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VOL. 38 | NO. 2 | Friday, January 10, 2014

Nashville building spree is less about Mayor Karl Dean, more about the city’s 10-year-old ‘50-year plan’

By Jeannie Naujeck

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If you want to see where a mayor’s true priorities lie, just look at his capital spending plan.

More than any other area of government, it’s where a mayor’s genuine wishes and priorities are expressed.

Under Bill Purcell, Nashville’s “neighborhood mayor,” capital spending focused on school buildings, modernizing the city’s IT infrastructure and redeveloping public fixtures such as the Fulton Campus, the courthouse and Public Square, a former parking lot now used for outdoor events such as Live on the Green.

But during his term and a-half, Mayor Karl Dean’s capital plans have shown a different kind of mayor.

With items like Music City Center, the new Sounds ballpark at historic Sulphur Dell, riverfront development and a splashy Gulch-SoBro bridge dominating the agenda, there’s a heavy emphasis on downtown development and projects designed for tourists and business visitors.

The projects invite the rest of the world to take a new look at Music City and see how it’s changed. But has the spate of spending catalyzed private investment to match? And how much of Dean’s spending spree on public projects has gone to burnish Nashville’s image as an “It City” – rather than enhance the lives of those who actually live and work here?

“They’re things for people who don’t necessarily live here, and there’s not as much emphasis on capital projects for the bread-and-butter activities of the city,” says Emily Evans, a longtime Metro Council member who says capital funds would be better spent on traditional government priorities such as roads and schools.

“Before a city is a place you want to visit, a city is a place you want to live. I think the emphasis on these entertainment and leisure benefits doesn’t build a legacy that makes this city a better place to live. But I certainly would love to be wrong about that.”

Dean: Focus on basic needs

Dean is quick to point out that the bulk of his spending plans have focused on basic infrastructure needs, such as sidewalks and paving, as well as projects that provide direct services to residents, including new police precincts, libraries, schools, parks, greenways, bikeways and open space.

Currently under construction are a new $9.5 million Bellevue library, a $28 million public health center on Charlotte Avenue and new police precincts in downtown and Midtown.

His capital spending plans have also invested $373 million in schools and allocated more than $40 million to improving Nashville’s walkability.

And a capital program begun in 2010 will spend more than $1 billion on a backlog of water, sewer and storm water infrastructure projects throughout Davidson County that were needed to preserve safe, clean drinking water.

That amount, he points out, is nearly twice the cost of building the new convention center.

“I am proud that the capital spending plans implemented by my administration have invested in projects that continue to make our city a great place to live and work,” Dean says.

“Large projects often get the biggest headlines, and so some of the more fundamental work that we do with capital plans has somewhat gone unnoticed, but it has actually comprised the bulk of our spending.”

Borrow and forget?

The high profile of the Music City Center convention and hotel complex does dwarf the less sexy infrastructure projects that underpin the rising skylines of downtown and The Gulch. Such big ticket items are an easy mark for those who question whether the mayor is pledging the general credit of the city to pay for them while not making a clear argument for their benefit.

“Capital projects seem so easy to elected officials,” says Evans, a municipal finance expert and vice president of Avondale Partners, LLC. “You borrow money and, with term limits, you’re not going to be around when the bill comes due, so it’s easy to make those decisions.

“You issue bonds and you only have to pay 1/20 or 1/30 of the cost each year, unlike hiring a bunch of fire or policemen, which you have to pay for each year out of the operating budget.

“And so people in government tend to be quicker about borrowing money and they forget when you borrow money for one thing that means there isn’t money for something else. It’s a zero-sum deal in the short run when it comes to capital funding, but that’s often lost on folks.”

‘Plan big and bold’

Proponents of the building projects say many of the items have been talked about for years and were started under other mayors. What’s more, Dean is carrying through on the Plan of Nashville, a 50-year growth and development plan conceived 10 years ago during the Purcell administration that anticipates an entirely different city than the one we live in now.

“You need all these steps to get there. You plan big and bold,” says Gary Gaston, design director of the Civic Design Center, who sees a connected, walkable urban environment gradually taking shape to replace a disjointed, car-dependent city.

Dean’s capital budgets have also included spending on community amenities, but they’re overshadowed by high-visibility projects such as the Music City Center convention and hotel complex, financed by pledging the general credit of the city and its taxpayers – while not making a clear argument for their benefit.

Nashville’s credit rating

Indeed, Dean’s capital spending agenda was delayed by the 2010 flood, pushing items into his second term and giving the appearance that many are and were coming online at once.

