Thursday, September 25, 2008

How It Could Go Down

As Congress weighs a $700 billion bailout, a fearless local forecast.

Posted By on Thu, Sep 25, 2008 at 4:00 AM

Elected officials are understandably wary of cutting themselves out of the action. They're elected, and the rest of us aren't. Shelby County mayor A C Wharton may be the most popular politician in town, but he couldn't persuade the County Commission this week to get the county out of the Pyramid and fairgrounds for $5 million.

In itself, this is no big deal. The Pyramid is empty, and Bass Pro is used to delay. In fact, yet another "deadline" quietly passed for the city and county to sign a "development agreement" by September 15th. The big question is whether the city and county will cooperate when the stakes are higher than negotiating rights for the Pyramid. When the stakes are, say, a local version of what is happening this week in Washington.

Here's one possible time line for how a recession might turn into something worse:

At the end of this week, the Mid-South Fair closes for the last time in Memphis. On my visits last Friday night and Sunday afternoon, the weather was good but the crowds were small, lines were nonexistent, rides were empty, and barkers said they were getting paid in fives and singles instead of fifties and twenties. A nostalgic, family-friendly institution goes out on a low note. Meanwhile, Liberty Bowl Memorial Stadium looks more forlorn than ever, with a losing team and shrinking fan base.

In Washington, a bailout passes Congress but produces bitter resentment of what Newt Gingrich, of all people, calls a "Wall Street-centric" settlement. Regional banks including Regions and First Horizon get relief, but their stock prices slide back to single-digit territory by the November election. All over Memphis, yard signs begin to appear that say, "WHERE'S MY BAILOUT?"

The election turnout is huge, locally and nationally. The result leaves half the voters more angry and dejected than ever, and George W. Bush is still president for two more months. In Memphis, fresh political corruption indictments set off new charges of racism and further polarize the city.

The Grizzlies open the season by failing to sell-out FedExForum. It is an indicator of bad things to come. By Christmas, attendance falls below 14,800, the basis for the arena financing projections. And by early next year, it is below 10,700, the worst-case scenario, where the financing projections don't work. The remodeled convention center, which has been officially "outed" as being third-rate and inadequate, loses bookings, but the payments on the $100 million expansion still have to be made from tourism taxes.

After a promising Thanksgiving weekend, the holiday shopping season is a dud, and charities see contributions dry up as unemployment rises and bonuses are eliminated at big Memphis companies.

In January, the new president is sworn in, vowing an end to the era of earmarks, putting an end once and for all to MATA's plan for a $500 million light-rail line to the airport. In Nashville, Governor Phil Bredesen announces that state tax collections are down 10 percent, and cities can expect little or no help. In Memphis, mayors Herenton and Wharton break with tradition and start the New Year with a series of joint appearances. They warn of impending calamity and make a fresh pitch for consolidation. Thirty-thousand city, county, and school-system employees oppose it.

In March, the Shelby County Assessor's Office sends out 2009 property appraisals, the first update in four years. The phones at the assessor's office start ringing two minutes later. Thousands of homeowners complain that they can't sell their homes at any price and demand a reduction. Many point out that the closest "comparable" home is a certifiably toxic foreclosure down the street that now belongs to the federal government.

Tax delinquencies rise to an all-time high as more people simply walk away from their homes and mortgages. For the first time in recent history, the value of assessed property in the city and county — the tax base — shrinks. The 2008 budgets look robust by comparison. Council members and commissioners, whose predecessors in the good old days lowered the tax rate as required by law to avoid a reappraisal windfall, are faced with a shortfall. They must decide whether to increase the tax rate just to stay even.

Guess what they do.

Thursday, September 18, 2008

Gloom and Doom Be Gone!

Some encouraging views on Memphis real estate, business, and fun.

Posted By on Thu, Sep 18, 2008 at 4:00 AM

Nothing against Wall Street, New York City, or investment bankers, but the pain is mostly theirs, and better them than us. Really, how many people at Lehman Brothers and Merrill Lynch do you know? Maybe there will be a disastrous ripple effect soon enough, but this is not like a hurricane or a Great Depression. In keeping with the contrarian mind-set of this column, here are some encouraging views:

The windshield appraisal. One good way to assess property is to tear yourself away from your television, computer, or newspaper and go look at it. Memphis has come a long way. Ten years ago, there was blight at Union and Third where there is AutoZone Park, Toyota Plaza, and the downtown elementary school, a parking lot where there is FedExForum, and a railroad yard where there is South End.

