Back in March of 2010, my business partners and I were sitting in a meeting with Cecile Bodor who heads the Saint Paul Department of Planning and Economic Development. It was Cecile and her team that gave us the lead on the real estate that would eventually become Heartland's new location.
The first question she posed to us was, "How much money are you seeking from the city?" I responded that we weren't seeking any money. All we were asking for was the support of the Mayor's office in helping us navigate the numerous regulatory requirements and logistical obstacles that come with developing any commercial project in a large municipality such as Saint Paul. I further explained that we were scheduled to close on the purchase of the real estate on April 15, and we had our general contractor scheduled to begin demolition on May 1. Our plan was to continue to operate out of our old location until June 13, and then we would reopen in our new location on July 15. I impressed upon her that our business would be bleeding money every day that we were not operating. Besides that, we were concerned about how long our staff would be unemployed. Our goal was to make sure that most of our team would be unemployed for no longer than two weeks. We understood that taking on a project of the size we were proposing, located in a distressed property in a historic preservation district, would pose unique and considerable challenges when it came to regulatory and code compliance. I explained that it was far more valuable to us to have our project supported through the various processes by the Mayor and the Department of Licensing and Inspections than it was to receive a grant or a loan from the city.
As it turned out, things were a lot more complicated than we had anticipated. Nonetheless, we received an enormous amount of support from almost every city entity we encountered. Even when we ran up against a member of the city staff who was less than anxious to help us streamline our inspections and occupancy approvals, the response from the Mayor's office was always timely and effective. As a result, we were able to reopen in our new location on July 27. The one week delay we encountered was not unanticipated, and it it was through the support of the Mayor's office that we stayed so close to our schedule. Financially, that assistance was nearly invaluable to us.
As a member of the Board of Directors of the Saint Paul Area Chamber of Commerce, I believe I am not overstating myself in saying that most of us in the Chamber very much appreciate and support Mayor Chris Coleman in his efforts to help grow Saint Paul's business community. As a political moderate, he understands the needs of all of Saint Paul's citizens, including residents and business owners alike. He has done a wonderful job of balancing neighborhood concerns with the practical necessities of establishing and running a succesful business in our city. This is no easy task. Not only must he negotiate his agenda with the City Council, but he must do so in such a way as to be fair and evenhanded. I firmly believe that it is partially through his leadership in concert with the City Council that we have seen positive growth in our business community and a lessening of restrictions that have impeded such growth in the past.
Most recently, I and my fellow members of the Lowertown Entertainment District found our yearly license applications, those that allow us to sell and serve food in Mears Park during the numerous events being held there this summer, were being denied in part due to a state code that supersedes the current city code which regulates such activities. It was through the efforts of Joe Spencer in in the Mayor's office that we were able to work with DSI to facilitate the writing of a new code that would allow us to continue our presence in the park. The result has been truly a model of cooperation between a city regulatory agency and private businesses. Without that support, I fear that we would have run into a brick wall. As it turned out, we are back on track and making money which, as we all know, generates tax dollars.
Speaking of tax dollars, according to the Saint Paul Port Authority, it is important to note that 33% of nonresidential property in Saint Paul is tax exempt. In the U.S., that is second only to Boston. As result and also according to the Port Authority, commercial properties are taxed at a rate that is roughly twice that of residential properties. Consequently, for every dollar generated by residential property taxes, the city has to provide somewhere between $1.08 and $1.16 in services, while commercial properties require services costing somewhere between $.60 and $.70 for every dollar of taxes paid. Obviously, if the citizens of Saint Paul are to continue to be provided the services we have all come to enjoy and expect from our city, we will either have to increase the tax burden on existing properties or encourage an expansion of the tax base that produces positive cash flow.
Mayor Coleman and his administration understand this. They also understand that residential critical mass, public services, improved infrastructure, better public transportation, the elimination of burdensome regulations and more people friendly public amenities such as the proposed Regional Ballpark are vital to attracting the kind of commercial and industrial growth that contribute to the revitalization of our city. It is my hope that Governor Dayton, through the Department of Employment and Economic Development, as well as our City Council, will continue their recent support of these efforts for they are in the best interests of all of Saint Paul's citizens.
Saint Paul is our Capital City. It deserves the love and respect of all Minnesotans. I encourage anyone interested in opening a new business or in expanding an existing business to take a good, long look at Saint Paul. I think you will be very pleased with what you see.