And many of the items have been talked about for years, were started under other mayors and included in the Plan of Nashville.

The credit markets haven’t stood in the way, with the city’s long-time good credit rating ensuring its bond issuance a welcome reception.

And with low interest rates, this would seem the ideal time for governments to borrow for long-planned projects. But that’s generally not a major factor in deciding to build, Evans says.

“High interest rates can obviously be very prohibitive, but I don’t think low interest rates have typically spurred public infrastructure projects,” she says.

“You undertake a building program for your city regardless of where interest rates are – presuming you’re not facing an extreme situation like you had in the mid-1980s that obviously had a significant negative impact on public projects.

“I think people who aren’t necessarily familiar with our history and the national trends in capital investment might think it’s logical, but there’s just no relationship there.”

Whether a city builds has more to do with whether a city feels it can comfortably add new debt, and nationally, the picture is much more subdued.

Total issuance of municipal bonds, both short- and long-term, fell 13 percent last year from about $420 billion in 2012 to about $366 billion in 2013, according to the Securities Industry and Financial Markets Association. This year, total municipal issuance is expected to weaken again, falling about 4 percent to an estimated $350 billion, the association’s annual dealer survey finds.

The importance of hotel bookings

Against that backdrop, Nashville’s big-ticket bond issues stand out. But whether they pay off in the long run is another story.

Music City Center is one big-ticket bond issue that, ironically, doesn’t depend on the center itself being prosperous and successful. With the hospitality tax as its biggest revenue stream, its funding depends on people staying in Davidson County hotel rooms, whether they are here to attend a convention or visit the honky-tonks.

For now, anyway, those honky-tonkers are subsidizing the convention center. The convention and trade show business is just a small part of the city’s tourism mix, Evans says, and that’s why she opposed building the new convention center.

As Music City Center hosted the Archery Trade Association’s 8,000 attendees Jan. 6-8, followed by the American Bus Association Jan. 11-15, with an expected 3,500, booking nights are below original projections.

To attract the largest conventions, centers must have convention-style hotels nearby, and the city has so far failed to secure commitments to build any more than the 800-room Omni, which was partially funded by taxpayers and is attached to the convention center.

A proposal to develop a 400-room Marriott is still on the table, but plans to build a Hyatt Regency between Second and Third avenues has reportedly fallen through due to financing issues.

Evans says many of the city’s hotel proposals are for limited-service hotels, which attract traditional tourists and families.

“They’re not your expense-account-type convention visitor hotels. So that tells you where the market is,” Evans says.

“It’s sad to have wasted $623 million serving a particular segment of our tourism market that isn’t that vibrant, compared to the cultural business and leisure travelers that obviously seem to be a very big part of our tourism business.

“I would have much rather spent it on something that made a bigger group of people come to Nashville or made the city a better place to live so that people wanted to move here. But we need to make it successful, so that’s what we’re going to do.”

Will private investment follow?

Chris Zimmerman, vice president for economic development for Smart Growth America, says convention centers have a mixed record of success.

“Factors include, what else are you doing besides building a convention center? Is it a good destination? Does it have the hotels that go along with a successful convention center? Is it well-integrated into an active neighborhood or is it a big monolithic structure that creates dead space around it? Does it integrate into the surrounding urban fabric?”

In the original Plan of Nashville, planners advised against locating a new convention center in SoBro. They recommended that a new convention center span the railroad Gulch rather than disrupt the block structure of a huge chunk of SoBro and pose issues for pedestrians and cars of how to get around a massive building.

The Korean Veterans Parkway extension and a new roundabout have mitigated that somewhat, but whether a new convention center was the best use of SoBro real estate will take years to bear out. 2017 is the Center’s projected year of stabilization.

Whether such an investment spurs private development near its locale is a long-debated theory, Evans says.

“It’s highly-contested, largely because it’s impossible to really prove a negative. How do you know it wasn’t going to happen without the public projects? That’s what continues to help the arguments for these projects.

“There’s no evidence to the contrary but there’s absolutely no way to be able to say with any certainty that because we built a convention center in SoBro that means that this restaurant or that retail outlet opened.”

Zimmerman says the key is to see large-scale public projects not as a piece, but as a part of the surrounding environment.

“If you’re going to make a big investment in a piece of infrastructure, a building or something like that, you’ve got to be looking carefully at what is going on around it and asking, ‘In what way is this investment going to leverage the accompanying private investment?’

