Concerned said:
And Snarf, if the owner has plans to maintain and develop the property, what is your point about Hale going "soft?" What, exactly, should the judge do to the owner? Once again, what is the true agenda?
@Concerned ... through its complaint, the City of Columbus has asked Judge Hale for permission to enter the property, demolish the structures, and assess the demolition costs against the tax duplicate for the property. I would love to be a part of avoiding that outcome.
What does that do to the value? The property is valued at about $190K, with the land value about $90K and the buildings about $100K. If the buildings are demolished, the land value will be $90K, AND there will be a tax assessment of about $200K (estimate of the demolition charges). Thus, if McGee was to sell it at value ($90K) after demo, she would have to come up with another $110K at closing to pay the tax bill. Or more likely ... she would run delinquent on the $200K assessment, and the City would take the property through a tax foreclosure, put it in the Land Bank, and try to find a developer (and she would get nothing). But at that point, the historic buildings would be in a landfill somewhere, and the historic fabric would be lost forever.
So -- upon learning of the City's intent to demolish, we offered to buy the property from McGee for its appraised value, AND invest another $50-75K IMMEDIATELY to stabilize and bring the buildings to code. But because we are not STUPID, we did not opt to take all the risk and let her walk away while putting all her problems on our shoulders.
Instead, we RESPONSIBLY proposed owner financing of acquisition -- something McGee had been open to in the past -- so we had plenty of cash left to do what needed to be done on a purely speculative basis (with no assurance of any future source of income). And when I say "speculative" I don't mean that I foresee any profits for anybody in the redevelopment, in fact, I see a financing gap of about $4M in a $10M project.
So Boyce Safford, Development Director for the City, said the City doesn't have any money: duh ... that's what he is supposed to say. But is that true? -- I am willing to take a business risk that says we would be able to fill that financing gap and there would be some substantial city participation to help close that gap. The city had $3.4M to bail out the Whitney Estates, $4.5M to bail out the arena this year (with more projected for the next 27 years), spent $15M instead of the original projected $8M on the Lincoln Theater ... the City can find money when it wants, and I just believe if a solid project was put together the City would be happy to dig through the seat cushions for some change and find creative ways to help -- that is what they do as a matter of routine for major projects across the city.
So, per our offer, what would happen if we didn't put together a deal? McGee, as financier, would get her property back after having made $45K in interest instead of losing $80K in holding costs, and the property would have been improved and value stabilized to the point where it was secure for someone else to take a shot at it, AND, the Compact would be out over $230K for our efforts (assuming 5 years).
Real Estate 101: no bank will lend on that property, in that condition (no occupancy permit and demo orders in place for over two years). To borrow money, you have to show a future income stream capable of paying the debt. Typically, developers get "site control" which sets the aquisition terms while they shop for tenants who can pay rent that will pay for financing. You can't have a serious conversation about a tenant leasing a property you don't control.
Several years back, we had "site control," which means we paid McGee (I believe it was) $3,000 to have the exclusive right to buy the property if we wanted. The market collapsed in 2007, and because we are NOT STUPID, we did not exercise our right to buy the property and McGee kept the $3,000 and the property as per the terms of that option agreement. All's fair, everybody did what they said.
Since then, McGee has not agreed to any terms for site control that would allow us to move forward putting together a real deal, which then would allow us to either finance the purchase of the property or pay cash outright as our equity investment into a project. Thus, by not allowing us to have site control, McGee effectively foreclosed on the option of us obtaining project financing which would allow us to pay cash at closing (again, because we are not stupid). I would note that our site control offer even had a provision where if she found a buyer at a higher price, she could sell to that buyer as long as we had the right to match the offer. That was a lot of risk for us to propose, and seems like it has nothing but wins for McGee.
What we were prepared to do, is take all her annual operating losses onto our shoulders ($16K per year in taxes, storm water, maintenance ... plus WE would insure it for another several thousand), invest immediately $50-75K to preserve the buildings and thus maintain the site's value, pay her annual interest on the owner financing, and pay her cash outright when we pulled together a deal. Our proposal took $16K in annual expenses from her (which she has been racking up for the past several years) and paid her about $9K in interest, for a cash turnaround to her each year of about $25K.
So ... over a five year period, she would be up $218K, and we would be down $385K if we were to buy the property. That, to me, is a win for her, when the alternative of city demolition leaves her in the hole $111K.
McGee has lost money when she speculatively purchased this complex. That's not our fault, and its not our responsibility to bail her out. What I can do is offer terms that make sense, and she can accept them, or not.
She has chosen not to accept them, and is apparently going to demo some of the buildings in pursuit of a plan that makes absolutely no sense. (Her occupancy permit was pulled, so now she has to comply with current codes for any permitted rehab, and the first thing that will happen is the current sheet runoff of storm water into the city storm system will have to be fixed, and she will have to handle the stormwater on site through engineered retention/detention system, which is an easy $250,000 for that site -- something that the proposed rental of the 1,200 s.f. office building that has a badly leaking roof and the furnace and water pipes were stolen out of would certainly not cover. Good luck on the nickle and dime approach)
I'll go home and sleep tonight without having the burden of the deteriorating trolley barn on my head, though I believe our community will be the poorer for that fact.
Maybe she has a rabbit in her hat ... maybe Pixie dust ... someone else mentioned unicorns and money trees ... I hope so -- we'll find out.
-- Jon
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