The Paris City Council met 5:30 p.m. Monday in the City Council Chamber to discuss the proposed PEDC spec building at 2305 NW Loop 286.
PEDC Executive Director Michael Paris presented the council with the bid it received from Bobby Smallwood Construction1 for their spec building project, which totaled $738,380. A bid bond and a surety bond will also be included in the final costs. The Builder’s Risk Insurance was already included in the bid, making the second insurance estimate redundant.
According to Adjusters International, builder’s risk insurance is coverage that protects an organization’s insurable interest in materials, fixtures and/or equipment that’s being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from a covered cause.1
Prospects, primary jobs, and the public’s perception of the PEDC
Paris addressed the perceptions that have overshadowed the PEDC’s efforts.
“The reason we wanted to do this spec building was to recruit primary jobs to Paris, Texas, and since it is already zoned heavy industrial, we wanted to use this asset to capture a prospective market that we are not capturing right now,” Paris said.
The Texas Economic Development Corporation suggests that about 75 percent of companies coming to the state are looking for an existing building, Paris explained. Even eliminating those prospects that demand an interstate or a nearby international airport, the City of Paris still not capturing a prospective market that needs to be looking at Paris, Texas, he said.
Paris explained that colleagues in Sherman, Denison, Mount Pleasant and Sulphur Springs have spec buildings that they’re able to show to potential businesses.
If we build it—will they come? Dangling carrots, and other questions
Councilmember Cleonne Drake, who represents District 6, asked about the design and wondered whether a cash incentive might be a better route than this building.🔊
Paris explained that they had sought a design with twenty-eight feet of headway for overhead cranes that are needed for heavy industry. Other than that the building will simply be a ‘shell’ that will allow modification as needed for prospective companies
Drake directed her next question to City Attorney Stephanie Harris.
“If it sits and nobody leases, nobody buys, and our value goes down on that building,” Drake posed, “and if the council changes, would that still be in place?”
Harris stated that if conditions were approved with the bid by the current council, then those conditions would survive the turnover in either the council or the board.🔊
“I’m for businesses coming in here and (bringing) jobs, but (the spec building) concerns me,” Drake said.
The benefit, Paris explained, was that even if the building does sit, it would add to what the PEDC could offer to potential companies.
Responding to the suggestion that a spec building will sit for 3 to 5 years before a business finally moves in, Paris said that’s the reason they plan to market the spec building heavily along with the airport and other projects.
Councilmember Matt Frierson, who represents District 5, stated it was a good step to keep the line of communication open, and asked the board to walk the council through their approach.
“When this land became available, we took the opportunity to buy that knowing that the slab was there, and when you look at the value of that slab, it’s worth as much as what we paid for the entire eighteen acres🔊,” PEDC Vice Chair John Brockman said.
And building a 38,000 sq. ft. building for $28 per foot will put them well below market costs than if they built from scratch, which they estimate—based off of bids received in 2015—to run no less than $50 per foot.
Competing with other communities, and the C-Tech dilemma
The PEDC’s base argument is that many other EDCs around the state and country have vacant buildings that they can market. Where some are made up from the bones of industries long-gone, others are new buildings built specifically to attract new companies.
Frierson asked the board to briefly touch on why they had decided this spec building was a better asset than cash incentives.
“It’s a tool in our toolbox that we can use, that other EDCs have that we (currently) don’t,” Brockman said.
And with how cheap they’re able to complete this spec building, the PEDC doesn’t expect it to be a loss in five years if it does end up sitting. Brockman doesn’t think there would be much depreciation on the building since it would just be a shell.
With all the companies that are wanting to come to Texas– and they are wanting to come to Texas– we will lease that building, we will sell it, we’ll have some kind of incentive program with it in a lot shorter time frame than 3 to 5 years,” PEDC Vice Chairman John Brockman said.
“We didn’t do this lightly, we looked at it in a way that would protect the taxpayer’s money in the best way that we could– and we’ve done that. We just can’t go out here in the Industrial Park and recreate this building for less than $50 a foot, and we’ve got a spot on the loop for $28 a foot for 38,000 feet,” he said.
Paris said it’s important to understand the history of economic development, and that all industry in recent memory that has come to the city had moved into vacant buildings rather than building their own.