“And often that means that you have to look closely at your land-use plans and your regulatory policies for development in the vicinity of these public investments. Failure to do that is probably the biggest reason for failure of this type of investment.”

Land use and policy changes

Nashville did make a major change in its land-use and regulatory policies in 2010 when it adopted a form-based downtown zoning code to streamline the development process and incentivize the building of public amenities within the downtown area bounded by I-40, Jefferson Street and the Cumberland River.

New codes also affected the “donut” neighborhoods surrounding and supporting it – including the now-hot areas of Rutledge Hill, the North Gulch, Germantown and Sulphur Dell, where the mayor’s new $65 million Sounds ballpark is set to open in 2015.

Rather than zoning for use, form-based codes define the size and shape of buildings and remove many of the zoning restrictions that require developers to get rezonings and variances for buildings such as the Pinnacle and Terrazzo in The Gulch.

This encourages developers to replace old one-story commercial buildings with high-density, multi-level, multi-use buildings that don’t shut down after business hours but contain pedestrian-friendly sidewalk level commerce that creates an atmosphere of bustling city life.

The form-based code had its intended effect. In the first two and a half years after it was adopted, the value of private sector downtown building permits tripled compared to the same time period before, according to Planning Department figures, and helped boost building despite the recession.

Nashville’s transition to a form-based code was so successful that Cincinnati city leaders sent five delegations here to study it before adopting its own form-based code in May 2013 to redevelop its historic neighborhoods into walkable communities.

Urban city cores and lifestyle

The transformation of Nashville’s downtown and its surrounding neighborhoods into walkable communities connected to each other is not new under Dean.

It’s in the Plan of Nashville, which anticipated Nashville’s chance to capitalize on the move back to more urban communities – a long-term trend being driven by technology and the preferences of the Millennial generation.

“We’re seeing the movement back to cities and towns everywhere,” Zimmerman says. “It’s not something that’s going away any time soon.

“The market is telling us that what people want are walkable places where they don’t have to get in their car all the time. And there’s not enough residential areas like that for people who want to buy it right now. So that’s created a new kind of pressure to turn places that were built one way and turn them around.”

Increasingly, that is in urban city cores.

Detroit’s downtown is seeing tremendous growth and investment, while the rest of the city languishes. Chicago’s downtown Loop has welcomed corporate headquarter relocations from Motorola Mobility, United Continental, Archer Daniels Midland and Hillshire Farms as those companies seek to accommodate younger workers.

New Orleans’ Central Business District is currently experiencing a boom in redevelopment of old buildings into apartments, condominiums and office space, with the number of residents in the Central Business District more than doubling over the past six years and new restaurant and retail complexes being built to serve them.

Along with the private developments are big reinvestments in public infrastructure.

“They [Millennials] are a generation that is more and more choosing where they want to live before they decide who they’re going to work for,” Zimmerman says.

“They first say, ‘I want to live in this place’ and then look for a job whereas earlier generations would say, ‘Here’s where the job is’ and then go find a place to live. So employers who want these folks are moving more and more to places those people want to be.”

Jason Hughes, president and CEO of Hughes Marino, a San Diego commercial real estate firm, says younger generations are looking for more than a job. They’re looking for a lifestyle.

“From short commutes to shopping, dining and networking opportunities within walking distance, young talent is interested in having it all, and having it all within a few blocks,” he says.

The Gulch is a gold mine

That walkable lifestyle preference is good for city coffers.

In an analysis of fiscal costs and benefits of three different development scenarios in Nashville – Bradford Hills, Lenox Village (both located off Nolensville Road south of Old Hickory Blvd., about 11 miles from downtown) and The Gulch – the higher cost of providing services to new high-density development was far outweighed by higher revenues to the Nashville-Davidson County general fund, according to Strategic Economics, a consulting firm specializing in real estate, urban and regional economics.

Of the three scenarios studied, The Gulch, a high-density infill development, yielded a whopping $1,930 net revenue per housing unit to the general fund, compared to $80 for Lenox Village, the New Urbanist development, and $30 for Bradford Hills, the conventional suburban development.

While Lenox Village cost the least per unit for government services, its revenue per unit was also lowest.

And while Bradford Hills delivered more revenue per unit than Lenox Hills, it cost 26 percent more to provide government services.

The Gulch fell in the middle in terms of cost of services per unit, but revenue generated per unit was more than double that of Bradford Hills.

Per acre, The Gulch’s financial value to the city’s general fund is even more striking.

