Transformative Dayton Arcade Overcomes Development Hurdles
Cross Street Partners
In November, a notable national Author Bruce Katz wrote about Dayton’s Arcade project as being one of the most transformational project he has seen nationwide. Bruce Katz is the Co-Founder (with Jeremy Nowak) of New Localism Advisors. The mission of the firm is to help cities design, finance and deliver transformative initiatives that promote inclusive and sustainable growth.
Bruce is the co-author of The New Localism: How Cities Can Thrive in the Age of Populism (Brookings Institution Press, 2018) and The Metropolitan Revolution: How Cities and Metros are Fixing Our Broken Politics and Fragile Economy (Brookings Institution Press, 2013). Both books focus on the rise of cities and city networks as the world’s leading problem solvers.
Katz was the inaugural Centennial Scholar at the Brookings Institution from January 2016 to March 2018, where he focused on the challenges and opportunities of global urbanization. Prior to assuming this role, Bruce J. Katz was a vice president at the Brookings Institution and founding Director of the Brookings Metropolitan Policy Program.
About the Dayton Arcade he wrote about the need to make projects like this easier for all involved. With permission, below is an excerpt of Katz’s article.
“In October 2018 I visited Dayton for the first time as part of an Opportunity Zones effort I had undertaken in partnership with Accelerator for America. I did not know then that Mayor Nan Whaley and Shelley Dickstein, her indefatigable City Manager, had a surprise in store for me. They and their colleagues took me for a tour of the Dayton Arcade, an historical gem that was on the verge of rebirth and renewal.
Now comes the transformative part. Earlier this year, the city announced that a deal had been struck with Cross Street Partners, McCormack Baron and the Model Group on a first phase $90 million mixed-used project that includes housing, offices, restaurants, and retail. The Arcade’s anchor tenant will be the Arcade Innovation Hub LLC, a joint venture between the University of Dayton and the Entrepreneurs Center. (Disclosure: I have known Bill Struever of Cross Street Partners and Richard Baron for decades and long admired the quality of their work and their unshakeable commitment to cities).
Now comes the sobering news. The Dayton Arcade project has 26 layers of financing (!), including $22 million in Low Income Housing Tax Credits, $15.9 million in Property Assessed Clean Energy funding, $16 million in federal historic tax credits, $12.5 million in New Market Tax Credit equity and $9 million in state historic tax credits. With all these disparate layers, some of which had layers within layers, it is not surprising that more than 35 attorneys were present at the closing.
A recent Dayton Business Journal article on “The Women of the Dayton Arcade” referred to Frances Kern Mennone, Director of Development at Cross Street Partners, as “The Muscle” for her ability to push this financing through to fruition!
We need to examine closely the financial structure of this transaction NOT to determine how best to replicate the capital stack from hell but rather how to simplify, streamline AND bring new patient and market-oriented investors into the mix.
The Dayton Arcade is the most transformative project in America. But it should never have taken this long or been this complicated to accomplish.
Opportunity Zones have unveiled the insanity and dysfunctionality of the current system and are offering some new solutions and capital stacks. But the broader messages are clear. As a country, we are not valuing the right things. Institutional investors – many of whom made their wealth in places like Dayton – are not investing in the right places. And most communities do not have the human capital – the people – with sufficient experience and expertise to suffer through the existing system and invent the new one.
There is much work to do. – Bruce Katz”
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