Mike Falcone was a co-founder of the Pyramid Cos., a development partnership. He then formed the Pioneer Companies, a commercial real estate development enterprise in Upstate New York, Denver and Phoenix. He is chairman emeritus of that company. Falcone also serves on Syracuse University’s board of trustees.
Grant Reeher (GR): You co-founded the Pyramid Companies with Robert Congel, but in 1976, you and Congel went in different directions. What were the different things that you were seeing in development back then?
Mike Falcone (MF): Bob was focused primarily on shopping centers, and I recognized that there were opportunities beyond shopping centers. He went on to become a very successful shopping center developer, one of the biggest privately owned companies in the country. We went on to become a very multifaceted developer who did every type of real estate that there is. We have done everything from office buildings to assisted living, hotels, medical office buildings, shopping centers, mix-used projects.
GR: Were you seeing something about the focus just on shopping centers that concerned you from a business perspective?
MF: No, I didn’t see it as a negative. I just felt that that particular segment of the industry had become very competitive, and there were some very strong competitors who had very close relationships with some of the retailers.
GR: Congel has, in recent years, centered a lot of his attention on the Destiny USA mall, and I think probably at least in this region, that will always be his legacy. All things considered, do you think that project has yielded a good value for Syracuse?
MF: Yes, I do. I think the format that he has now — a combination of the traditional shopping center and the off-price segment of it — and the focus on entertainment are exactly the way the mall business is going. The traditional malls that we knew of that were anchored by three department stores, they are becoming dinosaurs. And what he has here now, I think, is really the way most of the major shopping centers will reformat themselves in the future, and he has been in the forefront of that.
GR: How would you describe Syracuse’s recent development trajectory?
MF: I think Syracuse today is on a better trajectory than it has been in 30 years. We have had an enormous influx of apartments in the downtown area, we have people living here, and we have more people living here than in downtown Rochester or Buffalo. The Armory District kicked off a renaissance in downtown Syracuse which has been continued now with the Pike Block, several hundred more apartments being built, and most of them are rental apartments. The occupancy rate is 99 percent. The Armory District has attracted some major national retailers, which is the first time in years that we have had national retailers come into the city rather than leave it. So I think that we are on an excellent trajectory right now. This is the best I have seen it in many years.
GR: Have we passed a critical development threshold with the number of people living downtown?
MF: We’re not quite there. One of the things you need downtown is a grocery store, and we don’t have one. But in order to get that, you need more population than we presently have. But we will get there.
GR: Are there tensions or tradeoffs between the downtown and suburban development?
MF: Well, I think globally, nationally, there has been a resurgence in downtowns all over the country. It isn’t peculiar just to Syracuse. What’s happened is that people have returned to the inner cities because they are tired of seeing the destruction of farmland and the suburban sprawl — a lot of people feel very strongly about that now. And that wasn’t the case 10 years ago. That wasn’t even on the radar screen. The increased cost of travel, gasoline, has caused people to want to be close to their work. It’s convenient and it is wonderful to be able to walk out your door and go out for dinner rather than get in the car, or go to the coffee shop for breakfast and be able to walk to your place of work rather than drive or take a bike. So this is a trend that is not just here; especially in Denver, we have seen an incredible resurgence of residential construction.
GR: How would you describe former SU Chancellor Nancy Cantor’s effect on the city and downtown?
MF: I think Nancy was the first chancellor in my memory who decided that the university should play a much more significant role in the redevelopment of the city of Syracuse. The town and gown separation, that would always seem to be there with previous chancellors, she opened it right up, tore that up and created an atmosphere that was very cohesive. She was very committed. She said to me one time, we can’t have a great university if we don’t have a great city. And it was a very strong statement, and she certainly single-handedly did an awful lot to coordinate that. Now one of the major developments, the first ones, was buying an old warehouse in the Armory District and turning it into, at that time, the architectural school as an interim — now occupied by students for other purposes. But as a result of that, we built a new downtown office building, because that was the catalyst. I didn’t want to build a new office building in this piece of land which we controlled as long as that old vacant warehouse was there. But once it became a vibrant building, then we built a 128,000-square-foot office building.
GR: Do you anticipate a significant change in this area with the new chancellor?
MF: Based on my conversations with the new chancellor, I think he will continue, but I don’t think he has the same passion for it or appetite that Nancy had, and that may be fine. The synergies are already there, the things that should be happening are happening, I don’t think the university necessarily has to continue to put the same emphasis on it or the same amount of money as they have in the past.
GR: What’s the best working relationship that you have had with a local government or a government official and what made it that way?
MF: I have had good working relationships with all of our government officials. The mayor, county executives, town supervisors. I think that we were very fortunate because we are natives of this area. I think it is much easier for people like ourselves, who have been here for generations. I mean, my grandfather started in the construction business in the early 1900s; our family has been here for that long and been in the construction business. Then I went into the development business. It helps that you have these roots, they know who we are, they trust us, and we trust them. We had to jump through hoops sometimes, we had to do a creative process which they insist on, but that’s fine.
GR: What’s the aspect of real estate development that local governments have the hardest time understanding and appreciating?
MF: The most difficult thing they have to understand is the equation of rent versus cost. Unfortunately, because this is not a growth area, the rents that we are able to get today are not a lot different than they were years ago, and when you include the cost of inflation, they are less. So, consequently, in order for the numbers to work on a deal, you really almost need some form of government subsidy. At a point in time in the future where rents go up dramatically, then you won’t need that, but at this point in time, it is very difficult to make some people understand, especially some public officials. We are not asking for a handout. We are asking for something that is going to make this deal possible, and if we don’t get it, we can’t do it. I could not have built a new office building in downtown Syracuse — the cost is 50 percent more than the last one I built at 257 Clinton St., and the rent for it, in all practical circumstances, it’s the same rent. It wouldn’t be possible. But I did have government subsidy, I did have some government benefits, including some from the state, and that’s what made that deal possible. And today that building houses hundreds of people who spend their money downtown, and some of them are very high-paid people because they are engineers, etc.
GR: Are there some mechanisms for doing that that you think work better and more smoothly than others? There’s been a lot of controversy about PILOT programs, for example.
MF: I think the best mechanism is what we call TIF financing, which we don’t practice very well in New York state. It is here, but it hasn’t been implemented that much and they haven’t perfected it. I have done it very successfully in Colorado. TIF is tax incremental financing. In other words, you look at a piece of property and what the existing income is in the way of taxes. I’ll give you an example: We bought a big shopping center that had a tax base when we bought it of close to $2 million. What we did was knock it down and build the huge project that probably we would have been paying taxes on of $9 million or $10 million, but the government allowed us the difference between what was there and what we created, to take that and finance it with tax-free bonds. And it allowed us to put in the infrastructure for really an entire city that we built, rather than a shopping center.
GR: So, in a sense, you are getting a break for the value added.
MF: Exactly, that’s what we are doing. That’s a good way to put it.
GR: If I am a local government official and you approached me about a potential project, what is the most important question I need to be asking you?
MF: How many jobs is it going to create? Is it going to be sustainable? Are you sure that it is going to be successful, and do you have the financing necessary to make sure that it is a success including the capital equity requirement?
Every week Grant Reeher, Director of the Campbell Public Affairs Institute at Syracuse University, leads a conversation with a notable guest. Guests include people from central New York – writers, politicians, activists, public officials, and business professionals whose work affects the public life of the community – as well as nationally-prominent figures visiting the region to talk about their work.
Grant Reeher hosts WRVO Public Media’s program “The Campbell Conversations” at 6 p.m. Sundays at 89.9 and 90.3.
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