Fedex Logistics gets PILOT, grants for Downtown move
The New York investment firm that owns the Gibson Guitar Factory building where Fedex Logistics will bring its headquarters was approved Thursday for a 22-year extension of a property tax break.
The payment-in-lieu-of-taxes (PILOT) incentive will save Somera Road about 75 percent of its property tax obligation, helping to make the Fedex move more affordable. The PILOT was approved unanimously by the Center City Revenue Finance Corp. board, an affiliate of the Downtown Memphis Commission.
“We’re really excited about moving Downtown and being a part of the vibrant Downtown community,” said Jason Yarbro, an attorney for Fedex Logistics.
The move will bring hundreds of new workers Downtown. About half will be relocating from East Memphis while the others — about 339 — will be new positions. The average annual pay for the workers will be around $80,000.
The Gibson building at 145 George W. Lee Ave. near the Fedexforum was already under a PILOT that slashed the taxes on the property. Under the previous PILOT, the building owners paid $9,836 per year to the city and county. Another $366,825 each year went into a PILOT Extension Fund, created in the 1990s to pay for parking-related projects.
Once the current PILOT expires in 2023, the incentive approved Thursday will kick in and the money that is being paid into the PILOT Extension Fund annually will go to the city and county instead, bringing the total annual payments to $376,661.
“We believe and are supportive that the extension and amendment of the PILOT is required in order to support this development, avoid an empty building and continue to revitalize this area,” said Jennifer Oswalt, president of the DMC.
Fedex, Somera Road PILOT differs from norm
In most cases, after a PILOT is granted, it is expected that the property value will be reassessed after any improvements are made. The company that owns the building will then continue to make annual PILOT payments equal to 25 percent of the property tax obligation under the new elevated value.
That won’t happen for Fedex Logistics and Somera Road.
Although the $44 million investment Fedex Logistics plans to make to bring its headquarters to Downtown will surely improve the building and raise its value, the property tax obligation will be calculated based on the current value of the building — before any improvements are made — for the life of the PILOT.
“We try to show that a PILOT always increases the value to the city and county,” Oswalt said. “In this case, the city and county are seeing the effect of the normal PILOT because they are receiving the funds instead of the PILOT Extension Fund. We didn’t say ‘let’s keep all of that money in the fund for another 20 years,’ it is going to city and county... They are getting the benefit.”
Also veering from the norm is the length of the PILOT.
According to the DMC’S evaluation, Somera Road and Fedex Logistics qualify for a 16.50-year PILOT based on the investment they plan to make in a building that might otherwise sit vacant.
Somera Road and Fedex Logistics requested a 20-year PILOT extension plus up to three additional years for construction.
In a letter on Tuesday, Robert O. Rolfe, Commissioner for the Tennessee Department of Economic and Community Development, approved the 20year extension request plus an additional two years for construction.
“The average annual wage for these 662 jobs is estimated to exceed $80,000 in a census tract where the 2018 media
household income is estimated to be $16,966 and 64.64 % of residents are below the poverty line,” Rolfe wrote in his letter, adding that he believed that the move would not happen and the jobs would not be created in the area of Downtown without the incentive.
“The amendment and extension of the PILOT agreement is in the best interest of the State of Tennessee,” he said.
Fedex Logistics approved for $3M grants, seeks more incentives
In addition to the special PILOT, the Center City Development Corp. board also approved a $1 million grant to help fund a portion of the renovation of the space to take it from a show room and warehouse and transform it into offices.
The transformation is expected to cost Fedex Logistics about $12 million and Somera Road about $21 million.
The grant money will not be issued until after the improvements are made and receipts showing that the work has been completed are submitted.
The Economic Development Growth Engine of Memphis and Shelby County approved another $2 million grant to cover some of the cost of improving the building.
The grant can be used to pay for permanent improvements.
Additional incentives from the state will likely be announced later this month. Rachael Simmons, a Fedex Logistics spokesperson, said the details of any possible state incentives were still being negotiated and could not be discussed publicly.
Clawback protection built into Fedex Logistics grants
The Edge-approved grant will be paid out to Fedex Logistics after the improvements to the new office is complete, said Reid Dulberger, EDGE president.
Fedex will also have to prove that no other grant has already paid for the portion the EDGE grant will reimburse. That’s to protect from double payment.
In addition to those protections, EDGE has also tied “clawback” provisions to the grant.
Fedex Logistics has five years to
“We believe and are supportive that the extension and amendment of the PILOT is required in order to support this development, avoid an empty building and continue to revitalize this area. We try to show that a PILOT always increases the value to the city and county.”
build the 662-person staff it promised. At the ends of years six, seven and eight, the company will have to report its employment numbers to EDGE. If it has 662 employees or more on average, then Fedex Logistics can keep the grant money. If it has less, it will have to repay a percentage based on the percentage of jobs left unfilled.
If Fedex Logistics leaves Shelby County within 10 years, it will have to repay all of the grant money, even if it meets the jobs numbers, Dulberger added.
Notably, clawback provisions have been a topic of discussion related to incentives after the recent announcement of the planned 2020 closure of the Memphis Electrolux oven factory.
Electrolux was given more than $188 million in incentives to open a Memphis plant and create 1,240 jobs. Less than a decade later, the plant closed. The contract drafted at the time barred the state and local governments from recouping most of the money it gave the company.
Dulberger said the protections built into the Fedex Logistics deal would have been included even if Electrolux was not closing.
“This board did not do Electrolux,” Dulberger said. “Electrolux predates the creation of EDGE. This is patterned on previous deals. This is patterned on what the state does. This is just good practice and the board has always had protections in place for the incentives it grants.”
Desiree Stennett can be reached at desiree.stennett@commercialappeal. com, 901-529-2738 or on Twitter: @desi_stennett.
Jennifer Oswalt President of the DMC