The best untold story in Memphis is the vanishing inner-city housing projects and their replacement with new housing that looks as sharp as anything in the suburbs. The difference between Lamar Terrace and University Place on the west side of Interstate 240 or between College Park and LeMoyne Gardens or between Hurt Village and Uptown is astonishing. "It makes a statement when you come across the bridge from Arkansas or up from Mississippi," says Housing and Community Development director Robert Lipscomb. "People used to think Memphis was horrible."

Realism and the housing market. Linda Sowell has been selling houses in Memphis for 30 years. "Interest rates came down today to 5 and three-quarters percent," she said this week. "There was a time when I would jump over a car for that. I was doing this when interest rates were 18 percent, and I couldn't even look people in the eye when I quoted a rate to them. It was embarrassing to tell them what the notes were."

Sowell sees things slowly improving, but meanwhile, vintage Memphis is on sale. Two Sowell listings on South Belvedere near Peabody, one of the priciest and most beautiful streets in Midtown, are under $1 million.

"People are nervous, but sellers are being more realistic," she said. "The thing that's hurting us most is people coming here from out of town can't sell their homes."

Their loss is our gain. FedEx hub employees are handling 1.5 million shipments a night, and FedEx is expanding into the old National Guard facility. "When volume isn't growing much, we bring as much volume as we can through Memphis to minimize costs," says John Dunavant, vice president in charge of the Memphis hub.

Intelligent long-term investors. Memphians Mason Hawkins and Staley Cates were winners of Morningstar's Fund Manager of the Year Award in 2006, the industry equivalent of the Oscar or Pulitzer. In the semiannual report to shareholders in the Longleaf Partners mutual funds in August, this is what they wrote:

"We do not know how long economic uncertainty and shareholder fear will last. Bear markets do not die of old age. The mispricing, however, is providing the opportunity to own high-quality companies with terrific five-year outlooks." And this: "There is plenty of panic in the air. Historically, the best time to invest has been when owning stocks has felt the worst."

Corporate survivors. Banks with a big presence in Memphis have been especially volatile. Whether you have made or lost a lot of money depends partly on when you got in. The "Memphis Skyline Portfolio" of First Horizon, SunTrust, and Regions is down about 60 percent this year but up nearly 100 percent since bottoming out in July, suggesting all three will survive. Three of Regions/Morgan Keegan's mortgage-backed bond funds continue to lead The Wall Street Journal's quarterly list of "worst-performing bond funds," but Morgan Keegan investment banking and brokerage business is a big plus for Regions, earning $92 million more in the first six months of 2008 compared to 2007. The biggest public companies in Memphis are not going the way of Lehman Brothers. The "Memphis Fortune 500 Portfolio," including FedEx ($90), AutoZone ($133), and International Paper ($30), is up 6 percent since April.

The fun/fan index. You can see the Marshall Tucker Band for $5 at the Mid-South Fair this weekend. And thousands will pay $25 for a wristband and that much more on food. The Southern Heritage Classsic last week drew more than 50,000 fans. Tiger football stinks, but basketball starts in a couple of months. If the Grizzlies struggle at the gate, owner Michael Heisley is the one who will feel most of the pain; the local ownership share has shrunk. College hoops should be fun in 2009, with the Tigers nationally ranked and FedExForum hosting the NCAA men's tournament Sweet Sixteen and Elite Eight games.

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Thursday, September 11, 2008

Changes Coming to Beale

City auditors and engineers are putting the heat on Beale Street merchants.

Posted By on Thu, Sep 11, 2008 at 4:00 AM

They've been going over their books for the last six years, measuring their space, doing appraisals, and checking for code compliance, according to several club owners.

"It's like we're being harassed," says one club owner, who didn't want to be identified because of a pending mediation hearing and fear of reprisals. The city owns most of the property in the entertainment district and is partners with the shopsteaders who own their buildings. "The city can be vindictive," he says.

Some owners see a grand plan by the Herenton administration to gain control over Beale Street's revenue streams as well as neighboring property on Union Avenue for a new convention center. Two weeks ago, the CCL Label building on the south side of Union across from AutoZone Park was demolished, opening up 3.5 acres. Guy Kiraly of CCL says "we're very interested in getting rid of it," but he has no offers. His former neighbor on Union Avenue, Lit Equipment and Supplies, has not been approached by buyers either, according to attorney Lester Lit.

