BUZZ Blog: City releases more information on NorShor sale, including hints about selling it
Peter Passi and Brandon Stahl cover issues related to the city of Duluth. Follow BUZZ on Twitter.
The leap of faith
"I can already hear the mayor typing you an angry email now," my wife said to me this morning as she was reading the story about the questions raised on the NorShor purchase.
Well, I haven't gotten that email yet, but I imagine he wasn't too happy with the skeptical look at what had up until this morning been a largely warm reception to the sale. But the underlying point of the story was this: if you're for the city buying the NorShor, you are for it largely on hope. Because you are for it without important pieces of information: you don't know the real value of the buildings. You don't know the environmental hazards inside and the cost it would take to remove them. You don't know how long it will sit empty after the strip club is gone, because you don't know if residents are willing to donate millions of private dollars to rehab the facility, and you don't know if the state legislature will match that money in 2012, which the mayor said on Monday is what he hopes happens. You don't even know if the current manager of the strip club will vacate the property. And if you're a city councilor or DEDA commissioner voting on this, you're doing this with less than a week to take all of this information and without even taking a tour of the property.
If you are for this, you look past those concerns and see an opportunity to get an eye-sore strip club and controversial building owner out of the way. You see a new future several years down the road for old downtown with a restored NorShor leading the way as a major economic driver. You believe that the tribe will stand down and start again share casino profits with the city, because it will now be much easier to get the skywalks through that part of downtown. Oh, and you believe that money to build those skywalks will somehow become available in the next few years, even though the city has largely claimed poverty when it's come to those expenditures (and half of one of the funds that would be tapped to build the skywalks -- the storefront loan program -- is being drained to pay for the NorShor).
You agree with the vision that has been laid out -- the mayor's vision -- is possible, and you are willing to see potentially millions in tax dollars spent to make it happen for the betterment of our city. You believe that the mayor will make it all happen.
So, are you for it? The debate begins tonight at the DEDA meeting, with commissioners given some new information before they vote. Including:
* The city, or rather DEDA, is actually taking out three loans totalling just over $2 million to pay for the properties -- one from the storefront loan program and two from TIF districts (including the West Duluth housing TIF district). How will those loans be paid back? According to the proposal, "a combination of future lease income, operational profit and/or proceeds from an outright sale of all or a portion of the project."
* Those loans will then *likely* have to be paid back through a sale of the project later on down the road, because it's not going to make much in rent. According to the DEDA document, the NorShor tenant (meaning the strip club) will get the boot and thus generate no income. The remaining tenants will generate a net income (stress net -- meaning after expenses) of about $7,000 a month, or $84,900 a year (as opposed to the $20,000 a month the mayor quoted me on Monday). Can the city generate more income by bringing in more tenants? Nope, because the Temple Opera and NorShor Annex are about 98 percent occupied.
* The utility costs for the NorShor are currently about $30,000 a year, though that will drop because about $13,000 of that are for city utilities, and the rest is for power and garbage. I imagine with the theater largely sitting empty for the next couple of years, it won't have the same costs.
* The city administration valued the actual theater at about $1.3 million (versus the city assessor's value of $285,000, because it had virtually no economic life left in it). How did the city come to its value? It's not fully explained in the DEDA doc., but economic development director Brian Hanson explained it to me this way: according to a blue book-like rating, the full value of a restored downtown theater presumably anywhere in America is about $225 to $250 a square foot. The city took the low end of that value, $225, depreciated that by 80 percent, and then multiplied by the theater's square footage (about 30,000). So, 30,000 x $225 x 0.8= $1.3 million.
* One other thing to consider that's definitely not on the DEDA document: of the seven members on DEDA, five have been public supporters of the mayor, and four contributed to his election campaign in 2007. Those contributions:
Jeff Anderson: $100
John Heino (who also helped run Ness' campaign): $600 (the max)
Don Monaco: $300
Nancy Norr: $550
* Oh, and one other thing: the city may still apparently do an appraisal of the properties -- after they've been purchased. At the very least, an "indication of value" will be submitted to DEDA today, according to economic development director Brian Hanson, which will show a "price range" of the values of the building (a full appraisal could take weeks). The appraiser tabbed to do the indication of value is tabbed is Sandy Hoff, who is also working with DEDA to restore the LaFarge terminal. Hoff also works with F.I Salter, which has had several management contracts with the city. Is that a conflict? It certainly raises an eyebrow for me.
Even if your eyebrows have raised to the top of your skull, you still might support this purchase because of what it could be and could mean to the future of Duluth. It doesn't mean you're wrong. It just means you're an optimist. And optimism and a vision for the future is what builds cities.
But then, optimism also built the aquarium.