VOL. 121 | NO. 46 | Friday, February 24, 2006
Officials Use Obscure Tax Incentive to Lure Bass Pro to Pyramid
By Andy Meek
Dennis Sturtevant's job is more or less alchemy.
As the head of a nonprofit group in Michigan that creates affordable housing and shores up declining neighborhoods, he turns ordinary - and, in many cases, forgotten - strands of public material into gold.
That's what his group, Dwelling Place, is doing with a smattering of dilapidated buildings that are tucked away in a part of Grand Rapids progress apparently couldn't reach. Community interest in the buildings' historic character was strong, so Dwelling Place transformed them into a gleaming, mixed-use arts complex with 23 live-work spaces. A local college also is leasing space in the development, and a small café is opening there at the end of the month.
The linchpin of the whole deal was a little-known federal tax incentive called the New Markets Tax Credit Program - the same financial lure that has loomed large in a redevelopment plan for The Pyramid arena in Memphis.
"When we went about the process of looking to finance all this, that's where these new markets tax credits came in," Sturtevant said. "We used a combination of things: mostly traditional financing, an interest-only loan, and for the housing portion, we used some public funds through the state of Michigan.
"We also received a $1 million gift that we loaned to the project for this. Doing all that created about $7.5 million in financing, and we generated some $2.2 million in equity from the new markets tax credits. So we'll definitely try to use it again somewhere else for another project down the road."
Memphis' golden opportunity
That's one example of the transforming power of the tax credit program, which has been used in several cities to lay the groundwork for Downtown redevelopment plans. Since they were created by Congress in 2000, the credits also have financed the rebuilding of manufacturing businesses and boosted arts districts nationwide. They've been used to start charter schools and community centers.
And in Memphis, they've been used to reel in a retail catch like no other: Springfield, Mo.-based Bass Pro Shops, a destination retailer that might end up turning the defunct Pyramid into a bustling megastore.
A press conference will be held today at 10 a.m. with Bass Pro officials to discuss their plans in the Kings Chamber Room of The Pyramid.
"I'm kind of excited to hear what specific plans they intend to lay out. This is really their first public acknowledgement that 'We, as Bass Pro, are serious about doing something in Memphis.'"
- Scott Ledbetter
Member of The Pyramid re-use committee
Pyramid re-use committee member Scott Ledbetter, founder and CEO of SPL Corp. and CB Richard Ellis Multifamily and founder and past chairman of LEDIC Management Group Inc., said the new markets tax credits probably would be used to generate between $30 million and $35 million in equity for The Pyramid's redevelopment, a figure that's based on what Bass Pro is expected to spend.
"It's huge," Ledbetter said of the incentive program. "Bass Pro would not do this project if they could not get this kind of incentive. Somewhere else, the developer would probably be providing the equity, doing it in a traditional sense.
"Yet we're using this incentive to encourage them to locate not in Wolfchase, but rather in a real untested area of Downtown Memphis."
Potential in unexpected places
An official proposal has yet to be made regarding The Pyramid, but there are plenty of ideas. Some of those possible uses, as well as construction start dates and building amenities, probably will be presented at the press conference today.
Possibilities that already have been floated publicly include a 250-room hotel within The Pyramid; a 500-room hotel between The Pyramid and Memphis Cook Convention Center; a Bass Pro boat merchandising area by the Mississippi River; and community rooms within The Pyramid.
"The Mississippi River and the Wolf (River), in particular, could be just full of activity demonstrating and selling boats, which is a great use for that area," Ledbetter said.
Whatever construction plans are in store should be known once city and county officials sign off on a development agreement that probably will be about 100 pages long.
"I'm kind of excited to hear what specific plans they intend to lay out," Ledbetter said. "This is really their first public acknowledgement that 'We, as Bass Pro, are serious about doing something in Memphis.'"
Making a federal case
That's thanks in no small part to the federal tax credits that will provide most of the project's financing.
"And they're used to bring investment capital into low-income communities to support business development that wouldn't otherwise happen," said Alison Feighan, vice president and partner with Rapoza Associates, a Washington lobbying firm.
New markets tax credits offer a 39 percent deduction of the cost of the project spread out over seven years.
In 1998, a group of local, regional and national community development organizations banded together to advocate for a federal tax credit that ultimately became the NMTC Program. The group lists several success stories at www.newmarketstaxcreditcoali
For example, in Cleveland, Ohio, a $6.2 million revitalization of the city's Arbor Park Place shopping center was financed with $1.57 million generated from the NMTCs. The refurbished development in one of the city's most blighted neighborhoods saw the addition of a grocery store, banking center and other tenants.
In West Virginia, the NMTCs provided $1.2 million to help finance the opening of a coal mine in the town of Pineville, which generated a $4.8 million profit in its first six months and created 50 jobs.
In Memphis, a Bass Pro megastore within the long-vacant Pyramid appears poised to be the next addition to that list.
"The (NMTC Program) was created by the federal government to incentivize commercial development," Ledbetter said. "And we're excited that we have the resources of federal dollars for this rather than city and county money."