This week, the St. Paul City Council heard testimony and began debate over a proposal being led by Ward 4 Council Member Russ Stark. The proposal would amend the number of off street parking spaces required in order for a restaurant or bar to gain a liquor license. The current requirement calls for restaurants that serve alcohol to provide one off street parking space for every 100 to 125 square feet of total floor area. The new proposal would allow restaurants that serve alcohol and close by midnight to provide the same amount of parking that other businesses do, that is, one space for every 400 square feet. The relief for bars is not quite as generous with the proposed square footage basis being increased from 125 to 150 square feet. The upshot is that a 5000 square foot restaurant desiring to serve alcohol would only need 20 off street parking spaces as opposed to the 50 now required. The final vote on the proposed changes is scheduled for May 23.
Council Member Stark has been quoted by the Pioneer Press as saying, "Today, if you're a restaurant and decide to serve beer and wine, you've got to more than triple your parking. To me, that's just ridiculous. Right now, to me it feels like our code is erring on the side of keeping storefronts empty." I must wholeheartedly concur, and I applaud the Council Member for taking a stand on behalf of St. Paul restaurateurs.
Of course, there are some who believe that this is not a very good idea. Count among them Council Member Dave Thune and at least one restaurant owner who has a very large parking lot on Grand Avenue and who most likely would prefer not to have the competition. It has been reported that Council Member Thune's objection is based upon his belief that the code change would undermine a neighborhood's ability to challenge parking variances. He is probably right about that, and to that I declare, "It's about time!"
It is also important to note that the code change will only affect a restaurant's ability to secure a wine and strong beer license. It will not do anything to ameliorate the current roadblocks to a full liquor license. The St. Paul City Charter restricts the number of full liquor licenses allowed within each ward. Once that threshold has been met, restaurants seeking liquor licenses are restricted to wine and beer only. The exception to that rule is again predicated by location. If the restaurant lies within a city designated commercial development zone, then that restriction does not apply. There are currently six such zones.
We faced that problem at Heartland's old location in Macalester-Groveland. Although we had more than enough off street parking under even the current code to allow for a full liquor license, there was none available due to the allocation for Ward 3 being exhausted. Pat Harris, our Council Member at the time, worked for many years to get the City Council to agree to reopen the Charter to amend it to be more consistent with the current population and density of each ward but to no avail. In fact, we had a fully executed liquor license application on his legislative assistant's desk for at least four years before we relocated to Lowertown where no such restriction applies. Pat went so far as to guarantee that one day he would sit at the bar in Heartland and enjoy a martini with me. We finally got to do that, but it wasn't at the Heartland he had imagined.
Let us not forget that the hospitality industry as a whole is Minnesota's second largest employer and the largest private sector employer. Only the state exceeds our industry in the number of people it employs. In addition, restaurant and entertainment venues are vital components of what gives cities their excitement and vitality. Restricting the growth of our industry is not in the best interests of our city. I encourage the City Council to follow Council Member Stark's lead in revising the current code, and, while this is certainly a significant step in the right direction, let's not fool ourselves. There is still much more work to be done in order to send the message that St. Paul is truly open for business.
Chef and restaurateur Michael White and I have a few things in common. Both of us are, once again this year, nominees for a James Beard Award. We are both dedicated to excellence in our profession. We are both partners in hospitality industry corporations. That is pretty much where the commonality ends. None of my business partners are former Merrill Lynch presidents, and a good week of revenues at our restaurant is eclipsed by an average day at Marea, Mr. White’s Altamarea Group flagship.
So it was with great interest that I read Suzanne Craig’s piece on Mr. White and his partner Ahmass Fakahany entitled “Out of One Frying Pan, and Into Another” in last Sunday’s New York Times business section. I found it to be an informative and enjoyable read. I also found it to be inaccurate in at least one statement.
In reference to Altamarea, Ms. Craig states in paragraph eight of her story, “What is so remarkable about their success is that, in the restaurant game, most new restaurants close within their first year – industry experts put the failure rate at anywhere from 60 to 80 percent.” The writer does not identify who or what so called “industry experts” she cites, nor does she offer any clue as to where they acquired those statistics.
The fact of the matter is that according to two studies widely accepted as the most accurate and informative portrayals of success and failure rates within our industry, one by H.G. Parsa of Ohio State University and the other by Cline Research Group of Dallas, the first year failure rate is closer to 26%. It isn’t until year three to year five that the failure rate even begins to approach the 60% low end figure cited by Suzanne Craig in her article. Not only that, but the figures cited in those studies include not only restaurant closures but also restaurants that have changed hands. In other words, a very successful restaurant that might have been sold to another owner would have been included as a failure.
