Right now, the lot at the corner of Third Avenue and Commerce Street is a sea of mud. As recently as last year, the site was the location of a parking garage and a turn-of-the-century brick building that housed the Kennedy & Bowden Machine Co.
But Nashville developer Robert C. H. “Bobby” Mathews Jr., who owns the property, has leveled those structures to make way for an 11-story office building. MagneTek Inc., an electrical equipment manufacturer, has signed on as lead tenant for Mathews’ new building. Also waiting to move in are the Nashville Area Chamber of Commerce and the architectural and engineering firm Barge, Waggoner, Sumner & Cannon.
The construction of Mathews’ newest office building is a watershed event in downtown real estate circles. The building will be the first new multi-tenant office building constructed downtown in more than a decade. It will also be the first privately owned speculative office structure ever subsidized by the Metro Development and Housing Agency, the Metro agency that uses public money to undertake redevelopment projects that reduce urban blight in various parts of Nashville.
To help Mathews develop his building, MDHA and other agencies of Metro Government have provided public money and assistance in a variety of ways:
♦ MDHA has promised Mathews $6.5 million in “tax-increment financing” (TIF) for his project. Under state law, cities may provide TIF to developers who are undertaking projects in designated blighted areas. The money is pledged to the developer up front, to be used as part of the financing package for the project. The city later recoups its investment from the higher property-tax revenues generated from the improved site.
MDHA confirmed this week that Mathews has asked for even more tax-increment financing, although the agency would not confirm the amount. A decision is expected in a couple of weeks.
♦ MDHA has also agreed to sell Mathews the Third Avenue property adjacent to his new building. The MDHA-owned property, once contemplated for a public park, will now be used for a plaza.
♦ Metro’s Board of Zoning Appeals granted Mathews three variances for his building in October 1997. Those variances permitted Mathews to build a structure that is bigger, has a more massive presence, and has fewer parking spaces than Metro’s zoning laws would have permitted at the time. The Metro Planning Commission staff recommended approval of the variances. Those variances led the owners of the neighboring First Union tower to file a lawsuit against Mathews and the Board of Zoning Appeals.
♦ The Metro Planning Commission approved, and Metro Council just last week passed, a zone change for the site of the Mathews project on Third Avenue.
The assistance handed out by Metro government has led to some raised eyebrows among developers who compete with Mathews in the downtown office market. To them, the arrangement is nothing more than a “sweet deal” that will give Mathews an unfair competitive advantage in attracting tenants at lower rent.
But MDHA says the incentives are important to the city’s progress. “Look at it another way,” says the agency’s development director, Phil Ryan. “There’s hasn’t been a new multi-tenant office building in the central business district since the City Center in 1988. This is just another piece in finding new customers for downtown. Besides, it’s not like we’re doing one of these a year.”
Some of the complaints about the Mathews building are rooted in the jealousies of rival developers, many of whom argue that MDHA grants Mathews more than he deserves. Meanwhile, Bobby Mathews takes what he can get. Who can blame him?
For years, Mathews has been in the forefront of downtown development, in both good times and bad. Beginning in the 1970s, when Second Avenue was largely dismissed as a strip of seedy warehouses with no hope of renewal, Mathews promoted it as a land of promise. Mathews says the area had a special appeal for him, because his grandfather once operated a boilermaker shop on Second Avenue just south of Broadway. His great-grandfather had a house nearby on Rutledge Hill.
Mathews bought a dozen or so buildings on Second Avenue at a time when many considered the investment pure folly. He rehabbed one of those buildings for the Old Spaghetti Factory. On at least one occasion, when it seemed that the renewal of Second Avenue would never happen, Mathews’ investments teetered close to collapse. But he held on, and the area eventually took off.
In the 1980s, then-Mayor Richard Fulton engineered the development of the convention center and Riverfront Park, which helped spur interest in the area. Mathews’ property holdings made him a major force to contend with, bringing him in close contact with preservationists, Metro Council members, Metro planners, and MDHA officials who were interested in igniting a more vibrant downtown.
In the mid-’80s, however, federal grants for urban renewalthe sort of grants that had been used to develop the convention center and what is now the Renaissance Nashville Hotelbegan to shrivel up. Metro had to find different ways to encourage downtown redevelopment. MDHA latched on to the idea of granting tax-increment financing to private developers. Mathews found himself in the right place at the right time.
A shrewd businessman with a homespun style, Mathews entered into a number of public-private ventures that had a visible impact on downtown development. To all appearances, he was more gung-ho about profit than preservation, and even today few of the city’s preservationists have much positive to say about the man. He was like a shark with a biological imperative: Keep moving or die. In Mathews-in-motion, the city had found a nonstop entrepreneur.
In 1989 MDHA signed an agreement establishing the Ryman Group, a joint venture involving The Mathews Co., Central Parking, and what was then called Opryland Inc. With the boost of tax increment financing, this triumvirate helped bring about the renovation of the historic Ryman Auditorium and the construction of a new office tower for South Central Bell. In 1995, MDHA selected the Gateway Partnershipwhich involves the same three playersas the developers of the Arena campus, which will also be subsidized by tax-increment financing. Only one other group submitted a bid for the Arena deal.
