An Offer They Can’t Refuse?

Jeremy Aldrich -- January 8th, 2009

According to the DNR, Rosetta Stone is asking the city government for a bargain-priced building, a significant traffic change and precious upper-deck parking spaces at the Water Street deck.  In return, they are dangling the tantalizing offer of 100 new well-paying jobs.

Rosetta Stone, in case you didn’t know, makes popular (and heavily advertised) language-learning software.  It was formerly known as Fairfield Language Technologies, but the name of the company was changed in 2006.

The property in question used to be the police headquarters until the HPD moved into the more spacious public safety building in 2005.  Rosetta Stone has offered $300,000 for the 14,400 square foot building, significantly less than similar buildings listed for sale on the city’s Economic Development website.   According to Brian Shull at the Economic Development office, the market value of the property is around $850,000.  In 2006, the city school division considered purchasing the building for administrative use but was concerned that the lot might eventually be needed for a future jail expansion.  Shull says that there is no money available for such an expansion in the near future, and there would be other options if that need did arise.

The proposed traffic change would mean making an additional section of Water Street – the section with the wooden bridge between South Liberty and South High – a one-way street.  According to Shull the reason for the proposed change is to accomodate Rosetta Stone’s concern for pedestrian safety between their current offices and the new building.  The current proposal is actually a compromise, as the original request was to completely close that section of the street.  A shut-down of the road is to be reconsidered in February of next year, according to the purchase agreement.

Guaranteed leases on the coveted upper-deck parking spaces at the deck on Water Street are also called for in the proposal.  According to a city website, the leases for those spaces sell out every year.  The proposal calls for 175 guaranteed parking spaces for Rosetta Stone (out of 208 total spaces available in the leased area).  Jessica Chase at Downtown Parking says that the company currently leases about 100 spaces there.  She adds that they are constantly monitoring the use of the facility to balance the needs of the lessees, those using the free ten-hour parking, and those using the free three-hour parking.  An additional part of the proposal seems to call for a freeze on the current price of $25 per month per space (if the lease is paid annually) lasting for the next two years, with an option to extend the agreement an additional two years after that.  As an aside, plans mentioned on the outdated city parking website to move some of the leased spaces to the first level of the Water Street Deck have been tabled, although Chase notes that some of the spaces on top of the deck have been made available for free parking.

In return for these three concessions, Rosetta Stone would be required  to create 100 new jobs paying at least with an average wage of  $50,000.  The new jobs would be “across all disciplines”, according to the newspaper article.  In today’s paper, there is an article about the local unemployment rate rising to 4% in November, which is a reflection of the national economic slump.  Of course, there is no guarantee on how many of those hundred new employees would come from the local employment pool, or how many would live or shop within the city limits.

The City Council will consider the proposal on Tuesday night, following a period for public comment.

179 Responses to “An Offer They Can’t Refuse?”

  1. Barkley and Charlie, I think you make good points about the city not wanting to play landlord. I agree. But by that same token, I don’t think the city should play realtor, either. The city might make a lousy landlord, but — judging from this low sale price, and the One Court Square vacancy — it looks like it’s even worse at negotiating real estate deals.

    That’s not a jab at any one person, and I’m sure Mr. Shull could draw up an equation, factoring in new jobs, tax revenue, and “trickle down” economics to try to offset the price difference, but I hope you understand the gist of my point.

    There may be recent examples where the city made a profit on a sale. I just can’t think of any offhand.

  2. Lonnie says:

    I second what you are saying, Kai. As a first-time attender at a City Council, I was listening closely as you framed your questions last night. I was the person present expressing concerns about access to our church building as a result of the pending one-way street. If you had said, “who here is against the sale?”, I would not have raised my hand, but I clearly heard that you were asking for those with further concerns/considerations to raise their hands. I was not aware I was the only one to raise my hand!

  3. Jeremy,

    You keep talking about “market value.” That is something that one sees in a market, that is actual sales, not just some appraiser saying they what they think it is. Where are the other people or groups rushing forward to offer to buy the property at anything above $300,000? That may be too low a price in some ideal world, but this is a recesssion where property values are down.

    Also, comparing a dumpy structure with possible commercial use after some serious fixing up with a nicely done private home is a bit odd.

  4. Jeremy Aldrich says:

    Barkley, it was never offered to anyone at $300,000 or $1.16 million or anywhere in between. Perhaps if it had then anyone with need for 14,400 square feet (including businesses not already in the city) might have jumped at a solid construction right next to ample parking in a technology zone.