What the statistics show is that, as a group, restaurants have a better than average success rate when compared to other small businesses. To see an urban myth such as the one Ms. Craig recounts on the front page of such a venerable publication as New York Times Sunday Business, only serves to perpetuate falsehoods that keep banks from meeting with those of us in our industry. These are the sorts of unsubstantiated statistics that are used as the basis for refusing financing and for depriving capital to restaurants. Often time, when loans are approved, the interest rates can be extremely unfavorable only serving to make survival even more difficult. Talk about self-fulfilling prophecies.
Personally and as a member of an industry that endures more than its fair share of mudslinging, I expect more from the New York Times, from their writers and from their editors.
This post corrects a previous post that stated that Target Center was built solely with public money. Target Center was actually built with private money, but it was later purchased by the City of Minneapolis which continues to subsidize its operation.
With the Minnesota Vikings stadium deal appearing to be on life support at the Capitol, the Governor has been working overtime to help sway a reluctant Minneapolis City Council to sign a letter of support that would be used to move a recalcitrant Legislature to vote in favor of the bill. The sticking point for the City Council appears to be a provision that would allow for $150 million in tax revenue to be redirected to a renovation of Target Center as well as some help for the Minneapolis Convention Center. The City Council will not support extending downtown hospitality taxes which are set to sunset without the Target Center provision. The Legislature won't act without an assurance that the City Council is on board.
Let's set aside for the moment two other sticking points. The first of which is the need for a deal to be cut with nonprofit organizations that will undoubtedly suffer from the competition that the proposed electronic pull tab revenue to be used as stadium funding would create. The second is a lack of a backup plan that wouldn't include the general fund to cover any unanticipated funding short falls. It's bad enough that the plan calls for creating unfair competition with nonprofit organizations in order to raise enough money to subsidize a billionaire owner in a multibillion dollar industry, but the Minneapolis plan as put forth by the City Council also calls for creating unfair competition between Target Center and the Xcel Energy Center in St. Paul.
Let me state that I do believe it is in general a good idea that all entities have at least some skin in the game. Large venues such as the Vikings Stadium are usually much better projects when private and public entities collaborate on the details, but this is not the case when we are speaking about Target Center. Target Center was originally built and owned by the Timberwolves at a 2012 inflation adjusted cost of $184 million. Minneapolis issued $80 million in bonds in 1995 to purchase the arena as way of keeping the Wolves in town, and it has continued to subsize the private management of it to the tune of $1.5 million a year. It consequently does not need to turn a profit which enables it to bid for entertainment bookings at a much lower price than the Xcel Energy Center. Xcel was built with an 86% of total cost private money investment, and it remains a private entity, As of today, the Minnesota Wild still owe $32 million on the original note that financed the construction of that facility. Minneapolis owes somewhere in the range of $50 million to $55 million on Target Center.
As a product of both private and public cooperation, the Xcel Energy Center is far superior to Target Center. It has been lauded as one of the finest facilities of its kind in the country. The same has never been said of its older Minneapolis cousin. While the seating capacity of Target Center is larger, the overall quality of the arena falls far short of the Xcel. Consequently, prospective entertainment bookings almost always go to Target Center, first in order to get the lowball price and then to use that price to negotiate a sweetheart deal with Xcel. The Xcel always lowers the asking price in order to gain the bookings.
That scenario does not take place in other metropolitan areas of similar and even larger size. For example, Milwaukee has one arena. I have been quoted figures that claim that Bradley Center generates three times the profit when booking a performer than the Xcel due to the lack of competition. The Bradley Center is home to the Bucks, Marquette University, and the Milwaukee Admirals of the AHL and the Milwaukee Mustangs of the AFL. It was also at one time the home field for the Milwaukee Wave of the MISL. The Los Angeles Lakers and the Los Angeles Clippers share the same arena as do the New York Knicks and the New York Rangers. For some reason, the Twin Cities seem to feel that two arenas are needed, one for the Timberwolves and one for the Wild. That is unheard of anywhere else in the country. Arenas in large metropolitan areas across the country do not have competition from similar arenas within their own markets for entertainment bookings.
