RochesterJunto.com

$250,000 Option to Buy Midtown for $6 Million

2006-11-13T09:38:00.000-05:00

Last week Bob Duffy announced a bold plan to secure a $250,000 option to buy Midtown Plaza for $6 Million by February 13, 2007. Everyone knows that downtown Rochester will never become the bustling place that it once was until the Midtown and Sibley buildings have been intelligently redeveloped. The black hole of vacancy they create in the city's center is a cancer that scares off businesses and residents alike. I desperately want them both to be addressed. The question is how, and is this option the answer. Let's look at how this has played out to date.

Midtown was purchased in 1997 for $23.5 million and due to a steady exodus of tenants the owner filed for bankruptcy and the lender, Blackacre, took possession of the property in 2001. By 2005 the Rochester Downtown Development Corp. estimates that Midtown is nearly 90% vacant. Midtown Rochester Properties (the entity formed to manage the property) found out this year that the only remaining anchor tenant, JP Morgan Chase, will be moving out in the spring. The rents from the property can no longer cover even the property taxes. Property manager Lawrence Cohen tells the city in a letter dated November 9 that he is, "pleased to offer the City of Rochester the option to buy Midtown Plaza." As a real estate investor, I'd be pleased to dump a giant liability on someone else and charge them a premium to take it too!

In their defence, Bob Duffy and City Council, have the best intentions for Midtown. I know they want to step in and take control over what happens with the development there. The problem here is the nature of the deal. First a lesson in options. A buyer pays an agreed upon amount of money for an option. That option locks the purchase price and terms of sale for a period of time stipulated in the option contract. In this case it is a laughable 90 day window. Most options are measured in years, unless immediate action for development or flipping the property is planned by the buyer. In this case the city is paying the seller a non-refundable $250,000 that gives them the exclusive right to pay an additional $5,750,000 to buy Midtown before February 13th.

The D&C reported that the city worried about less than reputable developers buying Midtown and simply sitting on it to collect what little rents are coming in. I say we should be so lucky. Any developer who would buy a property with tens of millions of dollars in deferred maintenance and asbestos abatement liability coupled with roughly $800,000 dollars in annual tax liability will have to default on the taxes to break even. At that point, the city can take back Midtown for only the cost of completing the foreclosure. Another thing to consider is that the current owner is actually paying the taxes and is current on them. If the city buys the building, we loose nearly a million dollars a year in tax revenue.

City Council should either counter offer Midtown Rochester Properties LLC with a $25,000 option price with all the same terms, or call their bluff. Vacant buildings with a fraction of the risk exposure and complexity to rehabilitate sit on the market for years in this city. Let them try to sell it. After the city has collected another $800,000 in taxes next year, make an offer to buy it for $3 Million. For a 90% vacant asbestos liability needing tens or hundreds of millions of dollars in renovation that may still be too much. Furthermore, the city is about to pay $250,000 for the option before it actually conducts the due diligence to see what condition the property is in, what the rent rolls look like, or even have their consultants develop an informed estimate of fair market value.

If an employee of mine bought a $250,000 option before doing the due diligence and having all the information I would fire them on the spot.

America: Welcome to the Police State

2006-10-25T10:44:00.000-04:00

You've heard that "Freedom to assemble" is a Constitutional Right... right? This is what freedom of assembly looks like in the United States. Thank God we don't live in some oppressive country where our basic liberties aren't protected! Is this the Democracy we are fighting to protect overseas? I welcome your comments.

Whatever Happened To Credibility?

2006-10-23T19:42:00.000-04:00

Rochester's Achilles Heel - Property Tax

2006-10-23T12:19:00.000-04:00

Rochester has plenty of plenty of things going for it that would attract people from outside the area, so what is it that holds us down. I don't believe it's the Kodak layoffs, the sky high sales taxes, or even the flight of manufacturing jobs to China. To misquote a popular campaign slogan, it's the property taxes stupid.

