One of the comments from BD reader Jay Shuffield is worth highlighting, as it provides a valuable insight into the subsidies that Related is receiving from the City should the 'Shops at the Armory' deal move forward. The debate surrounding the redevelopment of the Armory is quite passionate, and rightfully so. Unfortunately, too often quite a bit of rhetoric gets in the way of understanding complex financial issues that surround a massive development deal such as this (I'll be the first to admit that my stance on the Armory is based on pretty general stuff, such as the fact that I'm sick of going to Westchester to shop, and I firmly believe that job creation at any economic level is a good thing).
I found Jay Shuffield's comment to be quite helpful in getting to the root of what the City, as well as Bronxites and citywide taxpayers alike, stand to gain from Related's plan. Here's what he had to say:
I think there is a lot of misconception about the notion of "subsidies" for the Armory.Jay, thanks for such an enlightening comment.
First, any supermarket moving into the Armory would see zero subsidy. The developer would charge a market rate rental, so the concessions made to the developer do not translate into any competitive advantage for a new supermarket at all.
Then there is the issue of the "subsidies" for the developer.
This is a complex financial negotiation for an encumbered site. The City is trying to sell a landmark that is in rough shape and needs a lot of renovations to bring it up to the standards required by the Landmarks Preservation Commission. This is actually not too different from the way a typical person would sell their house.
For example, if you were selling a house that had old appliances that needed to be replaced, holes in the walls that needed to be repaired, and old electric wiring that needed to be entirely replaced, the buyer would either ask you to make the improvements or make a financial concession. That wouldn't typically be called a "subsidy," it's just a typical part of a real estate negotiation.
It is also worth considering that the City currently incurs costs for the ongoing maintenance of the building. There would be immediate savings to the taxpayers simply by relieving the City of the need to keep the building from deteriorating even more. (Or conversely, if it were allowed to deteriorates more, its value for any potential deal would be even lower, requiring more concessions later...)
Then there is the investment aspect of the City's concessions. By making it possible for new retail to open sooner, the City brings in more money through taxes. Currently, New York City loses a significant amount of potential sales taxes to Westchester County because so many Bronx residents leave the borough for their shopping needs. The sooner the City can open competitive retail, the sooner it expects to begin collecting taxes to support the public benefits provided by municipal services.
So - it's complicated. I don't know how well the City is negotiating. Perhaps they are giving away too much without getting enough in return. I can't really say. But the casual use of the word "subsidy" obscures the real issues.
Since I went ahead and stepped into this, I might as well finish the story...
If you assume the City is negotiating for a good return for the City, the real question is how equitably the benefits are distributed.
There is a strong argument for this neighborhood to receive specific local benefits, rather than dumping it all into the General Fund. This neighborhood will deal with the impacts of construction, and it has not historically enjoyed the same quality of City services as other areas. The benefits really shouldn't consist primarily of sales taxes deposited into the General Fund, where they will likely be spent in more politically-connected parts of the city.
It is important to recognize that providing the benefits for the local community is for the City to take less in revenue for the General Fund. This reduction in payments into the General Fund is not a "subsidy," but rather a different way of structuring the deal.