Mathews is also a member of the team that, in 1997, won from MDHA the right to redevelop Rolling Mill Hill, property on the Cumberland River bluffs that includes the old General Hospital campus. Tax-increment financing is provided there too.
It is yet another grant of tax-increment financing that has created much of the controversy over Mathews’ proposed new office building at Third and Commerce. According to the Tennessee legal code, MDHA has the authority to grant TIF to eliminate slums and blighting conditions. But it is difficult to see how the Kennedy & Bowden building, an unassuming but solid example of vernacular architecture, qualified as “blighted,” given the blight of surface parking that already plagues Church Street.
MDHA’s power is not to be underestimated. In fact, because it can use tax dollars to subsidize development, the agency has emerged as the most important real estate developer in all of downtown. “Our downtown would be dead in the water” without TIF-subsidized development, says development director Ryan.
TIF was used for the BellSouth building and the Ryman Auditorium rehab. TIF made possible Church Street Centre and Tony Giarratana’s Cumberland apartment tower. TIF supported the conversion of an historic church into the offices of Everton Oglesby Askew architects. TIF is subsidizing the makeover of the old J.C. Bradford building at Fourth and Church as a Marriott Suites hotel. TIF will be used for the redevelopment of Rolling Mill Hill and the rehab of the Bennie Dillon building on Church Street. MDHA has promised Giarratana $9 million in TIF if he can put together the rest of the financing for a condo tower on Church Street. TIF will subsidize the development of the Arena campus, which includes a hotel.
Few object to using subsidies for projects such as these. “Tax-increment financing is good when it stimulates development that couldn’t happen any other way and benefits all of downtown,” says one local developer. “Even those of us who work in the suburbs realize that downtown is important to all of us.”
But some observers say the TIF subsidy gives Mathews’ proposed office building a competitive edge, at the expense of buildings that are already standing. They fear that the MDHA grant will detract from, not improve, the state of affairs downtown. “We have a downtown office market that is softer than suburban locations, in part because of the cost and availability of parking,” says one downtown landlord. “The Mathews project will take two tenants already in downtownthe Chamber and Bargecreating a hole in those office buildings. They will go to Mathews for a cut rate simply because he’s getting free money. I question why the Chamber would be involved in such a scheme.”
In response, Chamber of Commerce director Mike Rollins says, “We are getting good value in a convenient location with the parking that we need. The financing is strictly between Mathews and the city.” Mathews freely admits that “TIF helps lower the rent for the Chamber considerably. I absolutely could not do this project without TIF.”
Some in the property-management business say TIF would be better spent on making the downtown office market more competitive with the suburbs, rather than increasing competition within downtown. “I think it would be more equitable to use public money to build public parking garages that can be used by all office tenants, rather than in giving TIF for private multi-tenant buildings,” says Nashville City Center’s Richard Fletcher. MDHA’s Phil Ryan points out that legislation making parking garages eligible for TIF is now working its way through the state Legislature.
There are also complaints about Mathews’ relationship with Metro’s Board of Zoning Appeals. The zoning board may grant variances if a developer can prove that existing zoning creates a “hardship” that isn’t merely financial. At the zoning hearing on his case, Mathews said it was difficult, if not impossible, to stick to zoning regulations, given the narrow, sloping topography at Third and Commerce. (He later declined to explain to the Scene why these conditions made it difficult to abide by the existing regulations.) The board ultimately voted to allow Mathews to build 250 fewer parking spaces.
That parking variance set off a negative response from neighboring property owners. WRC Properties, owners of the First Union tower, filed a lawsuit against Mathews and the Board of Zoning Appeals, saying that if Mathews’ tenants use nearby parking spaces that already exist, workers in other office buildings, like the First Union tower, will have fewer parking options. That, in turn, would make it harder for office building owners to lease their space. At the zoning board hearing, attorney John Gupton, representing the First Union owners, said, “The concern of every potential tenant in a downtown office building is that there be parking on site or nearby. If there’s not, the tenants will look elsewhere for space. To give this variance places a penalty on every operator of a building in downtown Nashville.”
Mathews responds to this complaint with a snort of derision for the New York-based WRC Properties. He says the lawsuit “just made us more creative with our approach. You know, I spent two years in New York, and I love New York, but sometimes those New York people, people from out of town, come in and think, ‘We’ll just cram it down their throats.’ ”
Indeed, Mathews did get creative. Unable to close with potential tenants or complete his financing because of his legal entanglement, Mathews had the law changed. The Metro Planning Commission and Metro Council approved Mathews’ request for a zone change from Core Frame (CF) to Central Core (CC) for the property where the developer plans his building and plaza. That zoning change completely neutered the lawsuit. Under Metro’s newly revised zoning code, CC zoning permits buildings that are three times bigger than CF does. What’s more, CC does not mandate the off-street parking required in CF zones. With the zoning change, Mathews can build the building he wants and be in compliance, even without any variances.