“But on the other side of the coin, a lot of the concern that I have heard out in the community is that the PEDC had a spec building at one time– I think it was the C-Tech dilemma– and it was sold for cheap,” Paris said.🔊
The building was never owned by PEDC, although the PEDC did give C-Tech cash up front to bring them to Paris, he said.3
It is true that C-Tech received $1.5 million dollars in incentives from the PEDC back in 2003.
In 2006, however, it became clear that the company had not lived up to the requirements it agreed to in return for those incentives.4
The City of Paris reached a deal with C-Tech in 2007 to recoup some of money lost in that endeavor.
However, the $500,000 the city received from C-Tech only accounted for one-third of the taxpayer money PEDC dropped in their lap, according to Paris News articles from 2007.5
“If the company (that moves into the spec building) goes defunct, the PEDC still has an asset,” Paris said, noting the difference between that deal and this current one.
“What I like (about what I’m hearing is that) instead of the two bodies– the Council and the PEDC–working autonomously, you’re talking about actually working together,” Frierson said, “and making sure that you guys are transparent, and in return we agree to keep an open mind so that we can actually move forward together rather than standing at odds.”
The patience of Job and economic musings
Councilmember Steven Clifford, who represents District 4, was opposed to any plan to use taxpayer dollars to construct a vacant building.🔊
“It’s been called a spec building,” he continued. “Spec stands for speculative, and speculative is defined as an investment involving a high risk of loss, meaning these speculative (buildings) sit vacant for years and years and when they sit vacant they live up to their name– they’re speculative and they incur huge losses,” he said.
The council could approve the bid with the condition that the PEDC wouldn’t turn around and sell it for cheap, but if it sits for 5 or 10 years, the building won’t retain it’s value, he opined.
He quoted from a blog post from 2014 in which Dean Barber, a financial expert from Dallas, said:
“Generally speaking, I would advise a rural community, especially one that is miles away from an interstate highway and/or a metropolitan area, to steer clear of a spec building unless you have the patience of Job.”
Clifford questioned the PEDC’s optimism.
“The Phillips Lighting building sat vacant for many years until it was recently purchased for office space. The Bitco building sat vacant for four years at which point it was sold for less than half of the money that was spent on it. And the C-Tech building sat vacant for nine years, and after the project which cost the taxpayers $1 million in public money, C-Tech retained ownership of that building,” he pointed out.
“Buildings that have been sitting vacant are frequently sold at a huge discount,” Clifford said. Of course businesses want a bargain, he said, but if this project goes forward he believes it will be mistake.
“We already have a shovel ready business site available for companies that are considering moving here, we shouldn’t risk the public’s dollars on building a building on top of that, and us assume all of that risk,” Clifford said.
Mayor Pro-Tem Sue Lancaster, who represents District 2, wants to see the infrastructure improved before money is spent on a vacant building. She wants to see the city be proactive and that the spec building isn’t the place to start.
Lancaster believed that a Type A economic development corporation—like the PEDC—can put money towards infrastructure projects, citing advice she received from a municipal attorney.
“I find it hard to believe that we’re going to have people wanting to bring their employees to neighborhoods where houses are falling down (and) downtown buildings are falling in,” she went on.
PEDC board member Derrick Hughes said it was unfair to judge this current project on the PEDC’s previous failures.
Lancaster said going back to 1993, there’s $50 million of taxpayer money for which the city has no industry to show. Her point was, history says the PEDC is wasting money and to ignore that would be foolish.
We don’t need a $500,000 plan that will sit on a shelf,” Mayor Pro-Tem Sue Lancaster said.
It would take a guarantee that someone was coming for Lancaster to support the plan.
Mum’s the word from the council
Paris posed three questions to the council.
Can the PEDC add anything they could add to the plan or any additional conditions that might make the project acceptable, and if the council would like to see this brought back for an up or down vote.
The councilmembers declined to answer.
The PEDC would be back, Paris explained, for an up or down vote. Paris City Council meets again on Oct. 10 and 24.
“We’re going to keep the conditions and we’re going to eliminate the builder’s risk and come to you with a much more precise cost ratio to work with,” he said.