A couple of things have fired up the rumor mill. John Elkington, head of Performa Real Estate, the management and leasing company for Beale Street since 1982, has made it clear he is ready to walk away from his long-term lease if the terms are right. A mediation hearing for Performa, the city, and Beale Street Development Corporation is scheduled to take place in a few weeks to determine who owes what to whom. Performa hasn't made any payments to the city but pays for security and sanitation. Elkington says profits have been put back into the street.

"We're spinning our wheels and going nowhere," Elkington says. "The city is spending thousands of dollars on legal fees, the tenants are unhappy, and all we're doing is spending a lot of money on lawyers."

Mediator Hayden Lait declined to comment. Ricky Wilkins, the private attorney representing the city, did not return calls seeking comment. Another city official who requested anonymity said the issues might be settled before the mediation hearing.

Adding more grist to the rumor mill, Nashville has moved forward with plans for Music City Center, a new downtown convention center whose cost has been reported by Nashville media as anywhere from $340 million to $660 million. Memphis mayor Willie Herenton says Memphis is in an "arms race" with Nashville and other cities for conventions. In January, Herenton appealed for a new convention center and appointed a committee to study the feasibility.

"It's no secret that it's going to come back that the best location is probably across from AutoZone Park on Union," says Kevin Kane, head of the Memphis Convention & Visitors Bureau.

The site was runner-up to the current site of FedExForum when that project was in the planning stage. In contrast to the west side of the arena, which features Lee's Landing and the new Westin Hotel, Union from Danny Thomas to the Greyhound Bus Station is marked by demolitions and the $80-a-night Kings Court Motel.

Kane said Nashville already has nearly twice as many hotel rooms as Memphis. A new convention center in Memphis, he says, would need a 700-room hotel attached to it and could cost $600 million, based on what Nashville is prepared to spend.

The chances of Memphis getting a new convention center are about as slim as the chances of the University of Memphis getting into the Southeastern Conference. The city has tapped out its main source of funding, the so-called bed tax on hotels and motels that is helping to pay off bonds for FedExForum and the existing and recently expanded Cook Convention Center. Anything left over will go to the Bass Pro Pyramid if that project moves forward. The developers of the Mid-South Fairgrounds and Graceland and Elvis Presley Boulevard are also relying on Tourism Development Zone tax rebates.

Not only is the mythical tourism-and-convention jackpot stretched thin, it is also shrinking. In a meeting with seven members of the Memphis City Council earlier this summer, Beale Street merchants said their business was off 10 to 15 percent.

At that meeting, veteran club owners and operators including Tommy Peters of B.B. King's Blues Club, Bud Chittom of Club 152 and Blues City Café, Preston Lamm of Rum Boogie Café, and Mike Glenn of the New Daisy Theatre expressed their concerns about safety, panhandlers, crowds of teenagers roaming the street, a recession, and district management. There have been more cops on the street and fewer negative headlines since then, but the next headache is never far off. Actor Morgan Freeman, part owner of the new Ground Zero club, was involved in a serious car accident and a well-publicized divorce. Last week, a bicyclist was roughly treated by an officer, causing a group of fellow bicyclists to organize an upcoming protest ride and walk.

Onzie Horne, head of the Beale Street Merchants Association, has conceded that Beale Street is ripe for new leadership, greater minority ownership, and a sharper sense of direction. He declined to comment about the mediation or the ongoing audits. Club owners said the city's sudden interest is unusual. "They're looking hard at all the buildings, but I don't know what is up," says one operator. "The city has not inspected them before."

Elkington, however, says the city has been gathering facts for nearly 15 years.

"If people are unhappy then I'm willing to make a change," he says.

One theory has Elkington and some of the merchants being replaced by an investment group that would include the mayor's friend E.W. Moon or someone from the Tunica casinos. Another envisions a joint board of control consisting of three city representatives and three club owners.

Elkington, I believe, will walk off into the sunset. He has operated for 26 years with the indulgence, if not always the blessing, of three mayors. He reaped the rewards, but he can argue that he is like an investor who jumped into the stock market in 1983 and hit a ten-bagger. The city has had plenty of time to produce any evidence of fraud, complete an audit, and demand its money. But the city's hired legal guns either can't or don't want to do that.