    If you want to say our city’s assessment values, which are tied to “100% of market value“, are ridiculously off, you’re taking that up with the wrong department. If $300k is a reasonable price for this property, how much do you think One Court Square should go for? And how much should the city be willing to pay for the proposed school admin building?

  5. Emmy says:

    Some good points are being raised.

    For starters while I don’t think that RS would up and leave if this hadn’t gone through, I do think that this building makes life much easier for them. They cannot expand their current building, and if they all need to be able to work closely with each other, then having a building very near them makes a lot more sense, than somewhere across town. Aside from the Whetsel Seed building right across the street, I can’t think of a better spot for them to grow. And I’m assuming that building was either already sold, too small, or both.

    As for the sale price. Well, I do wish they’d sold it for a bit more. But, when you think about it, it’s a fixer upper for anyone who gets it. It’s one of those Sold-As Is properties you see. A $300K house is worth that if it is in livable condition, but it isn’t worth that if you have to gut the place. Based on the fact that this used to be a police station/jail I assume the insides need a lot of work to make into any sort of office. So the truth is that all three possible uses for this building would have to do some serious work to make it worth it. If it could be used as is, it might be worth $850+, but it can’t, so it isn’t.

    It’s a good move for the city and RS and it will eventually pay off for the city in some ways unseen.

  6. Scott Rogers says:

    Are we establishing a precedent for other businesses that if you see a vacant city property you like, we’ll give it to you for a fraction of its market value?

    Perhaps it’s not a bad precedent. If another existing or new company comes along and offers to buy a vacant building owned by the city, offers to spend hundreds of thousands of dollars to fix it up, and to create 100 jobs, that seems like it would be a good thing!

    By selling the building for such a low price, we have made it more difficult for the city coffers to benefit from the Rosetta Stone expansion. How many years of property tax and business property tax will it take just to recoup the difference between the sale price and the market value, much less the costs from traffic changes and parking spaces required in the agreement?

    Jeremy — I think you’re looking at what you perceive to be sales price concessions (selling at $300k) in a vacuum, instead of realizing the larger effects of this economic development move. Putting this deal together with Rosetta Stone doesn’t just benefit the City by creating a stream of tax revenue relative to that property — it grows our local economy. New employees (many likely with families) will move into the area, other downtown businesses will see an increase in revenues, etc., etc. I believe the City Council is looking at this issue from a much more global perspective than you would like to view it.

  7. Emmy says:

    I tend to think most property is overpriced, so I don’t think it’s a bad precedent to set. But I know nothing about property value.

  8. Scott Rogers says:

    Let me make a comment about my own comment….

    I suggested that we need to look at this situation “globally” — considering the sales price in the context of the larger effects of economic growth, and not just an increased tax base.

    However, I do realize that Jeremy is also looking at this situation in a (different, but equally valid) global sense — considering the impact of selling the property on the jail, school board, etc.

    Again, one of the things I appreciate about hburgnews is how so many different perspectives can be revealed!

  9. Lowell says:

    Something that I find very heartening, is that we now have 159 comments on this topic…

    So very cool…

  10. Renee says:

    Jeremy, you said “I think it’s fascinating that we as a city can’t find the money to renovate old buildings we already own, but we can find money to build new constructions.”

    I have to agree with that sentiment, it bothers me how long ugly vacant buildings have stood around town (several since I was in college in 2000), and with all of the zoning issues and the high cost of new construction, you’d think the city could improve existing buildings/lots either for its own use or for improving the sale value, or tear old ugly buildings down and build new construction “up” instead of “out” (like what’s been done with Urban Exchange).

    I do think the city should of course sell land under value if the business purchasing it is going to improve the economy and physical space downtown, but I just think it would really serve the city to “clean up” old buildings and use them or sell them for more.

  11. Karl says:

    For what it’s worth Jeremy, I have a tape of the meeting. You can swing by the station to watch it if you would like, but I can tell you in advance that Kai’s recollection is very, very close to what he said.

    How about a pedestrian bridge over Water Street? It’s a little different, but Cargill in Dayton is a great example of how a dangerous and traffic slowing pedestrian situation was taken above the street and fixed. Traffic flow is a major problem in the city and closing or making that section of Water Street (or any street) one way seems nuts.

  12. Jeremy Aldrich says:

    Thanks Karl. I’m sorry I cast aspersions on Kai’s skills at opening discussion, which is obviously a professional and personal passion of his.

  13. Jeremy,

    I am not questioning city assessments in general, just this one. Nor am I going to provide a proper price for the locations you inquired about. I do not know.

