Paying to Be Priced Out: What the Blackstone Hotel Tells Us about Gentrification in Omaha

Last month, the Omaha City Council approved a new occupancy tax for the popular and rapidly gentrifying Blackstone district. The World Herald Article covers the policy details, but the short version is: if you live, work or visit a Blackstone property owned or managed by Greenslate or Clarity you can look forward to an extra tax on your dining, hotel or rent.

Considering the upscale nature of Blackstone one could consider this a “luxury tax”: Greenstone’s properties cater to an upmarket crowd (unless you think a $4 donut is “eatin’ cheap”). In theory that could have direct benefits for residents of the area–if any of that money was going to city coffers. But this particular tax has one specific purpose: all revenue goes to Greenslate and Clarity to continue their renovation of the historic Blackstone Hotel.

The hotel renovation started as a 75 million dollar project that has since crept up to $77.5 million. To date, tax incentives are funding at least 40% of this budget.

The idea behind any development-related tax incentive is that it’s supposed to offer some mutual benefit for the developer and the city. For example, to be eligible for “enhanced employment area” status (a requirement for Occupancy Tax, which Blackstone has just been granted), the proposed renovations must create at least 30 jobs and bring 3 million dollars of new investment. This is part of the standard “job creators” narrative that underpins of public/private partnerships, but whether $31 million dollars of public money is a good price for the eventual returns remains to be seen.

What makes the Hotel special is not the siphoning off of public money to fund private development, but, as dissenting City Councilwoman Aimee Melton points out, the fact that this new benefit comes on the heels of a generous 7.5 million dollar Tax Increment Financing project for the hotel.

TIF is supposed to be different from other development incentives–the proposed projects have to demonstrate they will add some tangible public good beyond the usual “jobs and investment” line (think affordable housing, grocery stores in food deserts, etc). Omaha and other cities have played so loose with these (and other) requirements that they ended up audited by the State Attorney General in 2016. This 2017 article (from an interview with PRI’s own Jack Dunn) gives an good overview of TIF and lays out some of the more egregious examples of what the City Council considered worthy projects.

Having spent many months reviewing TIF projects for the city over the last decade, my favorite example is: $40 million dollars to First National Bank to build their 40-storey downtown headquarters in exchange for a sculpture park (Second place goes to subsidizing McDonald’s 24th and Cuming location in exchange for a “Welcome to Omaha” sign).

As a member of the joint Omaha DSA/PRI Affordable Housing Research Group I’ve spent 6 months researching TIF projects in our city. Now we’re turning our attention to gentrification more broadly, and its impact on communities. Blackstone has an unusually high concentration of TIF projects, and the broader justification of public/private redevelopment funding has consistently been to revitalize the area and bring in much needed revenue for the community. What’s less clear is who in “the community” these partnerships are really intended to benefit.

To me the Blackstone Hotel project is uniquely revealing.

First, from the TIF side:

A developer wants to raise money to develop a hotel. The hotel falls in an area that is eligible for TIF funding. The developer makes a proposal that asks for 7.5 million dollars and makes an argument that a luxury hotel will bring some public good to the community. The City Council says “well yes, of course it will”.

Even modest TIF projects have a tendency to exponentially increase property values in very short periods of time–think increases of 4-8x in a 2 year period. Here’s a relevant example from another Blackstone TIF project (the bars represent the total property tax bills in each year. The green “paid” portion is the tax bill from the property’s old valuation. The red portion is the difference between the old and new tax bills based on property value increases).

If properties in your neighborhood suddenly quadruple in value, that has a domino effect. If you own your home, you may enjoy the knowledge your own property values are going up–unless they go up so quickly you end up with a tax bill you can’t pay. If you rent, you may be facing dramatic rent increases as eager landlords buy up nearby properties and raise the rents so they can have a chunk of the trendy new neighborhood or your current landlord is hit with a rising tax bill. The source of this increase, the high-value TIF property, is having every “new” cent of their tax bill subsidized by the city. Their neighbors are not.

Now, add in the Occupancy Tax:

Developer wants to raise more money to develop a hotel. Developer could go to a bank and ask for a loan – but bankers want collateral (a chunk of the property).

So, Developer goes to the city and essentially asks them for a less messy way to bring in a bunch of money – namely an occupancy tax – which makes their business tenants charge more for their goods/services and send all that extra money straight to the developer.

The City says “well we can declare that your other properties are Very Special and collect a Very Special Places Tax, but instead of becoming public money we can just give it to you–but you can only use that to build your hotel; a private business, which you own.” Nevermind that we’ve already given you 7.5 million dollars of tax relief.

In its heyday the hotel was a known destination for Omaha’s Gold Coast elite and the nation’s stars of stage and screen. The mission of its developers is to restore the hotel it to its former glory.

It’s a romantic and appealing notion on its face, but overlooks a key part of the narrative: the great heyday of the hotel was in the early 20th Century. In the intervening 100 years Blackstone (and Midtown more generally) transformed into a very different place, where low-to-middle income families have had several generations to build a community. Once pushed out, it is not clear where they go.

The stated purpose of the hotel and the manner of its funding belies the real priority of
developers and their partners in city government. One could be forgiven for viewing the project as a way to simply remove those who have lived in the “Blackstone district” for generations and replace them with the well-to-do; and these well-to-do will generate much higher revenues for local businesses and for the real estate profiteers.

Omaha, one of the most rapidly expanding metropolitan areas in the country, is in the midst of an identity crisis. The landscape of the city is changing–expanding outwards across the plains, but also transforming its older neighborhoods. On the “revitalization” end of things, there’s been a noticeable trend: rapid gentrification of affordable neighborhoods that benefit private developers at the direct expense of residents.

We have a reputation for low cost of living but despite the rapid expansion of our city, affordable housing stocks are shrinking. We favor public/private partnerships for neighborhood development, with handsome incentives. We are occasionally evasive about the “success” of these projects – the reported struggles of Midtown Crossing being a prime example. The results have been a series of “shock-and-awe” revitalization projects that drop enclaves of upper-middle class goods, services and residences into traditionally low-cost neighborhoods, with scant few projects to replace or expand affordable housing.

There is nothing strange or novel about this–the story of gentrification is an old one, woven into the histories of American cities since the dawn of urban planning. The specific impact of revitalization projects, however, depends on how a city chooses to approach it.

Omaha chooses to tout the benefits of catering to the well-to-do while paying lip service to housing the low to moderate income.

There are arguments that income diversity in neighborhoods is beneficial to lower-income families, but there is little income diversity in these gentrified neighborhoods.

• Gentrification prices out locals as exemplified by Blackstone, developed largely by Greenslate.
• Greenslate wants more money for the Blackstone hotel renovation.
• In addition to $7.8 million in Tax Increment financing, a different means of accessing public money was adopted – an occupancy   tax, a tax on all businesses in the district – all of which goes to renovating the Blackstone hotel; a nice perk for the developer.

Later stories will compare the amount of money the city allocates to affordable housing compared to the amount going to upscale apartments and condos. Stay tuned.

– Amy Oneil

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