Implementation
Meeting Financial Goals For the Plan
Leadership and citizens of Memphis established financial goals for the plan at the outset of this process: the plan meets or exceeds these goals. The RDC directed its consultant team to develop a plan that could contribute significantly to the economic revitalization of Downtown and yield private development that could directly subsidize the cost of public investment. As the plan evolved, the RDC and its consultant team agreed that a plan that could reasonably be expected to yield three to four times the amount of private investment as public investment would have met the financial goals established by the planning process. This plan meets or exceeds that goal. The estimated $292 million public cost of the plan will spur $1.3 billion in private investment in real estate alone. Private investment in inventory, as well as employee, resident and visitor spending will add significantly and annually to this figure.
Benefit to the Public of the Plan
The Riverfront Development Plan proposes a major public investment in the revitalization and redevelopment of the Downtown Memphis riverfront; substantial new private development will result from this public investment. At the core of the plan is a proposal to create 50 acres of new land for private development, adjacent to the existing central business district. In addition, the plan would free nearly 200 acres of underutilized land currently unavailable for new development, permitting the construction of significant housing, office, retail, hotel, cultural, and recreational space. The private development program for the Riverfront Development Plan contemplates 3,400 new residential units, 4 million s.f. of office space, 1 million s.f. of new civic space, 900 hotel rooms, and 1.3 million s.f. of retail space. This new development would occur on both public and private land along the Downtown waterfront, from Beale Street at the south to Auction Avenue at the north. The program would substantially increase the amount of private development in Downtown today.
In today’s dollars at buildout, the program represents a $1.3 billion private investment in real estate alone, which would bring a minimum of 21,000 new jobs to the Downtown area, and at least half again as many in “spin-off” jobs. These new workers, in addition to over 5,000 new residents and thousands of new tourists and regional visitors to the Downtown, would energize Downtown Memphis and bring business to Downtown restaurants, stores, entertainment venues, and cultural institutions. The development program will have a permanent and lasting economic impact on both Downtown and the region.
Use Existing New Development Residential Units 6,300 units 3,400 units Office Space (SF) 3.3 million s.f. 4 million s.f. Civic/Cultural Space (SF) 500,000 s.f. (est.) 1 million s.f. Hotel Rooms 2,700 rooms 900 rooms Retail Space (SF) 2.3 million s.f. 1.3 million s.f.
Additional public benefits resulting from the program include over 100 acres of new and improved public parkland, strengthening of the urban street grid, and public access to the riverfront. New parks would form an almost uninterrupted swath of public open space from the south end of Tom Lee Park to the north end of the Greenbelt Park. A new Downtown Harbor would be created, with a major new amphitheater for concerts and public events, a new Beale Street Landing, and restoration of the Cobblestones. The Wolf River, today a muddy channel that rises and falls 50 feet throughout the year, would become a stable Lake rimmed by parkland, creating an amenity for adjacent residential neighborhoods. Perhaps most importantly, the program would connect the existing Downtown to the river by eliminating and minimizing the impact of physical barriers and by extending Downtown onto Mud Island. After decades of turning its back on the river, the new Downtown Memphis will use its proximity to the river as an asset.
Finally, the plan proposes dramatic expansion of cultural facilities in Downtown Memphis. The cornerstone of the new Downtown cultural district would be a revamped and expanded Museum of the Mississippi River. The existing museum would be significantly expanded or replaced with a new building capable of attracting and accommodating greater numbers of visitors. This new facility should be specifically planned and designed with the aim of helping to anchor Downtown redevelopment. Therefore, as has been the case in other cities that have successfully launched such facilities, the new museum must embody the highest standards of architectural excellence; display a permanent collection to maximum advantage; and both mount and host touring exhibitions of broad appeal. Other sites for new civic and cultural facilities include an expansion of the convention center to the edge of the new Lake, several building pads adjacent to the existing Museum, and the site of the current Downtown Post Office.
The combined effect of this public and private investment will be to reestablish Downtown Memphis as a premier national location to do business and to live. Corporations will be attracted by Downtown’s rich package of amenities, which will make Downtown Memphis more attractive compared to other cities, as well as to suburban office locations such as East Memphis. Tourists and regional visitors will be attracted by new restaurants, entertainment options, and cultural activities and events, which will complement the present mix of visitor attractions. New residents will be drawn to the extensive new and revitalized public parks, access to recreational activities, proximity to work, and high-quality housing.
That fact that public investment in waterfront access and Downtown amenities can lead to substantial private investment has been demonstrated by successful public/private redevelopment efforts in Baltimore, Providence, Pittsburgh, Cleveland, Oakland, and a host of other American and world cities. In each of these cases public investment in waterfront improvements has been repaid with private development investment in Downtown. Moreover, each of these cities has seen its image improved dramatically, which is essential to attracting and retaining businesses in the Downtown, attracting tourists, developing an entertainment district, and encouraging middle class residents to live Downtown.
Cost to the Public of the Plan
Investment necessary to spur private investment, including creation of the new and restored public parkland proposed by the plan, has a public capital cost of about $292 million. This figure is reported in today’s dollars and excludes the cost of land acquisition, permitting and approvals, and some demolition and relocation expenses. The chart to the right summarizes the preliminary cost estimate of the public elements of the capital plan.