    You are dealing with someone who has spent a lot of time looking at how assessments are done and the data bases behind them. Those market values must be based on actualluy equivalent market sales. So, in a given residential area there are usually plenty of sales going on that can provide a reasonable guide for the valuations, in spite of the whining by lots of homeowners about their own assessments (such as by one individual commenting here). However, when one gets to oddball pieces of property in downtown areas, there are often not very many equivalent sales, and the basis of the assessment is very slender and not so reliable. I have seen variations in such sales by an order of magnitude.

    What are the equivalent properties that have been selling at the prices that have been assigned for assessment purposes? What is the equivalent piece of property that sold for $1.16 million? I do not think there are many, if any.

  14. Don says:

    …”whining by lots of homeowners about their own assessments”

    Well gee Barkley, I didn’t know that the foreclosures in my neighborhood counted as “sales”.

    Plug that into your database.

  15. Don,

    One problem with the assessments is that there is a lag, with reassessments generally reflecting sales from a year or two previously. So, we have this past year seen people getting upwards reassessments when prices have actually been going down. The downward movement will get picked up in coming years, especially if it is sustained.

    Jeremy,

    As this is about to scroll off, let me answer your question a bit more precisely, although very roughly. You asked how long it would take for the city’s coffers to make up for the probably “too low” price for the property RS is buying from the city, ignoring for the moment that there is more involved here than simply the city’s coffers.

    So, let us ignore increased business tax income from RS or any other local businesses stimulated by their expansion. Let us simply focus on increased property tax revenue from those getting the new jobs, plus those getting multiplier jobs from the expansion. I am pretty certain that if one simply held an auction, the property would not get anywhere near $1.16 million, although I would grant that it might well get more, possibly quite a bit more, than $300,000. Anyway, let us say that in fact it could sell for $1.1 million, making the “loss” for the city at $800,000. Making a pretty conservative assumption that the increased property taxes from the 150 new employees in the city (100 at RS plus another 50 from multiplier effects), is $1000 per person per year, that means the city will be getting an extra $150,000 in property taxes from them per year. I realize that this number may be lower or higher for various reasons, but also keep in mind I am not counting the higher taxe revenues form RS and other businesses. So, at this rate we are looking at the difference being covered in a bit over five years. Is this all that terrible?

    I would note also that RS brings growth without the negative externalities that new growth from JMU brings. It also brings multiplier effects extra expansion, but also brings more traffic congestion near campus and all that extra wild partying by students, now more in check with their effective ghettoization in their own complexes, mostly. Yes, there is a traffic issue right by RS and the new building yet to be resolved, but I am not expecting to hear of local residents being severely disturbed by out of control Tower of Babel parties at Urban Exchange due to wild linguists living there.

  16. seth says:

    sign me up!

  17. Jeremy Aldrich says:

    I am still waiting on some city employees to let me know the details of their time horizon for making back enough income from this project to cover the deeply discounted building, but I would note the following in the meantime:

    1. Once that time horizon is filled (in your rough estimate, 5 years from now), the city is back at a zero balance, and THEN begins to benefit financially from the investment.

    2. There remains a question on whether Rosetta Stone will in fact be obligated to maintain those jobs in Harrisonburg for the duration of that time horizon or not. If they only keep the jobs for, say 3 years, then this deal creates a negative balance on the investment, AND the city will be out some land that might potentially be very needed around that time and would be much more costly to replace.

    3. I have yet to find compelling reasons why they (Rosetta Stone) wouldn’t have bought this or another property at a higher price, substantially reducing the time horizon and the risk from this investment by the city.

    As I said, I’m awaiting some more details and will share them in a followup post when I receive them.

  18. Josh says:

    1. Seems like a much quicker turn-around than most municipal investments! :)
    2. Negative balance based on assumptions of present and future property values, RS market performance, etc. The city could always buy it back someday in the future.
    3. I still don’t understand why anyone thinks RS should pay anymore than absolutely necessary to acquire a property. They have a bottom line too. They’ve done this area a huge favor by not jumping ship from Hburg already considering the failed IPv6 etc.

    Isn’t this a done deal already? :)

  19. Jeremy Aldrich says:

    Actually Josh, I don’t think it is a “done deal”. Because this was not put out for bidding, this deal requires passage of a special ordinance. According to city code (as I understand it), the passage of this ordinance will require a second vote at another meeting. Although that is normally not an issue, the ordinance is not yet in effect. I assume the second vote will be at their next meeting. I welcome anyone who knows differently to correct me on this if I’m wrong.

  20. Andy Perrine says:

    Sorry to revive a somewhat cold thread … but no one followed up on Dr. Rosser’s terrific line,

    “I am not expecting to hear of local residents being severely disturbed by out of control Tower of Babel parties at Urban Exchange due to wild linguists living there.”

