The City of Omaha offered larger-than-normal incentives to its Civic Auditorium site developer in hopes of attracting a major employer and a new high-rise office building to downtown.
Responding to requests from Tetrad Property Group, Mayor Jean Stothert offered more than $60 million in incentives. But some of the city’s offer came with a big condition. Stothert said Tetrad would have to land a corporate headquarters-type tenant, a 400,000 square-foot office building with 1,500 employees.
Instead, Tetrad backed out of the project Tuesday.
Stothert said the city was willing to make an extraordinary offer to bring a major redevelopment to downtown Omaha, one that would bring employment and business, and enhance the city skyline.
“Downtown development is important,” Stothert said. “It would be worth it to us to say, you can have this if you can land a major tenant. But we weren’t going to do it for them at no cost if they were just going to do a mixed-use development without a major tenant.”
In February, Tetrad had asked for more incentives — such as free use of a city-owned parking garage, a new parking garage to be built by the city, and free land. The mayor didn’t agree to all of them, but the city’s offer met the developer more than halfway.
“I thought it was very generous,” said Trenton Magid, executive vice president at NAI NP Dodge and a member of the Omaha Planning Board.
Former Mayor Hal Daub credited Stothert for trying to encourage development at the Civic site, which is currently empty and off the tax rolls.
He said Tetrad asked for a significant amount of incentives from the city, similar to asks by the developers working on Crossroads Mall and by HDR Inc. when it floated a plan to build a high-rise office downtown. HDR ended up going to Aksarben Village instead.
“There comes a point in time where it’s not good precedent for that substantial amount of tax support to be devoted to a private sector project,” Daub said. “It’s a policy issue.”
Omaha City Councilman Brinker Harding, a former Omaha Planning Board chairman who’s in the real estate business, said the city’s offer reflected its desire to boost downtown with a major employer.
“I’m not privy to what other conversations were had, but it appears from the (proposed agreements) that the city in its initial response came a long way toward meeting the requests of the proposal,” Harding said.
Tetrad officials announced in a letter to Stothert on Tuesday that they were pulling out of the project. The city in 2014 had chosen a proposal from Tetrad Property Group, led by Zach Wiegert and W. David Scott, to develop the four-square-block site. The only thing that has happened with the site is that the city demolished the auditorium and adjoining Music Hall at a cost of $3.3 million to taxpayers.
In the letter, Wiegert cited the City of Omaha’s recent focus on redeveloping properties including Lot B near the CenturyLink Center, the riverfront and Gene Leahy Mall as an obstacle that led it to withdraw its plan to transform the Civic site. Wiegert also blamed a delay in demolition and preparation of the Civic site by the city and the “inability to reach an agreement with the city on business terms.”
Tetrad officials declined interview requests to elaborate further. They issued a written statement that did not clear up questions about whether the developers had a strong lead on a major tenant for the site before backing out.
Asked why the city was stipulating a 400,000-square-foot office building with 1,500 employees, the Mayor’s Office replied that it was based on “discussions with the developer relating to the potential tenants they were looking to secure.”
Tetrad, in its latest draft agreement with the city, proposed that the city provide up to $50 million in tax increment financing. The developer asked the city to provide the 9-acre site for free.
Tetrad wanted the city to build a new parking garage, estimated by the city to cost $30 million, and to allow the developer to use the existing city parking garage at 19th Street and Capitol Avenue, Park 5, for free for 20 years.
The developer also wanted the city to commit to using eminent domain to acquire more surface parking lots in the neighborhood, if more parking were needed. The city has not estimated the cost of doing so.
Stothert said Tetrad also wanted the city to waive the Civic site demolition cost, which taxpayers are paying through city-issued redevelopment bonds. The city wanted the developer to pay back the $3.3 million demolition bill out of the developer’s tax-increment financing.
The city has not officially estimated the cost of giving away parking in the city-owned Park 5. But Stothert said Park 5 is paid for and 85 percent full. It has 456 stalls. Parkers pay $50 a month. So the city is currently bringing in about $20,000 a month from that garage. The city expects that the stalls would be worth more than $100 each if the site were developed as proposed. That would make the garage spaces worth $11 million over 20 years.
The city agreed to up to $50 million in tax-increment financing. That’s a redevelopment incentive that allows developers to use a portion of future increased property taxes generated by their projects to pay certain upfront development costs.
The city offered to build a new parking garage. But the city’s written proposal called for charging $110 per stall monthly for five years, and then to reset — presumably raise — the rate to market value. That was on the condition that Tetrad developed a 400,000-square-foot office building with 1,500 jobs on the site, Stothert said.
City officials said Thursday that they actually intended Tetrad to fund the $30 million garage cost from its TIF proceeds, although that financing detail was not included in the written proposal.
The city also offered to give the land for free, but only if a tenant of that size landed there. Otherwise, the city would charge about $8 million for the site. That’s $20 a square foot, half of what land there would be expected to sell for, Stothert said.
The city said no to free parking in the existing Park 5 but offered to lease spots there for $50 a month for five years. The city also offered to work with the developer to acquire additional parking lots.
Stothert said the city was offering to waive the demolition fee if the 1,500-employee tenant materialized.
Stothert said the developers’ request for incentives went well beyond its initial proposal and discussions with the city and what the city normally provides.
The city has built parking garages to boost urban redevelopments before. But the parking is not free. Providing land for free or at discounted rates also is not unprecedented. Developers frequently pay demolition costs with tax-increment financing proceeds, even on much more routine redevelopments.
“If you’re looking for a 1,500-plus employer and 400,000 square feet to be located downtown, you’re going to want to be aggressive and you’re going to want (incentives) to reflect the benefit to the city,” Harding said. “It appears the city’s offer checked the boxes.”
He said he didn’t know why Tetrad pulled out instead of making a counteroffer.
“I’m not going to speculate on that,” Harding said. “But it’s not uncommon for a plan not to get to a ribbon cutting. It happens.”
Magid also didn’t know why the negotiations didn’t continue.
“Tetrad does a great job, and the city has its limits,” Magid said. “It may just be that they (the developers) changed their mind. If that’s the case, that’s OK.”
World-Herald staff writer Emily Nohr contributed to this report.