Hyman: Dixie Cup Plan "Has Disaster Written All Over It"

At last week's Northampton County Council meeting, there was a full-throated push for a substantial tax break known as a TIF at Wilson Borough's long-vacant Dixie Cup factory. and the plan to convert into 405 high-end apartments ($1,900 - $2,900). Those rentals are well beyond the means of most people who live here. This apartment complex will be marketed to double-platers (people from NJ and NY), who in turn will continue to drive up the cost of living here as we morph into another bedroom community for Gotham. These proponents of a public handout even included Executive Lamont McClure, no doubt because the developer, about whom I've previously raised a number of red flags, is willing to give the county $1 million for affordable housing. As nice as that might be for some county projects, it will exacerbate our affordable. Moreover, there is no real need to grant a TIF because the private equity firms funding this deal have never said it must happen. Finally, the argument that this would never be otherwise developed is simply false. 

In response to stories I've written about this project, I received an email from Allentown developer Nat Hyman.  He's rich. I'm poor. He'll deny this, but we are friends. The one thing we have in common is that everyone hates us.

I asked Hyman if I could publish his email, and he has agreed. I do expect the TIF to be adopted overwhelmingly, and by all three taxing bodies (borough, school district and county). I'll agree there are arguments to support it and have previously noted them. But Hyman's arguments against the TIF make sense to me. He was interested in buying the site and without any tax incentives. 

I read with great interest your articles last week regarding the proposed Dixie factory adaptive reuse and the associated comments. I want to congratulate you on great investigative reporting to uncover so many red flags about this “developer” and finding that he has told so many untruths, most critical of which is that he has never developed any building….ever!

My company has developed dozens of buildings similar to Dixie. In all cases we have created affordable housing in those buildings. In all cases we have not accepted any TIF, LERTA , historic tax credit or any other government hand out.  If we do not need the incentives to construct affordable housing, you are 100% correct when you wrote that it is absolutely not necessary to grant such a subsidy for luxury housing. In fact, it seems to me that it is an unconscionable waste of taxpayer money to give that to this developer for this project.

As a basis of comparison, in Northampton County we recently finished an 89 apartment development, purchased the Northampton Brewery for which we have received approval for 70 units and , just one mile from Dixie, purchased a 102,000 sf building with the plan to convert it to 120 apartments. All affordable housing. All with no government incentive or tax relief.

The $1,000,000 they are contributing to the affordable housing fund is de minimis when compared to the money they are receiving from the tax payers in the form of a 20 year TIF. In essence, they will give Lamont McClure $1 in exchange for the taxpayers’ $100.

For the record, I did try to buy the Dixie factory but was unable to make a deal with the seller. If I had bought it, I would have built affordable housing with no tax breaks or  government incentives.

Having undertaken many of these adaptive reuse projects, I can tell you that they are a specialized type of development and difficult. Accordingly, it would be nothing short of miraculous for someone who has never built anything to be successful with a project of this scope and size. A 640,000 sf building is not where you cut your teeth.  It is far more likely that this building will still be sitting there blighted five years from now.

After all that you have uncovered about this guy (ex: he lied on his website, claimed to have developed a project which was actually never done, lied about the number and locations of his offices, has zero development experience, lied about his partners, etc.) it is absolutely mind boggling to me that Lamont McClure, and council members, would still support this TIF! This is mismanagement 101. In business school we used the case method of study.  I had a professor who constantly reminded us that “as circumstances change in any case, so must your evaluation and thinking. Business is fluid, not static.” I know you’ve written that this TIF is a done deal. If that is true, it is purely obstinance and stupidity. And for those who think this is the best chance they have to get this property developed, they are dead wrong. What they are actually doing is the opposite, ensuring that this blighted mess will sit there in perpetuity as this guy tries to finance against the TIF and get this thing developed. Make no mistake, if they give this TIF, this blighted building will be sitting there 5 years from now, exactly as it is today.

Finally, the developer himself has said that they will spend $150,000,000 on building 405 apartments. That is $370,000 per apartment! Given where rates are today, it is obvious that the project is not viable at the rents he claims he will be charging. The debt service alone will be  $2,913 per unit per month. That does not include ANY of the myriad other expenses they will incur…..insurance, utilities, maintenance, real estate tax, etc and making a profit. They will need to charge $5,000 plus a month in rent for each apartment to make this project financially viable…..which they will never get in this market. They are trying to bring New York rents to Lehigh Valley economics.

The fact that McClure and council members did not take the minimal amount of time to investigate this developer and/or to review the finances of the proposed development before supporting the TIF, is amatuerish, sloppy and lazy. But if they still continue moving forward with granting it now that they know all of this, it is nothing short of malfeasance.

Having purchased a building one mile away, I really hope Dixie does get developed. A rising tide lifts all boats and it will improve the area in which I am invested. But it needs to be done by a competent, experienced developer (and there are several, not just me) with a viable plan. This has disaster written all over it.

Wishing you the best of luck on your cataract surgery.

Nat Hyman