Over time, a significant portion of this public capital cost can be recouped through private development activity. Specifically, the RDC, or its successor entity, could realize revenue to offset public capital costs through ground leasing of public land for private development and/or earmarking of a portion of property tax revenues from property on or near the riverfront (via, for instance, tax increment financing, special assessment, or PILOT mechanisms). Of these potential revenue sources, ground leasing of public land to private developers is likely to be the most financially significant. At build-out, ground lease revenues are expected to reach $10-$15 million annually. Various property tax allocation methodologies should be explored for their potential to add to this figure. Whatever methodology is adopted will presumably recognize the importance of riverfront development to the variety of Downtown initiatives currently in design and construction.
Additional sources of capital funds will, however, need to be identified – most likely from some combination of the City, State, and Federal governments. Although ground lease revenues will ultimately reach an annual $10-$15 million, it will take at least 15-20 years and potentially significantly longer for them to reach that point. Were 100% of the public capital program to be financed, annual debt service obligations could rise to $20 million or more by the time the capital plan is completed, assuming that economic conditions remain similar to today’s over the course of build-out. Thus, funds in addition to those obtainable from private development must be identified.
The requirement of additional capital funds is largely a function of the necessary phasing of the plan. Modest private investment is likely to occur Downtown as a consequence of announcement of the plan, as developers anticipate the revitalization of the riverfront. Depending on the character and location of this private investment, it may be possible for revenues from these projects to fund the RDC’s pre-development and planning activities. Most parcels, however, will not be developable until public investment has been made. Therefore, other revenue sources besides those generated by private investment will need to be identified to fund the capital plan until ground lease and other revenue is sufficient to meet debt service on the capital plan. At that time the project will begin to deliver a return on the public’s investment. Given the likely length of build-out, it will be neither sensible nor possible to borrow all the public cost (and capitalize interest) in anticipation of (i.e. secured by) the subsequent private investment.
Plan Elements Cost ($mm) Downtown Harbor $40 Riverfront Parks $64 Land Bridge $78 North End Lake $18 Property Acquisition and Relocation $25 Pre-Development and Soft Costs $29 Contingency $38 Total: $292
Assuming reasonable success in appeals to other branches of government, there will come a point at which the RDC will be able to service all debt and begin to generate a surplus that can be dedicated to other public purposes. The timing of that event will depend on performance of the local and national economy, among other factors. Specific key determinants of the point in time at which the RDC will be able to generate a surplus include:
- The speed with which public improvements can be permitted, designed and built. Since the majority of the private development program, even under the most aggressive phasing scenarios, depends on completion of the public investment program, the faster that is completed, the sooner revenue will begin to accrue to the RDC.
- Local real estate market conditions. The underlying thesis of the plan’s private development program is that Downtown’s residential and entertainment functions can and should be strengthened, and that success in this endeavor will lead to new office development and the reintroduction of jobs to Downtown. Therefore, the financial projections underlying the plan generally assume that (1) residential growth to a critical mass, simultaneous with significant public investment in Downtown amenities precedes (2) retail and hotel development that is itself spurred by increased visitor interest in Downtown, and that (3) office development comes last — as Downtown is ultimately transformed into a “place” of interest to corporate decision makers, some of whom may be living Downtown by that point. We believe this to be a rational thesis and a reasonable development scenario given current market conditions, recent local history, and the experience of other cities.
- Terms of financings. We assume 0% inflation and a 6% interest rate on all debt. In addition, we assume that no interest on debt is capitalized at any point. Obviously, reality will differ. Relatively small shifts in these assumed conditions will have significant impacts on the RDC’s bottom line.
Notwithstanding the uncertainty inherent in making long-term economic projections, the RDC is likely to be able to service all debt and begin to generate a surplus some time between years 20 and 30. That estimate assumes reasonable success in sharing capital costs with other levels of government, generally good economic conditions, and a well-managed public capital program.
Getting Started
In addition to major planning, design, legal, and permitting activities, plan implementation will begin with $22 million of public investment and $200 million of private investment. The first public investments to achieve the plan’s vision are likely to include the renovation of the Cobblestones, and the construction of improvements to the Riverwalk Esplanade and Tom Lee Park. These improvements represent a $22 million investment. Simultaneously, the RDC would act to encourage new private real estate development in the riverfront area. Private development sites targeted for the first phase include four properties along Beale Street, as well as a major development parcel on Island Drive. Together, these parcels could accommodate nearly 1.2 million square feet of development, of which the majority (over 700,000 s.f.) is likely to be developed as residential. In addition, as the status of the Overton Heirs’ property is resolved, an additional nearly 600,000 s.f. of new development could be built between Front Street and the Land Bridge site; of this, approximately half is proposed for residential. This private 1.7 million s.f. development program would represent a $200 million investment.
The plan proposes several locations to channel new development during the next several years, including at the western end of Beale Street near where it meets the Wolf River, and the public promenade properties west of Front Street and north of Union Avenue, including the Post Office building. Further private investment is also currently possible at several sites to the north of Interstate 40, including the residential site on Mud Island, the parking lots surrounding the Pyramid, and some industrial land between Front Street and the Wolf River. The RDC should consider the use of condemnation powers to enable the development of these properties, bearing in mind that the creation of the Lake and the removal of the ramps on the Interstate will have a positive effect on their value.