- Mayor Pro-Tem Lancaster🔊 and Dr. Clifford🔊 are both dead-set against the spec building.
- Drake wonders the merits of constructing a new building, and the statistics of turnover rate for filling spec buildings in Texas.6🔊
- Billy Trenado (District 3) inquired about building from scratch in the industrial park,7🔊 who would foot the bill for the driveways,8🔊 and if there was a company in mind yet.9🔊
- Aaron Jenkins (District 1) commented that there were good points on both sides, and asked if 2305 NW Loop 286 was the only site available for heavy industry.10🔊
- Frierson appears to support it.
- The PEDC fully believes in their plan and will likely bring it back for an up/down vote either October 10 or 24.
Other items approved during the meeting:
- Consent agenda –
–September council minutes,
–Minutes from various boards,
–August drainage report,
–Demo report and code enforcement
–Main Street Advisory Board appointee
–Historic Preserv. Comm. appointee, and
-a Letter of Agreement between City and Oncor Electric
(Clifford motioned, Frierson seconded – all in favor)
- Approved amendments to 2015-16 PEDC budget
(Frierson motioned – all in favor)
- Oncor Franchise Agreement
(Clifford motioned, Drake seconded – Jenkins opposed)
- To eliminate one of the lieutenant positions at the Paris Police Department and add one officer position in its place
(Drake motioned, Trenado seconded – all in favor)
Full audio from the council meeting:
1. PEDC Executive Director Michael Paris: “(Bobby Smallwood Construction) seems to be doing good work in the community and outside the community,” Paris said.
2. Malecki, Donald. Builder’s Risk Insurance: Specialized Coverage for Construction Projects. Adjusting Today, AdjustersInternational.com
3. C-Tech is a computer refurbishing company based out of Minnesota.
4. The incentive required them to employ a total 50 people with at least 20 of those people at the Paris location. In late 2006, after three extensions to meet those requirements, their numbers only totaled 19 employees nationwide, with just five of those based locally.
5. According to The Paris News, C-Tech was only made to pay back $500,000 of the total $1.5 million incentive they received in 2003. In an article from 2007, The Paris News went so far as to admit their newspaper made a mistake in supporting this deal. C-Tech’s building at the Industrial Park remained empty for more than a decade until WinField Solutions moved in, with C-Tech retained ownership of the building. “(C-Tech) abandoned its plans for Paris, and the project has become etched in local memory as the PEDC’s outstanding embarrassment,” Charles Richards reported on EParisExtra.com in 2013.
6. Paris agreed to call around to other EDCs and to inquire as to how long their spec buildings sat before being filled. Dr. Clifford said that information was nearly impossible to get. Some discussion follows.
7. Michael Paris: “From my understanding and looking at the minutes of the PEDC, it was based on cost. Because the business park is very attractive but it was going to be a little more expensive since this (site) was available to us. If the pad at Oliver Rubber was not available, who knows what could’ve been built out there at the business park. At least that’s my understanding so far,” PEDC Executive Director Michael Paris said.
8. Michael Paris: “Our point of view is that they do not need to be paved. Oliver Rubber, when it was in full production, was using the gravel roads, and there’s probably going to be some cosmetic stuff and maybe a little bit of enhancement with the gravel. But our point is if the company comes in and they want pavement or asphalt or something like that then we’ll probably deal with that at that time, but we want to at least have that aspect available to the consumer that wants to purchase it. What exists out there now is you have that little loop that’s in front of the building that is available, dock areas– there’s gravel leading to it. In fact if you come to the PEDC office, you’ll see an ariel Oliver from back in the day. So there was a lot of parking space for people out there at one time. Unfortunately, most of it’s covered in grass right now. A little bit of round-up might fix that and maybe a good mower as well,” Paris said.
9. Michael Paris: “I’ve been letting people know that we’re entertaining it…but I really haven’t conveyed anything serious until we know exactly what City Council wants us to do,” Paris said.
10. Michael Paris: “That’s the only place in which we have an existing pad that’s already there. There’s like one piece of heavy industrial– if I remember the map right– that’s right there next to the business park– it doesn’t cover all of the business park– but at the same time there’s some heavy industry around Turner because that’s heavy industry as well.”