City officials are exploring multiple options for financing $15 million in infrastructure improvements at the Sears Crosstown site, key funding that could make or break the ambitious $175 million project.
Housing and Community Development director Robert Lipscomb said the cash-strapped city is currently focused on acquiring non-city financing for the city’s $15 million contribution, money that is essential to the Crosstown development team’s ability to close financing on the remaining $150 million needed to fund the project.
The $175 million Crosstown redevelopment project is at a make-or-break point with funding, as the city considers financial options.
(Daily News File/Lance Murphey)
“We’re trying to find options because it’s an important, transformational project,” said Lipscomb. “Anytime somebody brings that kind of private capital to the table we have to look at all our funding options, particularly at the federal and state level.”
The city money is a key requirement for the development team’s ability to secure up to $25 million in New Market Tax Credit funding by the end of the year. The New Market Tax Credit funding is, in turn, crucial for securing the maze of other financing that has already been committed to the project.
“The city investment is the last piece that allows us to leverage the other $150 million in financing that has been committed,” said project co-leader Todd Richardson. “It doesn’t matter to us where the city contribution comes from, whether it’s from money that has already been approved or from external sources, but we have to have that $15 million in order to close our financing.”
So far, project backers have received commitments for $25 million in philanthropic donations, roughly $85 million in bank financing and preliminary approval for $30 million in Historic Tax Credits, for a total of $140 million.
But that funding could be in jeopardy if the city can’t make its $15 million contribution.
“A lot of the financing has really come together,” said project co-leader McLean Wilson. “The last big variable is the city piece, as it should be. I’m a firm believer that you come before the city after you’ve done your work and that’s where we are. In order to secure the commitments we’ve received, the last piece is the city.”
The city’s funding would be used for infrastructure improvements, such as sewer repairs and improving sidewalks and roads.
“We are not asking them to do all the blight removal and infrastructure improvements but we are asking them to participate in a meaningful investment alongside us,” Wilson said.
The Crosstown team is seeking to redevelop the giant 1.5 million-square-foot Sears building, constructed in 1927, through arts, education and health care. The plans also include a mix of market rate and affordable rental units plus retail at the 86-year-old structure.
Backers say transforming the hulking Crosstown building from a deteriorating eyesore into a thriving hub for arts, education and health care would breathe new life into surrounding neighborhoods and Midtown as a whole. The building has been empty for years. The retail store closed in 1983 and the distribution center was shuttered a decade later.
Since then, neighborhood leaders, architects, preservationists and developers have been hoping the building could be brought back to life.
The development team’s plan focuses on creating a vibrant urban hub that brings students, health care providers and consumers, shoppers and residents together at the art deco behemoth.
The project includes St. Jude Children’s Research Hospital, ALSAC (the fundraising arm of St. Jude), Crosstown Arts, Gestalt Community Schools, Memphis Teacher Residency, Methodist Le Bonheur Healthcare, Church Health Center and Rhodes College as founding partners that have pledged to be tenants in the redeveloped building.
The project’s financial impact on the city would be massive, according to a report from RKG Associates Inc.
Once complete, the project would create nearly 900 new jobs – three times the new jobs the Mitsubishi Electric Power Products Inc. will create and near the 1,200 jobs the Electrolux plant could create over five years. There would be net wages of $36.9 million and produce $1.5 million in annual sales tax revenue. Construction of the project would create 997 jobs with a net payroll of $50.1 million.
RKG estimated the project would lead to $384 million in wages, $82 million in consumer spending and $15.6 million in sales tax revenue over a 10-year period.
“The payback to the city is huge and quick and it’s all for a project the profits of which are reinvested back into the building and the neighborhood,” Richardson said.
The Crosstown financing issue comes as the city struggles with debt and other financial issues and has reduced capital spending levels, even as multiple major redevelopment projects – such as the Mid-South Fairgrounds and Raleigh Springs Mall, among others – compete for increasingly scarce dollars.
The city has been willing to invest, through CIP dollars or financing methods like Tourist Development Zones, in major and minor redevelopment projects.
The city of Memphis helped kick start the redevelopment of Overton Square when it agreed to invest $16 million in a new parking garage, which includes a detention basin underneath it that will help ease flooding in Midtown. The city spent millions to upgrade Liberty Bowl Memorial Stadium, including the creation of Tiger Lane. And earlier this week the council gave tentative approval for $1.5 million in capital funding for renovations to Southbrook Mall in Whitehaven.
The Crosstown development team’s financing issues are not new to City Hall.
In March, the team asked city leaders to approve the $15 million in funding, but only $1 million has been approved so far. Mayor A C Wharton Jr. proposed, and the City Council approved, $1 million in capital improvement funds for the fiscal year that began July 1.