 million square feet, the renovation of the historic Blues Armory, a long-sought GRTC bus transfer station, infrastructure improvements, and some retail.

Regional cooperation. Contrary to Councilman Chris A. Hilbert’s dream that “regional cooperation” can help finance replacement of the Coliseum, there is no incentive for surrounding counties to invest. The past expansion of the Convention Center worked regionally because a hotel tax basically pays for the Convention Center. Supporting the expansion cost the counties virtually nothing.

Regional competition: RVA doesn’t live in a bubble. We are competing with other cities of our size in the Southeast. Consider the example of Raleigh, N.C., where a master plan for a $1 billion project was announced in November 2019. A developer is coordinating with the city to build 790,000 square feet of office space, 125,000 square feet of retail 300 hotel rooms, 1,275 residential units and a new convention center. Just replace Coliseum with Convention Center and consider the similarities.

The arena itself: The world of entertainment has changed. Oak View Group and private-equity group Silver Lake are building arenas (10,000 to 18,000 seats) without sports teams. They’ve determined that an arena can generate as much income from concerts as they can from having an NBA basketball team or a National Hockey League team. The need for a minor league hockey team, in my opinion is a non-starter for a new arena. You can still book basketball tournaments, but the dates are set years in advance, and fewer dates are impacted. By contrast, music today is streamed, and bands rely more on concert income than ever before. The size of the proposed new arena hits the sweet spot.

Financing: Tax Increment Financing (TIF), for an 80-block area appears to be the stumbling block. The best solution would be for the Commonwealth to relinquish a portion of the sales tax so that the TIF area shrinks. That will encourage bond sales for the project. As the project builds out, tax revenue will follow. Restaurants will collect the meals tax, which will support city schools. The Co-Star Group is in discussions for a 400,000-square-foot office building with 2,000 employees, some of whom might live in the apartments that are built. Residents today like to live and play near where they work or live. Navy Hill would provide both. Also, there would be land available to lure a headquarters or regional headquarters from out of state. Catered-event sales generated from the restored Blues Armory will generate revenue over and above the entertainment tax from concerts. It all adds up to big numbers over time!

The time for analysis has ended. It’s time for action!

Brian Glass is a commercial real estate broker in the Richmond area. He has no involvement with NH District Corp.

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15 responses to “Why Navy Hill?

  1. Fascinating timing. Just yesterday, Delegate Bourne’s bill to allow the city to funnel sales and use taxes to this purpose was tabled in subcommittee, then revived in full committee and referred to the House Finance Committee after Speaker Eileen Filler-Corn intervened. Now we’re told the move was a mix up. Monday will tell the tale. Surprise, surprise, there is a special meeting of House Finance Monday afternoon (already scheduled to vote on the transportation package.)
    https://www.richmond.com/news/plus/future-of-navy-hill-bill-uncertain-house-speaker-says-reappearance/article_ef5570b3-b4a0-5f82-ae4d-5c34bb64d259.html

    As I watched this unfold (not sure how I got those tweets) I thought, now what corporate entity has that kind of power? Who can pull strings like that? As Henry Howell said, that noise in the dark is not Santa Claus.

    I view the financial mechanism for Navy Hill with lenses colored by long observation of Dominion Energy’s behavior. The question is, who holds the bag if this all falls apart, and who gains the benefit if it soars? How much risk and capital should taxpayers (or ratepayers) put up to enrich private investors? This clearly involves some risk on all sides, and some benefit on all sides, and I haven’t taken the time to study the various reports now emerging. There should be a public financing component, but how much? A month and a half ago I stopped being a city resident, and in a few weeks I stop being a city property owner. But even out here in western Henrico, the financial health of the city is crucial to my future.

    • Steve says:

      “The question is, who holds the bag if this all falls apart, and who gains the benefit if it soars? How much risk and capital should taxpayers (or ratepayers) put up to enrich private investors?”

      Steve hits the nail squarely on its head. Nothing should be done on this proposal within the General Assembly until Steve’s questions, both fair and pertinent, are fully and plainly answered. The people have a right to know these answers.

      If these key questions are not answered up front, those responsible for hiding the truth should be called out and exposed daily until the public knows the truth of what is going on here.

    • Update: Bourne’s bill was tabled this morning (Mon) in a Finance subcommittee.

  2. Not clear to me what the specific flaws are and what would/should be done instead.

    Possible to get a bullet list of things that should be done?