Rochester is in the best position for an economic recovery it has seen in twenty years. No, I'm not crazy. Our missing the property value bubble that has occurred during the past 15 years was the best thing that could have happened to us. We are completely hedged against any major down turn in the housing market, and we are one of the few affordable housing markets left in the country that isn't in the sticks. With the highest paying jobs in the nation being the most conducive to telecommuting we are in a fantastic position to attract high income workers tired of commuting three hours a day. The single biggest factor stopping someone from moving here is the property tax.

The D&C today has a great article that addresses this crisis and paints a clear picture of the problem. This excerpt about a Massachusetts family with Rochester ties illustrates this point perfectly.

But he's not coming home. The reason: property taxes.

"If the taxes were close to similar, we'd be back," he said. "It would be a no-brainer."

Here's the math: His present 2,600-square-foot house is worth about $525,000. Taxes are about $4,400 a year.
He could buy a similar house in a Rochester suburb for $300,000 to $350,000. But the taxes in, say, Canandaigua would be about $9,100. They would be even more in Webster — closer to $12,000, he figured.
"We're staying put," he said.

This is by no means an isolated case. In fact, one of my best friends moved to the Boston area to attend MIT. From there he got a job as a Microsoft consultant and settled in to a house roughly an hour west of the city. His average commute is three hours a day and his wife suffers the same fate. We spoke two months ago about his thoughts on moving to Rochester. With both of their parents living in Penfield, they are eager to return to the area. The quote above was nearly identical to our conversation. There was no way my buddy was paying a 300% tax burden for the "privilege" of living in NY.

Comparing the proportion of the average home's value that is paid in taxes annually, Monroe County ranks #2 in the Nation! Unbelievably, school taxes account for 60% of our property tax burden. I firmly believe that education is one of the highest priorities in American society, but this is an outrage. How efficiently do you think school funds are spent? The Rochester city school budget of $582.9 million is nearly 50% larger than the entire city budget of $403 Million. Why is it that serving 34,000 students costs that more than serving 219,000 residents? Why are Rochestarians not demanding the Teacher's Union reevaluate their belief that more money equals better education? I challenge any Teacher's Union member to graph the city school budget with graduation rates, average GPA, or any other success indicator and try to make the argument that giving more money to that bloated institution equals improvement. Without a union, we could probably demand that salaries of administrators had some performance based indexing... Sadly, to a union that's unthinkable.

We need to fix our property tax problem, or face economic collapse. The city schools are the first place to look for efficiency. Too bad Spitzer has decided to not ask for spending caps from schools... Must be that Teacher's Union endorsement has him out of crusader mode. Go Figure.

Renaissance Square Resources

2006-10-21T15:41:00.000-04:00

To compliment our previous post about demanding LEED Platinum Certification for Renaissance Square we wanted to provide you with some additional information about the project.

The last link is a great report that studied the whole project lifecycle of over 30 building projects and has loads of information. Here's two of the graphs from that report illustrating the savings:

The Junto's New Look

2006-10-20T16:52:00.000-04:00

Sorry to change the look and feel of the site on you, but I have had some serious problems with the site displaying correctly on Internet Explorer. The new site now scales to the size of your window for a more user-friendly experience. The new site also allows for a number of additional improvements that will be installed over the next few weeks and months. If you have any questions or suggestions you can email me at rochesterjunto@gmail.com.

Unions Holding Rochester Back?

2006-10-20T15:27:00.000-04:00

In his controversial speech this week, Joe Klein fingered unions as one of the causes of Rochester's woes. Are unions really that bad, and how does an organization of employees hurt us? Let's do a brief recap of American unions.

During the 1800's and early 1900's employees as young as 5 worked 18 hours a day in conditions so horrendous that is was not uncommon to see bodies carried out of the jobsite with some regularity. If you were injured, you were fired and likely starved to death. By the 1970's labor unions had made tremendous contributions to America's working class and had won 8 hour work says, workers comp for injured employees, a minimum working age and numerous other worthy benefits. This rich history of fighting for the little guy was hijacked in the mid 19th century by the mafia. Corrupt union leaders and politicians realized the massive voting power of these labor groups. If you disagree I have two words: Jimmy Hoffa. Hoffa was a corrupt union leader whose mafia connections netted him a pair of cement shoes in the 70’s.

