Strip District redevelopment bidder disputes critical analysis
August 29, 2014 12:00 AM
An early morning photo of the produce terminal along Smallman Street in the Strip District.
By Mark Belko / Pittsburgh Post-Gazette
One of the three bidders to redevelop the Strip District’s produce terminal is disputing a consultant’s claim that its proposal would generate the least amount of tax revenue for the city.
Representatives for Rubino Partners maintained Thursday that when errors in the calculations are taken into account, their plan ends up producing more money than the proposals by the Ferchill Group of Cleveland and Chicago-based McCaffery Interests.
But an official with Fourth Economy Consulting, which did the analysis at the request of the city Urban Redevelopment Authority, said that even when the numbers are recalculated based on Rubino’s concerns, the company’s plan still ends up last.
Rubino was responding to a report delivered by Fourth Economy during an Aug. 6 public meeting on the terminal redevelopment.
In the analysis, Fourth Economy estimated that the McCaffery proposal would generate $14.3 million in net tax revenue over 10 years; Ferchill, $12 million; and Rubino, $7.6 million.
The major reason for the gap between the Rubino number and the others involved real estate taxes.
Fourth Economy did not list Rubino paying any real estate taxes since it would be leasing the building from the URA. The other bidders would be buying it.
It calculated that Ferchill would pay $451,504 in property taxes annually and McCaffery $683,237.
But during a Pittsburgh Post-Gazette editorial board meeting Thursday, members of Rubino Partners said the analysis failed to take into account that McCaffery and Ferchill would be seeking LERTA tax abatements for the residential projects they are proposing.
Under that program, developers can qualify for full or partial abatements for up to 10 years.
Furthermore, the analysis, according to Rubino, did not add in the $2.5 million in rent it would be paying to the URA over that period to lease the terminal. In recalculating the numbers, the Rubino group, because of the abatements, subtracted out all of the real estate tax payments to be made by Ferchill and McCaffery. It then added to its own total the $2.5 million in rent payments.
Under that formula, Rubino would generate $10.1 million over 10 years — including rent — while Ferchill and McCaffery each would produce about $7.5 million.
“We think it’s just an unfair misrepresentation that has been put out there,” said John R. Watson, a principal in Fourth River Development LLC and part of the Rubino group.
Rubino — which is proposing to turn the terminal into a giant marketplace with farmers, Amish vendors and businesses specializing in closeout merchandize — has written a letter to the URA listing its concerns.
Gigi Saladna, URA spokeswoman, said the information Rubino supplied has been passed on to Fourth Economy and “they are evaluating it as part of their analysis and recommendation.”
Jerry Paytas, Fourth Economy vice president, said Rubino is only partially correct in its assumptions.
Tax abatements for the residential projects McCaffery and Ferchill are proposing for the terminal are capped at $150,000 a year, he said, meaning that both developers still would be paying hundreds of thousands of dollars in real estate taxes each year, not zero.
In addition, Fourth Economy did not include the $2.5 million in rent in the tax generation models because Mr. Paytas said those payments could very well be eaten up by the costs of operating and maintaining the building. The URA, he said, is still calculating those costs.
“Some portion may count, but it may be a much lower number,” he said.
Mr. Paytas acknowledged that the chart presented at the Aug. 6 meeting did not include any reduction in real estate taxes because of possible tax abatements, adding that Fourth Economy probably should have presented other models.
But he noted that Fourth Economy also has produced different scenarios for the URA — one showing all three developers paying real estate taxes with no tax abatements and another showing them paying real estate levies while getting tax abatements.
In each case, Rubino finishes third in generating tax revenue, he said. But he added that might not matter much because whatever recommendation is made to the URA regarding the terminal won’t be based “purely on taxes and those considerations.”
Fourth Economy has yet to decide on its recommendation. Mr. Paytas said it is still awaiting the information from the URA on costs related to operating and maintaining the building.
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