McCaffery Interests president Dan McCaffery dismisses the city finance officer's warnings. "For most of those points I can't really argue, because they're internal city finance," he concedes, but adds, "this is written by someone who wants to see the cup as half empty." Says Harold Brandt, Midwest US Group president for Brookfield Properties: "It's John Moir's job to be as conservative as he possibly can. I think John Moir's a brilliant finance guy; I'm not so sure that he's a brilliant retailer."
Two days after Moir sent his memo, the MCDA's Cramer issued a five-page rebuttal, calling the finance officer's analysis "flawed." Cramer's missive argues that there are ways to cover the city's existing Block E-related debt and also claims that "the CDBG loan does not have to be repaid." The entertainment taxes Moir calls "lost," he notes, would not exist without the development's new bars and restaurants. In the long run, the letter states, the project would produce a net benefit to the city's tax base and general fund.
Cramer also points out that the deal calls for the MCDA to receive some of the profits from retail and parking operations on Block E, after the lead investors get their share and debt service is paid; he estimates that the city's take could come to between $5 million and $10 million over the next ten years (including a share of proceeds if the project is sold).
"Steve can spin it the way he wants to spin it," Moir says when asked about Cramer's rebuttal. "But that doesn't change facts. We can manage debt as long as we have ways to pay for it."
If city policymakers can take any comfort from the latest near-meltdown, it's that they've been here before. The driving force behind trying to develop Block E has always been the city council rather than the real estate market: As even Cramer's rebuttal to Moir puts it, "Block E has never been a developer-driven project." In the 12 years since the bars, porn shops, and newsstands that once dotted the block were razed, a variety of proposals have been floated, dissected, and ultimately killed.
Calhoun Square creator Ray Harris once had exclusive development rights, but he lost them when he couldn't put together financing amid the real estate doldrums of the early Nineties. When Brookfield was first awarded development rights to the block in the fall of 1996, it proposed a $143 million project including a retail and entertainment complex topped by an office tower for the burgeoning Target Corp. headquarters staff. But as negotiations dragged on, Target found a new corporate home at the south end of Nicollet Mall instead. The city then encouraged Brandt to work with DDRM Entertainment of Anaheim, California, a fruitless effort Brandt now says only served to slow him down.
In 1997 a restructured $101 million package from Brookfield--sans office tower, but with a hotel added--called for $38.1 million in public money; that proposal was derailed in June 1998, when Brandt's then-financial partner, San Diego-based Excel Legacy Corp., bailed out. McCaffery signed on in October of that year, and last fall the Chicago-based firm took on the role of lead developer. Brookfield, McCaffery notes, has a large portfolio of office properties in the United States and Canada (its local projects include City Center and Gaviidae Common in downtown Minneapolis). But the firm is "not necessarily a player in the retail community, and it's particularly not involved in retail entertainment projects. I am."
Brookfield's Brandt says that in his view, the project has made tremendous progress with McCaffery at the helm. He argues that the current proposal should be considered without regard to the deal's troubled history and dubs the latest snag "one small hiccup."
"What the city has told us repeatedly is that they want an entertainment project," Brandt says. "We've got that. It would be a sad day for the city if this project should be allowed to die." To council critics who have attacked the proposed complex as unimaginative, Brandt responds: "The city spent tens of millions of dollars to produce a Target store. They're not exactly unique."
Steve Dombrovski, president of Suntide88 Commercial Realty, a local retail leasing agent, says it's not hard to guess what has gone wrong on Block E. "Time kills deals," he says. "That's an age-old saying in the real estate business." Other challenges, he adds, include a lack of residential property downtown: "You can't pay rent seven days a week and only have business five days." The latest twist, Dombrovski says, could ultimately help lead to a better solution for the troubled block. "I still think at some point somebody is going to figure out what really makes the most sense."
Meanwhile, the man who set off the current scramble is in no mood for postmortems. Reached for comment on his exit from the Block E project, James Binger says, "It became quite clear to me that it didn't suit me, okay?" And with that he hangs up the phone.