In the year 2006 we find the working world very transparent and employers are frequently honored for their working conditions. Employers who treat employees like crap can't keep good employees in this new fluid information age. Barriers to switching employers are almost nonexistent. Now unions seem to function primarily as voting blocks that politicians will sell their soul to win the support of, and as a tool to extort employers to the point of financial collapse. This is not to implicate that every union is corrupt or detrimental to business, but that it is a pervasive problem. One of my first encounters with a union employee was at the MCC automotive school in Henrietta. Much to my RIT College of Business colleagues’ amusement I elected to take a brakes and welding class. There I met a 25 year old guy we’ll call Steve.

Steve and I talked often about his job as a union employee at Delphi. Steve told me about the first few weeks on the job when the more senior employees demanded he slow down his productivity so as not to make the others look bad. His production in his first few weeks on the job far outpaced guys who had been there for years. On more than one occasion, while showing off his brand new red Corvette, Steve bragged about having only changed a few tires all day on the job. Needless to say, this pissed me off. I was paying $25,000 a year to get a degree that would land me a finance job that I drove to in a car that barely functioned. The job started at $28,000. Steve, 25 years old with no degree, was making $52,000 and shared with me that in short order he would be making nearly $90,000 as a journeyman. Clearly the union was working, employees were excellently represented. But then something happened. They priced themselves right out of a job.

A recent D&C article read, “Delphi Corp.'s bankruptcy could change the U.S. auto industry, experts say, ratcheting up pressure to produce cheaper parts overseas and forcing deep cuts in union wages and benefits and manufacturing employment. Delphi, the largest U.S. auto supplier, expects to close many of its 31 domestic plants as part of its reorganization.” The airlines are dominated by unions and are constantly going back to the taxpayer trough to get bailed out because they can’t make the business decisions needed to stay profitable. Soon GM will be in bankruptcy because of management’s blind allegiance to the internal combustion engine, inability to innovate, and the labor union’s crushing influence over tactical business decisions. UAW workers will scream about layoffs of their employees being paid $60,000+ to sit next to a robot and ensure it keeps chugging along, blind the real cause of their plight. To be sure I will investigate and discuss the platforms and impacts of our local labor organizations in future entries.

Random, Yes. Amazing, Absolutely.

2006-10-19T19:09:00.000-04:00

City Schools, Reevaluate Your $3M Purchase

2006-10-19T17:06:00.000-04:00

Today I learned that the Rochester City School district announced a deal that basically gives all the schools (voice over internet protocol) VOIP phone service. Basically, the data lines for your computer's internet connection also carry the phone signal. The great part about this is that the district will save $1M a year. Great thinking... but with $3M what could we do in the IT world. For starters, consider the fact that a crafty school IT department might have realized that you can get those phones free. Go to Vonage.com and sign up for VOIP service and you can get a free phone. I realize that large networks take a bit more than a free phone, but hear me out.

My dream is that one day we will have visionary people making the big decisions for this community and make Rochester a leader again. The bigger picture that we are missing out on is municipal wifi. Municipal wifi is a wireless internet network, generally provided by the city, that enables all residents to access high bandwidth wireless internet connections. Rochester is trying to position itself as a knowledge economy to compete for the jobs that are still being created on our shores, and this would really enforce that branding message. Based on the cost of the Philadelphia wifi system I calculated our cost to be between $2.5 and $3.75M to cover every square inch of our city with high bandwidth wifi that the school district could retail to residents and provide for free to low income households. Imagine if the school district had the foresight to build this network (for the same cost), put Rochester on the map for yet another innovative decision, and MAKE money off the installation.

If anyone who can make a purchasing decision from the school district is reading this, I would implore you to seek unbiased council on this matter with the RIT Golisano College of Computing and Information Sciences to validate my claims. ICS Telecom, the guys doing the current install will tell you I'm nuts. If they're smart, they just might fill out the RFP to install the municipal wifi instead and plug the phones into that. $2.9M spent with 7000 phones and no network, or $2.9M spent with wifi for 220,000 city residents and 7,000 free Vonage phones. We need to demand more of ourselves.

