Close attention to the Deloitte & Touche report on the proposed Carousel Center expansion reveals certain facts that challenge the Pyramid Companies' contention that it cannot complete the project without $249 million in tax-exempt bond funding from the Syracuse Industrial Development Agency (SIDA). Indeed, those facts—presented below—suggest that, with the financial leverage provided by SIDA bond funding and assuming Pyramid's own sales projection, the developer will be able to earn an inordinately high return on its investment.
No doubt Pyramid will claim that these figures are unrealistic—that gross revenues will be much lower than $46 per square foot and the expense ratio will be higher than 34%. So, let's use some alternative assumptions.
Pyramid's case for its need of SIDA bond funding rests on two extraordinary assumptions: (1) gross revenues on the expanded Carousel Center will be only about $20 per square foot (vs. industry averages of $31-$32), and (2) the project's expense ratio will be 47% (vs. industry averages of 30-31%). As Deloitte & Touche indicates, given these two assumptions, Pyramid's projected return on equity is 2.5% without SIDA funding and 7.7% with it. However, Deloitte neither defends nor explains these unusual assumptions, and Pyramid refuses to provide city and county legislators with detailed financial data that support them. As we consider the curious fact that Pyramid projects that the expanded mall will achieve extremely high sales but very low revenues, we should note this observation from the Deloitte & Touche report (p. 35): "As with any shopping center, retail sales are the driving force for generating income. With higher sales volume, owners are able to charge higher rents and generate more operating income." There is no reason to think the expanded Carousel Center will be an exception to this rule.