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The Color of Incentives

Don't let him fool you: Within 10 years, Jim Schutze will be living at the Azure, working on his tan and his book about high-rise living called The Accommodations.

This is not me eating crow. This is more like me barely sniffing a small crow. From several inches away.

A month ago I wrote a column about Azure, a luxury condo tower being developed in Uptown by Harwood International. I made invidious comparisons with the W, a luxury hotel and condo tower in Victory, the development around the American Airlines Center sports arena. I said Harwood had managed to develop its tower without city subsidies, while the people behind Victory have their hands so deep in city pockets somebody should call 911.

People who are smarter than I--I know, I'm as amazed as you are--contacted me to point out that Harwood, in fact, has benefited from a city subsidy in the past. After a week of research, Julie Morris, director of acquisitions for Harwood, e-mailed me to say it was true. In 1996, Harwood received a 10-year freeze on property taxes for a 200,000-square-foot, 10-story office building it had opened that year with Centex Corp., the homebuilder, as the name tenant.

A 10-year freeze on city taxes is an incentive--a pretty good one. I could argue that this doesn't change my basic thesis--they are building Azure today with no subsidy-- and I want to emphasize that it doesn't mean Harwood deceived me about anything. I never asked them if they had ever received an incentive on any property or project. I asked only about Azure, for which they received nothing.

They still never have received a tax increment finance district or public improvement district subsidy--the kind of thing I was writing about in regard to Victory. But they got a subsidy.

Should the city have given them one? In 1993, when they announced the Centex Building, commercial real estate in the city was in the tank. It was in the tank so bad, in fact, that competing developers felt no compunction at all about predicting that Harwood would also wind up in the tank putting up a new building. I quote from a Dallas Business Journal story in 1993, when the project was announced:

"John Zogg, who handles leasing for the nearby Crescent complex, said he doesn't believe another office building could survive economically. 'There is no potential to support a new project today,' Zogg said. 'With as much available large blocks of space, including Cityplace, we don't see a market for it.'"

Another competitor even accused Harwood of social recklessness:

"'The creation of more office space in Dallas is questionable at best,' said John Amend, president of The Amend Group, a commercial real estate company. 'People need to have some community responsibility. We've got 9 million square feet of vacant office space in downtown alone.'"

Talk about a case of the heebie-jeebies. A lot of Dallas real estate developers back then were in a severely diminished condition from staying out in the cold water too long (yes, I am thinking of the Seinfeld episode during which George's manhood is challenged when he is caught disrobing after a long chilly swim). So you could argue the city did a good thing by giving Harwood what it needed in order to get somebody, anybody, to jump back in.

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One person who is smarter than I am--I know, isn't it just astonishing?--took issue with my column on incentives, because he's a developer in the city. He said he's in direct competition with developers in the 'burbs who get all kind of huge tax breaks. Guys like me shouldn't write stuff, he suggested, that might tend to scare the city out of giving incentives that he thinks are needed to keep the city competitive.

I agree. He makes a good point. We need to be in the game. But I still think that in order to be in the game, we need a game plan. A coach would be good too. A ball. You know. A little bit of forethought.

It might be good to think about what these incentives do to the competitive picture. Even though the Azure will pay full taxes, the city coffers will never see that money, not for 30 years. Every penny of that money has been pledged by the city council to go to Forest City, one of Harwood's competitors, as a city subsidy for the Mercantile project downtown.

We just need to think all of this through. --Jim Schutze

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