The future of a proposed $57 million redevelopment project downtown could be decided Tuesday, when the Birmingham City Council votes on an incentives package to help turn the former Pizitz building into office, retail and restaurant space.
Developers call it a "transformative project" for downtown, complementing the success across the street at McWane Science Center in the former Loveman's department store building, and other development in blocks nearby.
But without the city's support, Bayer Properties principals say, the project will not be feasible. Developers said the down economy has changed the way major projects are financed, with banks demanding more partners before granting loans.
Some council members, however, have expressed reservations about approving the package, questioning whether the heavy investment -- $6.1 million in incentives plus a $7 million loan guarantee -- would be wise or would set a good precedent.
Looking up at the white terra-cotta facade of the building on Friday, David Silverstein, a principal for Bayer, recalled the days when downtown, including Pizitz, was a retail hub that drew families to spend the day.
It's difficult, looking at the facade today, to visualize what the developers have in mind, Silverstein said, but "it's going to be one of those special projects for our city."
The building on Second Avenue North was built in 1923 and was the flagship for the Pizitz family department store chain before closing in 1988. Today some of the paint inside is peeling and the carpet has seen its better days, but many aspects of its former glory are intact. Pillars rise two stories in the main lobby. Crisscrossing elevators lead to the upper floors, with a staircase to the mezzanine. Large windows in the corners on upper floors provide a clear view of 19th Street, McWane Science Center and other refurbished buildings.
Bayer Properties is a Birmingham-based developer and retail management firm best known for its creation of The Summit shopping center on U.S. 280, the city's largest retail center. The company bought the shuttered Pizitz building and adjacent parking deck in 2000 for $1.6 million. Ever since then, Silverstein said, the company has intended to bring new life to the 211,000-square-foot, seven-story landmark.
Bayer's plans include office space on the upper floors and retail and restaurant space on the lower level. V. Richards Market committed to the project with a lease for a 6,000-square-foot grocery store, cafe and restaurant. The Baker, Donelson, Bearman, Caldwell & Berkowitz law firm, architecture firm KPS Group and Bayer Properties itself plan to relocate to the building.
Under the proposed partnership, the city would grant Bayer a $3.2 million community development loan, $1.9 million in federal recovery bonds to be paid by the city for infrastructure, and $1 million in sales tax abatement for construction. In addition, the city would guarantee $7 million of Bayer's construction loan.
That means the city would be responsible for up to $7 million of the loan in case of default. Silverstein said he and partner Jeffrey Bayer are investing millions into a project they believe will mirror the success of similar redevelopment in Chattanooga, Nashville and Charlotte. Those projects also involved public and private participation, he said, a formula that's essential in the current economic climate.
"The backing of the city is critical to getting this project started," Silverstein said. "Market conditions are such that the right type of public-private partnership is required in order to ensure the success of the project."
Councilwoman Lashunda Scales, chairwoman of the council's economic development committee, said the city's participation in the project would be a wise investment in the growth of downtown.
"While the overall investment into the Pizitz project may appear up front to be untraditional in principle, untraditional approaches are going to have to be made in order to improve our downtown," she said. "In cities in other states across America, it is the downtown area that dictates the overall strategic outlook that will attract local residents, primarily, as well as tourists to shop, eat and to make it their destination point."
However, some council members expressed consternation over the size of the commitment requested from the city. Councilman Steven Hoyt said he worries that both the city's high-dollar participation and the loan guarantee would set precedents. Hoyt said he will not vote for the project.
The council's Budget and Finance and Economic Development committees, in a joint meeting last week, declined to endorse the funding plan.
Catalyst
Mayor William Bell called the Pizitiz project a catalyst for other redevelopment downtown. Just the talking and planning for that project have created buzz from other developers about tackling long-abandoned and neglected properties, he said.
"We've had some discussion about taking several businesses and revitalizing those, all because of the positive impact that the thought of revitalizing the Pizitz building has had," Bell said. "This project is going to be the linchpin for the whole area."
Bell said concerns about the city's financial exposure are addressed in the proposed agreement with Bayer, in a provision requiring the company to have leases signed before seeking financing.
"We worked long and hard in putting together an agreement that would protect the city, and I feel comfortable that what we put together will do just that," Bell said. "That protects the city from expending any money prior to getting those other commitments. The role of the mayor is to put packages together and submit them for review by the council, and hopefully we've put something together that they can support."
Silverstein called preleasing a good business practice.
"We're not going to build a speculative project," he said. "When the project kicks off, it will be preleased to a certain level. Jeffrey Bayer and I have never built speculative, and we're not going to build this project speculative. As a practical matter, they (the city) will never be called on for their credit."
Silverstein said he understands Hoyt's concern about setting a precedent with large-scale city contribution to the project, but said each project should be judged on its own merits and impact.
"Each project has its own set of challenges," he said. "Each project has its own return on investment the city makes. So I respect the comment about worrying about a precedent, but on the other hand I would only wish upon the city more developers wanting to invest this type of money in our downtown, because that's what we need."
While Bayer's plan would be the first of its scale downtown, other projects touted by previous developers either have not materialized or failed to live up to their promised success. The former Cabana Hotel remains boarded up, with advertisements of lofts ripped away. A luxury hotel at Regions headquarters on 20th Street never materialized. And some redevelopments of old downtown offices are struggling through the recession and the real estate bust that came with it.
Partnerships
But partnerships such as the Pizitz proposal represent a new model necessary for large-scale urban redevelopment, said Louis Marino, a University of Alabama business professor who specializes in business-government relationships and partnerships.
"These partnerships are critical to the success of modern cities," he said. "The cities that do well in the future are the cities that partner with businesses. That being said, the government has to be astute who they're dealing with, because every deal is not a good one."
Marino said Bayer's record makes the prospect for profitability strong, for both the company and the city.
"It's not a government handout," he said. "This is an investment by the government in the future of the city. You're talking about a significant economic multiplier."
When Bayer was developing The Summit, the company received two loans from Birmingham -- which it repaid early.
City Councilwoman Valerie Abbott said the city has two choices: Support the Pizitz project and turn a blighted spot into a possible amenity, or turn it down and continue the burden of a long-standing eyesore just across the street from one of the city's major attractions.
While she said it's not ideal for the city to have to guarantee the $7 million, Abbott said Bayer's record of successful partnership with the city speaks for the company's stability.
"I don't expect there will be any problem with their request, as far as us holding the bag," she said. "Nationwide, they are known for high-quality development. .$?.$?. With all the banks that are headquartered in Birmingham, it's pretty amazing to me that they can't get a loan without the city's endorsement.
"If it is true they cannot get a loan to do the project, then I think the city should lend a hand," she said. "Otherwise, I think we'll be stuck with that deteriorating building."
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| David Silverstein discusses future interior of Pizitz Building |