Planning Commission director Jeff Browning justifies the zone change by pointing out that CC zoning already existed across the street at the BellSouth building. “The real issue is, what is the difference between the west and east sides of Third Avenue,” Browning says. “Where do you draw the line?”
But the line must be drawn somewhere. And preservationists are worried that the zone change could accelerate the destruction of downtown’s historic architecture. They say that, by drawing the line where it did, the Planning Commission will permit significantly larger buildings to be constructed next to smaller historic buildings, not just on Second Avenue, but also on Third Avenue north of Commerce Street.
Metro Historical Commission executive director Ann Reynolds notes that a number of historic structures on Third between Commerce and Union are on the National Register or are eligible for the Register. “The change in zoning so near these buildings puts pressure on these blocks to also go CC,” she says. If that happens, Reynolds explains, “There’s less of a chance that someone will buy and rehab an old building there. And there is a greater incentive to demolish architectural fabric, put in surface parking, and assemble land for a future tower, if you think you can get the zoning to build a tower. Look at what’s happened to Church Street.”
Reynolds is also concerned about the loss of the zoning buffer that formerly separated historic structures and skyscrapers. “From an urban-design standpoint, the CF zoning allowed for a gradual rise in height from the river, to Second, to Third, and then to the really tall buildings,” she explains. “There’s nothing gradual about a shift from two or three stories to a Bell tower.”
Plans for the Mathews building did not always look as big as they do now. The structure has expanded considerably since September 1996, when Mathews told The Tennessean he wanted to build a seven-story building costing $15 million to $20 million. Current plans call for a 246,000-square-foot, 11-story structure costing more than $30 million.
Mathews did what many developers do when they want to build a building that exceeds the basic zoning code. In fall of 1997, he requested a variance from the Board of Zoning Appeals. At that time, one member of the board says, the board was routinely approving 10 percent increases in square footage. Mathews’ variance was within the 10 percent margin.
But Mathews also realized that, if he built a plaza on the property just south of his building, a zoning “bonus” would allow him to add another 60,000 square feet of office space to his tower. He asked MDHA to sell him the property, and MDHA was happy to oblige.
The downtown development game is not simply a matter of “Build it and they will come.” Since the current demand for downtown office space is not strong, some are asking why MDHA is willing to subsidize more office construction. And the owners of existing downtown office space resent MDHA’s subsidy to Mathews.
In the 1980s, when City Center and the First Union and SunTrust towers all rose, Nashville experienced a mini-boom in downtown construction. By 1990 downtown had a vacancy rate of 20 percent; the result was a leasing war. Now the First Union tower is in the hands of its lenders, and the SunTrust tower’s owners have been forced to renegotiate their loan agreement. City Center, meanwhile, seems to avoid these problems because its owner, Robert Bass of Dallas, has deep pockets.
Things are looking up in the downtown office market, but the situation is still fragile. “The vacancy rate for [top-grade] space is down 5 or 6 percent, which is comparable to the suburbs,” says real estate analyst Richard L. Fulton. He adds, however, that suburban office space is leasing at “pro forma” rates large enough to cover a landlord’s expenses. In the Central Business District, Fulton says, average rents are still 15 to 20 percent lower than they were in 1987. “The downtown operators are just getting to the point where the old leases expire and they can increase the rents to get closer to making a profit,” he explains. “The rents can increase without any new construction of office space, or I should say, subsidized office space.”
But many downtown landlords argue that it is unfair to use public money to give any developer a competitive edge. Fulton finds their complaint understandable. “Without TIF, a developer would have to charge a higher rent,” he says. “The operators of existing office space that was built totally with private investment obviously want a level playing field.”
Metro officials dismiss the street talk about Metro’s dealings with Mathews as grousing from rival developers. “The zoning variance we supported for fewer parking spaces really was not an issue except for people with competing financial interests,” says the Planning Commission’s Jeff Browning. “There’s a lot of parking downtown.”
One former Mathews employee says Mathews gets his way because he has time spent in the territory. “Bobby Mathews has so much clout because he’s been around longer than anyone else,” the former employee says. “The other big developers are relative newcomers.”
One “jealous developer” agrees with that assessment. “Nashville is still in many ways a small, Southern town,” he explains. “Bobby has a history here, his family has a history here, and he has an incredible following. Popularity is one thinggovernment subsidy is something else again. Do Nashville citizens really want to pay for old blood with their new money?”
MDHA’s Phil Ryan says Mathews has earned his place as a major player in downtown development because he is willing to take risks. He does not note that, in this case, MDHA is willing to decrease Mathews’ risk by $6.5 million.
“Wasn’t Bobby Mathews one of the few guys willing to buy and develop in downtown when everybody else was running for the exits?” Ryan asks rhetorically. “People have short memories. After the Opry left and retail was dispersing to the suburbs and adult entertainment came to Broadway, downtown seemed finished. Looking at the bigger picture, don’t you think we’ve been pretty successful in the downtown area?”
Whether the picture is big or small, if it involves downtown Nashville development, Mathews, like Zelig, seems to be somewhere in the viewfinder. On the surface Nashville may think it’s acting like a major-league city. But scratch that surface, and what you find is a very small town
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