So the Minneapolis City Council wants another $150 million to throw into that monstrosity called Target Center, or they won't back the Vikings Stadium proposal that is being discussed in the Legislature. First the west metro yanked the rug out from under the east metro by putting what is essentially an even worse deal for taxpayers on the table, and now they want to extort another $150 million dollars to shore up their previous boondoggle, Once again, they want to do this at the expense of taxpayers and the east metro. If they succeed, they will essentially throw the Xcel Energy Center into peril, and they will stifle St. Paul's ability to attract people to a newly revitalized downtown. As a result, the Xcel is asking for $150 million of their own in response to the Minneapolis proposal. They see it as their only way to survive.
Some members of the Minnesota House of Representatives would like to rub some more salt into St. Paul's wounds. St. Paul and the St. Paul Saints have asked what is in comparison a meager $27 million in bonding money for the construction of the proposed regional ballpark. The new ballpark would not only be the home of the Saints, but it would also be used for college and amateur baseball tournaments. It would contain an art gallery for Lowertown artists, and it would offer three opportunities for large public art installations. It would have a public plaza, and it would have green space that could potentially be used for a community garden. The entire project would cost $54 million, and it would be built on land that is so polluted it can't be used for anything else. The total cost is about a third of what Minneapolis wants for the Target Center renovation. The public contribution would be less than a quarter of that. The Saints would contribute $10 million, and St. Paul would cover the balance. The city will own the ballpark.
While the Saints contribution to the facility could be seen as small in view of what the Wild contributed to the Xcel, they would pay all the yearly maintenance and utility costs. The city would receive the revenue generated by the additional bookings. In the winter, the field would be flooded for public ice skating and outdoor hockey tournaments. By capping their contribution at $10 million, the Saints will be able to maintain the family friendly accessibility in terms of ticket prices that they currently offer their fans. The most expensive ticket for a Saints game this year will be $12, and there are many $5 seats available.
In what we have come to see as business as usual when Minneapolis and St. Paul are competing for the same piece of pie, the House of Representatives has offered $2 million of the $27 million needed for the project. This is after Minneapolis was given Target Field for the Twins at great taxpayer expense. Now Minneapolis is asking them to approve funding for a billion dollar football stadium and a $150 million renovation of an obsolete basketball arena. Is it any wonder that those of us in the east metro feel slighted? Where is the balance and equity when the state considers how best to aid in the development of the Twin Cities metropolitan area? In addition, what kind of message does this send to billionaire professional sports team owners? It seems the message is this: If you contribute almost the entire cost of the construction of your facilities as the Wild did, then you are idiots. It would be smarter to holdout for deals like the Twins and Vikings have where around 40% or less of the facility cost is borne by the team. Otherwise, you will eventually find yourselves at a competitive disadvantage.
The solution is actually a pretty simple one. The Target Center should be torn down, and the land should be put up for sale to private developers who could return it to the public tax rolls. Minneapolis should help a potential developer fund the demolition and reduce the public liability. The Timberwolves should play their games at the Xcel and share the facility with the Wild as is done in other cities. The taxpayers win; the Xcel is more profitable, and the Timberwolves get the more up to date facility they deserve. As a result, St. Paul is spared an evisceration at the hands of Minneapolis and the Minnesota Legislature, and Minneapolis can propose a Vikings stadium deal that might actually make some sense.
I recently took the St. Paul City Council to task in this blog for allowing activist residents to influence them to overturn their own votes. I felt their original decisions were wisely and thoughtfully made in the best interests of all of St. Paul's citizens, and I was dismayed to see them cave in to pressure from groups that would put their own self interests ahead of the greater good of the majority of St. Paulites.
I must now offer my congratulations and compliments to them for their recent decisions to approve financing for the long delayed Penfield project as well as approval of a TIF district for the redevelopment of the old Schmidt Brewery site on West Seventh Street which will add 260 units of affordable housing for artists. Additional development and rehabilitation funds were approved for low income housing at both St. Alban's Park and St. Philip's Gardens. These projects will not only help to create jobs and stimulate private investment, but they also cut across socioeconomic divides.
It is often said by some that government does not create jobs; the private sector does. That statement is for the most part true, but government does play a significant role in creating a positive climate for job growth and private investment.