Klein's Comments on State's Woes Praiseworthy

2006-10-18T15:00:00.000-04:00

An article in today's Democrat & Chronicle highlighted the RBA Small Business Council's Businessperson of the Year, award winner Joe Klein. Mr. Klein is a native Rochesterian who has built a customized steel manufacturing company here, Klein Steel, which employs about 135 people. During his acceptance speech he criticized specific legislators, union officials and companies doing business with state government whom he felt made New York, "not a fair, honorable state to live in." Amen!

New York has been hijacked by a bunch of power hungry, self righteous, pork barreling goons. They have managed to turn the state completely upside down. We are currently rated as having among the worst state governments, sales tax rates, property tax rates, income tax rates, highest, workers comp rates, and overall business climate. Why the heck is everyone else in the business community taking this lying down? I don't know Mr. Klein well, but I did have the privilege of serving with him on Bob Duffy's Economic Development Transition Team. Joe Klein loves this community and has been fighting hard for years to keep a business growing despite the obstacles of doing business in this state. I applaud Joe for standing up and making the case that New York is on its knees and unless more people stand up against the status quo, we're in for some serious hard times.

The Rochester Business Alliance and the Small Business Council president, Thomas Ioele, both distanced themselves from Mr. Klein and his remarks after it became clear that feathers were ruffled. It is a shame to see an organization created to help businesses thrive in Rochester, NY pass on the opportunity to build support around Joe Klein's comments.

Admittedly I have not yet heard the full content of the speech and will be making every effort to find it and make it available to you.

Rochester - Then and Now

2006-10-17T20:58:00.000-04:00

This is a 1963 promotional video highlighting Midtown Plaza & Rochester

Here is a spoof someone recently made using that video to illustrate what poor stewards of the city we have been for the past 40 years.

Hopefully this reminds you of Rochester's historic optimism and contrasts it with our current "woe is me" attitude. The community's attitude towards the city's future needs to be more in line with the attitudes of 40 years ago if we are going to turn this city around. There's a lot that needs doing, but there's nothing we can't do.

New York: 4200 Local Governments and Growing

2006-10-16T17:53:00.000-04:00

One of the primary goals of this blog is to identify critical problems that keep our region stifled from its true potential. It is no mystery that New York State has been consistently rated among the worst and most inefficient governments in the Nation. There are so may areas for improvement that I could write an article a day for the rest of my life and not run out of topics. We need to look for the big ones, use that paretto principle - the 80/20 rule - and pick our battles.

Former Mayor Bill Johnson was a lot of things, and nearly all of them left me wanting more from Rochester’s leadership. One of his more controversial proposals was to begin merging parts of county and city governments. On the surface this sounds innocuous enough, but it is really an excellent way to streamline government. There are nearly 30 towns and villages in Monroe County alone. Nearly every one of those has zoning boards, fire departments, police forces, and countless other layers of government. Here are some interesting statistics on New York from a recent D&C article about this topic:

· 932 towns
· 554 villages
· 62 cities
· 57 counties
· 700 school districts
· 867 fire districts
· More than 1,000 special-purpose local

How is it possible that we need 1500 different town and village governing bodies in one state? Consider that the town of Penfield’s web site lists 20 departments. If each of these governing bodies had 20 departments with only one employee in each that’s a minimum of 30,000 state employees… who do largely redundant tasks. If New York was a company it would be long overdue for some major restructuring. Until our citizenry actually gets disgusted enough with our government to turn up at the polls, we will just have to keep on being the highest taxed people in the country.

Feeling Bored?

2006-10-15T23:50:00.000-04:00

Frank Caliendo Doing an Amazing George Bush Impersonation

List of the top 100 websites in the United States

Ever Wonder What a Depth Charge Detonation is Like?

