In Nancy Baracat Vaughan's December 29, 2013, News & Record article, City Handles Incentives Effectively, Mayor Vaughan wrote:
"While economic development has been a major priority for the council, we have been careful to not use or take funding away from other city departments, programs or services. Instead, we have worked with staff to develop new programs such as the "Big Box" initiative, designed to lure new business to retail areas that need revitalization and that function as a loan instead of an incentive."
With commercial real estate set to implode investing in commercial properties seems unwise to say the least. And yet almost every incentive considered by City Staff and City Council is an investment in commercial real estate.
The $8 Million Dollar Wyndham Hotel incentive package currently being considered includes restaurants and commercial properties to be rented to retailers. And should they give Kaplan and Kern incentives for the Wyndham then how will they be able to refuse incentives to Roy Carroll's downtown hotel project?
The Gerblings Heated Clothing incentive deal? That wasn't incentives for Gerblings. That was an incentive package for developer John Lomax who owns the building Gerblings was considering. It seems as if almost every incentive deal that comes up in Greensboro is real estate based.
The City of Greensboro has yet to reply to my January 1 public information request asking for the "strategic formula" used to determine the level of inventive that can be offered by the city so I can only guess as to what makes up the largest percentage of Greensboro's incentives but if you were to tell me it was commercial real estate I would not be at all surprised.
So developers are coming to the City to borrow money because banks won't loan money on commercial real estate. I can buy that but why are banks refusing to loan money on commercial real estate? The argument that banks can earn more money in the stock and bond markets doesn't quite fly. You see, if banks and other commercial lending institutions considered commercial real estate to be a safe investment they would simply raise lending rates to the point that the banks could earn more money making commercial loans than by playing the markets. After all, they are in the business to make the most money possible and with market rates in commercial real estate being at roughly 6.5% they can go up a long ways.
The banks have seen the bubble coming for a very long time.
So what does this mean for Greensboro? An implosion of the commercial real estate market will leave the City hung with repossessed properties worth less than the taxpayers paid for them. Properties without incentives will also go down in value which means the City will be forced to reevaluate and lower property tax values. This will result in less income for the city and a higher tax rate on all properties. Will your overall tax bill go up? That depends on where you live but no matter where you live you can expect reductions in city services as the funds disappear.
The foreclosures on commercial properties will lead to job losses and worse yet, a brain drain as Greensboro's best and brightest look to other cities for their future. And then the local housing market being already underwater, will bring us to our knees.
Yeah, the City handles incentives effectively alright.
Please continue reading Incentives In Greensboro: Part 14