    I don’t think going to the State of Virginia to “relinquish” sales tax
    is a viable strategy. Can you imagine the precedent that would set
    for other localities who wanted to “revitalize” with State money?

    😉

    Richmond has the ability to move forward . ying and yang are always part of it.

    • There are already many development projects, such as arenas, where the sales tax directly generated by the operation is pledged to the bonds. I worked on such a bill for Hampton Roads long ago. How much wider a net this casts is an issue, but that precedent is already there. And frankly a smaller TIF zone plus sales tax may be a far better approach that the huge TIF that was being discussed.

      • Yes, but I thought it was the locality’s share of the sales tax. That was done for Wegmans in Fredericksburg on a “you get some of the local sales tax back if you hit performance targets”

        I could be wrong but I don’t believe any from the State came back – perhaps it did??

        • Not sure you’d need legislation if it were just the local share….it certainly wouldn’t be controversial legislation. My recollection of the bill on the Norfolk arena, it was state and local sales taxes directly generated. Here’s the link to Bourne’s “revived” bill:
          http://leg1.state.va.us/cgi-bin/legp504.exe?201+sum+HB1345
          The fiscal impact statement from the Tax Dept. concludes with a list of other pending bills chasing state sales tax dollars for local projects. Now officially a trend…

          • I would think (perhaps wrongly) that for the state to give up sales tax on local projects not a good thing to have all localities asking for that same treatment for local economic development.

            I can see a big regional project that is worthy of a state-level effort to attract to the state on a one-off basis but who knows if some local leader has “juice” and a GA member willing to sponsor…….

            That’s the difference between us average “schmucks” and folks like Steve and Dick who have intimate knowledge of how things REALLY “work”!

  3. Steve has raised the correct questions. Also ask who is losing and what they are losing. There are many who feel this project is taking from the least advantaged communities in the city – again. They are being pushed out of the city for others’ benefit – again. It seems few are looking at their concerns.

    • When I-95 first went through Richmond it was like someone cut a wide swath right through the community and one could look up on either side and see the sides of buildings that barely survived the “cut”.

      and it’s totally true – such projects would NEVER be suggested for other parts of town or county with higher dollar properties!

      and this is an interesting thing when we talk of not enough “affordable” housing……..

  4. I strongly disagree with the line that there’s no incentive for counties to support an arena…the case is probably stronger for them than the city actually. The case boils down to:

    1. The big idea behind entertainment venues in smaller cities isn’t that they make money, it’s that they’re crucial for quality of life. Concerts, WWE, Disney on Ice, and the circus make this an attractive place for people to live, especially the young tech talent and families crucial to the growth plans of the big Richmond corporations crucial to the region’s health. As Capital One, Altria, CarMax, Genworth, Markel, PFG, Anthem, etc. are located in the counties, as are most of their employees, the counties will benefit from a new arena as much or more than the city proper, and it’s reasonable for them to contribute.

    2. The arena’s also partly been pitched as an enhancer for the convention center. As much as that’s true, the same logic behind the convention center being beneficial for the counties holds for the arena.

    3. The counties can get these benefits without losing valuable development land.

    It’s disheartening that noone is making this case, but even more so that the locality with the highest taxes and poorest services is thinking about going alone on a shiny toy for the whole region.

  5. So, why aren’t we talking about a special taxing district that, rather than 80 blocks, a subset of the old City, encompasses the entire City plus Henrico plus Chesterfield? If it really make sense for the entire region’s economy, why won’t it sell to the entire region? Why won’t the entire region support Navy Hill enthusiastically?

    • To figure that out, follow the political power, who gets the money and benefits and control, who takes the risks and impositions, and how?

      Quite likely, this as built will not in essence be a true real estate transaction, but a series of patronage transactions built on a series of real estate components.

      That is my best guess, until those in control show otherwise. If my suspicions are not true, the evidence should be readily available to prove them wrong for all to see.

    • Haha Ackbar, great suggestion! I didn’t say that the case for a new arena was strong for anyone, just that, taking everyone at face value and using some basic logic, there was a better case for the counties since they will be the ones enjoying the circuses. If they can’t see it, there’s absolutely no good reason for us to bankrupt ourselves on their behalf.

      Reed may be a bit closer to the real story here, though I’m trying to be charitable.

  6. I like Ed Slipek’s take on Navy Hill in Style Weekly:

    https://www.styleweekly.com/richmond/15-questions/Content?oid=15340696

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