A Farewell to Habeas Corpus

TEDTalks: Talks By World's Biggest Innovators

2006-10-15T01:48:00.000-04:00

I have been watching these videos for the past few weeks off and on. They are a series of 20 minute talks by some of the most gifted and innovative people of our time. Each one has the opportunity to speak for 20 minutes about anything they desire to share that has, or could possibly, benefit society. TEDTalks is the name of the video section but be sure to look into TED.com. They are a group with an amazing mission.

Avoid Power Outages and Improve The Environment

2006-10-13T12:44:00.000-04:00

The big story in the paper today reads, "Snows close down 105 miles of I-90, leaves 350,000 without power." In our part of the world we are spared from the torment of hurricanes, tornadoes, earthquakes, tsunamis and nearly every other form of natural disaster. The exception being Rochester's notorious winter storms that have been known to leave people without power for up to several weeks. Googling around for a few minutes led me to a fantastic technology called Combined Cooling, Heating, and Power (CCHP) that delivers distributed generation of energy, heating, and cooling. The basic premise of distributed generation is that nearly 50% of all the energy in the US is lost to production losses at the plant and transmission losses over our huge, antiquated, grid.

Home CCHP systems have the chance of freeing us from the notoriouisly abusive pricing of New York energy companies. In a nutshell CCHP systems are onsite gas fired turbine generators that use the waste heat to heat and - believe it or not - cool your home. Power generation is often over 90% efficient, has no transmission losses and you don't need to pay for it to be delivered to your home. The result is a clean efficient generator/furnace/air conditioner in a box located in your basement. When the power goes out in your neighborhood, you will only notice when your neighbors show up at your door to enjoy your heat and functional appliances!

This technology is also the kind of thing we should be integrating into the Renaissance Square LEED Platinum building design. The Transamerica Pyramid building in the financial district of San Francisco is in the process of installing a 1.1 MW CHP system. Some interesting savings they expect to see that we should demand of RenSquare are:

Recovered waste heat from the engines will be used to heat the building, displacing 100% of the steam currently purchased for heating purposes.
Waste heat will drive a 320-ton absorption chiller that will be installed to create chilled water for the building”.
Double the overall fuel efficiency over utility-produced power.
40% reduction in greenhouse gasses.
Zero downtime of electricity availability due to on-site generation

To that point, the CHP system installed at Saddleback Community College in San Diego, CA is estimated to produced a monetary savings of $11.2 million over the next 15 years. Are we demanding enough of our city?

Could Renaissance Square Be a Turning Point?

2006-10-12T14:32:00.000-04:00

RenSquare, as it has come to be known, has the potential to be a huge money pit that drives smaller theatre venues out of business and sinks like our last major experiment. It is also just as likely to serve as a beacon in the middle of downtown showing the resolve, commitment, and compassion that city residents feel deep down for our embattled city center. The difference is in the management and high-level decision making that will be ongoing until its completion some time in 2010.

Let's be honest, the business plan that preceded the fast ferry would not have gotten me a passing grade in my RIT business classes. Somehow, it was good enough for Bill Johnson to stake our collective financial futures on with no downside protection. Rochester could easily support a trans-Ontario ferry service to Toronto and make a buck doing it. If we had two smaller boats with mutually convenient schedules on both shores and the option of running one boat during off-peak periods at a fraction the cost of the "Cat." The planning and management were catastrophic and the ferry failed.

Now we find ourselves, as a community, at the brink of putting nearly a quarter of a billion dollars into Renaissance Square. Believe it or not, I am all for it and I am going to do everything in my power to ensure we knock this one out of the park.

Last night I attended the fifth public workshop for the project along with a pitifully small group of other interested onlookers and members of the media. While listening to the lead architect, Moshe Safdie, I realized that we had a very talented man at the helm of this project. Further research revealed that we have one of the most prolific architects in the world designing a complex for us that embodies more than a building. Safdie is a brilliant man who sees his creations as tools to improve the very substance of urban living. Late last night while watching video clips of Safdie discussing projects he completed in Toronto, Israel, Vancouver and Montreal it occurred to me that he seemed more alive than he did discussing Renaissance Square. Why?