Many people have criticized the federal government's bailout of the U.S. auto industry saying that we should have allowed General Motors and Chrysler to go bankrupt. In times when the credit markets are stable, that might very well have been the best approach. Normally, a company would file bankruptcy and use available credit to reorganize under Chapter 11. Facing the worst economic crisis since the Great Depression, the credit markets had dried up. It was up to the federal government to step in and provide that credit or face what could have been a cataclysmic event. Instead of that cataclysm, thousands of jobs were saved, and the once proud American auto industry was not only snatched from the jaws of death but rebounded with renewed vigor and vitality. One can certainly criticize the structure of the bailout, but criticizing the government's role in averting a financial crisis by providing a means to a positive end seems ill informed.
The same could be said for the Penfield project located at 10th and Minnesota Streets and the recently completed Lofts at Farmers' Market kitty corner from Heartland on 5th and Wall Streets. Both developments bring much needed market rate housing to Lowertown St. Paul thereby providing the residential critical mass necessary to attract retail and business development. In addition, they are located in prime areas within two blocks on the new light rail line. The Penfield will bring with it a new Lunds supermarket. Not only will that provide good paying jobs, but it will also provide a vital service to the downtown dweller. One of the keys to attracting Cray to relocate to Lowertown was the Mayor's promise that amenities such as market rate housing, expanded retail and the light rail line would provide their workers with reasons to live and work in downtown St. Paul. Mayor Chris Coleman's Rebuild Saint Paul Initiative is a well-designed blueprint for the revitalization of our great city. These projects are part of that initiative.
In regard to the Penfield development, City Council President Kathy Lantry questioned whether or not it was wise to invest so heavily in one project thereby exposing the city to greater risk instead of spreading out the money among many other projects. It's a reasonable question. I would contend that all one need do is look at the federal stimulus funds to gain an answer to that. Those funds have been spread out so thinly that they haven't been effective enough in creating significant job growth. Had they been invested more heavily in fewer projects, they would have had greater impact. In addition, Council Member Dave Thune, acting as the head of the city's Housing and Redevelopment Agency, accurately pointed out that federal mortgage insurance through HUD is backing up the deal. He also noted that 50% of the apartments in the recently completed Lofts at Farmers' Market have been pre-leased.
Council Member Dan Bostrom voiced concern over the fact that the Penfield will not be connected by skyway to the rest of downtown. I would contend that that hasn't been an issue for the new Minneapolis riverfront developments, the revitalization of Minneapolis' North Loop and the continued growth in Minneapolis' Northeast quadrant. Much of Lowertown including Heartland is not connected by skyway to the central business district. An entertainment district such as Lowertown and those in Minneapolis does not depend upon skyway access for its success.
Now that our City Council has declared that St. Paul is not and never will be a bedroom community for Minneapolis, it is up to our State Legislature to follow suit by approving Governor Mark Dayton's proposal for $27 million in bonds for a regional ballpark on the site of the old Diamond Products building in Lowertown. The plan calls for the St. Paul Port Authority to swap the Lowertown industrial area it now owns for the Midway Stadium site which would be returned to more appropriate industrial use. In return, the Lowertown site, which is badly polluted and will never be redeveloped as housing, would not only include a new St. Paul Saints ballpark but, in keeping with the character of the neighborhood, it would include spaces for rotating exhibits by local artists. In addition, it would provide a venue for national tournaments for American Legion and Division II and III baseball teams. In winter months, the plan calls for converting the ballpark to a skating rink. The large public plaza that would welcome fans would be a public space for residents and visitors. The site sits within three blocks of Union Depot and is next to the light rail maintenance facility now being built. The Saints would contribute $10 million to the project and pay all maintenance costs as the primary tenant, and the city would contribute $13 million toward the land acquisition and clean up. The city would own the ballpark.
What that would mean to St. Paul cannot be overstated. The projected completion date would be 2014 which would coincide with the new light rail line debut as well as numerous nearby infrastructure and development projects now underway. Keep in mind that this development is family oriented. The price of a general admission ticket to a St. Paul Saints game is only $5. Even if that price was doubled, it would still be comparable to the price of a ticket to a local movie theater. For Lowertown residents in particular, being able to walk outside one's front door and attend a ball game for the price of admission to a movie is an amenity akin to the Farmers' Market. By the way, the Farmers' Market is located directly across the street from the ballpark site. The synergy that this development would create is undeniable.
I have spent a fair amount of time with Senate Majority Leader Dave Senjem who was the original sponsor of this proposal two years ago as well as with the Republican Legislative caucus in hopes that they will support the revitalization of St. Paul. I continue in that hope as I implore them to recognize that a vital and vibrant Capital City is essential to the overall prosperity of all of Minnesota, and I urge them to follow our City Council in supporting that dream.