Sometimes the best thing that can come from a project is to have it be a warning beacon for others. In a city that is doing so many little things right, The Pyramid in Memphis is just such a beacon. It’s the contrast that brings the sharpest relief.
The Pyramid has become our poster child for orderly but dumb development. That’s unfair because there are far worse examples but, again, it’s the contrast. Memphis is one of America’s great comeback cities. There are so many things going right there. It drips with social capital, the rarest kind of wealth to come by. Their neighborhoods are on the rise. Their downtown is rapidly improving. They have smart people doing really smart things. I absolutely love Memphis.
But that pyramid.
To briefly recap: A poor and declining city embracing the big project as their salvation builds a pyramid-shaped basketball stadium down on the Mississippi River in an attempt to attract an NBA team along with jobs, tax revenue and respect. NBA team relocates but is not enamored with the pyramid and winds up in a different facility. Pyramid sits empty. Silver bullet solutions abound – what else can be done when you’re this far vested – and with a disputed amount of subsidy (whenever I write about it, project proponents get angry with my numbers but we’re certainly talking in the nine digits) the pyramid is transformed into The Pyramid, a Bass Pro retail destination with amenities like a hotel, bowling alley and shooting range.
I’ll acknowledge that I don’t know how to salvage this any better than the people in Memphis who felt compelled to try and salvage this. I’m not criticizing them, per se (although if their enthusiasm is genuine, that does scare me). My aim here is to continue to make this a beacon for what not to do – just don’t start down the silver bullet path – and hopefully discourage other communities (and Memphis) from getting themselves caught in this kind of trap.
Bass Pro Shops at The Pyramid topped $56 million in sales in its first year, city records show.
It's a far cry from a sales projection of $105 million a year anticipated before the 2011 bond issue for Pyramid renovations.
1. Rosy Projections
Silver bullet projects have a few key features. The primary among them is that financial projections are always rosy. Failure is not only not an option, neither are rainy days. If you didn’t believe, how could you ever do such a massive gamble (with public money). From the article:
A Downtown Memphis Commission-affiliated board, the Center City Revenue Finance Corp., issued $197 million in bonds in 2011 for tourism-related improvements including Bass Pro. About half went to the Pyramid, and the rest was for other purposes, including a city buyout of Shelby County's interest in the Memphis Cook Convention Center.
Memphis Cook Convention Center….another silver bullet. See the need for a beacon?
2. Eternal Optimism
The second feature of silver bullet projects is seemingly eternal optimism. We may not be meeting expectations today, but just wait for everything else to kick in. To paraphrase a famous real estate developer (who is being rightly criticized for deals that were, if we’re honest with ourselves here, financially sounder than this one), it’s going to be HUUUUGE!!! Again from the article:
City chief financial officer Brian Collins said the TDZ is generating more than enough income to make bond payments -- $20 million in receipts over $17 million in debt obligation last year — and Bass Pro was expected to increase TDZ revenues by several million this year.
The TDZ's share of taxes on $56.3 million would exceed $4 million in new taxes.
"We are comfortably on track — the existing TDZ revenue is covering debt service costs and then some," Collins said.
"As the Pinch development gains momentum, including projects associated with St. Jude, there will be further growth in TDZ revenue, coming from both the Pinch and Bass Pro," Collins said.
The Pinch development was so critical to the success of the Pyramid subsidy that the city and Bass Pro partnered to connect it to the Pyramid with a pedestrian walkway. No, I take that back – that didn’t actually happen.
“You can’t walk from the Pinch District to the Bass Pro entrance,” said Jake Schorr, owner of Westy’s Restaurant and Bar. “The city approved the plan to build the Pyramid with a connection from Bass Pro to the Pinch District. They didn’t do it, they won’t do it, and building a connector would not be a particularly good thing for Bass Pro. It would go against the whole layout of the retail business.”
3. Long Payback Periods
The third feature of silver bullet projects is ridiculous long payback periods. This goes right along with rosy projections and undue optimism, but it’s still amazing to see it in print.
The Downtown outdoor goods superstore and tourist attraction had sales of $56,354,259 May 1, 2015 through April 30, 2016, according to monthly gross sales reports to city government, which owns the Pyramid, a 32-story former sports arena repurposed by the city of Memphis for Bass Pro.
The Springfield, Missouri-based retailer paid the city $1,125,623 in rent, 12.5 percent more than $1 million minimum rent required by a 55-year lease agreement.
I suspect Bass Pro’s private investors are expecting their investment to pay off in less than 55 years. Like maybe five. Cities think they are patient money – another delusion they tell themselves when doing crazy things – but there is patience and then there is never. I’ll be 97 years old when this lease expires. For a better frame of reference, nobody who negotiated it will likely be alive to see it end. That is, unless it ends prematurely, which seems a possibility just one year in.
A review of Bass Pro's sales reports showed the store started strong last spring and summer and spiked again with holiday season shopping in December. Sales in May 2016 fell nearly 39 percent from a year earlier, reflecting the lack of a "honeymoon" effect, Taylor said.
"You're always going to drop in the 13th and 14th month (after opening), because that's after the honeymoon period," Taylor said.
At least there was a honeymoon because the people of Memphis are now married to this project, through good times and bad, in sickness and in health, all the days of their lives.