I don't think that we, as a community, have demanded enough of this facility. Safdie has been described as a "maverick" and is undoubtedly one of the most innovative architects around. Our project may be huge by measure of dollars invested, but it is the innovators equivalent of being asked to design you a paperweight. We’ve invested millions of dollars in a very capable architect. Let’s make sure he invests his full attention and skill set in us. Safdie has a soft spot for cleaner, greener urban living and we are poised to become one of the leading alternative energy economies in America. Let's make Renaissance Square a beacon of progress and innovation, something to put us on the map and be proud of.

The U.S. Green Building Council has created the Leadership in Energy and Environmental Design (LEED) Green Building Rating System™ as the nationally accepted benchmark for the design, construction, and operation of high performance green buildings. The four levels of certification are Bronze, Silver, Gold and Platinum. Amazingly there are only 15 Platinum certified buildings in the US, and they can be seen on this map made by fundinggreenbuildings.com.

The notion of having a more efficient building in our city is not just some treehugger’s pipedream, but a commonsense solution for a number of our problems.

LEED buildings have dramatically reduced total cost of ownership because of the green building materials and techniques that can save up to 100% of some utilities cost. The last thing this city needs is to be paying the bills for another albatross.
Building the necessary excitement in the community to raise $30+ Million in private money will take more than your average public building project.
Platinum certified buildings are rare enough that having one would put Rochester on the map for building innovation. As companies look for site selection, we will find ourselves on a very short list of sustainability-minded knowledge economies.
This would do more to brand Rochester as a progressive place to live than any other initiative publicly discussed to date, especially as we try to re-brand ourselves for the clean energy economy.
Once completed, RenSquare would be an iconic symbol of pride for the people of Rochester and lead to future pollution-fighting building development in our region.

For a building that tax payers will be paying operating costs for over the next century or so, I would say that Platinum LEED certification should be as high a priority as where to locate the bus terminal.

Let's make a stand, and demand more for our city. There aren't too many opportunities for the community to direct $230 Million in development downtown. We can't afford another fast ferry, and we really need a homerun to bring back some desperately needed civic pride. Mr. Safdie, please consider this a personal and professional challenge to deliver to Rochester one of the most innovative, sustainable, and pivotal green design projects in North America.

Rochester Junto - Necessity is the Mother of Invention

2006-10-11T10:18:00.000-04:00

Rochester, NY was once well on its way to becoming a major city in the American landscape. Some of the most significant inventions of our time in photography, xerography, and optics have been developed in our city. Despite this rich history of innovation and entrepreneurship, Rochester's population has decreased to its lowest level since the census of 1900. What were the public and private sector successes that led to our becoming America's first boomtown? Where have we gone wrong since? Like you, I have plenty of opinions about our politicians, laws, taxes and local business policies. My hope is that we can come together to use this blog as a forum to learn, share, debate and innovate.

This year marks my first full year back in Rochester since moving away in 2000 after getting my Bachelors in Finance from RIT. I see opportunity all around me. When I left, I never wanted to come back to Rochester. My family had moved away in 1997, my friends had all taken jobs in big cities, and I saw no potential for me here. Having since spent time in Boston, Richmond, Philadelphia, NYC, and Atlanta as well as getting some international travel under my belt I began to see the true value in Rochester. In 2005 I purchased two multifamily homes in the city, quit my six figure consulting job and moved back to my hometown.

I have been blessed with an amazing network of friends and colleagues who are every bit as dedicated to turning this city around as I am. In December I was lucky enough to be called upon by Bob Duffy to be a member of his Economic Development Transition Team. The discussions we engaged in there opened my eyes to the wealth of possibilities that lie within our reach. Currently, I am neck deep in starting a website with business partner, Daniel Mooney. We hope it will be a major victory for local small business. Please, help me engage our community members and leaders in meaningful discussions by contributing heartfelt productive commentary on this blog.

As this effort evolves I will try to make the format more interactive with forums and increased user interaction. Stay tuned.