    Wow! Now then, as for my somewhat-whiny-but-honestly-sorrowful post after last week’s council meeting in which I lamented the lack of relevance to public discourse online, Barkley’s hilarious post changes all that.

    And please, will someone invite me to a party populated by “wild linguists?” This is the entire point of downtown renaissance, IMHO.

  21. Scott Rogers says:

    From today’s Daily News Record….

    Rosetta Stone Gears Up
    Rapid Growth Translates Into City Hiring Blitz

    By Jeremy Hunt

    HARRISONBURG – When Rosetta Stone bought the old city police headquarters last year, the company nticipated creating 100 new jobs over five years as part of an expansion.

    Fortunately for local job seekers – and counterintuitively, given the dismal economic outlook – the figure didn’t paint a complete future employment picture.

    “We’re actually expanding even further,” said Melissa Yates May, director of human resources for the language-learning software company.

    “We’ve been very fortunate in our success as a company and fortunate as well in the brains behind the product and where we’re going.”

    Doubling New Hires

    Rosetta Stone, founded in Harrisonburg in 1992, wants to fill more than 100 positions this year in addition to the 100 expected over the five-year period.

    The company held a recruiting fair Wednesday at the renovated building that once housed the Harrisonburg Police Department.

    The property, located at 181 S. Liberty St., also is known as the Valley Creamery, in reference to a business once located there.

    Rosetta Stone bought the facility for $300,000 in January 2009, and renovations were complete within a few months, May said.

    The firm, which has its corporate headquarters in Arlington, employs nearly 440 people in Harrisonburg.

    More than 100 prospective employees attended Wednesday’s appointment-only job fair, which was the first this year. The company plans to have more fairs throughout 2010 as it builds a new department, but additional dates have not been set.

    The new department aims to assist and encourage Rosetta Stone customers as they progress, says company spokesman Reilly Brennan.

    Brennan likened the “customer success associates” to personal trainers at a gym.

    “It’s all about basically keeping you on track,” he said.

    While filling positions in the customer success department is the focus of recruitment at the Harrisonburg office this year, May said there would be other opportunities as well.

    Job seekers at the recruitment fair said they’re pleased that the growing software company maintains a Harrisonburg location, rather than traditional tech hubs like California’s Silicon Valley or Northern Virginia.

    “I love that they’re expanding and they’re doing it in our community,” David Wyant said.

    Rising Revenue

    The expansion comes at a time when many companies are cutting jobs or holding employment levels flat.

    While the sluggish national economy continues to batter bottom lines across industries, Rosetta Stone is faring well.

    Its fourth-quarter earnings report, released last week, shows total revenue for the period ending Dec. 31 was $78.3 million, up 18 percent from the same quarter the year before.

    The company, which went public in April, is traded on the New York Stock Exchange with a common stock symbol of RST.

    Rosetta Stone shares closed on Wednesday at $22.80.

    Contact Jeremy Hunt at 574-6273 or jhunt@dnronline.com

  22. Jeremy Aldrich says:

    Something doesn’t add up. See my comment from January 13, 2009 at 8:05 PM. “According to Byrd and to Rosetta Stone HR manager Shawna Fowble, the current number of employees in the city is about 450.”

    Then in the article today (more than a year later): “The firm, which has its corporate headquarters in Arlington, employs nearly 440 people in Harrisonburg.”

    So according to them and to the DNR, within four years we should have 650 (450 at the time of the agreement + 100 as agreed to + 100 extra) Rosetta Stone employees in Harrisonburg? That would be great. Who’s going to check?

  23. Scott Rogers says:

    So, perhaps the 450 from a year ago is now 440, and they are getting ready to add the first 100 of the now projected 200?

  24. Emmy says:

    From what I understand they recently laid off a number of people. I know of at least one for sure, and that person said others went as well. If that’s true, I highly doubt they are adding any.

  25. Scott Rogers says:

    Emmy — to clarify, you say that you highly doubt that they are adding any — what then do you make of the job fair, the new department, and the people that are going to fill that department.

    Are you suggesting that they are firing 100 and hiring 100?

  26. More likely they are “restructuring” by closing or shrinking some departments, and expanding or starting new ones. It’s my understanding that some of the old audio jobs are being outsourced to studios in the countries where those certain languages are spoken (recording there as opposed to flying language speakers over here).

  27. Emmy says:

    I honestly don’t know. Lots of things just seem really weird from what’s being said in the paper, and from what I’m hearing from people who work/worked there. Jeremy is probably right, it’s probably “restructuring”.

  28. Emmy says:

    Sorry, I meant Brent, not Jeremy.

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