From the vantage point of a tourist, Beale Street delivers a variety of live music. While FedExForum and AutoZone Park are dark more nights than not and Peabody Place is emptying out, Beale Street is open every night and cleaned up every morning. It has safety and image issues, but what bar-hopping area doesn't?

A change is coming. As one operator said this week, "I just hope it's not worse."

Wednesday, September 3, 2008

Next Up: Fairgrounds

Redevelopment plan puts the stadium issue back in play.

Posted By on Wed, Sep 3, 2008 at 4:00 AM

Get ready for the revival of the great Memphis football stadium debate.

On September 9th, representatives of Fair Ground LLC, the partnership chosen to redevelop the Mid-South Fairgrounds, will make its presentation to the Memphis City Council. While it has several elements, including recreation, shopping, and neighborhood improvements, the centerpiece is a refurbished Liberty Bowl Memorial Stadium, as opposed to either a new stadium at the fairgrounds or on the campus of the University of Memphis.

Developer Henry Turley, managing partner of Fair Ground LLC, envisions a spiffed-up Liberty Bowl that is "as good a place to play football as AutoZone Park is for baseball or FedExForum is for basketball." His inspiration was Mayor Willie Herenton's ill-fated proposal for demolition of the Liberty Bowl and construction of a new $250 million stadium at the fairgrounds.

"It makes no sense to pour millions of dollars into rehabilitating the football stadium while everything around it deteriorates," Turley said.

Instead, he believes big money should be spent on an overhaul of the existing stadium and major improvements to the stadium's largely abandoned surroundings. The benefits of sports and recreation, he believes, should be applied to the broad population every day instead of only on six or seven football weekends.

Last year, Turley went to Nashville to secure support from Governor Phil Bredesen and state legislators. He has been meeting frequently with Herenton and U of M president Shirley Raines and athletic director R.C. Johnson. Turley has also picked up a key supporter in FedEx founder (and U of M contributor) Fred Smith.

"The main thing that needs to happen is rehab the Liberty Bowl," Smith said in a recent interview. "I think it is fine if they get it up to Americans with Disabilities Act compliance and rebuild the press box and locker rooms and put a lot more seat-backs in there. With that and the Tiger Drive they're talking about, and maybe one of these days get into a BCS league, it would be great."

Along with stadium improvements, Turley's group plans to develop a "halo" of green space around the stadium, making it more inviting for parties and tailgating. But U of M booster Harold Byrd, the main proponent of an on-campus stadium, says that's wishful thinking. Byrd says an off-campus stadium, no matter how much it is improved, will never provide fans and alumni with the sort of game-day experience they enjoy at the Grove at Ole Miss.

"It doesn't satisfy me," Byrd said of the Fair Ground redevelopment plan. "There is not a campus in the country that has a Target or Wal-Mart next to the stadium. If you suggested that to folks in Oxford or Knoxville, they would laugh you out of the room."

Fair Ground's plan includes hotels and retail stores as well as indoor and outdoor recreation. The identity of the retailers and the exact location of the stores and hotel have not been determined. Tax revenue from the stadium, stores, and hotel would be plowed back into the project to finance improvements.

The stadium debate, which has been dormant since Herenton's proposal for a new stadium fizzled a year ago, puts Turley and Byrd in an odd role reversal. Turley's downtown developments, including HarborTown, South Bluffs, and Uptown, emphasize community-building and pedestrian scale.

"Fair Ground LLC proposes to redevelop the Mid-South Fairgrounds as a regional public amenity by creating a beautiful green place of national significance uniting diverse people through wholesome youth sports and education activities," says the group's mission statement.

The fairgrounds, however, is not within walking distance of the U of M campus, hence the "Tiger Drive" connection. Byrd says he constantly encounters U of M alumni who tell him the last time they were on campus was for their graduation, and therefore they are unaware of all the improvements and new buildings.

"We have a lot of wonderful things going on at the campus that nobody ever knows about it," he said.

The universities of Akron, Central Florida, and East Carolina have built or are building new on-campus stadiums, and Byrd believes that will give them a leg up on getting into a BCS conference in the next round of expansions.

All of this assumes, of course, that Memphis wins some games. On Saturday, the Tigers were routed 41-24 by Ole Miss.

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