BUZZ Blog: Ness responds to "misleading" information on NorShor sale, explains the need to get the deal done quickly
Peter Passi and Brandon Stahl cover issues related to the city of Duluth. Follow BUZZ on Twitter.
To and fro
An email was sent to the city council Thursday regarding the sale of the NorShor this morning who at this point kept his identity anonymous, so I won't re-print that email, but instead summarize (and doing so because the mayor retorted with an email that was chock full of interesting info). In his email, the anonymous guy basically said:
1) The mayor's lying to you. He's never been through the entire NorShor; I have (remember, as of yet this person has not provided his name, so take ALL of this with a gigantic grain of rock salt). I've been through the catwalks. It's scary up there.
2) It's full of asbestos and black mold. It'll take millions to get rid of that.
3) The overall structure of the building includes rotted masonry. The roof is horrid. This isn't a $2 million to $5 million project, but a $10 million restoration project.
4) Why in the world would the city council consider buying this place without taking a tour of it? (on that, Mr. Anonymous is right -- so far as I know the city council has not/will not take a tour of the properties before Monday's vote).
Councilor Todd Fedora piggy-backed on the email and sent a message to the council saying he's heard the same things from another source, whom he did not name. His email:
You have all received the below e-mail from this gentlemen, whom I do not know. I have received a similar report from someone, totally independent of this person, who is also familiar with this building and is experienced in redeveloping properties. He has shared the same sentiments. At last night's Agenda Session meeting, I let you all know that remediation of these environmental problems may be substantial (again, not my opinion). I do not know if that's the truth or not, as I'm not a contractor or involved in the environmental remediation field. However, this information, from these two independent individuals, has me concerned. We should know exactly what DEDA, the City of Duluth, and our fellow residents are getting into with the contemplated acquisition of this building. What is the rush?
This is why I think it's extremely critical that we receive an INDEPENDENT, objective Phase I Environmental Site Assessment (ESA) from a licensed, reputable environmental contracting firm, coupled with a fully-supported, self-contained INDEPENDENT appraisal from an MAI certified appraiser. There should be full disclosure on this acquisition, so Duluth knows exactly what we are getting ourselves in to.
I mentioned last night that I think there is validity to this contemplated purchase, for the reasons mentioned by Mayor Ness. But let's do this right, please."
Fedora is essentially lobbying for an ammendment that he, Jay Fosle and Jim Stauber have proposed requesting the administration to do a market-value appraisal and environmental assessment of the property before purchasing the properties. If that passes (which it won't) it could obviously delay the deal, and possibly kill it. Though because it's only a "request" the council can pass it (which it won't) and the administration can ignore it.
At any rate, the mayor sent an email to the council dealing with the anonymous emailer, but also touched on the consequences of delaying the sale. His response:
You received an e-mail yesterday with a number of misleading thoughts. Mr. Jones does not provide his credentials, so I do not know what he is basing his opinions on, but since he questions my integrity, I feel I must respond.
First of all, I have been in every part of that building, from the basement to the catwalks to the "upper theater". I have been involved with a lengthy due diligence process when the Zeppa Foundation was exploring a purchase (which fell apart after media coverage drove a wedge between Alan Zeppa and Eric Ringsred).
In that late 2005 assessment, Environmental Troubleshooters, Northland Consulting Engineers, and Foster, Jacobs & Johnson Professional Engineers all did initial assessment of the Theater. Wagner Zaun and Scalzo Architects did an assessment on behalf of the Foundation for the cost of rehab and the issues facing the building. As contractors on behalf of a potential buyer, they were taking a critical eye towards the condition of the building.
Their assessment led them to estimate a $2.2 million dollar rehabilitation that included the exterior envelope of the building (including the roof), interior renovation, and addressing plumbing, heating, ventilation, power, and lighting systems. This estimate also included a 15% contingency.
The conclusion of the environmental review states: "Based on the walk-through, there appears to be only a small quantity of suspect asbestos containing materials present relative to the size and age of the building. Furthermore, the majority of the suspect asbestos exist in good condition." Is there cost to asbestos and lead paint? Yes. Is it especially problematic in this building? No. We plan to have a new assessment on environmental issues conducted prior to Monday's meeting.
I know councilors understand that these DEDA funds cannot be used for general fund services as Mr. Jones suggests. The City is not throwing away "hundreds of thousands" in property taxes. Since the Temple Opera and Annex buildings will continue to house private activity, the property is still taxable. If the theater pays $10k in property tax and will now be put to a non-profit use, the city (which get about 20% of the overall tax bill) would lose approximately $2k a year. Increased sales tax revenue from a vibrant theater would easily overcome that amount.
LHB, based upon their extensive skywalk study through Old Downtown came up with an initial assessment of how much it would cost to run a skywalk through the five buildings on the upper side of the alley instead of through the NorShor building. Their initial assessment was $2.5 million. I asked them to go back and take the most conservative assessment that they could - the result was that construction would be $1.6 million dollars more. That assessment does NOT include the cost of acquiring the easement through those buildings - those can be difficult negotiations. Ownership of these three buildings resolves these significant issues and provides a direct and significant cost savings to DEDA and the City.
This year we face binding arbitration that will set the Casino agreement for the next 25 years. Just looking at the $6 million a year that we receive today (and assuming no growth over 25 years), there is $150 million dollars at stake. Making a good faith effort to build a direct skywalk connection to the Casino and showing our commitment to a restored historic theater right across the avenue from the casino will be significant. The arbitrators will recognize the city's commitment to create a vibrant district, bringing visitors into our downtown - we will be making a strong case for the partnership. Consider this, a 1% decrease in the percentage that the city receives from slot revenue would result in a $8 million dollar decrease in revenue over the course of the agreement (again, that assumes the most conservative revenue projections).
Councilors, I have been in these discussions regarding the NorShor many, many times before. I have been part of negotiations, I have been part of the due diligence prior to a sale. Every single time in the past, there has been some external variable that derails the deal. Every time, we look back and say "we were so close".
We are working to provide councilors with as much information as possible prior to Monday. I believe it is important that we move this process forward to avoid the potential of this fragile agreement once again falling apart. If you look at the big picture, the benefit to the City and to the Downtown is clear. From the financial side, the cost savings from the skywalk, the value of the office space (which could be sold in the future), and the vast importance of the Casino arbitration process all lead to the importance and value of this sale.
I respect Councilors interest to get as much information as possible and to ask due diligence questions. I appreciate them and we are working overtime to get you those answers. But, I would also ask Councilors to also strongly consider the broader policy question at hand - the financial benefits, the benefits to downtown, the opportunity to make Old Downtown thrive. If this fails, will this opportunity present itself again? I don't know.
Thank you for your consideration.
All that aside, listen: minds are already made up on this, and the mayor's above email to the council, presentation during last night's city council agenda session and behind the scenes lobbying have only solidified support for the sale. I would bet my hat that the purchase passes 6 to 3 (it's a decent hat by the way, so I'm putting something on the line here). I characterized the debate on Wednesday as one of optimists versus pessimists. Maybe I should have just said it's the optimists versus Todd Fedora, Jay Fosle and Jim Stauber.