Its net positive impact on the general fund was a whopping $115,720 – compared with $780 for Lenox Village and $100 for Bradford Hills.

Whether the relationship between public investment being leveraged for private development can be proven or not, it would appear – by this study, at least – that further urban infill developments could be a gold mine of future revenues.

Renting not buying

In Nashville, planned and under-construction rental projects will increase the number of rental units downtown 71 percent by 2017, and they will likely be snapped up, given that downtown routinely posts 98 percent occupancy rates and many buildings have waiting lists.

Prices at the Encore have risen nearly 50 percent since 2009. At Icon in The Gulch, some units are selling for more than $500 per square foot.

In the Downtown Partnership’s annual residential survey, residents most often cite “the urban experience” as their main reason for living downtown.

Increasingly, that urban experience is becoming more complete. More than 30 new retailers opened in downtown Nashville in 2013; about a third of them oriented toward residents. It’s a long way from the mid-1990s, when zoning prohibited living downtown.

In October, Arthur C. “Chris” Nelson gave a local crowd a glimpse of Nashville’s denser future and the need to build more high-occupancy rental housing.

Speaking before the Civic Design Center’s annual meeting, Nelson, professor of city and metropolitan planning and executive director of the Metropolitan Research Center at the University of Utah, said 75 percent of new housing units developed in Davidson County by 2030 will need to be rentals.

That’s because over the next 25 years, Greater Nashville will grow from 1.8 million to 3.1 million residents, a nearly 80 percent increase, he said.

And Davidson County will absorb the largest increase in single-person and childless households in Middle Tennessee, adding the youngest and most mobile new residents in the metropolitan area.

Many of them won’t buy a home – a third of Generation Y and Millennials say they are not interested in homeownership for various reasons.

But they do want walkable amenities and public transportation and Nelson said therein lies Nashville’s opportunity.

Reaping the benefits long term

Mayor Dean’s focus on downtown development may irk some residents of inner- and outer-city neighborhoods that wish he would spend more of the public debt Nashville is incurring in their areas.

But it’s becoming clearer that – perhaps with the exception of the convention center – many of the public investments are aimed at developing the rapidly growing new neighborhoods that will absorb the large number of future residents anticipated in the Plan of Nashville.

When the mayor’s planned new $16 million Gulch-to-SoBro bridge opens, it will serve as a big and bold connector over railroad tracks from the burgeoning Gulch area, which has more high-rises under construction, to the SoBro and downtown areas. There, crews are working on $7 million worth of improvements to Bridgestone Arena’s south side that will add retail and restaurants and eliminate some of the dead space pedestrians see when they walk out of the front entrance of Music City Center.

The 700-foot cable pedestrian and bicycle bridge, which was announced in September and could begin work this summer, will connect Pine Street Flats in the Gulch to Cummins Station in SoBro.

Residents will be able to walk to the riverfront, where one day they may enjoy a concert at Nashville’s new amphitheater, or toss a Frisbee and exercise their dogs at one of the new parks that are part of the $30 million to $40 million in development along the east and west bank of the riverfront.

They could continue on to Sulphur Dell for a Sounds game at the newly-built $65 million ballpark, then have a nightcap and a bite to eat at one of Germantown’s renowned restaurants before popping into Robert’s Western World for the late night honky-tonk set and continuing on home.

Former governor Phil Bredesen, who served as Nashville mayor from 1991 to 1999, and added anchors including Bridgestone Arena, LP Field, the Country Music Hall of Fame and the Downtown Library, says development depends on the “conditions” that public officials create.

“I think a lot of the growth in Nashville is not because myself or any of the other mayors actively have done something, it’s because we’ve all worked at creating … those kinds of things that make it an attractive place for people to be and to live. You do those things and then people are going to take over and make the city the kind of place that people want to live.”

Evans says the success of downtown has less to do with anything Dean has done or is doing, than policy decisions set in play 20 years ago to get more people into Nashville’s urban core.

“We’re not the ‘It City’ because of what we’ve done in the last five or six years. We are the ‘It City’ because we’ve made this city a fun, welcoming and vibrant place,” she says.

“The next 10 years will hopefully have less emphasis on these ‘glamour projects’ – particularly those that serve the sports, entertainment and tourism sectors – and more emphasis on making sure the people we have attracted to downtown continue to have a quality of life that is up to their expectation.

“No one stands alone, and what we want to make sure of is that what we’re doing today means the next mayor reaps the benefits.”

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